Additional R3 billion for Denel is to settle debt

3662

The R3 billion National Treasury has allocated to Denel in the 2022 budget is only to cover capital and interest payments on guaranteed debt, and will not go towards salaries or operations.

In the latest national budget tabled by Finance Minister Enoch Godongwana in Parliament on Wednesday, it emerged that the R3 billion allocated to the loss-making state-owned defence company will be used to settle interest payments. This amount is inclusive of the R2.9 billion for Denel announced in the medium-term budget policy statement in November 2021.

Treasury noted that Denel cannot meet its obligations as they fall due and so for this financial year government is allocating R3 billion to cover interest.

“Broader alignment is required between the Department of Defence, the Department of Public Enterprises, the National Treasury and other relevant stakeholders to agree on Denel’s future. This will enable Denel to implement its strategic plan to consolidate operations, dispose of non‐core assets and move ahead with identified strategic equity partnerships,” the budget document stated.

It added that Denel’s guarantee facilities declined to R3.4 billion after R2.5 billion lapsed following the cancellation of the Egyptian missile contract and the maturity of R1 billion of its debt.

African Defence Review Director Darren Olivier notes that the Egyptian contract probably would have saved the company and prevented short-paying of salaries, “but government let it fail.”

In November, Godongwana pledged ‘tough love’ for state-owned entities, which he said are a fiscal risk. Not every SOE will be rescued by the state and “some will have to fall.”

Government provided recapitalisations to Denel of R1.8 billion in 2019/20 and R576 million in 2020/21, and extended a R5.9 billion guaranteed debt facility to Denel.

Denel owes staff R650 million in outstanding salaries, and suppliers R900 million. This week it was ordered by the Johannesburg Labour Court to pay R90 million in outstanding salaries to Solidarity union members within ten days.

Olivier maintains that Treasury and the Department of Public Enterprises’ delays regarding reviving Denel are “incomprehensible and infuriating. Treasury wants more discussion and ‘alignment’…It’s been three years of unending crisis without improvement. And while Treasury and the DPE dither and treat Denel as an inconsequential small SOE that can be rescued at leisure at some later point, more strategic capabilities both within Denel and within the SANDF are collapsing and being lost. There’s no longer the luxury of time.”