The way forward for SOEs

Otis Finck - The tabling of the consolidated amendment in the form of the 2018 Public Enterprises Bill is imminent, the minister of public enterprises, Leon Jooste, told CEOs of state-owned enterprises at Swakopmund on Thursday.

“The legislative instrument will bring the hybrid governance model to life. There is a strong political will but as we all know, embracing transformation is not without challenges,” Jooste said at the third AGM of the Public Enterprises Chief Executive Officers Forum.

Jooste expressed concern at public enterprises’ debt, which is currently standing at N$43 billion, and said pension funds and medical aid schemes for employees were being considered.

He emphasised that implementing the Procurement Act was challenging and said the ministry was consolidating comments and recommendations from public enterprises.

He also called for the proactive engagement of unions with regard to the sharing of accurate information on remuneration.

Boards

The minister said the categories of people to be excluded from board appointments were being considered and would be presented to cabinet soon.

He said the issue of public servants serving on boards would be resolved soon.

New board recruitment and appointment guidelines had been finalised and would be presented to cabinet for endorsement.

The minister added that the ministry now had a clear understanding and appreciation of the way forward, whereby commercial public enterprises would start reporting to their new shareholder ministry, namely the ministry of public enterprises.

Definition of entities

He explained that the non-commercial public enterprises would continue to report to their relevant portfolio ministries, with guidance and support from the ministry of public enterprises on best practices for good governance.

In the new governance model for public enterprises, the extra-budgetary funds would report to the ministry of finance.

According to Jooste, the definition of the various entities that are to be governed in the public enterprise sector was the cause of one of the circular movements in the legislative drafting process.

The objective criteria for a commercial public enterprise (Nampower, Namport and MTC), non-commercial public enterprise (regulators such as CRAN and the ECB, education institutions such as NTA, Unam and NUST and marketing bodies such as AMTA and the NTB) and extra-budgetary Funds (MVA Fund, Environmental Investment Fund and the War Veterans Trust Fund) were then ultimately resolved.

“In the allocation of existing public enterprises in the three defined brackets including commercial, non-commercial or EBF we may still encounter a few challenges but broadly these set criteria should do away with much of the confusion about the status and related governance and reporting lines for our public enterprises.

“With the classification of existing public enterprises in hand, we can now start the broad-based national dialogue on the real, actual transformation of the public enterprise sector.”

Transformation

The minister said a plethora of public enterprises had been established since independence, not necessarily following a rational approach. The transformation of public enterprises was, therefore, given quite a bit of thought and was taking shape.

“The ministry intends to be an active shareholder and start the transformation process with the commercial public enterprises while encouraging the non-commercial public enterprises and EBFs to undertake cost-efficiency audits, in addition to seeking full compliance in terms of the Public Enterprises Act.”

Measures include timely financial reporting, timely submission of five-year integrated strategic business plans and timely annual plans, signed governance and performance agreements, submission of pertinent policies, and adherence to the remuneration guidelines.

The minister indicated that the overall compliance rating for public enterprises stood at 27% for audited financials, 20% for governance agreements, 25% for performance agreements and 48% for business plans.

Seeking answers

Jooste said that as the active shareholder in commercial public enterprises the ministry would seek answers to a number of pertinent questions to confirm the mandate for these enterprises, which in turn would inform how it related to these enterprises in the future.

For example: does the public enterprise compete with the private sector and, if so, what is the value addition of the public enterprise’s presence in the sector? Should the government remain invested or rather divest at good value, creating strong fiscal proceeds from transfer of ownership? Or could continued investment be justified from a pure financial perspective with the public enterprise generating shareholder value?

If the public enterprise operates as a monopoly it must be determined if the sector would benefit from the introduction of competition in terms of improved efficiencies, innovation and cost reduction, or whether the continued monopoly operation was justified for other reasons.

For example, is the sector or subsector of strategic importance to Namibia or are significant economies of scale required for any operator to be present in the sector?

Testing business models

The ministry also intends to test all public enterprises’ current business models against their original mandate.

Based on this assessment of relevance, importance and impact, the ministry will seek to update the mandate or refocus the public enterprise back to its original mandate, or recommend the restructuring of a public enterprise.

This may include the consolidation of public enterprises, private-public partnerships, public listing of shares, reintegration of public enterprise functions into portfolio ministries and transfer of assets from the public enterprise to other state-owned entities.