Bond investor flags danger of ‘limitless’ powers in SOE bill

Futuregrowth Asset Management, one of SA’s biggest institutional bond investors, has warned that presidential powers set out in the National State Enterprises Bill are “potentially dangerous” in the absence of guidelines, oversight or limits.

Olga Constantatos, head of credit at the Old Mutual-owned fixed-income group, said the company is uncomfortable about granting the president the power to appoint board members of the State Asset Management Company and direct the activities of the holding company and subsidiary companies.

“One of many such examples of this issue can be found in section 3(3) of the bill, which appoints the president as the sole representative of the holding company. We believe that this concentrates an ill-considered amount of authority and influence in one individual,” said Constantatos.

“The presidential role is a political one, and we fail to understand how this action would prevent some of the challenges experienced by many of our SOEs [state-owned enterprises], challenges which, by the government’s own admission, include inappropriate political interference.”

SA’s embattled SOEs, particularly Transnet, Eskom, Denel and the Passenger Rail Agency of SA, became centres of looting due to relationships between executives and politicians.

state capture

The findings of the state capture commission show that political interference saw lackeys appointed to boards of SOEs in a scheme in which more than R50bn was siphoned off.

Former Transnet and Eskom executives Matshela Koko, Brian Molefe, Anoj Singh and Siyabonga Gama are facing corruption charges emanating from the state capture era for offences allegedly committed at the behest of former president Jacob Zuma.

The bill, made public last month, has been described as the biggest reorganisation of SOEs since 1994.

The bill states the president is the sole representative of the company but may transfer administration of the act to another member of cabinet in terms of the constitution.

The mooted law also says the holding company will act through its board, and the Public Finance Management Act and Companies Act will apply to its operations. Its memorandum of incorporation will be registered with the Companies and Intellectual Property Commission.

Constantatos said some of the provisions in the bill are in conflict with the Companies Act. She particularly flagged the provisions that the shareholder of the holding company can “appoint an administrator to take control of the management of the company in instances where there is a “material and persistent failure to meet objectives and targets”.

Constantatos said this is problematic as the Companies Act already has extensive business rescue and insolvency-related provisions, which are either activated by the board or by the creditors of a company.

“The provisions of the bill, on the other hand, in allowing the shareholder to unilaterally appoint an administrator, would appear to conflict with the Companies Act provisions. No guidance is given in the bill on how to manage this conflict, or which legislation should take precedence,” Constantatos said.

“This lack of clarity is a significant pitfall (one of many) in the bill. We believe that the inconsistencies need to be practically examined and clarified in the drafting before there is any move to implement the bill.”

Both Eskom and Transnet are without permanent CEOs after the resignation of André Ruyter and Portia Derby, who left alongside the group’s CFO and head of Transnet Freight Rail.

The appointment of an Eskom CEO has been held up by a dispute between its board and public enterprises minister Pravin Gordhan. The board had put forward one candidate for the top job, while Gordhan insists it furnish him with three names and not exclude candidates above the age of 60.

The government is planning to phase out the department of public enterprises.

clarification

Futuregrowth has submitted its comments on the bill.

Constantatos said it is important that the state gets the bill right to give the ailing SOEs a fighting chance.

“We believe the bill needs significant clarification and wholesale amendment in order to meet the purported aims and to be truly effective in enacting the long overdue and necessary reform at our SOEs. Otherwise, the performance of our SOEs will continue to be a notable risk to the South African economy.”

khumalok@businesslive.co.za