State-Owned Enterprises in the spotlight

A LAW to regulate the activities and performance of State-Owned Enterprises has been in the offing for more than five years.

After much toing and froing between Cabinet committees over the years, a bill was finally tabled in the National Assembly last November. But it had hardly been discussed before it found itself waiting for National Council approval by early December.Last week the bill was put out for public comment by a select committee of the National Council.While agreed to in principle, several provisions came under attack because SOEs mostly felt that they would be stripped of their autonomy and their boards and senior management will have their duties usurped by a council of Ministers intended to oversee compliance with the proposed law.Yesterday, the NC committee tabled a summary of viewpoints expressed at the hearings and committee chairperson Jhonny Hakaye motivated the proposed changes to the bill to the House.The Committee has embraced a number of concerns and suggestions made for improving the bill and has subsequently recommended a number of changes to the bill in its current form in line with public input.What is the bill about? The bill aims to provide for the efficient governance of State-owned enterprises and the monitoring of their performance.A State-owned Enterprises Governance Council consisting of the Prime Minister, Attorney General, Ministers of Finance, Trade and Industry and the Director General of the National Planning Commission will lay down directives to SOE boards, CEOs and senior management.They will also review and approve the business plans, budgets and investments of SOEs, as a means to improve the dismal performance and huge losses suffered by many SOEs over the years.Who is covered by the bill? In its current form, the bill contains a schedule of 52 SOEs.Most of them have been established by an act of Parliament.But at least six of them, including power utility NamPower, Air Namibia and the National Petroleum Corporation of Namibia, are established purely through the Companies Act, with Government as the main and in most cases the sole shareholder.Testifying before the hearing, SOEs expressly mentioned in the bill have pointed out that the list is not extensive and does not include companies such as the Government Institutions’ Pension Fund (GIPF), Offshore Development Company (ODC) and education institutions such as Unam and the Polytechnic of Namibia, which they felt the list should include.Although reference is made to economic and productive SOEs, these are not defined in the bill and SOEs are not categorised as such either.The committee is advising that unless sound reasons can be provided for the omission of other institutions mentioned by contributors at the hearings, these should also be included in the schedule of SOEs to be covered by the bill, as some of these also receive State subsidies for their activities.The committee is also proposing that categories of SOEs (e.g.productive, economic, service) be defined in the bill and that the term “State-owned enterprises” be re-defined for more clarity.Composition and functions of the council The council will be responsible for developing common policy frameworks for the operations of State-owned enterprises and develop means to monitor their performance.The Minister responsible for the SOE will enter into a “governance agreement” with the board.Performance agreements will also be entered into between the Minister and the individual members of the board, the CEO and senior management.The council will also be responsible for determining the remuneration of boards, CEOs and senior staff.SOEs say they agree with the bill in principle, but that it places good governance principles in jeopardy.They feel too much power is accorded to the Governance Council and the composition of the Council places doubt in their minds as to whether Ministers who already have extensive responsibilities will be able to cope with all the duties assigned to them through the bill.Contributors said the functions of the council also presupposed technical expertise and a degree of professionalism in various fields of the different SOEs, and that the council would fall short on these requirements.The council is however permitted to appoint technical committees to inform its decision-making.The National Union of Namibian Workers (NUNW) said they thought the council would amount to “transplanting the same old people into a new structure” and “creating a culture of elites”.They have called for social partners to be included on the council.SOEs said the current functions of the council would blur and confuse lines of responsibility and they would be unsure whether their boards should report to the portfolio Minister or the council.In a briefing with the committee before the start of the hearings, the head of the Central Governance Agency, Lazarus Uaandja, said despite SOEs advocating for more autonomy for their boards in the managing of SOE’s affairs, such autonomy without accompanying safeguards is of great concern.”Past experience has clearly shown that left to their own devices, the portfolio Minister, the SOEs, the boards and executive management are for the most part incapable of adhering to and implementing the principles and policies of good corporate governance and best practice,” he said.The Select Committee agreed that the Prime Minister should be excluded from membership to the council and should instead call on the council to account for its activities, thereby strengthening the monitoring and accountability of the council.Having motivated the bill in the National Assembly, the committee says the Prime Minister should play an active role in the bill’s implementation.In its view, the Select Committee says that it is not