SOEs sound investment warning

THE dominant role Government wants to play in the affairs of State-Owned Enterprises is not investor-friendly, the Namibia Chamber of Commerce and Industry warned yesterday.

The NCCI says Government is “over-reacting” by wanting a Governance Council comprised of ministers to exert what would amount to excessive control over SOEs and that it could scare off private investment in public companies. In a submission to the National Council committee currently reviewing the State-Owned Enterprises Bill, the NCCI said yesterday that Government would struggle to attract investment to the Development Bank and the telecommunications industry – such as Telecom and Mobile Telecommunications (MTC) – for example, given the powers it intends to accord to the Governance Council.Even black economic empowerment initiatives could be hindered – especially in instances where the private equity partner is less than 50 per cent.On Wednesday, NamPower MD Leake Hangala also raised concerns about how the bill would affect its partnership with a private company in what will become one of the country’s biggest projects ever, Kudu Gas, which is valued at US$1 billion.NCCI CEO Tarah Shaanika said in its current form the law would provide little in the way of improving the efficiency of governance.It would not counter the mismanagement, irresponsible investment of public funds and poor financial control that has dogged public institutions over the years, he added.Further, the proposed law went against global corporate-governance practices.”The bill in its present form is worrying because instead of entrenching modern corporate-governance practices where directors and CEOs are held responsible and accountable for the performance of enterprises under their leaderships, the bill seems to be taking away the functions that are supposed to be performed by directors and CEOs in terms of international best practices in corporate governance,” said Shaanika.The NCCI told a select committee of the National Council, which is soliciting public opinion on the bill, that its submission was based on wide-ranging consultations with the private sector.On Wednesday, several parastatals defended their autonomy and capacity to run their institutions, saying that the bill should only provide them with direction on what Government, as their main shareholder, expected of them.Shaanika said the bill should place more emphasis on strengthening the capacity of boards and management to run the institutions.The Namibia Financial Institutions Supervisory Authority (Namfisa) also believes that the proposed legislation is too rigid and not the way to go about improving the performance of SOEs.Namfisa Acting CEO Lily Brandt told the committee that Government should rather opt for a governance council, which would take a “risk-based approach” to SOEs rather than trying to run them itself.Drawing a distinction between bad – in some cases non-existent – and good risk management, Brandt said the bill did not appropriately address the issue.She said weak risk management had facilitated and encouraged corruption, fraud and theft which has been rife at SOEs.”SOEs that have failed have done so because of weak corporate governance principles, risk management which has not been properly identified and not having appropriate controls,” she said.Good risk management would entail identifying and evaluating all potential risk areas for each SOE as a business and then planning how to safeguard public assets and minimise the impact of identified risks.The NCCI recommended that the bill incorporate the Central Governance Agency (CGA) to oversee the performance of SOEs.When it was set up three years ago, Government intended that the CGA should oversee SOEs.It was initially mandated to draw up a comprehensive policy for their restructuring, continue work which had started years previously on the SOE bill and come up with a law for its own establishment.The CGA falls under the office of the Prime Minister and it is unknown whether its role will become redundant in light of the State-Owned Enterprises bill and the proposed Governance Council.The NCCI believes that that the Governance Council should rather focus on ensuring clear policy guidelines for the running of SOEs and should approve policies and performance targets for them.”SOEs belong to the nation.The assets belong to the nation.Each Government of the day is entrusted with these assets,” said the Chairperson of the NCCI Committee on Economics and Finance, Rainer Ritter.The bill stipulates that a Governance Council – made up of Cabinet Ministers – would have wide-ranging powers over SOEs including appointing their boards and CEOs, influencing salaries for management, approving budgets and authorising investments.”The bill doesn’t make provision for checks and balances of the council,” Ritter said.He also expressed concern that the bill did not provide for a separation of powers between Government as shareholder and its regulatory functions.”It is doubtful whether or not the Ministers appointed have the capacity, experience, knowledge and, most importantly, sufficient time to do justice to the enormous responsibility thrust upon them in governing the affairs of the entities,” said Ritter.Echoing the arguments of parastatals who made submissions on Wednesday, the NCCI said it was doubtful that Ministers on the council would find enough time to go through the budgets and business plans of more than 50 parastatals before a new financial year without affecting operations.Namfisa agreed.It said not only were the Ministers on the Council unlikely to handle the bulk of the responsibilities they were assigning themselves, but they were unlikely to possess the necessary technical skills and insight to oversee diverse SOEs.Namfisa said the 