Bailouts to SOEs & government-backed guarantees: National Treasury briefing

Public Accounts (SCOPA)

14 March 2023
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary


In a virtual meeting, the Committee received a briefing from National Treasury on state-owned company (SOC) bailouts and government guarantees. The presentation highlighted a significant decline in the performance of major SOCs over the last decade. Operational costs had increased, net profits had fallen, and debt levels had become increasingly unsustainable.

The multiple bailouts for Eskom, South African Airways (SAA), the South African Broadcasting Corporation (SABC), the South African Post Office (SAPO) and others had become a fiscal burden, and the high debt levels had increased fiscal risk to unacceptable levels and crowded out important social and other expenditure.

National Treasury assured the Committee that it had shifted towards implementing strict pre-disbursement conditions when granting bailouts to SOCs. Most of these conditions would be focused on addressing the underlying structural issues that were faced by those entities.

The Chairperson noted the tendency to direct financial solutions to non-financial problems. He said that above and beyond serving a national interest, SOCs were expected to generate jobs, grow the economy, and support socioeconomic responsibilities. It could not be that a struggling economy was meant to finance, bail out and issue guarantees to SOCs.

Meeting report

Opening remarks

The Chairperson said that the Committee had scheduled this meeting following the sweeping pronouncements that the Minister of Finance had made in his Budget Speech concerning bailouts and government guarantees for several state-owned companies (SOCs).

He noted that the meeting had been convened on short notice, and thanked National Treasury for working speedily to ensure that the Committee would be briefed as requested.

National Treasury on SOC bailouts and government guarantees

Mr Duncan Pieterse, Head: Asset & Liability Management, National Treasury, informed the Committee that all of the information that would be presented today was always articulated in detail in the budget review, particularly in chapters 7 and 8.

SOC challenges

Mr Pieterse said over the last decade, there had been a significant decline in the performance of major SOCs as operational costs had increased, net profits had fallen, and debt levels had become increasingly unsustainable.

Customers had also complained about the increasingly poor levels of service delivery. Compensation costs in general had far outpaced the growth of these businesses and had become a key factor in declining net profit or losses.

The multiple bailouts for Eskom, South African Airways (SAA), the South African Broadcasting Corporation (SABC), South African Post Office (SAPO) and others had become a fiscal burden, and the high debt levels had increased fiscal risk to unacceptable levels and crowded out important social and other expenditure.

Government guarantees

Mr Mkhulu Maseko, Senior Analyst, National Treasury, briefed the Committee on the overall context of guarantees and the changing policy framework.

Historical SOC bailouts

Ms Brenda Mathekga, Senior Analyst, National Treasury, referred to a table highlighting the allocations made over the past ten years. The total allocation over the ten-year period was about R329 billion. Overall, there had been an increase in the number of allocations – not only in quantum, but also in the number of entities that had received bailouts. Some of this was due to external shocks, such as the advent of Covid-19 in 2020, and its impact on businesses in general.

She pointed out a correction on the SA Express number. The R1.583 billion was an allocation against SAA -- these were legacy government guarantees that still needed to be rounded up.


Mr Jeffrey Quvane, Chief Director: Energy and Telecommunications, National Treasury, said that Eskom had been the biggest beneficiary of these bailouts. In the 2023 budget, the Minister of Finance proposed a total debt-relief arrangement for Eskom of R254 billion.


Mr Thato Masenya, Senior Analyst, National Treasury, briefed the Committee on entities that had received bailouts in the transport sector. The Minister of Finance had announced an additional allocation of R1 billion in the February 2023 budget speech for SAA for the settlement of outstanding business rescue process obligations.

Airports Company South Africa (ACSA)

Mr Masenya said ACSA had been one of the frontline entities hit the hardest by the Covid-19 pandemic. This was mainly due to travel restrictions in the aviation industry. As a result, ACSA recorded a 92% decline in traffic volumes in the first six months of 2020/21 compared with 2019/20. Government allocated R2.3 billion to ACSA in the 2020 medium-term budget policy statement (MTBPS) to purchase redeemable preference shares to cover the shortfall from the reduced traffic volumes.


The Special Appropriation Act (2022) provided Transnet with R2.9 billion to accelerate locomotive repair and maintenance. The Adjustments Appropriation Act (2022) provided an additional R2.9 billion to Transnet to restore infrastructure damage caused during the April 2022 floods in KwaZulu-Natal.