the board of directors’ functions that need to be brought under control, but rather the supervisory ability of portfolio Ministers and the inability of some boards to competently manage the affairs of SOEs.”It is a combination of these factors and others that have largely contributed to failed and embarrassing investments and the subsequent loss of public money to fictitious investment companies,” said its report.Likewise, the committee argues that it is not the withdrawal of the board’s functions that will lead to the efficient running of the affairs of SOEs, but the appointment of competent, skilful, knowledgeable, suitable and qualified persons.The committee agrees that there is an overlap of functions of the council and the board and that the lines of communication should be clearly spelled out in the law.The committee also agreed with public input that vacancies on boards should be advertised, rather than purely being appointed on the decision of the council, to allow for broader choice and finding the most suitable candidate.Budgets, investments and business plans Every SOE must, at least 90 days before the start of its next financial year, submit a business and financial plan to the portfolio Minister under whom the SOE resorts.This plan must include all its business activities, including investments, its operating and capital budgets.The Portfolio Minister will then have to provide a copy of the annual business and financial plan to the Governance Council for comment.An SOE may not deviate from this plan without prior approval from the Minister.SOEs will also be required to submit their annual reports within six months of the end of the financial year.SOEs will not be allowed to invest any money without the prior approval of the portfolio Minister with concurrence of the Finance Minister.The majority of witnesses said the procedure regarding investments was not practical and that the market dictated that they act without delay.Most suggested that SOEs should rather be forced to adhere to an investment policy designed for each SOE and approved by the portfolio Minister of each SOE.Compliance could be monitored on a regular basis.SOEs also did not think that they would be able to comply with a deadline for submitting their annual reports to the council and that the council would not have enough time t
o review all the budgets and business plans without affecting SOE operations.The committee has agreed that an investment policy approved by the council is the way to go to clamp down on bad investment decisions and safeguard public money.Further, it supports a quarterly submission of progress reports on investments to the portfolio minister, which in turn must also be copied to the council.The committee did not pronounce itself on views expressed at the hearing that the council would not be able to deal with the large volume of budgets and business plans it would have to approve within the allotted time.Remuneration of the board and management According to the bill, the remuneration and allowances payable to members of the board must be determined by the portfolio Minister with concurrence from the Finance Minister and any directives laid down by the council.No remuneration is payable to a board member who is also a full-time civil servant.The remuneration and benefits of Chief Executive Officers and other management is to be determined by the board of the SOE with approval from the portfolio Minister and any other directives from the council SOEs are not in favour of the Governance Council determining the fees of board members and the remuneration of management.Neither are they are of the view that the boards of all SOEs be paid uniformly.With the exception of the NUNW, contributors at the hearing all felt that public servants who serve on boards should be paid for their services because they were providing a duty outside their job description in the employ of Government.Further, SOEs argued that like other board members, they could not be expected to deliver their best if they were not properly compensated for work they were expected to do outside normal working hours.The select committee supports the view that all board members, regardless of being public servants, should be paid for performing this duty.”Paying allowances to public servants would serve as an incentive for them to properly discharge their duties as board members,” the committee report says.The committee advises that the council should define remuneration guidelines for SOEs, taking into consideration the economical sustainability of and affordability to the SOE under consideration.What about the Central Governance Agency? Three years ago Cabinet appointed an executive director to the Central Governance Agency (CGA).Falling under the Prime Minister’s office, its job was to get the SOE bill to Parliament, and also provide for its own legal set-up so that it could regulate and restructure SOEs with the necessary legal backing.The Namibian has seen a copy of an earlier version of the SOE bill produced last year, in which it made provision for the establishment of the CGA.It was to act as the secretariat to the State-Owned Enterprises Governance Council, according to the bill.When the CGA was established, it was intended to report to a council or a Cabinet Committee on State-Owned Enterprises.However in this bill, the CGA or its role is not mentioned at all.It is unknown how the CGA will fit into the new plans for the governance of SOEs.The Namibian Chamber of Commerce and Industry and the CGA reasoned that a purely administrative Secretariat, as prescribed by the bill, would be inadequate to advise the council on technical matters relating to corporate governance.In their view, the CGA would be in a better position to support the council in effectively performing