……article dated 3 September 2020……
New DG explains ‘step in’ powers…..
Khathatso Tlhakudi, appointed recently by Pravin Gordhan as the new Director General, Public Enterprises, recently had the unenviable task of taking on angry MPs to explain the current state of South Africa’s disastrous public utility scenario. It was his parliamentary initiation as the head of public enterprises, responsible for the seven government SOEs all of which currently are responsible for a drain on the SA economy.
From the start of the meeting, MPs from across party lines expressed their extreme displeasure at the performance of government-run utilities under the tutelage of the Department of Public Enterprises (DPE). The meeting had been called to establish exactly what progress had been made and to provide an overview of where exactly DPE was headed and to hear a report back.
The state of Denmark
It might be said that in fact MPs got a true picture from the meeting as to how bad the situation was. In presenting his DPE overview, Tlhakudi said the department had worked on a new platform “for more timeous intervention into the affairs of SOEs in future”.
This plan, he explained, was at an advanced stage and had been developed at the instance of Minister Gordhan to intervene at short notice without overtly challenging the independence of SOE boards. Whilst obviously contentious, such a system would possibly give DPE some form of “step-in powers into the affairs of a state-owned entities where they were failing to comply according with their own frameworks, or where there were obvious material governance issues involved”.
The concept was demonstrated in the form of allowing for a series of memoranda of incorporation (MOI) with each of the entities, drawn up to allow a public enterprises minister to intervene in cases of financial distress, maladministration or certain other defined instances with “step in” rights.
Certain powers would be granted to the minister, such as the ability to call for the resignation of the boards which had been appointed by Parliament and for the minister to request Parliament to re-appoint and re-task new boards after an intervention.
Before the horse bolts
If such a move was to eventually come forward from Minister Gordhan this would probably be in the form of a draft Bill, it was stated by Orcilla Ruthnam, Chief Director: Governance Unit at DPE. Ruthnam has also undertaken an extensive study of how all CEOs and CFOs came to be appointed by SOEs in recent years and what process each board such appointments had gone through based on their qualifications.
This had been a revealing exercise, she told MPs, and was sufficient to show that the current system had to change before a “runaway” took place.
In the light of MPs questions, Orcilla Ruthnam gave detail on the proposed basis of an MOI for the DPE portfolio. Such would, she said, empower the minister to intervene when a board was seriously under-performing to dissolving the board and appointing a “quasi” administrator to turn around the company…..
- where the SOC was in financial distress, or there were allegations of maladministration and mismanagement
- when the SOC had material governance challenges;
- when the SOC failed to perform its functions effectively or efficiently; and
- where the SOC had acted unfairly or in a discriminatory or inequitable way towards a person to whom it owed a duty under the legislative or policy framework of the SOC; or had failed to comply with any law or any policy envisaged in the legislative or policy framework relevant to the SOC.
The principle of providing the minister with temporary intervention powers in law and which would have to trump long standing legislation enacted to ensure SOE independence was clearly to a river to cross, Ruthnam explained. It had to be acknowledged that interference by members if the Cabinet in the affairs of an SOE is specifically disallowed by the Companies Act, the Public Finance Management Act and the founding documents of each SOE, said DPE.
The whole principle behind an SOE’s independence from political interference has been in the past to ensure that their boards and management continue to operate in their own areas of expertise without influence from the body politic, Ruthnam continued, but the MOI was worded in such manner to allow for specific instances under specific circumstances as already outlined to MPs.
There were no questions from MPs on this particular subject, bearing in mind this was a virtual meeting.