Measures to strengthen State-owned companies

Wednesday, August 22, 2018

Finance Minister Nhlanhla Nene has announced a set of measures aimed at strengthening State-owned companies.

Addressing the National Council of Provinces (NCOP) on Tuesday, the Minister said given the dire situation in which some of these state-owned companies are in, capable and morally upright men and women are needed to stabilise them.

Drawing on recommendations made by the Presidential Review Committee on State-owned companies, Nene told the NCOP that several measures will be implemented.

These measures which seek to address challenges faced by the entities. Among the challenges identified by the Presidential Review Committee include governance failings and policy and mandate misalignments, among others.

Namely the measures which seek to address the challenges identified are:  

  • The Private Sector Participation (PSP) Framework;
  • Costing the developmental mandates of SOCs;
  • The framework for the appointment of members to Boards of SOCs and remuneration of Executives of SOCs.

The PSP framework

The framework which was approved by government in 2016 provides for alternative financing strategies to enable infrastructure investment and highlights considerations for SOCs to partner with private sector companies to enable a faster, more efficient delivery of goods, services and economic infrastructure to support South Africa’s  higher economic growth aspirations and economic transformation goals.

“The PSP framework is therefore aimed at accelerating the delivery of infrastructure projects that are key for enabling economic growth through leveraged financing from the private sector,” said the Minister.

The framework proposes the key principles for determining where PSP projects should be undertaken. These are:

  • The possible PSP structures that could be employed depending on the nature of the infrastructure project; and
  • a governance framework for government to oversee the implementation of PSPs.
  • The proposed PSP projects must be a by-product of the filtering process based on sector performance and market structure analysis with a key focus on economic development.

Key principles of the framework include consideration that PSP project are feasible and demonstrate that they will yield socio-economic benefits for the country.

Currently, all SOCs are required to give effect to the implementation of the PSP framework in their respective Corporate Plans.

To give effect to this framework, government is currently working towards several objectives including higher levels of investment in economic infrastructure in both the public and the private sectors for South Africa to achieve its economic growth rate aspiration of 5% as outlined in the National Development Plan (NDP).

Costing the developmental mandates of SOCs

Government has also committed to a mechanism for the costing of the developmental mandates of SOCs, with the financial implications set out more clearly in Shareholder Compacts. The proposed mechanisms include identifying existing and future developmental activities.

Once costs have been quantified a funding mechanism then needs to be decided upon.

Nene said SOCs contribute to the development of the country through their commercial and non-commercial developmental activities. Many of the poorly performing SOCs claim that developmental activities have contributed to their poor financial performance.

“In this regard, it has become important that the costs associated with the developmental activities be clearly specified and that these generate external benefits without compromising the financial sustainability of the entity,” said the Minister.

Framework for the appointment of members to the Boards of SOCs and the Remuneration of SOC Executives

Under the guidance of the Minister for Public Service and Administration, government has developed a framework for the appointment of members to SOC Boards and the SOC Executives.

It comprises several elements including a review of the requirements of minimum qualifications for potential candidates and a review of the methodology for processing of board appointments and their submission to Cabinet.

“It is also important that the Framework for the appointment of members to the Boards of SOCs should be aligned to the remunerations Framework (both guaranteed packages and short-term incentives) for the boards and executive management in order to standardise the determination of compensation and also close the huge gaps between compensation of boards and executive management of the different SOCs.” -