South Africa is set to replace the Department of Public Enterprises with a new state-owned holding company that will manage the finances of the government’s state-owned enterprises.

The Department of Public Enterprises will cease to exist after next year’s election, with SOEs reporting to the direct control of their line ministries instead.

This means that Eskom would fall under the control of the Department of Mineral Resources and Energy, whilst Transnet falls under the Department of Transport, etc.

As reported by the Sunday Times, a new state-owned holding company (HoldCo) will launch before the end of the current financial year, bringing a huge shake-up to how South Africa’s crumbling SOEs are managed.

The Department of Public Enterprises will fund the establishment of the HoldCo. At the same time, the state pays for the turnaround of the nation’s embattled SOEs before they are incorporated into the HoldCo.

Five companies are expected to immediately fall under the HoldCO – Sentech, Safcol, the Industrial Development Corporation, the Development Bank of Southern Africa, and a soon-to-be-created Property Company.

South Africa’s problem SOEs – Eskom, Transnet, Denel, SABC – and others will only join in the second phase as they do not meet the requirements.

Funding

“The consolidated group will be profitable from 2023. HoldCo will generate small profit from 2023,” the Presidential State-Owned Enterprise Council (PSEC) said.

“The pro forma HoldCo and consolidated balance sheets are to be solvent and liquid from the onset.” Most of the profit will come from the newly-created property company’s investment portfolio,

In addition, it has been suggested that the company can raise funds via the sale of interests in entities classified as associates or investments, which are believed to be Alexkor and the African Exploration Mining and Finance Corporation.

The state will then, in turn, receive the dividends declared by the SOEs in the HoldCO.

However, in a recent parliamentary question and reply, Public Enterprises Minister Pravin Gordhan said that the government only received R1 million in dividends from several SOEs from 2018/19 to 2022/23 despite spending over R200 billion on bailouts.

SA Forestry Company Limited (SAFCOL) was the only company to pay a dividend of R1 million whilst receiving no government bailouts.

On the other hand, Eskom was the worst performer, receiving over R180 billion in bailouts and declaring no dividend.

Below is a comprehensive breakdown of the bailouts and dividends declared across several SOEs from 2018/19 to 2022/23:

Read: ‘New’ Eskom is right around the corner