(Left to right) Deputy finance minister Mcebisi Jonas, SARS commissioner Tom Moyane, Finance Minister Nhlanhla Nene and finance DG Lungile Fuzile arrive for the medium term budget.  Picture: TREVOR SAMSON
(Left to right) Deputy Finance Minister Mcebisi Jonas, SARS commissioner Tom Moyane, Finance Minister Nhlanhla Nene and finance director general Lungile Fuzile arrive for the medium term budget on Wednesday. Picture: TREVOR SAMSON

THE government announced a new approach to state-owned enterprises’ funding crises on Wednesday: it will raise no more debt for financing and is to consider new sources of equity, such as private investors.

The announcement that the approach would be "deficit-neutral" over the medium term is a departure from recent years in which the Treasury has continued to extend loan guarantees to prop up the balance sheets of state-owned enterprises.

A third element of the approach is that state-owned enterprises seeking funding from the fiscus will have to "demonstrate sound business plans and greater efficiencies".

Finance Minister Nhlanhla Nene said the state of all state-owned enterprises was being discussed by an inter-ministerial team, which would make its recommendations in January.

The deficit-neutral approach is illustrated by the allocations provided for in the statement for Eskom and South African Airways (SAA). Both need cash injections if they are to remain going concerns. However, Mr Nene promised only about R20bn for Eskom and nothing for SAA.

Eskom needs a R50bn equity injection that would allow it to borrow enough to close an overall revenue shortfall of R225bn over the 2013-14 to 2017-18 period. The policy statement said the R20bn earmarked for Eskom would be raised "through the sale of nonstrategic state assets" which would be transferred to Eskom once realised. In addition to the R20bn, the government would also consider "a partial equity conversion of a R60bn loan already provided".

While this would not meet the entire shortfall, it would "safeguard Eskom’s financial sustainability" and "allow its build programme to continue without an unduly steep increase in electricity prices", Mr Nene said.

The Treasury turned down SAA’s request for a cash injection. Mr Nene said a financial solution for SAA was still under discussion.

"We are talking to all the state-owned enterprises. We have set up a structure with all the relevant ministers. We need now to make a clear decision as to how they are going to be handled from now on. We are not going to be borrowing money to bail out (those) that are failing, without making sure that they have a credible business plan and without making sure that we won’t soon be sitting discussing their failure again," he said.

Treasury director-general Lungisa Fuzile provided the clearest indication yet that the sale of equity to private investors is becoming a possibility.

"In some instances, it may just be that government takes the view that the best way to raise equity for state-owned enterprises is to look for strategic equity partners," he said.

Asked whether the government’s decision to sell noncore assets amounted to a reversal of economic policy which has opposed privatisation, Mr Nene said the assets to be sold did not advance developmental aims and the government had no business owning them in the first place.

The participation of the private sector in energy generation was already well established in SA, and SA was "already midway in dealing creatively with that", Finance Deputy Minister Mcebisi Jonas said.

A new approach was required, he said. "The danger is we get locked in an old debate about privatisation, when the issue is how to deliver services efficiently and manage the costs."