1 Presidential SOE Review Committee SEMINAR REPORT ON INTERNATIONAL BENCHMAKRING SEMINAR (in...

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Presidential SOE Review Committee

SEMINAR REPORT ON INTERNATIONAL BENCHMAKRING SEMINAR

(in collaboration with OECD)

March 2011

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OUTLINE

Introduction

Objectives of the Seminar

Summary of Attendees

Summary points on the Seminar Working Paper

Key Points from Presentations

Summary of Input by Work Streams

Summary of RDU Analysis

Reflection: Were the Objectives achieved?

Conclusion and Recommendations

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Introduction

The PRC, in collaboration with the OECD held a seminar on international

benchmarking of SOE reforms

The seminar was held in South Africa on 06-07 December 2010, at the CSIR

International Convention Centre

The seminar was addressed by Minister Malusi Gigaba, as the key note speaker

An international delegation of representatives from UK, Malaysia, Finland,

Namibia, and China were sponsored and hosted by the OECD to attend and

present at the seminar. NEPAD was also part of the OECD’s delegation

The seminar was hosted as an open seminar, where a varied group of

stakeholders representing Government, business, and relevant associations were

invited

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Seminar Objectives

The objectives of the seminar were to:

Provide an introduction on various international SOE Reform models and topics to the

PRC

Share the preliminary international reforms with the PRC’s group of stakeholders

Provide a platform to share South Africa’s SOE landscape with the OECD and the

international delegation to forge partnerships on further benchmarking to be

undertaken by the PRC

To identify key trends and models emerging from the countries invited, to assist the

PRC in shaping its approach to benchmarking during its review

Elicit input from stakeholders attending the seminar on areas that are of importance

and concern to the stakeholders

The seminar was planned under the following themes:

− SOE Reforms Undertaken and Challenges and Successes Experienced;

− Governance and Ownership Models;

− Value Creation and Effective Performance Monitoring of SOEs; and

− Aligning the Strategic Role of SOEs with the State’s Development Objectives.

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Summary of Attendees

The PRC invited approximately 140 attendees to the seminar. The attendees

consisted of:

– Parliamentary portfolio committees

– National departments

– Provincial departments

– Metropolitan municipalities

– Business formations such as BUSA

– Nedlac

– The B-BBEE Advisory Council

Of the 140 invitations, the seminar was attended by approximately 80 individuals

(c.57% of the total invited)

Representatives of national departments and metros were also invited to present,

and/or contribute on the discussants panels of the seminar. The seminar programme

is attached as Annexure A of this report.

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Summary on Working Paper

In preparation for the seminar, the OECD produced a working paper on SOE reforms. This working paper pointed

out various themes on SOE reforms, with a summary on the experiences of various countries, such as UK, Malaysia,

Finland, and Namibia.

This paper is attached as Annexure B- Seminar Working Paper.

In brief the paper highlighted the following:

–In many countries, SOEs still represent a substantial part of GDP, employment and market capitalisation. Moreover,

SOEs are often prevalent in utilities and infrastructure industries, such as energy, transport and

telecommunication, whose performance is of great importance to broad segments of the population and to other

parts of the business sector. Consequently, the governance of SOEs is still critical to ensure their positive

contribution to a country’s overall economic efficiency and competitiveness, and the well‐being of its citizens.

–The design and sequencing of reform implementation vary significantly as each country has adopted a formula

according to its own conditions, organizational culture, political and administrative systems. In many countries,

special committees or commissions were initially established in order to launch a debate centered around SOE

governance and the design of necessary measures for improvement. In Brazil, the Commission for Corporate

Governance and Management of Federal Government shares (CGPAR) was established to serve as a locus to

discuss and develop the theme of SOE governance reform by engaging the main stakeholders in the process.

Similar organizations were formed in other countries like Hungary (National Asset Management Council) and Oman.

–The achievements of reform programs, as reported by the questionnaire respondents, vary according to objectives.

However, a common outcome has been a clear improvement in economic performance and quality of public

services. Other achievements that were cited included the separation of the state’s ownership function from its

regulatory functions in line with the OECD Guidelines in Finland, increased level of transparency on management

practices in Mozambique through regular publications of reports and accounts; and a heightened emphasis on

corporate social responsibility in Norway.

