EDITORIAL: No more free rides for boards
The case of the PetroSA board raises the recurring question of how nonexecutive directors are chosen
It is possible that the directors of state-owned oil firm PetroSA had no idea what they were getting into when they were appointed.
The entity’s biggest problem – the massive loss in 2014-15 because of a gas-drilling project gone wrong — stems from decisions taken long before their appointments between 2014 and 2016. Project Ikhwezi, as the project was known, has not yet done all its damage to the balance sheet: additional impairments are still coming to light. There is also an unfunded R8.8bn decommissioning liability that becomes due in 2018.
It is projected that PetroSA will have made another R2.2bn loss when it reports its results for 2016-17.
It’s no wonder then that the PetroSA board has asked its holding company, the Central Energy Fund (CEF), to place it in business rescue. This is exactly what should happen and a proper assessment done of what aspects of the business can be fixed.
After that it should be sold. PetroSA, above all other state-owned entities, is unequivocally (according to its own internal investigations) a business that is failing due to ineptitude, decisions made without proper evidence and the absence of technical expertise.
But the CEF board has turned down the plea for business rescue. Rather than interpreting this as a genuine call for help, the attitude of the CEF to the proposal is that it is nothing more than a ploy by directors to evade responsibility for the mess the company is in. By going into business rescue, they will avoid accusations of reckless trading or delinquency.
While Ikhwezi predated most of this crop of directors, there are some more recent decisions for which they should be made to answer. This includes the payment of large bonuses to executives last December despite Ikhwezi’s failure and the dire state of the company. It also includes a recent and seemingly desperate management decision that must surely have been sanctioned by the board, to run crude oil through PetroSA’s gas refinery, causing it to break down in the first quarter of 2017. Again, this seems to suggest a lack of technical knowledge and an insufficient assessment of risk.
The case of the PetroSA board raises the recurring question of how nonexecutive directors are chosen. In this case, it was not for their expertise in engineering or petrochemicals. Only two of the nine are scientists or engineers of some sort, although the scientist is a lecturer and the engineer a public servant. The others are indicative of the political overtones that cloud the selection of directors of state-owned companies and include a couple of lawyers, people with experience solely in the public sector and a former trade unionist.
Petrosa is failing due to ineptitude and the absence of technical expertise
For years now, we have bemoaned the government’s tendency to deploy political appointments to positions in state-owned enterprises where commercial and technical expertise are needed. Time and again, we have been told that the government has turned over a new leaf and appointees will be selected on merit.
But as long as the ANC is locked in factional battles and state-owned enterprises provide resources for these and other enrichment projects, there will be no return to merit.
It is now time that the individuals who are asked to take on these roles are brought face to face with the consequences of their decisions. The Companies and Intellectual Property Commission has been inexcusably lax in acting against reckless trading when it comes to state-owned enterprises.
While PetroSA’s directors are far from being the worst offenders — just think of South African Airways and the serial mad deals in which its chairwoman, Dudu Myeni, has tried to engage — it is time that some examples are made and the delinquents shown up.