R4 trillion infrastructure programme asks too much of SOEs
State Owned Enterprises (SOEs) will find it difficult to raise money for and implement the proposed Strategic infrastructure project (SIPs) to be carried out over the next 15 years at a cost of R4 trillion.
In his Medium Term Budget Policy Statement (MTBPS) on Thursday, Finance Minister Pravin Gordhan spoke about the Presidential Infrastructure Coordinating Commission's plan to implement 18 proposed SIPs over the next three years at a cost of R845 billion.
The programme forms part of a broader initiate which will see R4 trillion allocated towards infrastructure spend over the next 15 years.
As was the case during the budget speech in February, the Minister made a passing reference to the fact that the infrastructure programme would be funded in part by National treasury and in part by revenues generated by State Owned Enterprises (SOEs). Once again, mention was made of the need to "mobilise private sector capacity" with little further detail.
It is surprising to note that since the announcement of the infrastructure programme, scant details have been provided on issues relating to finance and implementation
The DA is concerned about the capacity of SOEs to raise funds for and effectively implement the build programme. The lack of clarity around the planned projects also makes it difficult for the private sector to get involved.
Essentially, there are three avenues to fund infrastructure projects in South Africa: public funding, private-public partnerships and raising funds directly by taxing citizens.
With government debt approaching 40%, there is little fiscal space for national treasury to finance the programmer in its entirety, hence the reliance on SOEs.
The 2012 budget review of the public-sector infrastructure expenditure for the last financial year is disconcerting. The review indicated that:
- 39% of the nearly R12 billion budget for public private partnerships remained unspent
- 39.9% of the R143 billion budget allocated to Non-financial public enterprises, including Transnet and Eskom, was not used
- a mere R7.3 billion or 4% of the total public-sector infrastructure expenditure was spent through public private partnerships.
Furthermore, recent credit rating downgrades by Standard & Poor's (S&P) and Moody's, of both Eskom and Transnet, reflect their diminished capacity to raise funds. S&P cited Transnet's "extremely high" likelihood of extraordinary support from the state as the primary driver for the downgrade and the negative outlook.
According to the National treasury, the cost of servicing debt will rise by 20 basis points or 0.2% as a result of the downgrades. When applied to a multi-billion rand corporate bond, this increase can become quite substantial.
A look at the balance sheets of Eskom and Transnet exacerbates our concerns and calls into question their capacity to raise finance without further state guarantees.
As a measure of a company's financial leverage, the debt:equity ratio is internationally accepted. Eskom has a debt:equity ratio of 1.6 which effectively means that every R1 of shareholders equity is matched by R1.6 in total liabilities. Whilst Transnet's debt:equity ratio is stronger at 0.8, it is still high.
As such, I will be asking parliamentary questions to the Minister to ascertain further details on the proposed roll out strategy of the infrastructure build programme.
There can be no doubt that increasing investment in economic infrastructure is the right plan going forward. We do, however, need to conduct an honest review of the capabilities to finance and implement this program.
Statement issued by David Ross MP, DA Shadow Deputy Minister of Finance, October 28 2012
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