Broke parastatals 

SHARE   |   Tuesday, 12 April 2016   |   By Ditiro Motlhabane & Kabelo Adamson
Masire and Raleru Masire and Raleru

Perennial loss making state entities once again feature prominently in the just released Auditor General's report as parastatals that continue to haemorrhage government of the already stretched coffers. The usual suspects BMC, WUC, NDB and Air Botswana recorded losses in recent years, particularly in 2014 and 2015. Writes DITIRO MOTLHABANE and KABELO ADAMSON

Water Utilities Corporation (WUC)

Financial losses at WUC are growing. In 2016/17 budget, Finance Minister Kenneth Matambo said the huge losses are a result of prolonged drought spells which led to increase in water transfer cost and provision of additional water sources. WUC, which exists to provide portable water to urban centres and villages as well as management of waste water, has consistently recorded huge losses for many years now. Persistent drought has not helped the situation either, as matters got worse. The Auditor General, Pulane Letebele has in 2014 and 2015 audit reports raised issues such as un-invoiced plots, delays in billing and un-cleared deposits as some of the concerns raised by the auditors, Deloitte and Touche. The corporation has repeatedly failed to comply with the WUC Act, failed to reconcile consumer debts, address errors in estimated meter readings among many other challenges. Notwithstanding the losses government has committed to provide on-going financial support in future to sustain WUC in the medium and long term. Late 2015, the Minister of Minerals, Energy and Water Resources, Kitso Mokaila dismissed the CEO, Leonard Nxumalo and appointed Mmetla Masire in acting capacity.

Year          Loss (Millions)

2014         346.56

2015         370.28 (Expenditure P1 396.08 million, Income P1 025.80 million)

Reconciled funds

Year    Amount 

2014    P3.18 million

2015    P2.35 million 

Botswana Power Corporation (BPC)

Another utility BPC incurred a loss of P2.60 billion in 2015 compared to P1, 37 billion in 2014 before a tariff subsidy grant of P2.33 billion. In the year under review, BPC recorded a loss of P274.91 million, compared to P61.5 million recorded in the previous year. The loss arose from the expense of P5.63 billion against the income of P5.36 billion. The income comprised revenue of P2.53 billion, other income of P79.26 billion, tariff subsidy and emergency power grant of P2.33 billion, interest income of P20.59 million and fair value gain on cross currency and interest rate swap of P398.32 million. The expenditure comprised of generation, transmission and other expenses of P380.27 million, finance costs of P170.82 million and net exchange losses of P863.70 million.  

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Air Botswana

The national airliner, which at some point was on the verge of being privatised, made a loss of P165 million in 2015 compared to the P100 million in 2014. The increase in losses is due to high maintenance costs for the old fleet of aircrafts, and expenditure of P518.07 million and income of P353.29 million. The traffic revenue declined from P330.17 million in the previous year to P313.31 million in 2015. In addition the airline also received government grant which decreased from P63.36 million in 2014 to P19.44 million in 2015. AB has been accumulating losses over the past years which had accumulated to P485.32 million as at March 2015. This picture is expected to persist in the foreseeable future, unless government intervenes with another rescue package. 

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PEEPA chief Kgotla Ramaphane recently said the abortion of the Air Botswana privatisation process came after it was realised that the aviation environment was not conducive at the time. He however could not say when the ambition to privatise the national airliner would be resuscitated since the project was just deferred. In November, the Minister of Transport and Communications Tshenolo Mabeo fired Air Botswana General Manager, Ben Dahwa and dissolved the airline Board of Directors. In the 2014 Auditor General’s report, it is shown that the airline’s financial performance deteriorated year on year to P100 million compared to P75.84 million in the previous year and P47.12 million the year before that. This shows a negative trend from the airline which was granted P63.36 million by the government in 2014.

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Botswana Development Corporation Limited (BDC)

State investment company Botswana Development Corporation (BDC) recently announced that its financial performance is improving and is in the process of implementing a new strategy. Since the arrival of Bashi Gaetsaloe as CEO, BDC embarked on an exercise to get rid of non-performing assets. In 2015, the group recorded a profit of P213.33 million, compared to P107.09 million the previous year while the corporation recorded a profit of P126.03 compared to a loss of P68.03 million the previous year. The revenue for the group declined from P317.93 million in the previous year to P286.74 million in 2015, whereas the revenue for the corporation increased from P101.74 million in the previous year to P150.38 million in 2015. 