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Summary on Working Paper …./2

On Governance models:

The 2005 Survey of OECD Countries defines three main types of ownership models: the decentralised or sector model,

the dual model and the centralised model. The most traditional is the decentralised model where state‐owned

enterprises are under the responsibility of relevant sector ministries. In the dual model, the responsibility is shared

between the sector ministry and a “central” Ministry or entity, usually the Finance Ministry or the Treasury. Finally, a

centralised model consolidates ownership responsibility for all or most SOEs under one main ministry or an agency. In

most cases this is the Ministry of Finance (Denmark, the Netherlands, Spain) or the Ministry of Industry (Norway and

Sweden). Belgium has a specific ministry, the Ministry of State‐Owned Enterprises and Participations. In a few cases, a

specific Agency has been established, and this Agency is more or less autonomous, usually reporting once again to the

Ministry of Finance (as in the case of France)

On development imperatives and performance measurement:

In order to create more value for their SOE sectors, a considerable number of countries have developed or revised their

SOE governance policies, whether through legislation, government approval of specific documents addressing specific

areas, or the approval of codes of conduct for SOEs. Some countries have launched extensive transformation

programmes for their SOE sectors (e.g. Malaysia) while others have targeted specific measures such as guidelines on

remuneration and employment of SOE directors (e.g. Finland, Norway and Sweden have all issued guidelines for the

remuneration and employment conditions of SOE managers.). Many countries such as Egypt, India, Mozambique,

Namibia, Oman, Pakistan, and Portugal have put emphasis on formulating SOE codes and guidelines as part of their

efforts for improving the performance of their SOE sectors.

While the OECD’s SOE Guidelines and other work on SOEs has not specifically addressed developmental objectives per

se, it is clear that a number of countries with which the OECD works actively, such as China and Malaysia, have

considered SOEs to be an important pillar in their overall developmental strategies.

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Key Points from Presentations

Opening address by Minister Gigaba:

[SOEs] exist because the democratic South Africa has ever since its advent placed economic growth and

development squarely on its policy agenda, in order to address the urgent challenge of poverty, inequality and

massive joblessness.

A key challenge in the South African economy is to accelerate the industrialisation process and decrease our

reliance on resource exports. This involves developing intermediate and advanced manufacturing capabilities.

SOEs have a role to play in this process, both through procuring in a manner that promotes industrial

investment and through making direct targeted investments in these capabilities.

Minister mentioned that SOEs in DPE will be required to comply with the current governance framework,

namely the strategic intent statements, the shareholder compacts and the corporate plans. The contents of

these documents will mirrors the performance agreement between the Minister and the President and the

delivery agreement of the economic cluster.

Opening Remarks, Richard Boucher (Deputy SG, OECD)

This Committee can be an important catalyst to improve the effectiveness of South Africa’s SOEs and their

contribution to South Africa’s economy.

The OECD Guidelines provides recommendations on managing varied challenges, such as managing interests

of different constituencies by SOEs.

The OECD Guidelines call for establishing a neutral ownership entity with the overall responsibility for the

government’s ownership policy, and the separation of the role of the state as owner from its role as

regulator.

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Key Points from Presentations …./2

Summary on Prof Eberhard:

Important to prioritise those SOEs that have the biggest economic and developmental impact

SOE reforms date back to 1960s when public ownership was emphasised, and later followed by a

privatisation era

Clarity on the roles of government as policy maker, regulator and shareholder

Improve transparency and information on performance of SOEs

Changing the political economy of SOEs such as reforming towards mixed-capital enterprises, and emphasising

performance measurement and monitoring.

SASAC China:

SOE reforms in China date back to 1980. Between 1998-2002, China underwent a reform on its SOE ownership

model, resulting in a SOE Group with subsidiaries of the Group listed. Small and medium sized SOEs were also

listed and/or privatized.

In 2009, China introducted a centralised ownership system, which provides oversight to 126 SOEs in 32

sectors. SASAC operates at national and local level.

Model on appointment of boards and senior management. SASAC appoints certain senior management directly,

and is responsible for all board appointments.

