Reading the annual reports of state-owned enterprises (SOEs) is enlightening, but not a lot of fun. Their financial statements show that several of the 26 larger and more familiar entities are close to total failure.
There used to be 28 reports to page through when Moneyweb first aggregated state companies’ results a few years ago, but South African Airways (SAA) and SA Express eventually accepted the reality that they were hopelessly bankrupt. SAA last produced audited figures in 2017 before going into business rescue and SA Express faded away.
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The various sets of results for the 2019/2020 financial year indicate that there might be even fewer reports to read a few years from now.
The latest analysis covers the results for the financial years ended in 2020 as results for a lot of SOEs were delayed after government granted extensions to the publication dates due to the Covid-19 pandemic.
These extensions seemed to have translated into delays of 2021 results as well, although several of the bigger companies, and especially those issuing public bonds, have published their 2021 results on time. Unfortunately, a lot of results have still not been released.
Read: Will our banks be able to withstand the escalating SOE crisis?
Half of the 26 SOEs suffered losses in 2020, while eight of the profitable ones reported that profits decreased.
The total aggregate loss increased to nearly R28 billion compared with less than R8 billion in 2019.
The losses were actually higher by several billion each year, because the calculation had to exclude SAA which probably chalked up losses of around R5 billion each year during the last few years.
|Profit and losses of SA state-owned companies|
|Acsa||2 005||842||504||1 390|
|DBSA||2 821||2 283||3 097||504|
|Denel||282||-1 084||-1 749||-1 962|
|Eskom||-4 608||-2 337||-20 729||-20 679|
|IDC||2 200||3 224||720||-3 789|
|Land Bank||367||254||181||-2 125|
|PetroSA||-1 608||-676||-2 082||-5 579|
|Post Office||-967||-908||-1 174||-1 548|
|Prasa||-928||1 442||-1 685||2 279|
|Rand Water||2 414||3 173||2 800||3 837|
|Sanral||-4 962||-260||3 026||1 263|
|Trans-Caledon Tunnel||2 304||2 087||2 200||504|
|Transnet||2 765||4 851||6 047||3 938|
|Total||2 427||14 058||-7 906||-21 932|
Source: Compiled from annual reports
Eskom, the largest of them all, reported the biggest loss. The loss of more than R20 billion in the year to March 2020 is comparable with that of the previous year and, as in prior years, mostly due to interest payable on its very high borrowings.
Eskom actually made a profit of nearly R6.7 billion before its massive interest charge of R31.5 billion on its R408 billion worth of bonds and long term debt.
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There are a lot of contenders for the worst performer. The SABC, PetroSA, Denel and the Land Bank all suffered huge losses.
PetroSA reported a loss of nearly R5.6 billion compared with a loss of just less than R2.1 billion in the previous year, with management admitting that the entity is in deep trouble.
The Auditor-General drew attention to the big loss and that PetroSA’s total liabilities exceeded total assets by R4.5 billion at year end.
“As stated in note 35 to the consolidated and separate financial statements, these events or conditions, along with other matters as set forth in this note, indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern,” warned the Auditor-General.
Chair Frans Baleni says in his report that the latest loss is a continuation of a string of poor financial performances over the last five years. “These dismal and disappointing results are not something that the board, management and other employees of PetroSA can be proud to be associated with.
“These results are signs of a company that is descending into an unprecedented crisis and the enormity of the underlying business issues that we should honestly confront and decisively deal with as stakeholders,” he said.
“The performance of PetroSA during the year under review, coupled with current harsh business realities, portend more challenging times ahead.
“Without painting an unnecessarily gloomy picture, it is important to state upfront that the business-as-usual approach will not be of any help if we hope to successfully turn around this company into a sustainable business.
“Any hope for a better future requires an honest appraisal of the current situation, new mindsets and robust internal engagements to map out a new path for the company,” he said.
“PetroSA is currently at a crossroad, a critical point in the company’s history.
“We collectively have to do everything within our powers to save PetroSA and keep it afloat or we’ll sink together.”
Hopefully, this realisation of the problem has not come too late. Baleni says the natural gas wells that sustained the Mossel Bay plant for two decades are close to the end of their lives. Production declined 26% in 2020 and was expected to fall anther 22% in 2021.
