SA’s public enterprises: Millions wasted and almost no permanent CEOs

President Cyril Ramaphosa recently met with chief executives of 20 state-owned companies to discuss the challenges plaguing state-owned enterprises.

According to a statement issued by the Presidency on Wednesday, several public enterprises are struggling with “inadequate capitalisation,” “poor governance” and “political interference”.

Among the entities present at the meeting included Eskom and SAA – CEOs at both have recently resigned. Other public enterprises at the meeting include PetroSA, the Central Energy Fund and the Passenger Rail Agency of SA.

Several public enterprises, apart from falling victim to allegations of state capture, have also been plagued with disciplinary action relating to top jobs, too few permanent CEOs and millions in fruitless expenditure.

This is the state of play at 10 of SA’s key enterprises.

Eskom

Leadership: In May, the power utility announced its CEO Phakamani Hadebe had resigned as the demands of his job had impacted his health. Hadebe will leave the entity at the end of July 2019. The Eskom board, chaired by Jabu Mabuza has said that it will engage with Hadebe to ensure a smooth transition at the entity following his departure.

Challenges: The power utility has a debt burden of over R420bn. Earlier this year Finance Minister Tito Mboweni announced in the National Budget that Eskom would be granted a R69bn lifeline over the next three years to accompany its unbundling. A reorganisation officer will also be appointed to carry out recommendations of the Presidential Task Team to help turnaround the entity.

The DA in turn has called for Parliament to hold a debate to find solutions to Eskom’s financial crisis.

Ahead of the elections the power utility introduced stage 4 load shedding. Having appointed a technical task team to address capacity issues at power stations, Public Enterprise Minister Pravin Gordhan has since said that only up to stage 1 load shedding would be implemented in Winter. 

But the damage has been felt on the economy, with some economists partly attributing the contraction of 3.2% in the first quarter to load shedding. 

2. SABC

Leadership: Earlier this year President Cyril Ramaphosa approved the appointment of eight new board members to the public broadcaster. Four of the public broadcaster’s board members resigned in late 2018, creating vacancies that needed to be filled. Among the first actions of the board was the axing of Chief Operations Officer Chris Maroleng.

The decision came after the board considered the findings against Maroleng in a disciplinary process. Maroleng was found guilty on three charges which included gross negligence.

Challenges: At a briefing to Parliament’s portfolio committee on communications, CEO Madoda Mxakwe said that the public broadcaster is facing liquidity challenges affecting its status as a going concern.

The broadcaster, which is still reliant on funding from government, said if nothing is done to help the SABC it could be financially insolvent by the end of March. At the same briefing Communications Minister Stella Ndabeni-Abrahams told Parliament that the department is engaging with National Treasury to secure funding for the state broadcaster.

Speaking at on the sidelines of the National Budget, Finance Minister Tito Mboweni said that the SABC was seeking R6.8bn. Mboweni suggested that SOEs seeking funding from Treasury would have Chief Reorganisation Officers appointed to them to ensure that funding is used effectively.

3. SAA

Leadership: SAA CEO Vuyani Jarana recently resigned, citing uncertainty about funding and bureaucratic processes delaying decision making needed to turnaround the airline, as reasons for his resignation. On Friday SAA announced that Zuks Ramasia, who was previously general manager of operations, was appointed as acting CEO while the board looks for a permanent replacement. 

Challenges: To effect the national carrier’s three-year turnaround plan so that it can break-even by 2021, SAA requires R21.7bn.

According to Jarana’s resignation letter, there had been three incidents from 2018 to date in which the entity was almost unable to pay salaries due to a lack of funding. The entity was granted a R5bn cash injection from Treasury late last year, but the majority was used to pay off creditors. A further R3.5bn loan facility from local lenders will be depleted by June 2019, according to Jarana. SAA did not receive any allocations in the National Budget.

“I spend most of my time dealing with liquidity and solvency issues. Lack of commitment to fund SAA is systematically undermining the implementation of the strategy making it increasingly difficult to succeed,” Jarana said in his resignation letter.

4. Denel

Leadership: Denel appointed a permanent CEO, Daniel du Toit in January 2019. But Du Toit’s appointment came with backlash – Cosatu-affiliated trade union the Liberated Metalworkers Union of SA criticised the decision to appoint a “white male”. Denel had issued a statement to defend the appointment – by indicating it has a diverse workforce with 61% black employees and a female representation which has grown to 27%.

It currently has a 16-member executive team consisting of three black males, one black female, three white males (including Du Toit), one Indian male, and eight vacancies.

Challenges: The state arms manufacturer made a loss of R1.7bn in 2018. The entity’s revenue dropped from R88.4bn reported in 2016/2017 to just over R8bn in the 2017/2018 financial year. Denel’s chairperson Monhla Hlahla told parliament’s portfolio committee on public enterprises in 2018 that the losses were attributed to “weak contract management”.

In previous years, the entity had faced liquidity challenges. Before his axing, former CFO Odwa Mhlwana told the portfolio committee of public enterprises that Denel had a cashflow problem.

