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Exclusive: Gigaba Sidestepped Doing Any Consultation On R7.8 Billion Bailout Plan For SAA, Shows Cabinet Memo

He said the airline was in such a "dire financial position" there was no time.

24/08/2017 11:52 SAST | Updated 24/08/2017 11:52 SAST
Siphiwe Sibeko / Reuters
Finance Minister Malusi Gigaba.

A confidential Cabinet memorandum has revealed that Finance Minister Malusi Gigaba plans to sell government's stake in Telkom to fund a massive bailout for the embattled South African Airways without consultation or a socio-economic impact assessment.

In the document, which HuffPost SA has seen, and is signed off by Gigaba, he admits that his plan to give SAA a further R7.8 billion bailout was not finalised in consultation with the economic, employment and infrastructure directors-general due to urgency.

A socio-economic impact assessment was also not conducted.

"The situation is deteriorating and untenable as SAA is not generating sufficient cash to pay its suppliers on time.

In another confidential letter from the Department of Planning, Monitoring and Evaluation, the department exempts National Treasury and Gigaba's Special Appropriation Bill -- which outlines his decision -- from having to conduct an assessment.

SAA in 'dire' state
In his memorandum, Gigaba argues for the need to recapitalize SAA as a result of its "dire financial position".

He requests Cabinet to direct the Department of Telecommunications and Postal Services, the Economic Development Department and National Treasury to explore options of disposing assets necessary to rescue SAA.

Gigaba will thus ask Cabinet to approve his Special Appropriation Bill proposing a total bailout for SAA of R10 billion for the 2017/2018 financial year, which includes the 2.2 billion transferred to the airline on June 30.

SAA now has R6.79 billion in government guaranteed debt which must be paid on Sept 30.

Gigaba argues that if the airline fails to honour this debt, an additional amount of R7.8 billion in government guaranteed debt, which is due for repayment between 2019 and 2022, will become payable immediately due to cross-default clauses.

"Such an event would require government to settle the additional R7.8 billion immediately, over and above the R6.785 billion," he wrote.

"The situation is deteriorating and untenable as SAA is not generating sufficient cash to pay its suppliers on time. Coupled with SAA's lenders' unwillingness to further extend funding to the airline, even with government guarantees, a situation has now arisen for the shareholder [government] to take urgent measures in resolving the airline's funding challenges."

A total R10 billion bailout
Gigaba therefore wants to hand R7.79 billion to SAA in this financial year, bringing the total to R10 billion.

SAA's government guarantees increased from 1.3 billion in the 2007/2008 financial year to R19.1 billion by September 2016, which translates to a 35 percent increase every year.

(Gigaba) plans to dispose of government's 39.76 percent shareholding in Telkom, which is valued at about R14.4 billion.

Gigaba needed to find a way to give SAA the money in a way that does not increase the budget deficit. To achieve fiscal neutrality, while already having introduced an expenditure ceiling in 2012, he argues that recapitalization of state-owned companies can occur either through the sale of non-core assets or by increasing taxes.

He comes to the conclusion that exploring the sale of non-core assets therefore becomes the only viable option and in doing so, plans to dispose of government's 39.76 percent shareholding in Telkom, which is valued at about R14.4 billion.

Three calls and messages to Gigaba's spokesperson, Mayihlome Tshwete, were left unanswered.

The finance minister's bill is expected to be discussed in Parliament on Thursday afternoon.