Time to make pri­vate part­ner­ships

The Star Early Edition - - OPINION & ANALYSIS - QUITE FRANKLY

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.

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