Time to make private partnerships
DURING the last few weeks, the issue of state-owned enterprises (SOEs) and their chaotic condition has been thrust into the limelight. It is clear that something drastic needs to be done before many of these SOEs implode.
It is heartening that the ruling party has expressed concern about how these entities are being run.
The only problem is that the ANC has spoken about them like any other NGO, instead of giving clear direction about how differently these entities should be managed. In other words, what is on the table is, quite frankly, the same set of concepts, ideas and so on that have resulted in the blatant failure of the parastatals.
The dissolution of the board of Prasa last week, the instability at the Central Energy Fund, the bailout of SAA and ongoing chaos at Eskom each offer an exemplar of the problems in the SOE landscape.
In the middle of this, however, the payment of dividends to the government by Telkom might just give a hint of what needs to be done to take SOEs out of their current morass.
Poor governance: It is clear that the very serious blurring of lines among the governing boards, the executive and the political authority is at the heart of the chaos facing most of the SOEs. Let’s keep this simple.
If the shareholder imposes a CEO on the board (as in the case of Prasa), from day one it causes tension between the CEO and that board, as the CEO sees himself above that board – and using a direct line to the minister can attempt to undermine it.
The shareholder must learn to appoint a board in which it has confidence, a board capable of appointing a chief executive of its own choice. Of course, at the heart of this culture is the badly-implemented cadre deployment system.
There is little point in appointing boards of people who use their appointments not as a chance to serve but as employment and thieving opportunities, nor should a CEO be appointed without involving the board of directors.
It is clear, therefore, that the manner of appointing these boards must change; and secondly, boards must be left alone to do their work and not have to deal with micro-management by the shareholder.
To hear the minister of finance deliberating on the organogram of SAA and how flat the structure must be is exactly part of the problem: over-involvement in the detail that has nothing to do with shareholders.
The result of the current governance set-up in these SOEs is what is making Prasa a governance joke and Eskom a circus. Investors and ratings agencies have not found this funny at all and the consequences are already upon us.
Equity partnerships: The bailout of SOEs is unacceptable. SAA is a case in point. The question is: What is new that will now be done to avoid the next bailout?
Changing the board and CEO, if the fundamental structure of the business remains the same, is a recipe for recurring failure.
The Ministry of Finance is reluctant to pursue the obvious route of private-public partnerships (PPPs) that would see the introduction of private sector equity partners.
Well then, the ANC has to intervene with a clear policy directive. For such partnerships would introduce a new culture of decision-making to sort out the governance chaos; there would be a shareholder with whom it would have to share both the burden of capitalising the entity as well as the decision-making.
In other words, the government would no longer be allowed to be unilateral in its policy directives to SOEs. This would create the policy certainty that comes with investors knowing that policy won’t change overnight simply because the politician in charge of that SOE has changed.
To amend policy, the government would be forced to take the other shareholder with it and persuade it on any change of strategy.
Similarly, when the SOE is in trouble, it will not just look to one shareholder to bail it out. In the case of SAA, a partnership with an international carrier was mooted long ago but sabotaged by its chairperson, who is thankfully now leaving the airline at the end of this month.
A good and knowledgeable equity partner will also bring international expertise to bear on the turnaround plans of SAA.
The previous minister of finance announced to the nation more than a year ago that this equity route would be taken; typically, months later there seems to be no political will to follow through on this and instead, the government is fiddling while Rome burns by bailing the entity out again and hoping for the proverbial turnaround.
Lessons from Telkom: The story of Telkom is a good example of how a PPP model can deliver the much-needed results.
Here is a parastatal that has ceased to be a burden to the state. It is co-owned with private shareholders and has seen little or no government interference in the last few years, resulting in it giving billions back as dividends.
Ironically, that money is being sent straight back into the SA black hole. This is the lesson that the government must learn. I have not heard any minister pronouncing on what kind of toilet paper must be used in Telkom bathrooms. This is a good thing that must be replicated across all SOEs.
The government must obviously retain majority shares on behalf of the people as a whole, but a 100% shareholding in SOEs is nothing but vanity and a desire for overweening power that has cost the fiscus billions. It must, quite frankly, stop.
SOE POWER GENERATOR: Eskom’s Kendal coal-fired power station in Delmas.