The Treasury has raised concerns about the National State Enterprises Bill, including whether the establishment of a central holding company for state-owned enterprises (SOEs) would trigger a call on guarantees by lenders.
It was unclear, it said in parliament on Wednesday, what would happen if lenders did not agree to the plan.
By end-March government guarantees to Eskom amounted to R358bn while Transnet, which has debt of more than R138bn, is covered by R50bn in government guarantees with more in the pipeline.
Engagements have been held between finance minister Enoch Godongwana and minister of planning, monitoring & evaluation Maropene Ramokgopa on the contentious issues. Her department is responsible for the bill.
The bill provides for the establishment of a state-owned holding company — the State Asset Management SOC — with strategic state-owned enterprises as subsidiaries. This proposal emerged from the recommendations of the Presidential State-Owned Enterprises Council.
Major strategic SOEs include Eskom, Transnet, Passenger Rail Agency SA, SAA, Denel and SABC. Pending the finalisation of the legislation and after the dissolution of the department of public enterprises, oversight of SOEs was vested in their relevant line departments.
Effective regulation
The Treasury’s acting director-general for asset liability management, Ravesh Rajlal, briefed parliament’s planning, monitoring and evaluation committee on consultations with the department of planning, monitoring & evaluation.
There were a number of concerns, including the advisability of having a centralised holding company model; the need to provide lenders with protection to prevent a call on guarantees; the need for effective regulation of SOEs; and whether the holding company and subsidiaries would be subject to the Companies Act or the Public Finance Management Act (PFMA).
Rajlal said the Treasury was concerned that a centralised holding company model might increase vulnerability to political interference and corruption but accepted the department’s rationale for this option.
He said the department acknowledged this risk but argued that the current decentralised model (with oversight fragmented across line ministries) had already shown vulnerability to state capture.
The department argued that the holding company would create clearer lines of accountability, better professional oversight and reduce direct political interference through structural insulation. It was also better suited to attract investment and ensure SOE independence and corporate governance best practice.
On the question of government guarantees and borrower protection, Rajlal said the Treasury’s concern was whether the restructuring of SOEs would “trigger clauses in the loan agreements that could be perceived as a material and adverse event for the lenders”. The department did not dispute this and said it would propose to provide in the bill for a due diligence process, which will scrutinise the loan agreements.
Rajlal agreed that a careful due diligence was needed. “This remains a potential fiscal risk and must be managed carefully to ensure this reform does not result in a call on guarantees. Further, what is unclear however is what would happen [if] lender consent is not obtained.”
The Treasury and the department agreed that the Public Finance Management Act’s provisions regarding borrowing, guarantees and reporting requirements should take precedence over the Companies Act.
The department insisted that the holding company would require start-up funding or capital from the fiscus, but the Treasury emphasised that there had to be mechanisms to ensure the holding company became self-sustaining over time.
The department committed to refine the rollout plan. The bill does not provide for the funding of the holding company and its subsidiaries. The department said the intention was to allow for innovative ways of raising funds.
Rajlal said the Treasury preferred that the bill contain a clause on funding to provide legal certainty. “The Treasury remains concerned that there may still be residual fiscal risks emanating from that [and that] there are other factors that prevent SOEs from operating optimally, factors which the holding company might not be able to address directly.”
The regulatory environment was a key factor. The Treasury’s concern is that many of the problems faced by SOEs are not just due to shareholder mismanagement, but also due to the absence or weakness of independent, credible economic regulation, he said.
The Treasury and the department agreed that without clear, independent economic regulation, even a well-run holding company may struggle to ensure SOE financial viability, he said.
The department agreed that economic regulation was a foundational part of the SOE reform agenda but said the issue was broader than just the holding company legislation and proposed, with the Treasury’s approval, that the issue should be deferred to and deliberated on by the Presidential State-Owned Enterprises Council.
It also agreed to an amendment to the bill to stipulate that the regulations on financial management be made by the president in consultation with the minister of finance.
The Treasury was concerned that the bill stated that the PFMA would not apply to the holding company and its subsidiaries. Rajlal said this did not comply with the constitution’s provisions on the role of the National Treasury, which enforces sound financial management through the PFMA.
The department and the Treasury agreed that a hybrid application of the PFMA and Companies Act should be considered as a proposed amendment to the bill.
It was also agreed that the state as shareholder would appoint directors of the board of the holding company.
Update: July 9 2025
This story has been updated with new information.
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