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Solidarity ranks SOEs, lambastes 'cadre merry-go-round'

14th November 2017 BY: Anine Kilian
Contributing Editor Online
Photo by: Reuters

Trade union Solidarity has ranked South African Airways (SAA) as the most poorly managed State-owned enterprise (SOE) in the country.

Speaking at the launch of its latest report ‘South African State Institutions and the Value for Tax Money’, on Wednesday, Solidarity CEO Dirk Hermann said SAA offers “deplorable” value for taxpayers’ money.


“SOEs are poorly managed in general. The second worst managed is Eskom and the best is Telkom,” he said.

The Solidarity Research Institution, which published the report, analysed five SOEs – SAA, Eskom, PetroSA, Telkom and Transnet.


“Taxpayers, and the South African public at large, are the shareholders of these SOEs. The State acts as a custodian of the public’s money and must therefore act with extra circumspection,” Hermann said.

The enterprises analysed in the report were measured in terms of working capital ratio and net debt before earnings.

The accounting ratios have been compared with the JSE Top 40.

Depending on the accounting ratios and general management, the five SOEs were also placed on a scale depicting their value for tax money. The scale varies between very good, good, neutral, poor and very poor.

According to the report, PetroSA and Transnet rank in the poor category, Eskom and SAA in the very poor category and Telkom in the neutral category.

According to the report, Eskom is the country’s biggest SOE with R700-billion of assets.

“Unfortunately, Eskom is also the number one SOE as far as State capture and corruption [allegations] are concerned,” Hermann said.

The fact that Medupi and Kusile are nearly five years behind schedule and more than R70-billion over budget is indicative of serious mismanagement, the report states.

While Eskom’s working capital ratio of one appears to be sound, its net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) ratio is concerning.

The company’s Ebitda has grown to R37-billion, but its net debt stands at about R334-billion. This means the ratio currently is 8.92, suggesting the utility will not be able to repay its debt.

Hermann, meanwhile, pointed out that SAA has had four different CEOs over the past four years.

“The total losses suffered during the term of former chairperson Dudu Myeni amount to R13.7-million. There are also many allegations of misconduct that hang over her head,” he said.

He added that SAA’s net debt to Ebitda ratio was 24.48, highlighting that there was no possibility that SAA would redeem its debt from normal operations.

“In 2015, this ratio was not stated because SAA recorded a negative Ebitda. In the free market, such a company would have folded long ago. 

“The fact that SAA is competing in an industry where profit is possible, is an indication that this predicament has not been caused by external factors. It is pure mismanagement that is stimulated by the cadre merry-go-round and funded by taxpayers,” Hermann said.

According to the report, Transnet’s debt at present amounts to about R124.7-billion and the company has been graded at one notch above investment grade by ratings agencies Standard & Poor’s and Moody’s Investors Service, which means that, of all the SOEs where the State is the only shareholder, Transnet is actually doing quite well, as the rest are all below investment grade.

“There are serious doubts, however, about Transnet’s fiscal health. A working capital ratio of 0.45 does not compare well with the JSE top 40 criterion of 1.53. [Its] working capital ratio has been weakening,” the report says.

It states that another worrying factor is a net debt to Ebitda ratio of 4.3, compared with the JSE Top 40 criterion of 0.92. This raises serious doubts about Transnet’s ability to redeem its existing debt from operational activities.

“Together with the [allegations] regarding State capture hanging over Transnet, this leaves taxpayers with a bitter taste in the mouth.”

Although PetroSA’s ratios compare favourably with those of the JSE Top 40, the important line item is the R14.3-billion loss in 2014/15, the report notes.

“The loss has been driven primarily by the catastrophic Ikwhezi project, which was launched to produce natural gas near Mossel Bay by PetroSA itself,” Hermann said.

In spite of initial estimates of about 242-billion cubic feet of gas through five plants at an estimated cost of $1.34-billion, Ikwhezi ultimately produced only 25-billion cubic feet of gas through only three plants at a cost of $1.22-billion.

This implies that the project has been producing only 10% of the gas it was supposed to produce, at 91% of the cost.

“PetroSA’s . . . board and executives are replaced regularly, and it appears that, as with many other State institutions, PetroSA’s board and executive management have become a cadre merry-go-round,” he noted.

He added that PetroSA’s cash reserves have plummeted from R11.9-billion in 2008 to R4.3-billion in 2015.

“The harsh reality is that the government has allowed State institutions to get out of control. South African taxpayers simply cannot continue funding the cadre merry-go-round, and the broader South African public deserve better service delivery and financial accountability,” he said.

Telkom, meanwhile, is considered the only “passable” SOE.

Solidarity points out that, between 2013 and 2017, the company’s share price increased from about R12.50 to roughly R55.

Apart from the profit Telkom is making, it also pays tax and dividends to the State amounting to about R1.6-billion a year.

“Telkom is presented as proof that the SOE model can work. There is one significant difference between Telkom and the other institutions referred to above, and that is that government, through the Department of Telecommunications and Postal Services, has only a 39% share in Telkom,” the report said.

It further noted that if this is added to the roughly 8% held by the Public Investment Corporation, the State’s share is still less than 50%.

“Government’s shareholding in Telkom is only 39%. One cannot but notice the correlation between the smaller State ownership and better performance,” Hermann said. 

EDITED BY: Chanel de Bruyn Creamer Media Senior Deputy Editor Online