South African National Roads Agency Ltd (SANRAL)

SANRAL had been allocated R23.7 billion to settle maturing debt and debt-related obligations, including debt obligations related to Gauteng Freeway Improvement Project, through a Special Appropriation Bill in 2022.


In 2019, the SABC was experiencing severe liquidity constraints threatening its going concern status due to a decline in audience share, resulting in low revenue. This led to government allocating R3.2 billion to the SABC through the contingency reserve in 2019/20.


Despite SAPO receiving recapitalisation and its universal service obligation (USO) funding being reinstated in 2019, SAPO still could not improve its financial position due to its outdated business model, relying on traditional mail which was declining globally. SAPO’s decline was exacerbated by the Covid-19 pandemic, resulting in the government approving a recapitalisation of R2.4 billion in 2023 to assist SAPO in implementing its new turnaround plan.


Ms T Marotholi, Director, National Treasury, said that due to Denel’s ailing financial position, the entity had not been able to meet its financial obligations, such as guarantee obligations, supplier and salary payments, tax obligations etc. In 2021/22 and 2022/23, it was provided with funds amounting to R3.035 billion and R204.7 million, respectively. These funds had assisted the entity in meeting its obligations under its domestic medium term note programme -- the payment of maturing bonds and associated interest payments.

South African Special Risk Insurance Association (SASRIA)

Following the July 2021 unrest, Sasria had received claims that were higher than anticipated, and this had significantly deteriorated its financial position. Thus, in 2021/22, government recapitalised Sasria with R22 billion.

Land Bank

Mr Lefentse Radikeledi, Director: Development Finance Institutions, National Treasury, said that over the period 2013/14 to 2022/23, the Land Bank had received bailouts to the value of R13.6 billion.

Development Bank of Southern Africa (DBSA)

From 2014 to 2016, DBSA received a total injection of R7.9 billion to support its turnaround strategy and restructuring, to supplement the DBSA’s capital, and to support its development mandate.

See attached for full presentation


Mr A Lees (DA) referred to the Section 218 requirement for every government department to publish a report on the guarantees it had granted. He agreed that the Estimates of National Expenditure (ENE) detailed those of national government. He asked where such information could be found for provincial and municipal governments. He asked if National Treasury had a grip on all the guarantees issued by provincial and municipal governments.

He noted that Section 70 of the Public Finance Management Act (PFMA) required concurrence from the Minister of Finance for the issuance of guarantees, indemnities and or securities. He asked if the Minister of Finance also had to concur for the issuance of provincial and municipal guarantees.

He asked National Treasury how sure it was that Cabinet Members had obtained the required concurrence before the issuance of guarantees. Was National Treasury aware of every single guarantee that had been issued? Guarantees were a contingent liability, so it was not that difficult for them to slip by – it was not a part of double-entry bookkeeping.

He asked for more clarity on the SA Express bailout of R1.583 billion, particularly on the link between SA Express and SAA. He asked whether the R1.583 billion was an additional bailout for SAA.

On 25 June 2022, he received a response from the Minister of Public Enterprises to a question about guarantees. The Minister had responded that of the R19.1 billion, only R1.2 billion was still in place; and of that R1.2 billion, R377 million was in use. Mr Lees referred to table 11, and noted that the National Treasury reported that the full R19.1 billion was still in place, and that R300 million was in use. He expressed concern about the discrepancy in numbers, and reiterated his question about whether National Treasury had a handle on all of the guarantees issued. If the R19.1 billion in guarantees was still in place, he asked for an assurance that SAA had not accessed those guarantees since it started operating again.

He presumed that the Fiscal Liabilities Committee (FLC) had made recommendations to the Minister of Finance when guarantees needed to be issued and bailouts paid at each point in time. Although it was the responsibility of the line department, the Minister of Finance had the responsibility to safeguard money. He asked whether the Minister of Finance always followed the recommendations of the FLC.

Ms B van Minnen (DA) said that the ongoing bailouts and assistance to SOCs concerned her very deeply. Some of the SOCs were failing because they were not providing people with the services they need and require, and for which these SOCs existed. She questioned the insistence on continuing to bail out SOCs that had completely failed and should have been declared insolvent.

Ms V Mente (EFF) said that the bailouts to SOCs were for services that people required. If the SOCs failed to render such services, then the state had to do so, because the people belong to the state. Therefore, the state could not fail its own people.

