The State Owned Enterprises Bill

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By Martin Mwinga The SOE (State Owned Enterprises) Bill should be seen and understood in the context of the shift in government’s role in the economy. The government through the Prime Minister has over the past year made it clear that the State will play an active role in the management of the economy. The government wants to create a “development state” that will take an active part in the generation of wealth. We have achieved macroeconomic stability; the state has provided infrastructure that needs to be put to good use to advance economic growth. Despite the achievement of macroeconomic stability and the provision of infrastructure, investment and economic growth remains low and results in high unemployment and poverty, a situation unacceptable to government. The following quotation by Prime Minister Nahas Angula will help us understand the context in which this Bill is formulated. ” The Private Sector has disappointed us. We want to create a state that is going to promote economic growth, a developmental state that is going to lubricate the private sector to really kick-start the economy,” Prime Minister Nahas Angula, Insight Magazine 2005. The above shows that the state wants to shift away from the role of distributor of wealth to that of generator of wealth, and one way to achieve this is to change the way SOE enterprises have been performing doing their business. As a shareholder the state is entitled to use SOEs to achieve this objective. This Bill therefore should not only be seen in the narrow context of fighting corruption and dealing with inefficiencies, but should be understood in the broader context of moving the economy from the current unacceptable state to a higher growth path. State of Affairs since independence: SOEs dominate the economy in Namibia and government has since independence used SOEs to redistribute wealth and correct for market failures. The state has used its funds (taxpayers’ money) to achieve this objective. Most SOEs were commercialised to lessen dependence on government while still achiving overall government objectives. The key parastatals that drive the Namibian economy are in the following areas: 1. Electricity (NamPower): Electricity supply to different sectors of the economy has supported economic growth. NamPower has been able to provide this service using own resources while meeting government objectives of rural electrification and remaining profitable. Electricity supply is not a constraint on economic growth at the moment, and Namibia has achieved most of its electricity needs and we must now put it to good use. 2. Telecommunication (Telecom and MTC): Telecommunication is a key link in the economic network and efficient delivery of communication is vital for economic growth. Telecom Namibia and its subsidiary MTC are profitable and self-financing in providing telecommunication services to the nation. Telecom is achieving overall government objectives while remaining profitable. 3. Transport (NamPort, TransNamib, Air Namibia, Roads Authority, Roads Contractor Company): There is a well-established road and rail network and sea transport to facilitate economic activities. All these companies with the exception of TransNamib and Air Namibia are profitable and still achieving overall government objectives. 4. Water (NamWater): Provision of affordable water supply is one of government’s priority areas. NamWater has achieved this objective without government subsidies and maintaining a health balance sheet. 5. Finance (Development Bank, Bank of Namibia, Agri-Bank): Are we directing finance into the productive sector of the economy? Broad Comments: Implementation of good corporate governance principles in State Owned Enterprises (SOEs) will require the provision of autonomy to management and boards of directors through reduction in government control and interference. The State Owned Enterprises Bill gives too much control of SOEs’ decision-making to cabinet ministers and limits the autonomy and functioning of boards and could result in too much political interference. The powers of the board in making decisions are curtailed by the requirement that the government must approve most decisions. SOEs are faced with a number of legal, ownership, political and structural complexities that affect the extent to which good corporate governance can be applied. These complexities include: 1. The elaborate set of relationships ranging from the CEO, the boards of directors, responsible ministers to parliament. 2. The need for SOE sto satisfy a complex and often conflicting range of political, economic and social objectives. 3. The diverse nature of stakeholders with their varied and contractual demands. 4. The absence of the Annual-General Meeting in which shareholders come together to exercise their authority over the corporation is an inhibiting factor for good corporate governance in public corporations. Specific Comments: Section 3: Constitution of Council Is the current composition of the council as stipulated in section 3 of the Bill, sufficient to effectively govern SOEs as per the purpose of the Bill? Comments: The Bill in its current form excludes the role of parliament and gives more powers to cabinet. In line with good corporate governance principles the SOEs council should not be accountable to cabinet, but to parliament. Parliament oversight is critical and crucial in ensuring the efficiency and effectiveness of SOEs. Parliamentary committees on SOEs should be composed of members from the National Assembly and National Council, and this committee to work closely with line ministers responsible for SOEs and detailed feedback on the state and performance of SOEs shoulod be given to this committee. Parliament as the trustee shareholder for the general public will ensure that the government in general and ministers in particular will be held accountable for efficient performance of SOEs. Cabinet cannot hold itself responsible for failure and therefore parliament is the only body to hold ministers or cabinet accountable. The functions of the council should determine its composition, and looking at the stipulated functions of the proposed governance council, its composition should include competent professionals. The Prime Minister and Minster of Trade and Industry should not be members of the council and the council therefore should be made up of the following: 1. The Minister of Finance 2. The Attorney-General 3. The Director-General of the National Planning Commission (NPC) 4. Three (3) or more competent people from