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Cape Town – Public Enterprises Minister Pravin Gordhan has said the board of state-owned entity (SOE) Denel has made significant inroads in restructuring it.
Gordhan, however, said there was no “quick fix” to the aftermath of state capture.
The board was appointed in 2018 following Gordhan’s appointment to the portfolio, and was tasked with stabilising the entity, rooting out corruption and restoring the financial standing of the SOE.
In his response to questions by DA MP Michéle Clarke, Gordhan indicated that one of Denel’s successes was the cumulative cost savings in excess of R1 billion from April 2018 to September 2020.
This, he said, was mainly driven by a 27% reduction in employee numbers.
In 2019, the board approved Denel’s turnaround plan with the aim of refocusing the business to reduce duplications and dispose of non-core assets.
Gordhan said that in addition to the recovery plan there was the exit of loss-making subsidiaries that could result in an expected annualised saving of approximately R260 million.
He also said there was a doing away with onerous contracts, and a 43% forecasted reduction in operating expenditure in the 2020/21 financial year.
Gordhan said that Denel would see improvements in governance and also co-operate with the Zondo Commission of Inquiry into Allegations of State Capture and the Special Investigating Unit (SIU).
Last week, Denel’s acting chief executive, William Hlakoane, told the standing committee on public accounts that the SOE was technically insolvent as it was running on a R360m budget deficit, while the revenue budget was at risk, at R3.7bn, due to liquidity.
The committee heard that Denel owed R636m to its employees in salaries, pension funds and medical aid schemes, and R900m to suppliers.
Responding to questions from IFP MP Mzamo Buthelezi, Gordhan said plans were afoot to provide financial support to Denel to help it overcome its financial challenges.
The minister said a solution for the guaranteed debt would be addressed between August and December.
“A further funding request has been made in the 2022/23 Medium Term Expenditure Framework.”
Gordhan also said the Department of Public Enterprises (DPE) and the National Treasury had agreed on the process to be followed to address the guaranteed debt, which would mature next month and in December.
“A joint task team consisting of the DPE, National Treasury, Department of Defence and Denel is exploring further funding options to support the operations resumption,” he said.
He added that Denel was critical to the operational readiness of the Department of Defence and the SANDF.
“Denel is the original equipment manufacturer (OEM) for some of the primary mission equipment of the SANDF.
“In repositioning Denel for sustainability and profitability, the SOC has developed a new operating model that will result in a fundamental reorientation of its business structure.”
Gordhan said that in terms of the new business model, Denel would reduce the number of business units from the current six to two to ensure the optimal utilisation of critical resources and infrastructure.
“The SOC will, in terms of the new operating model, rationalise its asset base and plans to dispose of non-core assets. The department has made a funding application for Denel to support the implementation of the new operating model.”
Gordhan said that much still needed to be done to reposition Denel and return it to functionality and profitability.
“A challenging road will have to be traversed to get to this point. Recovery from the huge damage done to these institutions by state capture is a challenging task. There is no ‘quick fix’ in this regard,” he said.