The costs of alternative feedstocks for the plant are too high and PetroSA cannot afford an exploration and drilling programme to find new reserves.
Baleni said another option would be to acquire another business, but PetroSA hasn’t capital for that either.
Assets and liabilities of state companies
|Acsa||32 125||9 001||23 124|
|Armscor||3 465||613||2 852|
|ATNS||3 337||438||2 899|
|Broadband Infraco||1 289||2 607||-1 318|
|CSIR||2 453||1 381||1 072|
|DBSA||100 465||62 888||37 577|
|Denel||8 525||10 803||-2 278|
|Eskom||823 223||637 155||186 068|
|IDC||112 510||64 439||48 071|
|Land Bank||46 199||43 636||2 563|
|Necsa||7 761||6 950||811|
|PetroSA||14 394||18 858||-4 464|
|PIC||3 912||654||3 258|
|Post Office||11 067||7 395||3 672|
|Prasa||82 046||57 972||24 074|
|Rand Water||33 533||7 908||25 625|
|SABC||6 183||3 189||2 994|
|Sanparks||5 642||2 597||3 045|
|Sanral||462 081||130 586||331 495|
|Sasria||8 921||1 963||6 958|
|Sentech||4 287||1 991||2 296|
|Trans-Caledon Tunnel||24 776||22 699||2 077|
|Transnet||336 225||205 998||130 227|
|Total||2 137 216||1 303 024||834 192|
Source: Compiled from annual reports
Denel is on the ropes too – it’s basically bankrupt.
Its losses increased to nearly R2 billion in 2020 and its liabilities (R10.8 billion) exceed its assets (R8.5 billion) by more than R2 billion. This was the case in 2019 too, when shareholders’ equity was a negative R1.7 billion.
In addition, the financial statements must be read with caution. The auditor’s report reads in part: “I was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these consolidated and separate financial statements.”
The Land Bank’s loss of more than R2.1 billion can be attributed to impairments of assets of R1.8 billion, mostly the result of bad debt.
The Passenger Rail Agency SA (Prasa) deserves a special mention.
The reported profit of R2.28 billion in the 2020 financial year is not as good as it looks if one considers that it received government subsidies of close to R8.4 billion.
It earned only R1 billion from moving passengers, and R726 million in renting out retail space at stations.
Prasa chair Leonard Ramatlakane said in his report to shareholders that Prasa is “too significant to fail”.
“As the board, management and employees, we have no choice but to mend this important organisation and bring order to it.
“Failure would be detrimental to our people, customers, employees and the economy; it is therefore not an option,” he wrote.
He said the public perception of Prasa continues to be poor for a number of reasons, including the disclaimed audit opinion by the Auditor-General, imprudent business decisions by senior leadership leading to disastrous consequences, little or no consequence for management and compliance failures throughout the organisation, and inadequate record-keeping (in some instances, no records at all).
Thandeka Mabija, Prasa’s acting CEO in 2020, reiterated that Prasa’s rail performance has declined drastically in recent years, with commuter services at their lowest-ever performance levels.
“During the reporting year, on-time train performance was at 62.34% and 9% for Metrorail and Mainline Passengers Services (MLPS) respectively. 21.17% of trains scheduled for Metrorail and 23% for MLPS were cancelled, with an average delay of over 40 minutes on the Metrorail services and over 150 minutes on MLPS,” she said.
In the 2014 financial year, Metrorail transported 543 million paying passengers, but this has declined to just 125 million 2020. MLPS transported only 205 793 passengers in 2020.
“The unavailability and unreliability of rolling stock and infrastructure, key enablers of regular, reliable and ontime train services, can no longer guarantee that rail is the backbone of public transport,” she said.
The Auditor-General listed 99 concerns with the financial statements and accounting system with his commentary running to an unprecedented 16 pages in Prasa’s annual report.
The billions paid for Spanish locomotives that did not fit on local tracks – ordered by an engineer with fake degrees – are still in the books as prior years’ irregular expenditure. The total figure is R28.6 billion.
Armscor also deserves a special mention. It made profit, after receiving a government grant of R1.15 billion.
Of interests is that it paid R1.12 billion in salaries and related employee costs to earn revenue of R450 million. According to the annual report, Armscor employed 1 555 people in order to earn this revenue.