SOEs must seek private investment for growth - Gordhan

2016-02-24 14:11 - Matthew Le Cordeur
Electricity pylon
(Duncan Alfreds, News24) ~ News24

Cape Town – State-owned entities (SOEs) will work more frequently with private sector investors to accelerate infrastructure investment, Finance Minister Pravin Gordhan said in his budget review on Wednesday.

“Our aim is to strengthen our state entities so that they can play a propulsive and dynamic role in our development,” he told Parliament. “Further financial support to state-owned companies will depend on clarity of this mandate and firm resolution of governance challenges.”

“We must broaden the range and scope of our co-funding partnerships with private sector investors,” he said. “This requires an appropriate framework to govern concession agreements and associated debt and equity instruments, and appropriate regulation of the market structure.”

“In taking this forward, we are able to draw on our experience in road funding concessions, in building the renewable energy market, and in promoting broadband telecommunications,” he said.

“Across these and other sectors we have much to learn from each other, both nationally and through provincial and local initiatives.”

Regulatory agencies will have a special responsibility in this process, said Gordhan. They will set prices for electricity, transport and water utilities and ensure investment can continue to be financed while ensuring costs are properly managed.

“The strength of our major state-owned companies does not lie in protecting their dominant monopoly positions, but in their capacity to partner with business investors, industry, mining companies, property and logistics developers, both domestically and across global supply chains,” he said.

The asset base of SOEs is over R1trn, which is about 27% of GDP, Gordhan explained.

“They maintain networks and provide services – power, roads, transport, water, communications – on which the rest of the economy depends.”

Gordhan’s reforms are based on the recommendations of the Presidential Review Committee on SOEs, the report of which was recently released.
The committee’s recommendations include a single governing law for public entities; rationalising the number of entities; and mobilising co-investment and technical expertise from the private sector to strengthen their financial and managerial capacity, Treasury explained.

Deputy President Cyril Ramaphosa chairs an inter-ministerial committee on this to set clear policies for SOEs. He will also streamline the portfolio of public entities that builds on synergies between the public and private sectors, Treasury said.

His four key aims for SOEs will include improving financial and operational performance; finding ways to maximise contributions to the economy and eliminate duplication, reducing state participation in sectors where several entities operate with overlapping mandates, and drawing up governance framework to see the enactment of overarching legislation.

“Board appointment processes will be standardised, and remuneration frameworks reviewed to ensure that compensation growth is contained and linked to efficient performance,” the Treasury explained.

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