The centralised model has allowed for SOEs to be insulated from certain political dynamics

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Key Points from Presentations …/3

Finland

SOEs overseen by an Ownership steering committee in the Office of the Prime Minister.

SOE classification based on whether the SOE operates under market terms or has a special task assigned to it

by Government

Separation of ownership and regulation is of important consideration to Finland. The Mnistry of Trade and

Industry is resposnible for various sector policies, and other Ministries responsible for regulation.

Finland cites its accomplishments to include separation of regulation from ownership, and having one point

from which state policy is implemented.

Over and above the Companies Act, Finland has an Act on State Ownership

Namibia

The legal framework governing SOEs in Namibia include the State-Owned Enterprises Governance Act, The

SOE establishing Acts in terms of which various SOEs were established, and New Companies Act, 2004 which

has a bearing on the operataion of State Owned Companies, particulary in terms of the general principles of

governance and the rights and obligations of shareholders. In the event of conflict the SOE Act overrides

other Acts

SOEG Council is a statutory body with the mandate and responsibility to provide oversight in respect of all

SOEs in Namibia. The Council comprises of the the Prime Minister-Chairperson, Minister of Finance, Minister of

Trade & Industry, Attorney-General, and Director of Natinal Planning Commission

The SOEG Council is supervised by Cabinet and performs functions assigned to it by the Act.

Challenges with implementation of the Act (since 2006) also outlined.

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Key Points from Presentations …/4

NEPAD APRM:

Key Reforms that have been made by African countries include

– Enactment of legislation on the Governance of SOEs, Development of codes of conduct for SOEs

– New Rules for Board Selection, Clearer accounting and transparency requirements, Introduction of

performance contracts for SOEs and their managers, and Rethinking and reorganising the state

ownership function such as embarked on by South Africa.

Managing competing objectives inherent in state ownership

Experience shows that capacity of oversight or coordination bodies in Africa is usually weak

National Treasury. Key Questions posed to the Seminar:

What role have SOEs played in other countries to promote growth and development?

What regulatory frameworks are used to ensure that SOEs’ activities are aligned to government’s

objectives?

How do other governance models ensure a balance between the developmental objectives of the SOE and

financial viability?

What mechanisms are used to promote coordination between the government departments; spheres of

government and SOEs?

How is the developmental, operational and financial performance of SOEs assessed?

To what extent can international models for the regulation and governance of SOEs be applied to enhance the

South African model?

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Were Seminar Objectives achieved?

Limited information was provided on models of value creation and operational efficiency

Limited information on quantitative indicators of SOEs role in development and transformation

Models and challenges in implementation on Governance and Ownership were highlighted

Legislative aspects were also provided

The success of the seminar was in:

– Fostering a stronger collaboration with the OECD, which paves the way for the PRC to collaborate with the

OECD further in conducting benchmarking

– The information provided was sufficient, at a high level, to provide the PRC with indicative models that can

be researched further in designing the benchmark approach and sample, and allowing the PRC an

opportunity to directly engage the countries

– The seminar also allowed the PRC to share the review perspectives, and international models, with a wide

group of stakeholders, which served provided useful communication and engagement between the PRC and

its stakeholders

Recommendations

– To enable the PRC to undertake the benchmarking exercises, it is recommended that further research on

other countries is undertaken to enable the Committee to finally select the basket of countries for

benchmarking, and to design the benchmarking approach.

– Recommended that this exercise is undertaken in partnership with HSRC given the preliminary research

they are undertaking on this aspect of the review.

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ANNEXURES: Work Stream Inputs

& RDU Analysis

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ANNEXURES:

RDU Analysis (see separate attachment)

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ANNEXURES: Work Stream Inputs: G&O Work Stream

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Seminar Content: Overview

Namibia: SoEs classified into three tiers

State Owned Enterprises Governance Act 2006, Act 2006, Act no 2 of 2000 as amended by the

State Owned Enterprises Governance Amendment Act no 5 of 2008

Aim: Covers the application and implication of the act in relation to the functions, roles

and responsibility of the State Owned Enterprises Governance Council and the portfolio or

shareholding minister

SOE governance council( 6 Ministers) which as I’ve said is chaired by the prime minister and

how the line ministry has power to appoint the board of directors, but at the same time is

being assessed by the governance council

The line minister vis a vis a portfolio minister. In some instances it is used interchangeably,

but in the SOE Governance Act is defined what a portfolio minister is and what a line minister

is. But in also some companies where you are supposed to have a line minister like for

instance, our airline, Air Namibia, it is supposed to be under a line minister with is the ministry

of works and transport, but because of the huge debt and assistance it gets from government

its put un the ministry of finance.