The Integrated Financial Management System (IFMS) had not been fully developed to assist the expenditures and procurement processes of the state. Most of the problems faced were simply because of incapacities and corruption. Without a proper monitoring system by the National Treasury, the SOCs would not yield any positive results. She asked what monitoring tool the National Treasury would use to follow up on the usefulness of the bailouts, to curb the unnecessary wastage that had occurred before.

She noted that the SOCs needed to comply with certain provisions to apply for bailouts. She reiterated that people required these services. She asked what measures National Treasury had in place to intervene when a particular SOC did not comply with the provisions to be considered for a bailout.

She asked if National Treasury was satisfied with how Eskom had utilised the funds allocated as a bailout in 2019. If so, how had this been helpful; if not, what remedies did it have in place to mitigate such shortfalls?

SAA had received a total of R50.7 billion in direct government funding over a ten-year period, but there had still been shortfalls. The shortfalls would persist if bailouts were continuously issued without identifying the problems. There should be plans and remedies in place to cure the shortfalls.

She said that the presentation made it clear that SAPO did not have the capacity to deal with its own business strategy. Had National Treasury intervened to provide guidance to SAPO, instead of just providing it with a bailout?

She said National Treasury was aware of the lack of capacity amongst SOCs, municipalities and provincial governments. Did it provide guidance and assistance to each SOC in its procurement and expenditure frameworks?

Ms A Beukes (ANC) referred to the challenges identified in the 2012 Presidential Review Commission (PRC) on SOCs, particularly the lack of oversight and accountability. She asked National Treasury for its opinion on the current situation, and whether there had been any improvements.

She asked whether National Treasury had received a plan of action on how Denel intended to address its weaknesses, especially on how it would address weak governance structures and poor programme execution.

She noted an overall decline in the performance of SOCs, while operational costs had increased. There had also been increasingly poor levels of service delivery. She reiterated Ms Mente’s question on whether the National Treasury measured the impact of the bailouts issued to SOCs.

In instances when SOCs could not comply with the criteria for government guarantees, she asked whether such SOCs would be placed under debt relief or business review.

Mr Lees said that one of the conditions for the bailout that Eskom had received in 2012 was the appointment of a restructuring officer. He asked if this appointment had been made, who was appointed, and how successful it had been.

National Treasury's response

Mr Pieterse referred to Mr Lees’s question about SAA Express on the R1.583 billion bailout. He said that the presenter had mentioned that the figure in that table was incorrect. The R1.583 billion under SA Express was actually for SAA.

He referred to the question about the FLC’s recommendations to the Minister of Finance. He said he chaired the FLC, consisting of various other Deputy Director Generals (DDGs) within National Treasury. He explained that the DDGs would make recommendations to the Director-General (DG) and to the Minister. There were occasions when the DG or the Minister did not follow every single recommendation exactly as it was made. This was because the ultimate accountability for these decisions lay with the Minister of Finance, supported by the DG. It was important to appreciate that decisions might not be followed “to the T”, or there was a tweak to the ultimate decision.

On Ms Van Minnen’s question about why bailouts were continuously issued to SOCs that clearly struggled to meet their obligations, he said that the Minister of Finance had spoken about this extensively, especially in the last two budgets. This was the reason why National Treasury had moved to a situation where, through the implementation of pre-disbursement conditions and other mechanisms, it would grant bailouts to SOCs while also dealing with the underlying structural issues. This was related to the point that Ms Mente had made - that the bailout would not improve the outcome unless the underlying structural issues were addressed. The recent bailouts issued to SOCs had come with very strict preconditions. Some of these conditions included selling non-core assets, strengthening partnerships, dealing with procurement and other challenges, and conditions pertaining to reporting and oversight etc. National Treasury did present on these conditions in Parliament when it tabled the Budget.

On Ms Mente’s question about the access to bailouts if SOCs do not meet the conditions, he clarified that the conditions applied to guarantees. Access to future bailouts was not necessarily a function of whether they met the conditions or not -- that was something that applied to the guarantees.

On the question of whether National Treasury was satisfied with Eskom’s utilisation of historical funding, Mr Pieterse said that it was clear that the bailouts that National Treasury had given Eskom up until now had not managed to address the entity’s underlying liquidity and solvency challenges. A big reason was that Eskom's debt burden had continued to balloon, and some of its operational challenges had not been resolved. National Treasury made two significant changes in the recent budget. It had instituted a provision that Eskom was no longer allowed to borrow for the debt relief period. National Treasury and the Department of Public Enterprises (DPE) would also conduct an independent operational assessment of Eskom, to get to the bottom of the operational challenges. The bailouts that had been given in the past had not had the desired liquidity and solvency effect, or the desired impact on operations.