professional bodies such as accounting firms, private sector and academia. Who holds the Governance Council accountable if it is not fulfilling its function? The Prime Minister and the cabinet will be given feedback on the performance of SOEs by the Minister of Finance and other line ministers. Parliament’s role needs to be clearly spelt out in the Bill. Section 4: Functions of the Council Is there any need to amend the current functions of the Council as stipulated by section 4 of the Bill to ensure the achievement of the objectives of the Bill? Comments: The following can be incorporated into the functions of the Council: 1. The establishment and coordination of the commercial and social objectives of SOEs to avoid conflict between the two. 2. Reporting to parliament through the chairman of the Council or through the responsible minister on the performance of SOEs. Section 14: Council’s function in relation to boards of SOEs Should the number of board members of SOEs be stipulated in the Bill or determined by the Council? Comments: The Bill should not stipulate the number of board members. The minimum of five (5) board members could be too big for some smaller SOEs, so the limit 5 to 7 should be removed. The Council should return the powers to determine the appropriate board size, this will allow flexibility. Section 15: Procedure for appointment of board members and alternate board members of SOEs. Will sections 14 and 15 of the Bill ensure the appointment of suitably qualified and experienced persons to serve on the boards of SOEs? Comments: Board member positions to be advertised. Section 22: Remuneration of board members and management staff of SOEs. Should board members of the different SOEs receive the same remuneration or not? Comments: With the exception of the chairman all board members to receive same remuneration. If a board member is not performing or fulfilling his/her responsibility the solution is to remove them from the board instead of paying them lower than other members. Section 27: Obligations concerning investments General comments: The minister should not be involved in the day-to-day investment decisions of the companies. This decision should be delegated to the board. Each SOE should be obliged to have an investment policy guideline that which stipulate the nature of the type of investment an SOE can make. This investment policy should be approved by the Minister. Each month or quarter the Minister can be furnished with the cash-flow and underlying investments of the company to determine whether the SOE’s investments are in line with instruments agreed in the investment policy guidelines. (i) Does section 27 of the Bill sufficiently provide for curbing of unauthorised investments or mismanagement of SOEs’ funds? Comment: The section requires the furnishing of full particulars of the proposed investments to the responsible Minister. This will provide checks and balances and will put pressure on themanagement of SOEs to act lawfully. (ii) Section 27 (1) is silent on the role of the boards vis-ÃÆ’Æ‘Æ‘ÃÆ”šÃ‚ -vis the investment and management of SOEs’ funds. What impact will this omission have on the control and monitoring function of the boards of SOEs? Comments: Good corporate governance requires that investment decisions be left to the board and management. The decision to seek the permission of the Minister before an investment is made will delay the investment process. The implication is that the CEO or management will obtain approval from the Minister to invest or withdraw funds without the knowledge of the board. The board will be composed of experts and it is they who should make a call on investments. (iii) Section 27 (2) requires that full particulars of the proposed investment be lodged with the portfolio Minister. Is there a need for the Bill to clearly stipulate the particulars? Comments: No. The particulars will be stipulated in the investment policy guidelines. Other Sections: Section 19: Business and Financial: Agree with the section. Most SOEs have prepared business that they do not follow, not in line with overall government policy objectives and budgets not in line with strategic objectives. Budgets and business and borrowing plans need to be submitted to the executive authority for them to determine whether they are in line with overall government policy Section 24: Duty to furnish information: The Council should not request but this should be made compulsory. SOEs need to submit progress reports on their business activities to the Council at every sitting of the Council or every six months.. The line minister needs to be furnished with reports (six monthly) on the activities of the SOEs and whether they meet objectives and targets. Section 36: Restructuring of State Owned Enterprises: Restructuring of SOEs should be taken as part of the govern-ment’s ” Structural Adjustment Programme” and not in isolation of overall economic policy. In Conclusion: The Act will help improve governance by clearly stating the role of the Shareholder, the Board and Management. It does not take autonomy away from these entities. SOEs will act responsibly and help achieve overall government economic objectives. There are SOEs sitting with huge amounts of cash not sure how to invest these funds, the Council will help give direction. Structures and roles: Each line ministry to be responsible for the management and performance of SOEs resorting under their ministries and the line Minister to report to a cabinet subcommittee or cabinet. Regulatory authorities be strengthened e.g. current structure in the Ministry of Mines and Energy. Relationship between government and SOEs: Government as the main shareholder in SOEs faces a wide range of risks associated with the operations of SOEs, including financial, reputation, political and operational risks. It is therefore the responsibility of each portfolio minister responsible for SOEs to ensure that these risks are identified, reduced, and managed. In this regard a key requirement of SOEs is to report and account for their performance to the relevant executive authority. Although it delegates the day to day running of SOEs to the board and management it is responsible for ensuring that an SOE succeeds. Board and shareholder relationship: The shareholder should monitor closely the extent to which the board as a whole and individual directors achieve the objectives and any specific targets set, and when necessary effect remedial action. The board should keep the shareholder sufficiently informed on the activities of SOEs on a timely and regular basis. Why is the Bank of Namibia not included?