90-day limit the Council had set for itself was “impractical” and SOEs were likely to experience operational problems.According to the NCCI, SOEs contribute at least 30 per cent of the country’s Gross Domestic Product.In a submission to the National Council committee currently reviewing the State-Owned Enterprises Bill, the NCCI said yesterday that Government would struggle to attract investment to the Development Bank and the telecommunications industry – such as Telecom and Mobile Telecommunications (MTC) – for example, given the powers it intends to accord to the Governance Council.Even black economic empowerment initiatives could be hindered – especially in instances where the private equity partner is less than 50 per cent.On Wednesday, NamPower MD Leake Hangala also raised concerns about how the bill would affect its partnership with a private company in what will become one of the country’s biggest projects ever, Kudu Gas, which is valued at US$1 billion.NCCI CEO Tarah Shaanika said in its current form the law would provide little in the way of improving the efficiency of governance.It would not counter the mismanagement, irresponsible investment of public funds and poor financial control that has dogged public institutions over the years, he added.Further, the proposed law went against global corporate-governance practices.”The bill in its present form is worrying because instead of entrenching modern corporate-governance practices where directors and CEOs are held responsible and accountable for the performance of enterprises under their leaderships, the bill seems to be taking away the functions that are supposed to be performed by directors and CEOs in terms of international best practices in corporate governance,” said Shaanika.The NCCI told a select committee of the National Council, which is soliciting public opinion on the bill, that its submission was based on wide-ranging consultations with the private sector.On Wednesday, several parastatals defended their autonomy and capacity to run their institutions, saying that the bill should only provide them with direction on what Government, as their main shareholder, expected of them.Shaanika said the bill should place more emphasis on strengthening the capacity of boards and management to run the institutions.The Namibia Financial Institutions Supervisory Authority (Namfisa) also believes that the proposed legislation is too rigid and not the way to go about improving the performance of SOEs.Namfisa Acting CEO Lily Brandt told the committee that Government should rather opt for a governance council, which would take a “risk-based approach” to SOEs rather than trying to run them itself.Drawing a distinction between bad – in some cases non-existent – and good risk management, Brandt said the bill did not appropriately address the issue.She said weak risk management had facilitated and encouraged corruption, fraud and theft which has been rife at SOEs.”SOEs that have failed have done so because of weak corporate governance principles, risk management which has not been properly identified and not having appropriate controls,” she said.Good risk management would entail identifying and evaluating all potential risk areas for each SOE as a business and then planning how to safeguard public assets and minimise the impact of identified risks.The NCCI recommended that the bill incorporate the Central Governance Agency (CGA) to oversee the performance of SOEs.When it was set up three years ago, Government intended that the CGA should oversee SOEs.It was initially mandated to draw up a comprehensive policy for their restructuring, continue work which had started years previously on the SOE bill and come up with a law for its own establishment.The CGA falls under the office of the Prime Minister and it is unknown whether its role will become redundant in light of the State-Owned Enterprises bill and the proposed Governance Council.The NCCI believes that that the Governance Council should rather focus on ensuring clear policy guidelines for the running of SOEs and should approve policies and performance targets for them.”SOEs belong to the nation.The assets belong to the nation.Each Government of the day is entrusted with these assets,” said the Chairperson of the NCCI Committee on Economics and Finance, Rainer Ritter.The bill stipulates that a Governance Council – made up of Cabinet Ministers – would have wide-ranging powers over SOEs including appointing their boards and CEOs, influencing salaries for management, approving budgets and authorising investments.”The bill doesn’t make provision for checks and balances of the council,” Ritter said.He also expressed concern that the bill did not provide for a separation of powers between Government as shareholder and its regulatory functions.”It is doubtful whether or not the Ministers appointed have the capacity, experience, knowledge and, most importantly, sufficient time to do justice to the enormous responsibility thrust upon them in governing the affairs of the entities,” said Ritter.Echoing the arguments of parastatals who made submissions on Wednesday, the NCCI said it was doubtful that Ministers on the council would find enough time to go through the budgets and business plans of more than 50 parastatals before a new financial year without affecting operations.Namfisa agreed.It said not only were the Ministers on the Council unlikely to handle the bulk of the responsibilities they were assigning themselves, but they were unlikely to possess the necessary technical skills and insight to oversee diverse SOEs.Namfisa said the 90-day limit the Council had set for itself was “impractical” and SOEs were likely to experience operational problems.According to the NCCI, SOEs contribute at least 30 per cent of the country’s Gross Domestic Product.