The SA National Roads Agency Limited (Sanral) is sitting on billions of rands on its financial books.
While this might indicate that Sanral is in a strong financial position and has cash on hand, the unspent money is not a good thing.
Sanral, launched in 1998, is a state-owned enterprise (SOE) responsible for maintaining and expanding SA’s freeways and bridges crucial for economic activity — linking producers to markets, workers to jobs and students to schools.
Over the past five years, the road network managed by Sanral has not expanded significantly, remaining under 25,000km. The only expansion came two years ago, when Sanral added 2,118km, bringing SA’s total road network to 24,384km.
Arguably, the 2,118km addition does not move the needle and is not significant. The use of SA’s road infrastructure has exploded in recent years because the dysfunctional rail network (commuter and freight) has pushed more people to rely on roads for movement. The move from rail to road should have pushed Sanral to be aggressive in maintaining and expanding the road network. However, the SOE is not doing so, as seen in its giant piles of cash.
Sanral is funded through grants received from the government (or taxpayers) and money the SOE raises in debt capital markets. According to Sanral’s 2023/24 annual report, the SOE has cash amounting to R53.3-billion. Of this amount, a large portion (R42.2-billion) comprises grants it has received from the government that are unspent and have accumulated from prior years. Sanral said the funds are “not simply unspent”, some are already committed to road projects that are yet to start. It usually takes months and even years for a project to go from being awarded to shovel-ready.
However, grants that are not spent have remained a feature over the past five years in the story of Sanral, which the government likes to showcase as a case of excellence and good governance in the SOE universe. In reality, Sanral has underperformed.
It seems like the government is losing patience with Sanral. It recently issued a directive to Sanral, asking the SOE to spend the grant money by expanding the road network to 35,000km.
Sanral has raised concerns that it might not have enough financial resources to expand the road network, especially to underserved areas with poor infrastructure. So, it might need to return to debt capital markets to fund infrastructure projects.
In this market, lenders ordinarily buy Sanral’s debt on the open market with an expectation of being repaid the purchase amount and interest at a later stage by the SOE. The borrowings by Sanral in the bond market are guaranteed by the government, meaning that if it fails to pay back lenders, the government will be on the hook for payments.
Sanral has already sought approval from the government to increase its borrowing limits to R16.5-billion to fund the expansion of the road network.
Sanral tender failures
In recent years, Sanral attempted to expand the road network but made blunders when issuing tenders to the construction industry.
Read more: Sanral on a rocky road in wake of billion-rand infrastructure projects awarded to ‘disqualified’ Chinese firms
Without adequately consulting the construction industry, the Sanral board implemented a new procurement system in May 2023 that required firms to have a heightened Broad-Based Black Economic Empowerment (BBBEE) profile to win tenders. Construction firms have already spent billions of rands over the past decade to boost their BBBEE profiles so they can do business with the state.
The effect of Sanral’s new procurement system was that there were no construction companies available to meet its new BBBEE requirements, resulting in the SOE having no eligible firms to award road expansion tenders to. So, Sanral’s unused funds problem remained.
Sanral has withdrawn the new procurement system after being successfully challenged in court. It has returned to its old tender adjudication system.
Read more: Sanral board withdraws controversial preferential procurement policy, cancels advertised tenders
The withdrawal resulted in 315 tenders being cancelled during its 2023/24 financial year, during which the value of tenders awarded dropped from R51.3-billion to R17.8-billion. A total of 278 tenders were re-advertised using the old procurement policy. Of these, 170 tenders were eventually awarded in recent months. DM