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UK: Strong on selling

“South Africa is different because you have developmental objectives. So we don’t have the

assets if we want to develop something in the economy. We don’t have the assets to do it, we

have small assets, the biggest asset is probably ..(unclear) Mail, after that all the other

businesses are quite small, so if there was something along the lines of job creation or some

other sort of developmental social side of things, it will be quite difficult to do using SOE’s in

the UK”

Malaysia:

“Books”

SOE’s are called Government Linked Companies

GLIC: Government Linked Investment Companies which is the holding company

Protégé Committee: Headed by the prime minister. So the PCG made up of about four

ministers and plus ten other private sector people: reviews the performance of GLC’s, the G20

every year.

Every year all these companies will have to present their KPI’s, why they have not met their

KPI’s, if not why. Normally they are given about three or four KPI’s

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UCT: Prof Eberhard

Survey of state owned enterprises across 23 African countries

in all the major infrastructure sectors, electricity, telecoms,

water, transport: a very clear pattern emerged that where

there was direct political ongoing intervention in the SOE’s, as

opposed to an arms length corporatisation shareholder kind of

agreement

Give specific weight to those which have the most

developmental impact

Some kind of centralised ministry which looks after the state

owned enterprises separate to the policy ministry.

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Seminar Outcomes

From G&O perspective:

Ownership/ Shareholding Models

Oversight

Governance Issues:

Legislative Frameworks: Very Limited

Relationship and Collaboration between Ministries: very Limited

Board Remuneration Issues: Very Limited

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Way Forward

More benchmark work on:

SoE legislative frameworks

Collaboration between Ministries

Remuneration Issues

Care should be taken not to encumber SoEs more than they are currently.

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ANNEXURES: Work Stream Inputs

BC Work Stream

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Agenda

Key observations

Potential gaps

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Key Observations

SOEs play a key role in any country that calls itself a

Developmental State.

National agenda, long-term vision and political will is

key. In the case of SA it has not been clearly articulated and

communicated i.e. if it exists.

The alignment of the SOE mandate to that of a

shareholder is crucial.

Need to separate policy from oversight role.

In SA different macro-economic policies have been

developed and implemented e.g. RDP, GEAR, ASGISA,

NEPAD etc. Lack of consistency and no follow through

seems to have been one the main challenges.

The harmonisation and coordination of fiscal, trade (i.e.

Industrial Policy) and monetary policies is a key ingredient.

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Key Observations…/2

It is imperative to balance commercial and non-commercial

imperatives. SA needs to identify specific areas where the intervention is

needed.

Collaborative opportunities, where SOEs collaborate with each

other was highlighted.

The performance evaluation and monitoring of SOEs should be viewed as a

long-term project. Maintaining financial discipline is critical, more

especially, where mandates are not clear.

SOEs should be allowed to divest from sectors/investments that

are no longer strategic.

Strategic partnership with the private sector is crucial.

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Key Observations…/3

There is a need to assess SA ‘s SOE model (current)

and seek to identify the root cause of the problem.

Could this be a legacy challenge or agency problem etc?

The training and development of SOE executives and

directors was a common thread in all case studies.

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Potential Gaps

How does one begin to evaluate the effectiveness of SA’s SOE model in the absence of a long term strategy/ vision?

Benchmarking of SA’s SOE model in relation to developed and developing countries.

The performance measurement tool and metrics used to evaluate SOE performance, specifically, non-commercial SOEs was not addressed.

The relationship between and among SOEs operating in different spheres (i.e. National, Provincial and Local) of government did not receive the attention that it deserved.

Regional economic integration

How does service delivery at Municipal level link up with National/Provincial Agenda?

How does we address the proliferation of SOEs?

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