Additional R3 billion for Denel is to settle the debt

The R3 billion that the National Treasury has allocated to Denel in the 2022 budget is only used to cover principal and interest payments on the guaranteed debt, and will not go to salaries or operations.

In the latest national budget tabled by Finance Minister Enoch Godongwana in Parliament on Wednesday, it emerged that the R3 billion allocated to the loss-making state defense company will be used to settle interest payments. This amount includes the R2.9 billion for Denel announced in the medium-term fiscal policy statement in November 2021.

The Treasury noted that Denel cannot meet its obligations as they come due and that for this financial year the government is allocating R3 billion to cover interest.

“Broader alignment is needed between the Ministry of Defence, the Ministry of Public Enterprises, the National Treasury and other relevant stakeholders to agree on the future of Denel. This will allow Denel to implement its strategic plan to consolidate operations, divest non-core assets and move forward with identified strategic partnerships,” the budget document states.

He added that Denel’s guarantee facilities had fallen to R3.4 billion after the expiry of R2.5 billion following the cancellation of the Egyptian missile contract and the expiry of R1 billion. of its debt.

African Defense Review editor Darren Olivier notes that the Egyptian contract would likely have saved the company and prevented underpayment of wages, “but the government let it fail”.

In November, Godongwana pledged “tough love” to public entities, which he said pose a fiscal risk. Not all SOEs will be rescued by the state and “some will have to fall”.

The government provided recapitalizations to Denel of R1.8 billion in 2019/20 and R576 million in 2020/21, and extended a secured debt facility of R5.9 billion to Denel.

Denel owes its staff R650 million in unpaid wages and its suppliers R900 million. This week, the Johannesburg Labor Court ordered him to pay R90 million in unpaid wages to members of the Solidarity union within ten days.

Olivier argues that the delays by the Treasury and the Ministry of Public Enterprises regarding the relaunch of Denel are “incomprehensible and infuriating. The Treasury wants more discussions and “alignment”… It’s been three years of endless crisis without improvement. And while the Treasury and the DPE dither and treat Denel as a small, inconsequential state enterprise that can be bailed out at leisure later, more strategic capabilities both within Denel and within the SANDF are collapsing and get lost. There is no longer the luxury of time.

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