Public Enterprises ministerial team gives update on SOE turnaround plans


Public Enterprises Minister Pravin Gordhan concentrated on, for want of a better word, the “majors” when it comes to non- and under-performing State-owned enterprises (SOEs) in his budget vote address leaving “lesser lights”, including Denel, to his deputy Phumulo Masualle.

He noted his Department of Public Enterprises (DPE) has been allocated R23.9 billion by National Treasury for the 2022/23 financial year.

The single largest component is compensation of employees (CoE), which he did not reveal for the current financial cycle. According to Gordhan’s budget debate address CoE increases annually by just under six percent. This will see salaries and wages take R188 million of the DPE budget in 2024/25 compared to R159 million in 2021/22.

In his introductory remarks Masualle told parliamentarians the DPE budget was “a modest one” which nevertheless “provided the tools with which government as shareholder ensures SOEs deliver to their public mandate”.

On the beleaguered defence and technology conglomerate he recognised Denel as a strategic national security asset government is “committed” to finding a viable solution [for] recognising its importance and the need for self-sustainability.

“Denel,” Masualle said, “continues to experience significant liquidity challenges. Long overdue payments to creditors and suppliers mean the supply chain is no longer fully available to support operations”.

“Denel’s business model as a system integrator depends significantly on local
manufacturers to supply critical components and sub-systems. Disruption of this delicate relationship with suppliers has become one of the binding constraints regarding Denel’s operations.

“Further non-payment of salaries has had an adverse impact on morale and
a significant number of critical skills left the company. This further affected
operational performance and delivery of contractual milestones which affected potential cash flow required to support operations,’ he said adding a business case was “developed” and awaits “perusal” by the ministers of Finance (Mondli Gungubele) and Defence (Thandi Modise).

National Treasury, according to Masualle, approved “an allocation to settle R3.4 billion of secured debt” costing Denel over R200 million a year in interest. DPE is assisting the Irene, Centurion-headquartered conglomerate, to firm up its business case. This will be the basis of requesting further financial support and involves “identifying immediate work opportunities which can be targeted to generate cash flow required to support operations”.

On the non- and late payment of salaries and employee benefits such as medical and pension Masualle said DPE was “concerned about the human costs” and their impact on employees.

“Together with Denel we are doing everything humanly possible to correct this state of affairs,” he assured parliamentarians adding “government is determined to stabilise the entity and to restore it as trusted supplier, partner and employer”.

In his budget vote address Gordhan went into some detail as regards plans for Eskom SAA, Transnet and divisions including pipelines, ports and rail while Masualle elaborated on, apart from Denel, Alexkor, SAFCOL (SA Forestry Company Ltd) and SA Express.