Godongwana sends a warning to struggling SOEs
Finance Minister Enoch Godongwana has stayed true to his word to give South Africa’s struggling state-owned enterprises (SOEs) ‘tough love’.
He warned that many of these SOEs need to make a turnaround or face “difficult decisions” like closures or the withdrawal of financial support.
In the 2025 Budget, which was presented on 12 March, the National Treasury did not allocate new debt relief for any of South Africa’s struggling SOEs.
This comes after Godongwana vowed to maintain a “tough love” approach towards SOEs, many of which have been in financial decline for years.
The Budget Review explained that, for over a decade, most SOEs in South Africa have not met the legal requirements to maintain sustainable profitability, manage risks effectively and generate returns while ensuring prudent use of public resources.
“Various initiatives, including turnaround plans agreed with the government, are underway, but progress has been mixed,” it said.
In 2023/24, state‐owned companies reported a negative return on equity of 15.6%, highlighting an ongoing inability to turn a profit.
“In the context of persistent weakness, government has to make difficult choices on the future of these companies,” the National Treasury said.
“Options include closures, mergers and withdrawal of financial support. Poor quality management and the adoption of mandates that are not financially feasible should also be addressed.”
“Failure to make proactive decisions will result in continued fiscal pressure or financial collapse, leading to service disruptions and large job losses.”
Meanwhile, the Budget said state‐owned companies continue to use the majority of their cash to meet debt obligations.
Therefore, their cash flows remain insufficient to cover operational costs, financial obligations and capital requirements.
“Consequently, these companies are unable to effectively fulfil their mandates,” it said.
The 2025 Budget Review provided an overview of the performance of some of South Africa’s most important SOEs.
Denel
The 2025 Budget explained that state-owned aerospace and military technology conglomerate Denel remains unable to meet its financial obligations.
In 2024, Denel was granted R3.4 billion in the Special Appropriation Act to implement its turnaround plan.
The SOE was only permitted to access a portion of this R3.4 billion after meeting certain milestones.
The National Treasury said the completion of some of these targets – particularly the sale of non‐core assets – remains outstanding.
However, since Denel has implemented aspects of the plan, the government granted it access to the remaining ring‐fenced funds in the latest Budget.
After debt repayments in the past year, these funds now amount to R914 million.
“These funds will help Denel to cover legacy obligations, invest in essential capital projects and optimise restructuring,” the document explained.
Eskom
Eskom was one of the last SOEs to receive a government bailout prior to Godongwana’s ‘tough love’ approach.
In 2023, the National Treasury granted Eskom a R254 billion debt relief package to strengthen the utility’s balance sheet, restructure the business, and invest in necessary maintenance.
By 31 March 2025, the government will have advanced R140 billion in debt relief to Eskom.
This is a reduction of R4 billion from the original amount projected up to this point, owing to the utility’s failure to meet the deadline for the disposal of the Eskom Finance Company.
Under the terms of the debt relief arrangement, the remaining elements are a R40 billion advance and a R70 billion debt takeover scheduled for 2025/26.
The 2025 Budget Review explained that the National Treasury plans to simplify the final phase of Eskom’s debt relief, which will see the utility receive a smaller debt package than initially projected.
This change reflects some improvement in the utility’s financial position resulting from the interventions implemented to date.
Therefore, the final R70 billion debt takeover will now be replaced with two advances amounting to R50 billion:
- R40 billion in 2025/26 to redeem debt maturing in April 2026
- R10 billion in 2028/29 for debt maturing in May 2028
“In summary, over the five-year period, the government will have provided Eskom with loans to the value of R230 billion to assist the utility in repaying its debt,” the National Treasury explained.
“This is about R24 billion less than projected at the outset, reducing the gross borrowing requirement.”
“In accordance with the original agreement, the debt relief provided to Eskom will be converted into government equity over time.”
While this is less than the bailout package Eskom was originally granted, the utility continues to rely on government support in order to operate.