its duties.The Committee has not expressed an opinion on the role of the CGA in light of the new bill or the capabilities of the envisioned secretariat.But it had hardly been discussed before it found itself waiting for National Council approval by early December.Last week the bill was put out for public comment by a select committee of the National Council.While agreed to in principle, several provisions came under attack because SOEs mostly felt that they would be stripped of their autonomy and their boards and senior management will have their duties usurped by a council of Ministers intended to oversee compliance with the proposed law.Yesterday, the NC committee tabled a summary of viewpoints expressed at the hearings and committee chairperson Jhonny Hakaye motivated the proposed changes to the bill to the House.The Committee has embraced a number of concerns and suggestions made for improving the bill and has subsequently recommended a number of changes to the bill in its current form in line with public input.What is the bill about? The bill aims to provide for the efficient governance of State-owned enterprises and the monitoring of their performance.A State-owned Enterprises Governance Council consisting of the Prime Minister, Attorney General, Ministers of Finance, Trade and Industry and the Director General of the National Planning Commission will lay down directives to SOE boards, CEOs and senior management.They will also review and approve the business plans, budgets and investments of SOEs, as a means to improve the dismal performance and huge losses suffered by many SOEs over the years.Who is covered by the bill? In its current form, the bill contains a schedule of 52 SOEs.Most of them have been established by an act of Parliament.But at least six of them, including power utility NamPower, Air Namibia and the National Petroleum Corporation of Namibia, are established purely through the Companies Act, with Government as the main and in most cases the sole shareholder.Testifying before the hearing, SOEs expressly mentioned in the bill have pointed out that the list is not extensive and does not include companies such as the Government Institutions’ Pension Fund (GIPF), Offshore Development Company (ODC) and education institutions such as Unam and the Polytechnic of Namibia, which they felt the list should include.Although reference is made to economic and productive SOEs, these are not defined in the bill and SOEs are not categorised as such either.The committee is advising that unless sound reasons can be provided for the omission of other institutions mentioned by contributors at the hearings, these should also be included in the schedule of SOEs to be covered by the bill, as some of these also receive State subsidies for their activities.The committee is also proposing that categories of SOEs (e.g.productive, economic, service) be defined in the bill and that the term “State-owned enterprises” be re-defined for more clarity.Composition and functions of the council The council will be responsible for developing common policy frameworks for the operations of State-owned enterprises and develop means to monitor their performance.The Minister responsible for the SOE will enter into a “governance agreement” with the board.Performance agreements will also be entered into between the Minister and the individual members of the board, the CEO and senior management.The council will also be responsible for determining the remuneration of boards, CEOs and senior staff.SOEs say they agree with the bill in principle, but that it places good governance principles in jeopardy.They feel too much power is accorded to the Governance Council and the composition of the Council places doubt in their minds as to whether Ministers who already have extensive responsibilities will be able to cope with all the duties assigned to them through the bill.Contributors said the functions of the council also presupposed technical expertise and a degree of professionalism in various fields of the different SOEs, and that the council would fall short on these requirements.The council is however permitted to appoint technical committees to inform its decision-making.The National Union of Namibian Workers (NUNW) said they thought the council would amount to “transplanting the same old people into a new structure” and “creating a culture of elites”.They have called for social partners to be included on the council.SOEs said the current functions of the council would blur and confuse lines of responsibility and they would be unsure whether their boards should report to the portfolio Minister or the council.In a briefing with the commit
tee before the start of the hearings, the head of the Central Governance Agency, Lazarus Uaandja, said despite SOEs advocating for more autonomy for their boards in the managing of SOE’s affairs, such autonomy without accompanying safeguards is of great concern.”Past experience has clearly shown that left to their own devices, the portfolio Minister, the SOEs, the boards and executive management are for the most part incapable of adhering to and implementing the principles and policies of good corporate governance and best practice,” he said.The Select Committee agreed that the Prime Minister should be excluded from membership to the council and should instead call on the council to account for its activities, thereby strengthening the monitoring and accountability of the council.Having motivated the bill in the National Assembly, the committee says the Prime Minister should play an active role in the bill’s implementation.In its view, the Select Committee says that it is not the board of directors’ functions that need to be brought under control, but rather the supervisory ability of portfolio Ministers and the inability of