This article first appeared on News24

By Carol Paton

The National State Enterprises Bill, which will dramatically shake up the governance of state-owned companies (SOCs) and envisages them moving from line departments to a newly created state asset management company, was published for comment last Friday.

It will also see the end of the government’s Department of Public Enterprises, set up in the 1990s. However, it will not gel with the ANC’s most recent conference resolution that state-owned companies – particularly Eskom – will return to line departments.

The bill is the most far-reaching reform of SOCs since the 1990s, when some were corporatised under the Companies Act, mostly with an eye to future privatisation. Due to political opposition, the model never really took off.

Today, most companies are in dire financial straits and lack the management expertise needed. They have also been subject to ongoing political interference by line ministers, often to direct tenders and well-paid jobs to political cronies.

The bill sets out the legal basis for a state holding company – to be known as the State Asset Management Company – into which state-owned companies will migrate and be converted to subsidiaries.

The implicit objectives of the bill are to provide SOCs with the ability and means to raise capital from the markets, to minimise political interference and to separate the state’s regulatory functions from its ownership functions.

It is modelled on the Singaporean, Malaysian and Chinese models – where a holding company plays the role of a global investment asset manager – using state-owned companies to earn a return for investors. Investors other than the state would invest to earn returns through listings on the stock exchange.

Public Enterprises Minister Pravin Gordhan has previously said that the model would have the advantage of separating the state’s ownership functions from its policy and regulatory functions, minimising the scope for political interference, and introducing greater professionalism into the entities.

Acting director-general Jacky Molisane said in an interview on Sunday that the bill was essential for the government to implement the micro-economic reforms necessary for economic growth. A key part of this is getting the right people to do the demanding jobs in state-owned companies.

Molisane said:”We are trying to emulate best practices, such as in China, Malaysia, and Singapore, where we can actually get professionals to run these entities professionally and insulate them from political interference. We cannot have a situation whereby these SOCs are run by people who have absolutely no clue of what they’re doing. So you’ve got to get the best of the best and be able to pay them well.”

“In terms of the bill, the directors of the National State Asset Company will be appointed by the president. While the president can appoint and remove directors, the bill is unclear on whether subsidiary companies would have their own boards. It is also unclear from the bill how the board of the holding company – who would be political appointees – would be insulated from political pressure.”

Molisane says that Key Performance Indicators and the principles for appointment would be worked out far in advance to ensure that people were retained according to performance. This would entail an implicit recognition that those who fail to meet expectations should walk long before they are fired. The bill allows state-owned companies to transition into the State Asset Company over time.

A schedule attached to the bill on entities “capable” of being drawn into the holding company is empty of entries. Molisane says, however, there is “an indicative list” of the entities that will be phased in. As the repeal of the SAA Act was also gazetted on Friday, the airline seems like an early candidate.

The work of some of the members of the Presidential Council on State-owned Companies, appointed by President Cyril Ramaphosa three and a half years ago, is credited with conceptualising the new SOE model.

One of the workstreams in the council has also compiled a list of those entities that would be suitable for inclusion in the holdings company and noted those that should be disposed of or shut down. Molisane says that those suitable for inclusion would be those that can earn a return for investors.

“Those that initially go into the holding company must be the ones that can generate a profit, and they can stand on the strength of their own balance sheet. And those that need to be restructured until we’ve done the clean-up can be prepared to go into the holding company,” said Molisane.

The bill is now open for public comment, after which it will be tabled in Parliament. While the Cabinet quite easily endorsed the bill, it remains to be seen to what extent the ANC more broadly accepts it. Either way, to become law, it must be passed by Parliament before the end of March next year when the legislature is dissolved for new elections.