Treasury says it has decided to transfer funds from the National Revenue Fund to South African Airways to allow the airline to pay back its debt to Standard Chartered Bank thereby avoiding a default.
This payment was done in terms of section 16 of the Public Finance Management Act. This section of legislation states that the Minister can authorise the use of funds to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future Parliamentary appropriation of funds. The due process laid out in the legislation will be followed.
The Treasury said a default by the airline would have triggered a call on the guarantee, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.
“Improving the financial positions of the airline through recapitalisation has been on government’s agenda for a while as outlined in the February 2017 Budget. Several options are being explored and an update will be provided during the Medium Term Budget Policy Statement in October 2017. Given the nature of the problems at SAA, section 16 of the PFMA had to be used as the last resort,” the Treasury said.
It said government will do everything in its power to ensure that the airline’s turnaround strategy is implemented. The airline remains a strategic asset and in its role as the flag carrier, it serves as an economic enabler with direct and indirect benefits across a wide range of economic activity.
Alf Lees, DA Shadow Deputy Minister of Finance – 1 July 2017
Today’s announcement that SAA has been bailed out from the National Revenue Fund to pay Standard Chartered Bank the loan amount of R 2,207 billion is a blow to the credibility of both the SAA board and to National Treasury.
Only three days ago when I asked National Treasury whether they were ready to meet the guarantee obligations both SAA and National Treasury reassured the parliamentary Standing Committee on Finance that the plans were in place to meet the R 9,0 billion SAA loan payments by 30 June 2017. This was clearly not the case.
It is deeply ironic that it has been necessary to announce a R2,3 billion bailout for the national airline in the middle of the ANC’s National Policy Conference 2017 which is heavily focused on economic policy, including stabilising zombie state-owned enterprises such as South African Airways.
Standard Chartered Bank evidently has no faith in the leadership, management and strategy of South African Airways.
The payment to Standard Chartered has been made in terms of section 16 of the PFMA which makes provision for the use of funds in an emergency situation as follows:
“[T]he use of funds from the National Revenue Fund to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future parliamentary appropriation of funds.”
The PFMA requires that such a payment must be reported to Parliament within 14 days and must be included in an adjustments budget within 120 days of the Minister authorising the expenditure.
This emergency funding for SAA indicates the serious crisis that SAA has been mismanaged into.
This taxpayer bailout makes no difference to the cash crisis at SAA. SAA is losing in the region of R370 million every month and is apparently scratching for cash to pay salaries.
We look forward to the Minister’s report to Parliament within 14 days. This report must give details of why this expenditure was authorised as being an emergency situation.