Denel financial aid plans “afoot” – Gordhan

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Public Enterprises Minister Pravin Gordhan maintains “plans are afoot to provide financial support” to troubled Denel.

He told Parliamentary questioner Elphas Buthelezi of the Inkatha Freedom Party (IFP) the solution for the State-owned defence and technology conglomerate’s “guaranteed debt will be addressed” in a timeframe that started last month (August) and ends in December.

Gordhan’s written response to a question posed by Buthelezi reveals a “further funding request” has been made in the 2022/23 medium term expenditure framework without giving any actual amounts.

Gordhan’s department and National Treasury “have agreed” on a process to address guaranteed debt maturing in the fourth quarter of this year. At the same time a task team from the Department of Public Enterprises (DPE), National Treasury, Minister Thandi Modise’s Department of Defence (DoD) and Denel is “exploring further funding options to support operations resumption”.

Buthelezi also wanted Gordhan to inform him if government has as long term plan to revive the beleaguered SOC. “If not, what is the position, and if yes, what interventions will be put in place?” he asked.

The written reply has it the “Defence Review regards Denel as a strategic national asset. Denel is critical to the operational readiness of the Department of Defence (DoD) and the SA National Defence Force (SANDF)”.

“Denel is the original equipment manufacturer (OEM) for some SANDF primary mission equipment.

“In repositioning Denel for sustainability and profitability, the SOC developed a new operating model which will result in fundamental reorientation of its business structure. In terms of the new business model, Denel will reduce business units from the current six to two to ensure optimal utilisation of critical resources and infrastructure. The SOC will, in terms of the new operating model, rationalise its asset base and plans to dispose non-core assets. A funding application for Denel to support the implementation of the new operating model has been made.”

Another move in the resuscitation of Denel, according to the Johannesburg Stock Exchange (JSE) information system SENS (Stock Exchange News Service), is the appointment of an unnamed service provider to ensure all consolidation findings as regards decreasing the number of business units raised by auditors are addressed. It further notes while engagements with external auditors are ongoing and population of the consolidation tool commenced these slowed down due to delays in Denel as a result of skills loss in the finance department.

Denel, SENS reports, will provide quarterly updates to the JSE.

Acknowledging it is not going to be easy, Gordhan told his questioner “much still needs to be done to reposition Denel and return it to functionality and profitability”.

“A challenging road will have to be traversed to get to this point. Recovery from the huge damage done by state capture is a challenging task. There is no quick fix in this regard.”

On Thursday, co-chair of the Joint Standing Committee on Defence (JSCD) Cyril Xaba, told the National Assembly if Denel collapses, the country’s multi-billion Rand defence industry will also collapse. He was speaking during consideration of the committee’s report on its engagement with defence industry role players earlier this yer.

“The committee welcomes the turnaround strategy to reposition Denel and other measures to intervene in its affairs. Denel must be saved. If it goes down, it will go down with parts of the defence industry.”

The Democratic Alliance’s shadow defence and military veterans minister Kobus Marais said a declining defence budget was the biggest challenge facing the sector adding there seems little to no political will to rescue the industry “and recoup the defence force to protect our nation in a sustainable manner.”

The JSCD previously noted the “immense impact” Denel’s of financial and operational problems. The oversight committee’s key concerns are the economic impact of Denel’s loss of contracts results not only in a loss of income for the SOE but also affects SMMEs negatively, scarce skills leaving the country and ultimately tax revenue lost.

“Denel’s demise has a negative impact on South Africa’s sovereign and strategic defence capabilities and the ability to ensure back end support to the SANDF,” the Committee said.