Mr Pieterse said that SAA was clearly in a better space now, relative to where it was before. He referred to Mr Lees’s question about the discrepancy of the R19.1 billion in the presentation and the response he had received from Minister Gordhan about the utilisation of guarantees. Mr Pieterse said that there were no guarantees. As per Minister Gordhan’s response, the guarantee facility for SAA had been reduced in line with their most recent bailout.

On Ms Mente’s question on whether National Treasury provided guidance to SOCs, he said that National Treasury had several analysts, some of whom had spoken today and covered the various SOCs. Analysts were always available to engage SOCs on their guarantee requests, procurement challenges, etc. However, the board and management of the SOCs were ultimately the accounting authorities for the entities. National Treasury therefore had a balancing act between providing support to these entities and ensuring that the accountability still rested with the appointed authorities. He confirmed that National Treasury did provide assistance to SOCs and did a lot of monitoring.

Mr Pieterse referred to Ms Beukes’s question on whether SOCs should be placed under business rescue if they did not meet the conditions for guarantees. He said that this was ultimately the decision of the shareholder representative, which for many of these entities was the DPE. After successive failed bailouts and the inability to deal with the underlying challenges, the government must consider a different approach. In his State of the Nation Address (SONA) and recent appearance in Parliament, the President made a point about the need for National Treasury and the Presidency to expedite its work around the review of the consolidation and retention of various public entities, to complement the work that the Presidential State-owned Enterprises Council (PSEC) was doing on the major SOCs.

Regarding the procurement challenges of SOCs, Mr Pieterse said that whenever bailouts took place, there were various reporting requirements associated with them, allowing National Treasury to gather various kinds of information to strengthen its oversight function. Through Instruction Note 3 of 2021/2022, National Treasury had given the procurement authority back to the accounting officers for all Public Finance Management Act (PFMA) institutions. This was specifically the procurement authority to deviate, or to request exemptions. When accounting officers made deviations or exemptions from procurement, they would have to inform National Treasury and the Auditor-General. This further strengthened the ability of accounting officers to take full responsibility for their procurement, but ensured that there was proper oversight from both National Treasury and Auditor-General.

Mr Maseko addressed Mr Lees’s questions regarding provincial and municipal guarantees, and whether National Treasury was aware of every single guarantee. He said that National Treasury had a guarantee register that incorporated all the guarantees issued at the national level. The Borrowing Powers of Provincial Governments Act governed the guarantees that provincial governments may issue. The Act prescribes a committee that must agree to the issuance of debt loans or guarantees by provincial Members of Executive Councils (MECs). The Minister of Finance would be part of such a committee, and would then provide National Treasury with sight of guarantees issued at those levels.

He said that the FLC’s mandate was not only to provide recommendations regarding requests that had been issued. The FLC was also mandated to monitor the movements of the guarantees' portfolio on a quarterly basis, in terms of the quality of the portfolio, and it also considered the performance and credit quality of the individual SOC that had been issued a guarantee. This formed part of a report that goes to the Minister of Finance. Essentially, this gives National Treasury an opportunity to look at the evolution of the quantum and quality of that exposure on a quarterly basis.

Mr Ravesh Rajlal, Chief Director: Sectoral Oversight, National Treasury, referred to Mr Lees’s question on government guarantees, and how certain National Treasury was that the executive authorities or entities did not use those government guarantees. He explained that there were government guarantee agreements which needed to be entered into by the executive authority, the Minister of Finance and the lender that lends against the government guarantee. The executive authority may not use the concurrence letter to go and raise any government guarantees with any lender, because the supporting government guarantee agreement would also need to be agreed to by the Minister of Finance.

On the questions regarding SAA, Mr Rajlal said that National Treasury had included a condition for the additional allocation of R1 billion that would be dispersed once the Appropriation Bill was enacted during this year. Before the R1 billion was dispersed, National Treasury would require SAA to cancel all government guarantees. That then cleared out all the government guarantees for SAA. In the interim, SAA would not be allowed to draw down against those guarantees that were in existence.

