The long-awaited restructuring of state owned enterprises (SOEs) under a single shareholding company took a step further this week with the approval by cabinet of the draft National State Enterprises Bill for public comment.
The draft bill proposes the consolidation of the state’s shareholdings in strategic SOEs — such as Transnet, Eskom and Denel — and the establishment of a state asset management company to hold these shareholdings. The state would be the sole shareholder of the asset management company but the way is open for strategic equity partners to be brought in to the underlying SOEs.
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.
The plan, based on models used in countries such as Malaysia and Singapore, will result in the dissolution of the department of public enterprises. It was recommended by the Presidential State Owned Enterprise Council.
The plan was announced by public enterprises minister Pravin Gordhan in May 2022 when he said the new model would “separate the state’s ownership functions from its policy and regulatory functions, minimise the scope for political interference, introduce greater professionalism and manage state assets in a way that protects shareholder value”.
The minister said in his budget vote speech in the National Council of Provinces in 2022 that international best practices on the governance of SOEs showed the importance of separating the policy function from operational and regulatory functions. He added that the model would “ensure a clear separation of ownership and management of SOCs, ensure professionalised board appointments and inculcate market discipline” into SOEs
The dependence of SOEs on the fiscus was no longer sustainable, the minister added.
The newly proposed holding company would have budgetary and managerial independence, according to a presentation by the department of public enterprises. 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 differed from international best practice. A holding company would “enabling better co-ordination, resource allocation and oversight”.
President Cyril Ramaphosa appointed the Presidential State Owned Enterprises Council in June 2020 with the mandate to strengthen the framework governing SOEs, including the introduction of an overarching act governing SOEs and the determination of an appropriate shareholder ownership model.
The president said in his 2023 state of the nation address that SOEs were struggling with significant debt, underinvestment in infrastructure, the effects of state capture and a shortage of skills. He said a centralised shareholder model would ensure effective oversight of SOEs.
Ramaphosa recently met the CEOs and board chairs of SOEs, who were in overwhelming support of the establishment of a holding company to centralise ownership of strategic SOEs.
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