Sentech snubbed in budget in South Africa

Mergers, Acquisitions and Financial Results

National Treasury has allotted state-owned Sentech R360 million for the coming financial year, a slim R10 million increase from last year's budget.

According to the department's budget, the state-owned enterprise will be given R260 million for completing its part in the digital migration of TV services. An additional R100 million has been allocated to the company to complete its 2010 Soccer World Cup projects.

At last year's national budget, officials noted that government had little faith in the company's ability to manage its finances, resulting in a 44% budget cut from the R646 million allocated in the 2007/8 financial year, to R350 million budgeted for 2008/9.

Sentech's financial woes have long been in the media spotlight. Despite a marginal turnaround in the company's financial statements, in its latest annual report, the Department of Communications (DOC) has decided to initiate a corporate governance review of Sentech in the coming financial year.

According to the national expenditure report for the DOC, state-owned enterprises like Sentech are being closely monitored. “Board complements of all public entities are monitored continually, and reports on members' terms of office have been submitted to the departmental executive committee.”

The DOC's report openly admits Sentech has been problematic, saying it still faces a number of challenges; not the least being its financial difficulties. Last year, Sentech expressed a need to find other sources of income, over and above state contribution to the company, but it is bound by the Public Finance Management Act.

“Sentech faces a number of challenges in its attempts to meet these objectives. Finding the appropriate funding model for the business to ensure financial sustainability is a key challenge,” explained the report in yesterday's national expenditure document.

The DOC is also concerned that Sentech does not have a healthy enough cash reserve.

Sentech has been vocal about its financial trouble. Last year the company issued a warning to the Parliamentary Portfolio Committee on Communications, saying it has a shortfall of R95 million for digital TV migration.

The national signal distributor has been pleading for more funds for at least four years. Its latest annual report shows that if its funding shortfalls are not made good soon, it will be unable to meet some of the timelines government has set for it. The annual report also shows Sentech has been unable to resolve the poor relationship that exists between it and National Treasury.

It is unclear exactly how much of the allocated budget for 2008/9 Sentech received. However, Sentech cannot be pleased with the current projection for the medium-term. The company had not responded to queries at the time of publication.

Included in the R260 million for the 2008/9 financial year are some funds expected to allow Sentech to cover increased expenses during the dual illumination period. Sentech will receive a total of R330 million over the medium-term to cover those costs.

However, according to Sentech's annual report, the company needs in the region of R917 million to cover the costs of running both analogue and digital broadcasting signals.

The only financial request by Sentech that treasury has met is the R300 million over the next three years for last mile satellite services for the 2010 World Cup. Sentech will be Telkom's backup service provider, if something should go wrong with the company's last mile access to stadiums during the much anticipated event.