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State-owned companies have been hampered by state-capture, “which in simple English would be referred to as fraud and corruption”, Finance Minister Nhlanhla Nene has said.
Nene, who was addressing the National Council of Provinces on Tuesday on how to address governance challenges in these enterprises, said there were “various government initiatives currently underway that are aimed at rebuilding the capacity of state-owned companies to live up to their mandates”.
Drawing recommendations made by the presidential review committee on state-owned companies, Nene said the key challenges leading to poor performance by state-owned enterprises included weak balance sheets, poor financial performance, governance failings, and inadequate mechanisms to enforce accountability.
He listed the following initiatives that are aimed at rebuilding the capacity of state-owned companies:
A private sector participation framework
Nene said this framework “provides for alternative financing strategies to enable infrastructure investment and highlights considerations for [state-owned companies] to partner with private sector companies in order to enable a faster, more efficient delivery of goods, services and economic infrastructure to support the country’s higher economic growth aspirations and economic transformation goals”.
One of the principles to determine where private sector participation projects should be undertaken is a governance framework for government to oversee its implementation.
He said the framework was formed in consultation with key departments such as economic development, public enterprises, transport, energy, water and sanitation, and telecommunications and postal Services.
Costing of developmental mandates
The minister said many poorly performing state-owned companies claimed developmental activities have contributed to their poor financial performance.
“In this regard, it has become important that the costs associated with the developmental activities be clearly specified and that these generate external benefits without compromising the financial sustainability of the entity.
“State-owned companies are required to identify activities, quantify the net costs of the activity and calculate the Net Present Value using a specified rate of return. Where activities have a negative Net Present Value, and they are strategic and developmental, fiscal support may be considered” he said.
Framework for the appointment of state-owned company boards member’s remuneration of executives
With guidance from the minister for public service and administration, Nene said the government has developed the following framework:
• A review of the requirements of minimum qualifications for potential candidates;
• A review of the methodology for processing of board appointments and their submission to Cabinet;
• A review of the number of boards each person may serve on at any given time;
• The appointment of executive authorities to strategic boards; and
• The developing guidelines regarding the level of security clearances for board appointees.
He said this framework should be aligned to the remunerations framework – for both guaranteed packages and short-term incentives – for state-owned company boards and executive management.
“Successful implementation of these measures requires close coordination within government and effective collaboration with the private sector,” said Nene.