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BDC subsidiaries making losses;

Company                              Losses (BWP million)

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Maluti Enterprises                         1.1 million

LP Amusement Centre                     4 million 

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Coast to Coast Inn                          1.8

Lobatse Clay Works                        0.8

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Can Manufacturers                       13.2 million

Commercial Holdings                    10.9 million 

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Golden Fruit                                   2.7 million 

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The total accumulated impairment losses against investments in the corporation's financial statements amounted to P1 012 million as at June 2014. Management explained that the restructuring process which was expected to turnaround loss making subsidiaries and associates was ongoing. Some of the investments like Golden Fruit and Coast-to-Coast had been earmarked for sale. The working capital position of the Group as at 30 June 2014 showed current assets of P441.62 million and current liabilities of P594.79 million, resulting in net current liabilities position of P153.17 million. The corporation showed current assets of P179.30 million and current liabilities of P695.46 million, resulting in net current liabilities of P516.16 million. 

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Botswana Meat Commission (BMC)

BMC was established in 1967 for the purpose of slaughtering and marketing all beef exports. Since inception the state beef monopoly has never met the quota for the supply of beef to the lucrative European Union (EU) market. The outbreak of livestock diseases like Foot and Mouth Disease in some parts of the country, have that supply to the commission was severely reduced. In 2014 audited financial results the commission recorded a loss of P9.6 million after registering a profit of P23 million in 2013. The P9.6 million loss is said to be partly due to measles outbreak in 2014 and inadequate supply of cattle to BMC, resulting in reduced supply beef to the EU market. Government has repeatedly spurned calls to liberalise the beef industry and allow other players to come in. BMC - currently led by Dr Akolang Tombale as CEO - is said to be considering retrenchment of some of its staff.

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Year      Loss/Profit

2013      -9.6

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2014      +23

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National Development Bank (NDB)

NDB is the next organisation earmarked for privatisation and is expected to be privatised in a similar manner to that of BTCL through the IPO, subsequently listing on the Botswana Stock Exchange. However, the process is not expected to be completed until at least the bank is able to make profits as its privatisation has been suspended owing to unsatisfactory financial performance. In 2015, NDB made losses amounting to P37.2 million compared to a net loss of P86.3 million recorded in 2014. The Auditor General could only express hope that the situation improves in subsequent years after NDB failed to submit audited accounts and report for review, in line with the existing arrangement. This is the second year running that the bank is not able to submit the audited accounts. NDB provides mostly unsecured loans to commercial farmers and often finds it difficult when customers are unable to service their loan facilities due to droughts and diseases affecting animals. The bank also provides loans for other sectors such as commerce, industrial and real estate. NDB has been selected as next on government’s privatisation agenda. The process has been suspended to allow for transformation into a commercial bank before it can be privatised. Once commercialisation is complete, the bank’s performance will be monitored before it is converted into a company to pave the way for privatisation.

Parastatals and privatisation

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Botswana Telecommunications Corporation Limited (BTCL) is the only state enterprise that has successfully completed the privatisation process. The privatization of the National Development Bank (NDB) has been suspended due to poor financial performance.  PEEPA boss Ramaphane – a government agency responsible for overseeing privatisation of public enterprises – said the time is ripe for privatisation. After years in existence, PEEPA has only overseen one major transaction - that of BTCL and may be many years before another public enterprise is privatised after the privatisation of NDB was shelved indefinitely. The continued poor performance by parastatals have arrested government efforts to diversify the economy through privatisation, even as Ramaphane punched the air in jubilation on Friday for achieving the first Privatisation of a Public Enterprise (BTCL listing at the Botswana Stock Exchange). "We are extremely excited about this major achievement," said Ramaphane at the listing. Such excitement is not unfounded. Government’s privatisation agenda as defined in the 16 year-old Privatisation Policy has eluded PEEPA over the years, as calls for government to off load some public enterprises to improve productivity, efficiency and delivery intensified. Government has no business in business, proponents for privatisation argue. 

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Some, among them Tati East MP Samson Guma have even proposed the closure or privatisation of parastatals and institutions that continue to bleed government coffers without any tangible return on investment. Answering a question from Guma in Parliament recently, Finance Minister Kenneth Matambo acknowledged the challenges faced by the some state enterprises. He said it is important to take into account the reasons behind the establishment of some parastatals. He explained that some of them were formed for social reasons, but conceded that something has to be done about those institutions as there is capital locked in them despite that government continues pouring more while results are next to nil. Matambo said in the 2016 Budget Speech that state owned enterprises showed mixed performances in 2014 and 2015. Matambo singled out a number of parastatals which have made losses over the last two years saying most of them depend on bail outs from government through grants. Their uninspiring performance has led to some blaming the current budget deficit to the parastatals due to the money given to them without anything to show at the end.