The long-awaited report by the Presidential Review Committee (PRC) on State-owned entities (SOEs) has recommended that all commercial State-owned companies be consolidated under a central executive authority, or department, over the coming five years. Likewise, those enterprises deemed to be development finance institutions (DFIs) should fall under a similar, but separate, executive authority.

The report did not, however, prescribe which department should eventually oversee the commercial entities or the DFIs, recommending only that central authorities should be established in line with an “overarching, long-term strategy”, as well as a new law governing all SOEs.

The proposed legislation would supersede current laws governing the SOEs and would seek to address the duplication, conflicting provisions, different founding legislation and omissions.

Currently, the Department of Public Enterprises (DPE) had shareholder responsibilities for several large SOEs, including Eskom, Transnet and South African Airways. However, a number of other commercial entities still fell under line departments, such as Sentech, the South African Post Office and the Central Energy Fund.

Commercial SOEs and DFIs were defined in the 219-page report as those organisations that command market-related revenues, had bankable balance sheets, the ability to post profits and the capability to maintain and replenish market capitalisation autonomously from the State.

The existing commercial portfolio included the large SOEs currently falling under the DPE, as well as statutory corporations, such as the water boards, and companies in which the State had a shareholding, such as Telkom. The DFIs, such as the Development Bank of Southern Africa and the Industrial Development Corporation, were the finance-related commercial SOEs.

Minister in The Presidency Collins Chabane said that Cabinet had accepted the final report on April 30, 2013, and had approved the establishment of a SOE Inter-Ministerial Committee to guide the phased implementation of the recommendations. The PRC itself was established in May 2010 under the chairpersonship of the current national police commissioner, Riah Phiyega.

In all, 31 recommendations were published, including the suggestion that government should rationalise the current SOE portfolio, currently comprising 715 entities.

PRC deputy chairperson Glen Mashinini said that the report called for future holdings to be focused on those SOEs that provide public goods, as well as those deemed to be strategic. The balance should be reabsorbed into national departments, provinces and municipalities, merged, or even sold.

MINERS MUST CONTRIBUTE FAIRLY

Also recommended was the development of a consolidated funding model for the commercial SOEs and DFIs, embracing a greater mix of debt and equity finance, and private sector participation.

The report added that the mining sector, which was a significant user of economic infrastructure, should “contribute fairly” to the development of that infrastructure.

It said that, in addition to tariffs based on the user-pay principle, consideration should be given to the use of “various policy tools”, including mandatory local beneficiation and/or ring-fencing a portion of the proposed resources tax to develop infrastructure.

Attention was also paid to the issues of corporate governance and executive remuneration, with the PRC recommending the creation of a Central Remuneration Authority (CRA).

The CRA, the PRC argues, should be given a strong degree of independence, as well as the necessary authority to develop an overarching framework for remuneration, including the parameters within which a board might apply its discretion on remuneration.

It would also be expected to advise government on the appropriateness of SOE remuneration policies and periodically review the appropriateness of executive perks outside the total package.

A new framework for the appointment of SOE boards and CEOs was also recommended, with the PRC calling for a ‘Handbook on Board Appointments’, which clarified the roles of all involved, from Parliament to the Minister to the SOE board. The PRC also urged that the appointment of the CEO be done by the Minister in concurrence with Cabinet, at the recommendation of the board.

Chabane said government would now move to reorient the SOEs towards the twin goals of attaining the country's socioeconomic developmental goals and maximising operational efficiency and financial sustainability. He said the implementation would involve short-, medium- and long-term actions.