STATE OWNED ENTERPRISES

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STATE OWNED ENTERPRISES Ismail Momoniat 16
September 2004
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Classification in PFMA

• Listed in Schedule 2 to the PFMA
• Enjoys more managerial autonomy than Schedule 3
  entities and depts
• Large parastatals Eskom, Transnet, DBSA, ACSA
• May enter into borrowing transactions in terms of
  borrowing programme, without specific approval of
  the Minister of Finance
• Board has strong powers as accounting authority

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Underlying Principles

• Govt will only intervene as sole or majority
  shareholder
• If govt unhappy, will change board
• Problem with these principles is
• What happens if govt not an active shareholder?
• Does King II deal sufficiently with public
  interest?

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PRE-FINANCIAL YEAR
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SHAREHOLDERS COMPACT

• Problem of govt not exercising its shareholder
  role addressed through Shareholder Compact
• Board and Minister to agree on annually
• Should include key performance measures
• Are such compacts tabled in Parliament?

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CORPORATE PLANS

• Submit to Board of parent dept and NT - one month
  before start of financial year
• Cover 3 years and include details of subsidiaries
• Contains strategic objectives and outcomes of the
  entity and key performance measures and
  indicators to assess performance

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PERFORMANCE OF BOARDS

• Do Boards really exercise their FIDUCIARY
  responsibilities?
• Boards approve corporate plans and budgets
• What happens when they do not?
• Are governance arrangements in parastatals really
  less bureaucratic than govt depts?

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BORROWING POWERS

• May borrow with the approval of the Accounting
  Authority
• No borrowings in foreign currency - unless State
  is not the only shareholder
• Corporate Plan must include a borrowing programme
• Quarterly reports on borrowing programme

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GOVERNANCE PROBLEMS IN BUDGETING PROCESS

• Parastatals do not table budgets
• rely on income statements
• Parastatals are OPAQUE
• Budgets, corporate plans and shareholder compact
  not tabled in Parliament
• Should we not have hearings, which have to be
  taken into account when Board approves budget and
  corporate plan?

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OTHER PUBLIC INTEREST ISSUES

• Unlike commercial businesses, several other
  public interest issues for govt approval
• Capital and investment budgets
• Remuneration of CEO and top officials
• Going beyond mandate?
• Acting as a municipality and never reporting like
  a municipality

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IN-YEAR MANAGEMENT
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IN-YEAR OBLIGATIONS

• Accounting Authority to submit projection of
  revenue, expenditure and borrowings to NT at
  least month before start of financial year
• Accounting Authority to establish procedures to
  report quarterly to the EA on performance against
  the budget and corporate plan

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IN-YEAR MANAGEMENT

• No Monthly Reporting like for depts
• Treasury operations open govt to risk
• No publication of quarterly reports

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POST-FINANCIAL YEAR REPORTING
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ANNUAL FINANCIAL STATEMENTS

• Prepared in accordance with GAAP
• Submit financial statements for auditing within 2
  months from end of financial year
• Financial statements usually audited by external
  auditors with approval of the AG
• Financial statements contain disclosures of
  directors and executive members emoluments

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PREPARATION AND TABLING OF ANNUAL REPORTS

• Annual Report must provide details of the
  entitys activities during the financial year
• Must include the financial statements and the
  audit report thereon
• Must be tabled in Parliament by 30 Sept
• If not tabled timeously, written explanation to
  be provided

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FINANCIAL RESPONSIBILITY OF EXECUTIVE AUTHORITY

• Consider all reports and returns submitted
• Exercise ownership control powers to ensure
  entity complies with the Act
• Ensure entity complies with the financial
  policies of the executive

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Actual Annual Reporting

• Annual Reports are GLOSSY
• Very little information on service delivery
• Reporting focuses on financial issues
• Need a better process in Parliament to examine
  SOE annual reports, which should each be
  discussed separately

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Conclusion