5. Prasa

Leadership: In February the Passenger Rail Agency of South Africa’s (Prasa) interim CEO Sibusiso Sithole resigned. He was appointed on June 1, 2018 with a mandate to bring stability to the organisation. Former Transport Minister Blade Nzimande had appointed an interim board to help clean up the rail agency. The board had started a process of reviewing contracts and other internal investigations which has since resulted in suspensions of several executives. The board has advertised for the positions of CEO and CFO to be filled permanently.

Challenges: Nzimande told Parliament’s portfolio committee on Transport in June 2018 that Prasa had been in bad shape for a long time and said it had been used like an ATM, instead of serving its purpose in providing public transport.

The entity received a qualified audit opinion from the Auditor General for the 2017/2018 financial year. The AG flagged that there are not adequate systems in place to ensure disclosure of all irregular and wasteful expenditure by the entity. He was also not certain if Prasa could continue as a going concern. The group incurred a net loss of R924m.

6. Sanral

Leadership: The South African National Road Agency’s (Sanral) CEO is Skhumbuzo Macozoma, who has been in the position since September 2016.

Challenges: Sanral has had to contend with collecting e-toll fees, which the public has not been amenable to – so much so that the agency required a R6bn bailout from Treasury last year. The e-toll fees are meant to fund the Gauteng Freeway Improvement Project, and Sanral has resorted to issuing summons to motorists defaulting on e-toll payments.

Earlier this year Sanral announced infrastructure projects, to be financed by its allocated budget and loans from development finance institutions. Sanral’s board had previously placed a moratorium preventing it from approaching the bond market. Speaking at a briefing in February, Macozoma said the moratorium had been lifted.

7. Transnet

Leadership: Mohammed Mahomedy is the state rail and freight entity’s acting CEO, this after the board did not renew the six-month contract of former acting CEO Tau Morwe. Mahomedy had previously served as acting chief financial officer of the group. Board chairperson Popo Molefe assured that critical vacancies at the entity such as CEO and CFO will be filled.

Challenges: Transnet executives have appeared before the state capture commission of inquiry, given the maladministration at the entity. Molefe testified before the commission, indicating that the new board had found that procurement processes were flouted and contracts had been irregularly awarded.

Former executives – Brian Molefe, Anoj Singh, Siyabonga Gama  and Garry Pita, among others, have been implicated in the evidence brought before the commission. Further, evidence show that Gupta-linked companies had benefited from wrongfully awarded contracts, costing Transnet billions which the entity is trying to recover.

8. PetroSA

Leadership: Bongani Sayidini is the acting group chief executive of PetroSA, no permanent appointment has been made yet. He was appointed on December 1, 2018.

Challenges: Based on the Auditor General’s (AG) 2017/18 audit report for the entity, there were concerns of its ability to continue operating in the future. In the report the AG flags the entity’s deficit for the year, continued weak crude prices, as well as increasing debtor’s collection periods “putting strain” on its cash inflows.

PetroSA reported a net loss of R382.3m for the 2017/18 financial year.

PetroSA is a subsidiary of the Central Energy Fund. Acting CEO of the CEF Sakhiwo Makhanya told Parliament’s portfolio committee on energy that it is still possible to save PetroSA through a seven-month plan to turn around the entity. The plan includes stabilising leadership in key roles.

9. SA Express

Leadership: The board of SA Express in August 2018 appointed Siza Mzimela as acting chief executive at the airline. Mzimela is a former CEO of SAA. Mzimela took over from former acting CEO Matsietsi Mokholo.

Challenges: In May 2018, the loss-making airline had been grounded by the South African Civil Aviation Authority (SACAA), which suspended the airline’s operating permits over safety concerns.

By August 2018, Public Enterprises Minister Pravin Gordhan announced that the airline would be ready to take flight once again, as SACAA reinstated its Air Operator Certificate. 

In addition to having to comply with operational issues, SA Express’s financial report for 2017/2018 reflected fruitless and wasteful expenditure of R42m and irregular expenditure amounted to R408m. In his budget vote speech tabled last year, Gordhan said efforts are being made to turn the entity around and stabilise its finances.

The airline has slowly been relaunching routes as it returns to financial sustainability, Fin24 previously reported.

10. Road Accident Fund

Leadership: Lindelwa Jabavu is acting CEO of the RAF, having served as chief operations officer previously. Jabavu was appointed to the position by former Transport Minister Joe Maswanganyi, taking over from Dr Eugene Watson.

Challenges: In the National Budget Treasury noted that despite a 30c/l increase in the RAF levy, the fund’s liability is expected to grow from R206bn to R393bn by 2021/22. The RAF may require large increases to the fuel levy in the next three years to manage the short-term liability, Treasury suggested.

Treasury has said that the RAF is struggling to keep up with claims, which outweigh its reserves, Fin24 previously reported. 

The AG has also raised concerns over the RAF’s liquidity challenges.