However, there have been some improvements in the utility’s finances, as revenue grew by 14% to R295.8 billion in 2023/24.
It should be noted that this is not due to increased sales, which fell by 3%, but rather attributable to an 18.7% tariff increase.
The utility’s losses doubled to R55 billion in 2023/24 due to tariffs that do not reflect costs, poor operational performance, non‐payment by municipalities and high finance costs.
In addition, municipal debt to Eskom rose from R74.4 billion at the end of March 2024 to R94.8 billion at the end of December 2024.
Progress on unbundling the utility has also been slow.
After Eskom failed to dispose of the Eskom Finance Company by the agreed deadline, the government reduced its debt‐relief allocation by R4 billion.
The Department of Electricity and Energy is preparing to issue a request for proposals for a pilot independent transmission project in November 2025.
This will invite the private sector to assist the National Transmission Company in expanding transmission lines.
South African Post Office
The South African Post Office (SAPO) is one of South Africa’s most in-distress SOEs.
It was placed in business rescue on 10 July 2023 and faces the real threat of liquidation.
In 2023/24, the SAPO reduced its costs and met some operational targets, yet it remains financially stressed due to high net losses and low revenue.
The SAPO received a R2.4 billion bailout from the government in 2022/23, which it used to implement a business rescue plan, including cutting costs and paying creditors.
As part of this plan, it closed 354 branches and retained 657 branches.
Regardless of these efforts, the SAPO remains in financial distress and in business rescue, with its practitioners recently having warned that, without government intervention, the Post Office will likely be liquidated.
However, Godongwana continued his tough love approach by not extending more financial relief to the SOE in this year’s Budget.
The 2025 Budget Review merely said that the National Treasury and the Department of Communications and Digital Technologies are working with the SAPO’s business rescue practitioners to ensure the effective implementation of its turnaround plan.
Transnet
With the support of Operation Vulindlela, Transnet has been addressing its years‐long financial and operational decline.
This SOE is one of South Africa’s most important companies, with logistics forming the backbone of many local industries.
However, Transnet has failed to meet its operational and financial targets for years.
For example, rail volumes fell from 226.3 million tonnes in 2017/18 to 151.7 million tonnes in 2023/24 due to derailments, inefficiency and infrastructure damage.
Therefore, the utility has been implementing a turnaround plan for the past few months.
The 2025 Budget Review said Transnet has made some with this recovery plan, and estimates indicate that rail volumes will reach 165.4 million tonnes by the end of 2024/25.
In 2023/24, Transnet reported a net loss of R7.3 billion, worse than the R5.1 billion loss it posted in 2022/23, largely due to increased finance costs.
The National Treasury explained that additional debt and higher interest rates pushed Transnet’s finance costs to R14.3 billion in 2023/24, placing further strain on its cash flows.
In addition, Transnet’s earnings before interest, taxes, depreciation and amortisation declined from R22.8 billion in 2022/23 to R22 billion in 2023/24.
The utility’s latest revenue gains were also offset by rising net operating expenses.
“Transnet needs to stabilise and reduce its debt,” the National Treasury said.
“Since 2018, Transnet has shifted funds from capital expenditure to debt servicing. While this prevented default, the shift has come at the expense of maintaining and expanding critical infrastructure.”
In December 2023, the government guaranteed Transnet R47 billion, which the utility used to refinance maturing debt and take on new debt.
However, many experts have warned that the utility may need to request another bailout soon because its balance sheet and operations are not improving fast enough.
While Transnet may request another bailout, the National Treasury is not likely to grant it.
The National Treasury explained in the 2025 Budget Review that the government is now providing direct support to critical infrastructure projects while avoiding debt relief or general balance sheet support.
It added that Transnet’s total borrowing increased by R7.6 billion to R137.7 billion between end‐March 2023 and end‐March 2024, underscoring the need for better debt management at the utility.
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