The implementation of a centralised ownership model for state-owned entities (SOEs) and development finance institutions (DFIs) is expected to feature high on the agenda at the next cabinet meeting as the government moves to streamline and improve the functioning of SOEs.
The new ownership model is expected to be discussed during cabinet committee meetings this week before being considered by cabinet at its biweekly meeting next week.
This follows last week’s meeting between President Cyril Ramaphosa and CEOs and board chairpersons of SOEs at which there was “overwhelming support for the establishment of a holding company to centralise ownership of strategic SOEs”, a presidency document reads.
The Forum of SA Directors-General (Fosad) “recommends that government should aim for consistency and ensure that the [new SOE holding company] is able to undertake periodic reviews of the SOE mandates ... we need to start small and avoid a big bang approach.”
Many SOEs remain in a dire state and are a drain on the country’s finances, prompting calls for them either to be privatised or closed down.
The National Treasury also regards SOEs as a major risk to the fiscal framework. The government has already introduced a strategic equity partner into SAA, enabled private generation of electricity and is planning private participation in the freight rail sector to increase competition, boost efficiency and reliability and reduce costs for customers.
It was also found in the state capture commission of inquiry’s report released last year there was a symbiotic relationship between the ANC, politically connected individuals and private companies. SOEs such as SAA, Transnet, Eskom and government departments were rendered dysfunctional to divert public funds for private benefit.
Council agrees
The commission recommended the establishment of a standing appointment and oversight committee to oversee public hearings of boards and executives at SOEs to ensure “the professional, reputational and eligibility requirements for such a position”.
The Presidential State-Owned Enterprise Council (PSEC), which was established by Ramaphosa in 2020 to oversee the reform of SOEs, agrees with Fosad on centralising SOE governance.
A separate document by the public enterprises department, dated September 5, reads the PSEC has recommended that the centralised ownership model apply to all spheres of government and clearly delineate the separate roles of government as owner, policymaker, regulator, and implementer.
The newly proposed holding company would have budgetary and managerial independence, according to the departmental presentation. This differs from the current ownership model, in which government departments oversee the functioning of their respective agencies, often leading to political interference.
Benefits of a new ownership model, according to the department, include enhanced shareholder value, increased transparency of SOE operations and reduced conflicts of interest as it separates ownership functions from policymaking and regulatory functions.
Many SOEs follow a decentralised ownership arrangement, with policy ministries assuming responsibility for the shareholder function, the department said, adding that the practice differs from international best practice.
“To implement a centralised model, a state-owned holding company must be established to house strategic SOEs and exercise co-ordinated shareholder oversight,” the document reads.
A holding company would “enabling better co-ordination, resource allocation and oversight”.
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