On the National Treasury’s monitoring mechanisms, Mr Rajlal said that National Treasury had compliance monitoring mechanisms through the weekly, quarterly and monthly meetings to monitor the guarantee, disbursements and equity conditions. National Treasury also reports quarterly to the Standing Committee on Appropriations to address any challenges with reporting compliance and other items of that nature.

Mr Rajlal reiterated Mr Pieterse’s comments about pre-disbursement conditions. For instance, Denel would receive an additional R3.4 billion in a few weeks' time, but before this disbursement was executed, National Treasury would have ensured that Denel met certain preconditions. One of the key conditions required from Denel was progress around the disposal of some of its non-core assets. The proceeds from those disposals should also augment the equity support. There were a lot of self-help initiatives that Denel had committed to in its turnaround plan, which National Treasury had reviewed and analysed to ensure that the pillars of the turnaround plan were enforceable and could be executed.

On Ms Mente’s question on SAPO, Mr Rajlal said that National Treasury had been intervening. Most recently, it had had meetings with the Acting DG of the Department of Communications and Digital Technologies (DCDT) to strengthen some of the conditions of its turnaround plan. National Treasury was working closely with the entities that had been problematic. National Treasury intended to play a nurturing role in ensuring that all the pillars of the turnaround plans were executed and there were no further requests for bailouts.

Mr Rajlal referred to Mr Lees’s question on Eskom regarding the appointed restructuring officer. He responded that it had been mentioned in the 2019 Budget speech, but was not included as a condition. However, National Treasury could share the conditions in the 2019 support package if required. Eskom reported to National Treasury on a quarterly and monthly basis and had met those conditions, hence the disbursements had been effected.

Further discussion

Ms Mente referred to the Minister’s Budget speech, in which he had mentioned the conditions for the bailouts to Eskom. She asked why Eskom would be bailed out on the condition that the bailout should not be utilised in the space of generation and maintenance. She pointed out that those areas were the biggest factors that contributed to the sustainability of the business of Eskom. She asked for further clarity on the conditions of Eskom's bailout in terms of what it could do and what it was not able to do.

She noted that Mr Pieterse had mentioned that there would be an independent operational assessment of Eskom. She asked whether an international consortium would do this. If so, could a local consortium do such an assessment? She asked what would happen with the outcomes of the assessment and whether the outcomes would be enforced on Eskom, instead of being focused on its business model and mandate. She said the entities had been subjected to many studies from other countries, some of which had led to the wrong specifications.

Mr Lees felt unsettled following National Treasury’s response to monitoring government guarantees issued by provinces and municipalities. He observed that National Treasury did not seem 100% confident that the information reflected a flowback, although a mechanism was in place.

He asked that the Committee be provided with the most recent quarterly report to the FLC and the Minister of Finance, as it had been referred to in the responses.

He understood that the R1 billion bailout to SAA was to fund the business rescue plan. He asked for clarity on whether the R1 billion would go to the receivership. He said that SA was running at a loss, so he questioned how it would replace the R377 million. He referred to the arithmetic for the SAA bailouts over the ten-year period. He said the R1.583 billion and the R48.4 billion did not add up to R50.7 billion as displayed on slide 11 of the presentation. He asked for clarity on these figures.

He said the condition of appointing a restructuring officer for Eskom, in terms of its 2012 bailout, had been a big thing. He was really surprised that no such person had been appointed.

The Chairperson referred to the comments about Eskom, in that Eskom had been given bailouts but the situation had not changed. This boiled down to an issue of principle. Similar challenges were observed with the SABC, regarding the continued throwing of financial solutions to non-financial problems. The entities get the bailout, and the terms and conditions are put in place, but it never happens. Once another crisis was engineered, another bailout was granted, or the country came to a standstill. The Chairperson questioned how binding the terms and conditions were. He asked about the consequence management for non-compliance with the terms and conditions.

He said that Eskom accounted for 55% of the total recapitalisations over the ten-year period, but it existed as one of the worst-case studies of “how not to bailout”. It had come to a point where the country was in a state of disaster, simply because of the inability to provide energy security.

He observed that SAPO seemed to be a shadow of its former self. Denel had three disclaimed audit outcomes, and the last two audit outcomes were still pending. It was failure galore in every aspect, despite financial resources being made available. It was clearly a matter of poor financial management inconsistent with the law. There was an assumption that if one threw money at the problem, then it would be fixed.

Although there was monitoring and terms and conditions, none of it had translated into reality -- for instance, Mr Lees’s comment about the chief restructuring officer that was a condition for the 2012 bailout to Eskom.

