Gordhan publishes explanation for new state-owned company bill

Public Enterprises Minister, Pravin Gordhan, has published an explanatory summary for the National State Enterprises Bill that will create a mega state-owned holding company to own and manage about 13 of South Africa’s state-owned companies.

Gordhan will introduce the Bill in the National Assembly soon. The Bill will establish the State Asset Management SOC Ltd. and provide for the phased transfer of state enterprises to the holding company.

According to the bill these entities, that fall under the department of public enterprises, will potentially be transferred to the new company:

• Air Traffic and Navigation Services
• Airports Company
• Broadband Infraco
• The Central Energy Fund
• Denel
• Eskom
• Sentech
• South African Airways
• South African Forestry Company
• South African National Road Agency (Sanral)
• South African Nuclear Energy Corporation
• South African Post Office
• Transnet.

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Mega-company must fix key weaknesses in SOCs

Most of these state-owned companies (SOCs) are more known for corruption and mismanagement than successful service delivery.  

According to the explanatory summary, key weaknesses in SOCs included excessive politicisation of boards and senior management appointments, weak coordination of national objectives and sectoral approaches and a deficit of the required professional skills and sound corporate governance approaches.

Therefore, SOCs did not contribute to the aims of the developmental state and proved to be a massive drain on the fiscus.

After the bill was published in September last year for public comment, about 3 500 comments were received that included three main themes: the need for a clear state ownership strategy, the need to harmonise the relevant legislative rules and the need for transparent and appropriate governance and accountability mechanisms.

The president will have to develop a “national strategy” with the presidential advisory committee and in consultation with the new state-owned holding company, as well as the minister(s) in charge on performance, objectives, performance targets and developmental obligations.

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State as sole owner a problem

While this sounds like a noble idea, Outa already said at the publication of the bill that it is nothing to write home about.

“It envisions doing away with the department of public enterprises, a department at the centre of state capture and replacing it with a holding company under which our state-owned entities will be controlled,” Brendan Slade, legal project manager at Outa, said.

“In theory such an arrangement would naturally promote good governance based on established corporate principles and best practice. However, centralisation of power is a massive feature in this proposed holding company and is somewhat counterintuitive if South Africa wishes to move on from a dysfunctional public service.”

He pointed out that the bill proposes the state as the only shareholder of the holding company and only the president, as the shareholder representative, can “hire and fire” the board. The bill also provides that the president may transfer any powers or functions in terms of the bill to any cabinet member.

“It is not farfetched to believe that the holding company could maintain a culture of cadre deployment if professionalisation of the private sector is not incentivised or properly implemented,” Slade said.

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Will new state-owned company be another white elephant?

Busi Mavuso, CEO of Business Leadership SA, also said at the time that the new holding company might be a good thing, but it also might not, depending entirely on how it is implemented.

“The worst fear is that it becomes yet another expensive white elephant that adds no value.”

She emphasised that it is important the holding company has some level of independence and can make operating decisions to ensure the financial performance of the SOCs.

“It should have budgetary autonomy and its legislation should give it full authority over the operating and financial affairs of the SOEs.”

In addition, she said it needs a board of accomplished, experienced professionals with extensive corporate expertise and not political cronies.

“In turn, it must have authority over the boards it appoints to manage the SOCs, monitor performance and ensure delivery. While it must report to a suitable government department, it should also have a line of accountability to parliament.”

She also expressed concern that the holding company will be the sole or majority shareholder, leaving out the option of minority ownership which may sometimes be optimal, as the Telkom example illustrates.

“A great deal will depend on who is appointed to the board of the new company and then what kind of executive management is appointed. The legislation positions the president as the sole representative of the company, rather than any particular minister such as the minister of finance, which would have positioned financial sustainability as a key concern of the holding company.”