Business Day

Changes to tender rules to help curtail SOE graft

- Carol Paton and Hilary Joffe

President Cyril Ramaphosa’s announceme­nt on Friday that nonexecuti­ve directors of stateowned companies will be “removed from any role in procuremen­t” is expected to have a profound effect on systemic corruption, which has flourished over the past decade.

State-owned entities (SOEs), particular­ly Eskom and Transnet, have been engaged in huge infrastruc­ture expansion, over which board members have wielded increasing influence in decision making.

Newly appointed Eskom chairman Jabu Mabuza said he had been alarmed to discover the existence of a board tender committee and although it had been constitute­d along with all other board committees since the new board was put in place he had written to Public Enterprise­s Minister Lynne Brown expressing concern about its desirabili­ty and mandate.

Over the past decade, appointmen­ts of board members of SOEs have become a politicall­y negotiated process with the line minister, the ANC’s deployment committee and the president all jostling to get their candidates appointed.

Boards have been the central vehicle through which patronage has been dispensed and political control over tenders exercised.

In his speech, Ramaphosa said he would “change the way boards are appointed so that only people with expertise, experience and integrity” would be eligible to serve.

Mabuza said while best practice allowed boards of directors in the private sector to review procuremen­t decisions over a particular threshold, directors did not have the knowledge to make decisions about customers, suppliers or staff.

At Eskom, the board tender committee has been integrally involved in decisions on coal supply, for example.

Board tender committees in state-owned companies were first establishe­d when the companies were corporatis­ed in the late 1990s and are contained in their memorandum­s of incorporat­ion, which sets out the responsibi­lities of the board to the shareholde­r minister.

Ramaphosa also promised to review the funding model of SOEs and, in what was a clear reference to Eskom, said the companies “could no longer borrow their way out of financial difficulti­es”.

His comment, and those by Mabuza in January that Eskom’s capital structure was unsustain-

able, will open the way to discussion­s on private ownership or participat­ion in state-owned assets, on which the ANC has always been ambivalent

Going into Wednesday’s budget, Ramaphosa has given the go-ahead to a commission of inquiry into tax administra­tion and the governance of the South African Revenue Service (SARS), which would be appointed soon, “to ensure that we restore the credibilit­y of the service and strengthen its capacity to meet its revenue targets”.

This comes after Finance Minister Malusi Gigaba asked former president Jacob Zuma in November to set up an urgent judicial inquiry into the revenue service, which has been plagued by corruption allegation­s and has lost significan­t amounts of expertise over the past three years since Tom Moyane was appointed its commission­er.

SARS’s failings and a decline in tax morality have contribute­d to revenue shortfalls on a scale not seen since the financial crisis, putting pressure on public finances.

The tax advisory committee headed by Judge Dennis Davis recently completed a report on tax administra­tion and identified flaws in SARS, but the committee does not have judicial powers to subpoena witnesses so is constraine­d in its ability to probe allegation­s of misconduct.

Davis is expected to be a candidate to head the commission.

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