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SOE board members must shape up or ship out, says Brown

Jan 30 2018 13:46
Lameez Omarjee

Cape Town - Board members of state-owned enterprises (SOEs) must perform or they will be rotated, according to Public Enterprises Minister Lynne Brown.

The minister was briefing Parliament’s portfolio committee on public enterprises on Tuesday on governance at the SOEs she oversees. These comprise Transnet, South African Express, Eskom, Denel, the South African Forestry Company Limited and Alexkor.

“The message to the board of all SOCs (state-owned companies) is that they must shape up or ship out,” said Brown. Board members who are unable to instill confidence in their management and oversight of responsibilities will be rotated.

The department is currently looking at nominations for new Denel board members and the process to rotate other boards is under way, said Brown.

“The boards at all SOCs are on high alert to mitigate the negative impact on entities, ratings and consequently sovereign ratings,” she said.

Eskom however was recently downgraded by Moody’s, Brown noted.

The ratings agency cited the power utility’s deteriorating liquidity position and the ability of government to provide direct support.

“We remain resolute in efforts to turn the company around. There are investors and lenders reviving their engagements and commitments to the company,” said Brown.

Eskom will deliver its interim results on Tuesday, after the JSE threatened to delist its bonds for failing to comply with debt listings requirements after it delayed the release of results since November.

“The new Eskom board is legally constituted in terms of the companies memorandum of incorporation,” assured Brown. The new board will address governance and leadership, as well as operational and financial challenges the power utility is facing, she explained.

Brown said that in terms of all SOEs, the department expects all financial instruments, including government guarantees with loan conditions, to be managed in a way to ensure there will be no debt defaults.

She went on to say that there has been progress in SOE reform processes. This includes the finalisation of the guide on appointing persons to the board of state and state-controlled institutions, which is being overseen by the minister of public service and administration.

“The process of filling vacancies at board level continues,” said Brown. She added that boards need to fill vacancies urgently. Board members need to possess the skills and capability to provide effective leadership to the SOEs, she said.

Director general Mogokare Seleke said the process of filling positions is continuing as per the regulations. He noted that female representation on boards at SOEs is minimal and needs to be addressed going forward. 

Acting CEO for SA Express

Brown said a priority for state entities is to address the regression in SOE audit outcomes. For the 2016/17 financial year all state-owned companies, except SA Express, complied and tabled their annual reports in Parliament.

“The department is working closely with SA Express and (the) auditor general of South Africa to finalise and table its report as matter of urgency,” said Brown.

“To strengthen SA Express in the short term the DPE (department of public enterprises) and airline agreed to send the department’s deputy director general of legal and governance Matsietsi Mokholo to act as CEO,” Brown announced.

“For the medium term discussions are taking place to create optimal corporate structures of state airlines.”

Last year Fin24 reported that the state airline requires recapitalisation; SAA incurred fruitless and wasteful expenditure of R35m in the 2015/16 financial year.

Responding to concerns raised by the portfolio committee about SA Express, Brown admitted that the company is “actually in a huge crisis”.

When it comes to achieving an optimal airline industry anywhere worldwide, such a venture is not viable unless subsidised by the country, Brown said. “I’m not saying it (SA Express) must be highly subsidised,” said Brown.

She also noted that the airline is leasing aircraft when in fact it should be buying 50-seaters. However, the company does not have the money to buy aircraft, Brown explained.

Brown said that the optimal structure of airlines South African Airways, SA Express and Mango will be determined once Treasury convenes a meeting on the issue.

“I am not too worried at this stage about the urgency of appointing the (chief) executive (at SA Express). What if we say SA Express must not exist any more and be folded into  SAA, then we only need one CE (chief executive) and one CFO (chief financial officer) for the operation,” she said.

She also explained that Mokholo had been appointed after the previous CEO resigned in 2017, after having been appointed in 2016.

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