The Chairperson said that the point he wanted to highlight was that money had not fixed the problems. He questioned if there was meaning, purpose and commitment to the terms and conditions that were in place, or if they were merely there to legitimise the bailouts. The history of bailouts in this country had not been positive. He questioned whether there was ever a bailout that had led to an actual turnaround of an entity.

Mr S Somyo (ANC) asked National Treasury whether the SOC bailouts were aligned with the realisation of the required outcomes. He asked what role the National Treasury had in fulfilling the objectives pertaining to the SOC bailouts.

Ms Mente said the precondition for Denel to dispose of its non-core assets had been mentioned several times. She asked what these non-core assets were, and how they were deemed as non-core assets, because when Denel’s mandate was established, everything that was attributed to its business model was required for it to be a sustainable business. She asked whether the non-core assets could not be repurposed for Denel to sustain itself.

National Treasury's response

Mr Pieterse referred to Ms Mente’s question about the conditions of the Eskom bailout and capital expenditure. He made a correction in terms of the conditions which were in Annexure W3 of the Budget review. He said that Eskom must prioritise capital maintenance on its existing fleet -- that was for transmission infrastructure and distribution infrastructure -- as National Treasury, the DPE and Eskom agreed that these should be the key areas of focus. Due to Eskom’s balance sheet constraints, it had constrained capital maintenance on its existing coal fleet for the past few years, and this had to be reversed. A massive transmission and distribution capital expenditure backlog also needed to be addressed.

On Ms Mente’s question about the consortium and what would happen with the outcomes, Mr Pieterse responded that National Treasury strived to appoint the best people in the world for this work. The appointed team had extensive experience conducting operational assessments on electricity utilities in India, Turkey and other emerging markets that had very similar challenges to Eskom’s. The team had direct experience in building power plants and designing them across different technologies. Regarding the outcomes, Mr Pieterse said that whatever recommendations the team would make would not be blindly implemented. National Treasury, DPE and Eskom, would consider the recommendations to decide how this may be reflected in future conditions for Eskom, as well as which aspects would be implemented. Eskom had confirmed that it was looking forward to the outcomes of this assessment, because it welcomed the independent assessment of its operational challenges.

The Chairperson asked for the name of the consortium that would conduct the independent operational assessment.

Ms Mente asked if the World Bank was part of the consortium.

Mr Pieterse said that the World Bank was not involved in the consortium. He confirmed that VGBE, an international technical association of electricity generators from around the world, was leading the consortium. VGBE advises a lot of electricity-generating companies on technical generation matters. The other firms that were part of the consortium were RWE Technology, KWS, STEAG and Dornier.

On the questions relating to Denel and how its non-core assets were determined and assessed, Mr Pieterse said that it was important that the identified non-core assets were agreed upon between the National Treasury, the DPE and Denel. Denel had agreed and advised National Treasury on those non-core assets. The non-core assets typically included certain parts of Denel’s property portfolio, mainly in Centurion. They also include shareholdings in other companies that Denel did business with.

He said that National Treasury would share the last quarterly report on guarantee requests, as suggested by Mr Lees.

Mr Pieterse referred to the Chairperson’s question on how binding the terms and conditions were, and responded that the National Treasury had previously articulated conditions that the entities should meet after the fact. Very few of the conditions spoke to the fundamental reforms required at some of these entities. National Treasury had started shifting towards a different dispensation, that was the dispensation of pre-disbursement conditions, which were very binding. This meant the entities would first need to meet those conditions before the funding could flow. In fact, if the entities did not meet the conditions by a particular deadline, then the funding would come back into the National Revenue Fund and be declared as under-spending. The entity would then have to reapply for those funds.

National Treasury had also started moving towards conditions that were much more structural in nature, in terms of addressing the underlying issues that were being faced by those entities and that flowed from the independent operational assessments of those entities.

Mr Pieterse said that National Treasury would agree that very few bailouts had worked. The DBSA bailout might be a rare exception. In general, the bailouts had not worked, and part of this was because they lacked the right kind of emphasis on the structural issues and pre-disbursement conditions. Some of these entities were also required to make very difficult decisions about how they restructured their business. Some of these businesses were financially unsustainable, because they had a mismatch between their ability to raise revenue and their cost structures. This was why some of the revenue measures included getting rid of unused assets and dealing with the underlying cost base.

