Fin24.com | Gordhan gets tough on ‘largely captured‘ state entities

Cape Town – Public Enterprises Minister Pravin Gordhan told Parliament on Wednesday that his department would hold parastatals on a much shorter leash as they recover from what he called “the phenomenon of state capture”.

Captains of South Africa’s state-owned enterprises would have to report to the department on key performance areas and operations on a fortnightly basis, instead of just quarterly, Gordhan said.

The minister said the Department of Public Enterprises was in the process of investigating the legal possibilities of a “shareholder step-in” clause, so the department could intervene in matters where an entity’s board was shown to have no capacity to function in its entity’s best interests.

In his State of The Nation Address in February, President Cyril Ramaphosa told the country that aspects of state-owned entities’ business, including their funding model and government’s power to intervene when entities fail, would be reviewed.

In a frank account to a joint meeting of the Portfolio Committee on Public Enterprises and the Select Committee on Communications and Public Enterprises on Wednesday, Gordhan admitted that most entities that report to his department had been affected by the phenomenon of state capture.

“You have the manifestations in people, structures and culture of the state capture phenomenon and in that context the president specifically mentioned state-owned enterprises, saying they faced governance, operational and financial challenges,” he said.

Gordhan said, in light of Ramaphosa’s call for change at state entities, the department would consider changes, including the removal of board members from any procurement process, and getting the Auditor General’s assistance in assessing financial statements and reviewing forensic reports into procurement at some entities.

Appointing of boards

“We will change the way boards are appointed. SA is aware that part of the state capture strategy was to change political principle in order to change and influence boards. Many changes would (then have been) made to boards to the extent that they would become willing partners to state capture,” said Gordhan.

He said the review of all boards was already in progress. Management and senior management would also be scrutinised to see if any employees on this level were involved in state capture and the decay of their respective entities.

“We will have to look at already adopted policy and how it views private sector involvement in the undertaking of assisting entities. But, in the first instance, we must get governance and management fixed before we entertain other ideas,” he said.

The minister said the monitoring of SOEs by the department was generally weaker than it needed to be. Evidence of this was the heavy reliance on quarterly reports, without having a clearer understanding of the businesses, revenue streams and decisions made at a board level.

“We intend, through this process, to monitor, not only on the basis of a quarterly report, but get weekly or fortnightly reports on the key areas of business, so when maleficence creeps in, we can intervene through the boards,” he said.

Gordhan said all entities had been briefed on the reforms he hoped to make. He said the department would interrogate decisions to give boards of failing entities bonuses, adding that the department had to become more robust in keeping entities and their leaders accountable.

“Aside from appointing new boards of directors, we are looking to take action – including a legal opinion on reversing bad contracts – to enforce share step-in rights, and when we look at how we intervene, at staff doing business with SOEs,” he said.

“In SOEs, there might be a culture that begins to assign management teams an entitlement where they begin to believe they are not answerable to the state. That weakens accountability. It’s a perfectly understandable human development to seek autonomy, but institutions need the right dynamic and environment for transparency.”

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