Disaster Funds Used To Bail-Out SAA

Staff Writer | The Republic Mail

By Mbali Sibiya

Billions of rands reserved for earthquakes and other unforeseen emergencies have been used to bail out state carrier South African Airways after a bank refused to extend a maturing loan, this is according to Sunday Times. 

The unprecedented move saw R2.3-billion paid to Standard Chartered from the National Revenue Fund after the bank refused to extend a payment due to it from SAA. The airliner had until June 30 to pay back the loan.

A government statement issued yesterday 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.”

The statement added that a cash injection would be announced during Finance Minister Malusi Gigaba’s mid-term budget speech in October. “Government will do everything in its power to ensure that the airline’s turnaround strategy is implemented.”

The payment was done using the Public Finance Management Act’s section 16, which normally deals with “unforeseen emergencies of an exceptional nature that, left unchecked, cannot be postponed to a future parliamentary appropriation process”.

The action is unprecedented, said a government official with knowledge of the situation. “This section is meant for an earthquake, floods…We’re using a measure never used before to bail out a state entity,” he said. “It sets a bad precedent … If [the] SABC were to come now, what would you say to them?”

The airline – without a permanent CEO for the past two years – found itself unable to settle the debt. It exhausted many options that included sourcing funding from other avenues. Standard Chartered had previously given SAA extensions on two loans of R1-billion due in December and April.

The Sunday Times previously reported that the bank had been put off by recent political developments.

DA MP Alf Lees, of parliament’s portfolio committee on public enterprises, described the decision as a “blow to the credibility of the SAA board and Treasury”.

“This taxpayer bailout makes no difference to the cash crisis at SAA. SAA is losing in the region of R370-million every month,” he added.

There was a legitimate emergency that required the use of section 16 of the act, said Gigaba spokesman Mayihlome Tshwete. “If you don’t pay the R2-billion, you end up paying close to R20-billion [in government guarantees]. SAA might have been grounded, your tourism gets impacted. The alternative would have been dire.”

In accordance with the section used in paying the money, Gigaba now has 14 days to inform parliament and the auditor-general about the decision, and the expenditure must be recorded in the next adjustment budget.