some boards to competently manage the affairs of SOEs.”It is a combination of these factors and others that have largely contributed to failed and embarrassing investments and the subsequent loss of public money to fictitious investment companies,” said its report.Likewise, the committee argues that it is not the withdrawal of the board’s functions that will lead to the efficient running of the affairs of SOEs, but the appointment of competent, skilful, knowledgeable, suitable and qualified persons.The committee agrees that there is an overlap of functions of the council and the board and that the lines of communication should be clearly spelled out in the law.The committee also agreed with public input that vacancies on boards should be advertised, rather than purely being appointed on the decision of the council, to allow for broader choice and finding the most suitable candidate.Budgets, investments and business plans Every SOE must, at least 90 days before the start of its next financial year, submit a business and financial plan to the portfolio Minister under whom the SOE resorts.This plan must include all its business activities, including investments, its operating and capital budgets.The Portfolio Minister will then have to provide a copy of the annual business and financial plan to the Governance Council for comment.An SOE may not deviate from this plan without prior approval from the Minister.SOEs will also be required to submit their annual reports within six months of the end of the financial year.SOEs will not be allowed to invest any money without the prior approval of the portfolio Minister with concurrence of the Finance Minister.The majority of witnesses said the procedure regarding investments was not practical and that the market dictated that they act without delay.Most suggested that SOEs should rather be forced to adhere to an investment policy designed for each SOE and approved by the portfolio Minister of each SOE.Compliance could be monitored on a regular basis.SOEs also did not think that they would be able to comply with a deadline for submitting their annual reports to the council and that the council would not have enough time to review all the budgets and business plans without affecting SOE operations.The committee has agreed that an investment policy approved by the council is the way to go to clamp down on bad investment decisions and safeguard public money.Further, it supports a quarterly submission of progress reports on investments to the portfolio minister, which in turn must also be copied to the council.The committee did not pronounce itself on views expressed at the hearing that the council would not be able to deal with the large volume of budgets and business plans it would have to approve within the allotted time.Remuneration of the board and management According to the bill, the remuneration and allowances payable to members of the board must be determined by the portfolio Minister with concurrence from the Finance Minister and any directives laid down by the council.No remuneration is payable to a board member who is also a full-time civil servant.The remuneration and benefits of Chief Executive Officers and other management is to be determined by the board of the SOE with approval from the portfolio Minister and any other directives from the council SOEs are not in favour of the Governance Council determining the fees of board members and the remuneration of management.Neither are they are of the view that the boards of all SOEs be paid uniformly.With the exception of the NUNW, contributors at the hearing all felt that public servants who serve on boards should be paid for their services because they were providing a duty outside their job description in the employ of Government.Further, SOEs argued that like other board members, they could not be expected to deliver their best if they were not properly compensated for work they were expected to do outside normal working hours.The select committee supports the view that all board members, regardless of being public servants, should be paid for performing this duty.”Paying allowances to public servants would serve as an incentive for them to properly discharge their duties as board members,” the committee report says.The committee advises that the council should define remuneration guidelines for SOEs, taking into consideration the economical sustainability of and affordability to the SOE under consideration.What about the Central Governance Agency? Three years ago Cabinet appointed an executive director to the Central Governance Agency (CGA).Falling under the Prime Minister’s office, its job was to get the SOE bill to Parliament, and also provide for its own legal set-up so that it could regulate and restructure SOEs with the necessary legal backing.The Namibian has seen a copy of an earlier version of the SOE bill produced last year, in which it made provision for the establishment of the CGA.It was to act as the secretariat to the State-Owned Enterprises Governance Council, according to the bill.When the CGA was established, it was intended to report to a council or a Cabinet Committee on State-Owned Enterprises.However in this bill, the CGA or its role is not mentioned at all.It is unknown how the CGA will fit into the new plans for the governance of SOEs.The Namibian Chamber of Commerce and Industry and the CGA reasoned that a purely administrative Secretariat, as prescribed by the bill, would be inadequate to advise the council on technical matters relating to corporate governance.In their view, the CGA would be in a better position to support the council in effectively performing its duties.The Committee has not expressed an opinion on the role of the CGA in light of the new bill or the capabilities of the envisioned secretariat.