On Mr Somyo’s question on the bailouts and the alignment of the objectives, Mr Pieterse said that National Treasury had tried to resolve that problem by working more closely with the DPE, to make sure that the objectives that the shareholder department instituted were also aligned with the objectives of the bailout.

He emphasised a point that the Chairperson had made -- that there was always a link between the guarantee portfolio of the state and the bailouts, because granting an entity a guarantee was effectively saying that the state would intervene should there be potential financial challenges with that business. Going forward, the new Instruction Note dramatically reduced the number of guarantees that had been granted, and the quality of guarantees. Over time, there would be a better guarantee portfolio. As the guarantees that were granted became less and less, the future bailouts would also become less and less. The bailouts to entities often resulted from the fact that the state had granted the guarantees.

Mr Rajlal referred to the question about Denel’s disposal of non-core assets. He said that it should be borne in mind that the disposal was at a very sensitive stage. National Treasury would not want to disclose exactly what businesses Denel was planning to dispose of, as that would obviously jeopardise the transactions. It would be best to disclose such details through the shareholder department and Denel once those transactions have been concluded.

He said National Treasury would provide recapitalisations through equity injections, but the mechanism for Eskom differed. Eskom would be provided with a loan, and upon the entity meeting conditions, the loan would then be converted into equity. Going forward, this would be one of the mechanisms National Treasury would use to deal with entities that did not meet the conditions.

Mr Masenya referred to Mr Lees’s questions relating to SAA. He confirmed that the R1 billion would go towards the receivership, and that funding would go exclusively to the settlement of the business rescue obligations. The tally of the R50.7 billion was correct. He clarified that at this point, the R1.583 billion represented a fiscal risk more than an allocation, because only R1 billion out of the R2.583 billion that had been requested had been allocated. Conditions were attached to this allocation, so National Treasury would be monitoring the compliance with these conditions and deciding whether to go ahead with the allocation or not.

Regarding the R340 million remaining exposure related to SAA, he responded that National Treasury had had several engagements with the airline. It was understood that there were viable mechanisms that the airline could put in place in lieu of these guarantees. The rationale behind the conclusion for it to be closed off, was because it was risky to have fluctuating exposure which was open-ended, particularly from a contingent liability point of view. Overall, the bulk of the bailouts had gone towards unsettled debt that entities were not in a position to settle.

Ms Mente referred to the response about Denel’s disposal of non-core assets, and said there was an element of coercing the Committee into not asking questions about those assets. She noted that Mr Pieterse had said that Denel had identified which non-core assets to dispose of, but Mr Rajlal had said that it was because of the nature of the transaction and that it was at a sensitive stage. It was said that the details would not be provided to the Committee at this stage. She said the Committee could not agree to a transaction it knew nothing about, particularly on what assets the entity was disposing of. She said it was wrong -- the Committee should be privy to the details.

She added that none of the firms involved in the consortium to assess the operations of Eskom had a background of understanding the conditions in South Africa. All the firms were European companies. She questioned the usefulness of these firms imposing their standards on South African conditions, of which they had no understanding.

Chairperson’s concluding remarks

The Chairperson said the Committee would follow up on Ms Mente’s questions. He also noted that Mr Lees had raised a matter in January which would partly answer Ms Mente’s question related to market sensitivity. He agreed that Ms Mente had raised a valid point. The Parliamentary Legal Services would provide an opinion on the matter, which would then be shared with the Committee.

He said that the bottom line was that the national strategic importance of some of the SOCs did not mean that the taxpayer must fund them at all costs. It seemed that these SOCs had the assumption that they could do anything anyhow, because the default position was that they would be bailed out on taxpayers' money. A bailout had to be an exception as opposed to a norm -- it could not be entrenched as a business practice. Above and beyond serving a national interest, SOCs were expected to generate jobs, grow the economy, and support socio-economic responsibilities. It could not be that a struggling economy was meant to finance, bailout and issue guarantees to SOCs.

With its business agility, National Treasury had a role in assisting the SOCs so that they could compete favourably and competitively in the market. The PFMA must be an enabler to ensuring business success, commercial success and the viability of these SOCs.

At some point, National Treasury must say no to bailouts and face the consequences of what comes with that.

The Chairperson concluded that the Committee would address these problems when the entities appeared before it, and would have further engagements with National Treasury.

He thanked National Treasury for briefing the Committee and responding to the questions. Clearly, there was still a long road towards stabilising this space.

The meeting was adjourned.

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