Seeking state efficiency
Johannesburg - PUBLIC Enterprises Minister Lynne Brown admits she’s tempted to “duck” whenever state-owned enterprises, of which the biggest and some of the more controversial fall within her portfolio, are in the news.
While the stream of controversy has abated somewhat, the Transnet “Spanish train” debacle and lately the news that arms manufacturer Denel concluded a joint venture deal without getting the required approval from her and Finance Minister Pravin Gordhan has reignited a debate about the risks to the fiscus of some poorly managed enterprises and the question of “state capture” – the undue influence of private individuals on procurement and appointment processes in some enterprises.
“At the moment when people talk about SOEs the camera comes onto me, and I just want to duck, and I hope it goes onto (Water and Sanitation Minister) Nomvula (Mokonyane) or someone,” Brown said this week.
Both State of the Nation Address and Budget speech have focused heavily on SOEs and the need to fix the dysfunctional ones before they drag the fiscus under water, to mobilise private capital to help the state complete its ambitious infrastructure plans and to rationalise or let go of the multitude that contribute little to the country’s development.
President Jacob Zuma said this would be done by implementing the recommendations of a review he commissioned in 2010 on SOEs.
Brown’s point, though, is that there are more than 700, falling under numerous departments and scattered across the three spheres of government, many with their own governing legislation.
While pundits had anticipated big news on the role for the private sector in SOEs in the Budget, all they got was the announcement that a merger between SAA and SA Express would be considered, with a view to possibly bringing a minority equity partner on board.
There is an enormous amount of work still to be done, however, before the state will be ready to fully implement the report on SOEs.
One area that needs urgent attention is governance – who is appointed to board and management positions, by whom and through what process – to limit the opportunity for these companies to be hijacked.
Brown argued it’s not always a clear-cut matter of wrongdoing.
In the Denel example, she said the onerous requirements of the Public Finance Management Act had been bypassed for some time by the company, until the new board took action.
“You’ve got to get a PFMA 54 application, a pre-approval, from me, then you’ve got to go to National Treasury and get the 51G, and then you’ve got to come back to me with both of those and I’ve got to give you a PFMA 54. That whole process can exclude any other business, so what Denel has been doing is not getting those PFMA applications or getting them post-facto,” she said.
She believed it had been “a process problem, more than anything else”, but she wanted to let the executives respond to the investigation and not “muddy the waters” herself in the meantime.
Part of the problem was that each new board wanted to “sweep clean” and do things differently.
“I mean, I have Safcol (South African Forestry Company) – they’ve had 10 investigations before I appointed this board. And when they said, look, we’ve got to have another investigation I said, I don’t want another investigation, I want you to look at all 10 investigations and tell me why you didn’t act against any of those,” Brown said.
There was also a need for a “different lens” in the board appointment process, which in many cases was done by individual ministers in the current system.
There was a belief that “it goes to Luthuli House and then it goes to the Guptas and I don’t know who else, and then it comes to the minister and the minister makes the decision”, Brown said.
“But I think, irrespective of who the players are outside, there’s a big push for who gets onto the boards. I’m relatively clear, if I wanted to appoint an executive I will appoint somebody with the capabilities. I want to employ electrical engineers in Eskom, I want people with fiduciary responsibilities. In a way it’s almost not worthwhile being on a board any longer, because you just become tainted with everything everybody throws at you.”
The Department of Public Service and Administration was working on this question, which she hoped would “come together” in a Shareholder Management Bill.
Other areas of work included a framework for private sector participation, which was being done between her department and the Treasury, and the development of a “filter” to sift SOEs into categories that would help define which should remain under state control, which should be merged or cut loose and which could be opened to the private sector.
Because there were more than 700 entities ranging from commonage held in trust and companies like Safcol and diamond miner Alexkor which were subject to land claims, to big economic drivers like Eskom, it was a fiendishly complex process.
“The filtering is going to have to be done initially by the officials and then they’ll present it to us. Then we’ll have to look at it as well as the interministerial committee. That’s the first part,” Brown said.
“Then, all of these things are governed by legislation of some sort or another. So all of that legislation will have to be repealed or amended. Then, if you’re wanting mergers, that’s a completely different kettle of fish.
“It’s a big reconfiguration and I think the state could oversee it, but we’re going to have to bring in the capability to turn it around.”
* Use IOL’s Facebook and Twitter pages to comment on our stories. See links below.