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Govt pins hopes on performance agreements

Fri, 7 July 2017 17:46
by Kelvin Chiringa and Rodney Pienaar
News Flash


State-Owned Enterprises minister Leon Jooste said that his mandate cannot push public enterprises into a corner and penalise them for not releasing financial reports because there is no legal provision for that.

 The government has also set itself on track to get its money’s worth from state-owned enterprises board of directors through performance agreements, finance Minister Calle Schlettwein told The Villager recently. Several state-owned enterprises have failed to constantly provide financial reports of their institutions, and have declared next to nothing on dividends to the state which in-turn pumps millions into them.

When The Villager spoke to Jooste last month he said, “There are currently no provisions to penalize the SOEs for not complying with this provision but future legislation will be strengthened to accommodate this provision”. Jooste also said that his ministry instead has asked for SOEs to compile single consolidated reports covering a number of years so that they can reach compliance as soon as practical.

 “When annual reports are outstanding for a number of years, this affects the audits and compilation of the reports which take time due to the historic delays,” Jooste explained. According to a report compiled by IPPR, over 30 state-owned enterprises both commercial and service rendered do not have latest financial reports while close to 10 have financial reporters that are dating back as far as 2010 without updates on new reports.

“Performances vary, some are performing well and others are performing not so well, that’s why we are in the process of reviewing and entering into performance contracts with all these board members and boards as an institution to make sure that we get our worth of services back,” Schlettwein told The Villager. Currently board of directors are paid according to the categorisation of different tiers with accordance with responsibility.

According to the budget allocations, state-owned enterprises were given N$4 602 576 290 with education institutions taking up the highest chunk from the allocations.

However, of the commercial state-owned enterprises, Air Namibia received the highest allocation of N$486 137 300 while TransNamib received N$220 245 000 for rail rehabilitation and resuscitation of the transport sector. The finance minister could not track the total dividends some of the state-owned enterprises paid out to government.

 The Auditor-General Junias Kandjeke this week told The Villager that his office hosts 19 portfolios of SOEs and that there is no major backlog of financial statements. Kandjeke recommended continuous engagement with the SOEs for sped submission of Financial statements, after he also stressed on the fact that there is currently no law prescribed for the SOEs to be penalised for not completing annual reports. Analysts see hope but…

Economic analyst James Cumming of Quest Consult told The Villager that performance can only be secured by an entire team of first-rate performers. Cumming also said some SOEs should not have been created as they pose unhealthy competition to the private sector and receive preferential treatment which is unfair to the private sector.

 “If we look at the legal requirements, of course companies are supposed to publish their financial statements and they are breaking the law.  It trickles down to whether government feels like taking these guys on in court and that may be the only way that they can take responsibility seriously”, Cumming said.

“I do not know if this has been the Directors’ fault or its years of neglect from the top management for the accounting system not to be run properly. You have to dig into why these things are happening, there is a tendency for people to appoint people they know other than the right people”, Cummings said.

 Head of research at IJG Securities, Eric van Zyl also said that, government’s efforts to sign performance agreements are a good start, “restructuring SOEs into more effective public service tools is possible in the presence of political willpower. “Without it will be difficult. The signing of performance contracts implies political will to improve the effectiveness of these institutions, and that is positive. Once again, it will take some time before we know how effective this process will be,” he said.

 Cummins added: “An analysis of specific boards would need to be done to pinpoint where changes need to be made. This is what the Minister of Public Enterprises and his team are doing through their efforts to improve performance and governance within SOEs. We are bound to see some SOE board members removed during this process. A key part of the process is selecting competent persons to replace any dismissed board members. It will take some time before we know how effective this process will be.”

Namibia Equity Brokers (NEB) analyst Ngoni Bopoto also shared the same sentiments saying, “It’s never really too late to start considering such a move, (performance contracts) because doing that would actually put on contractual terms the performance evaluation of these Boards of Directors.

 Perhaps the question should rather be to say, is it timely?” Bopoto expresses that partially or majority of the blame should be put on the Boards of Directors as directors are given a mandate to make sure that these companies are run on a profit making basis.

 “They should seek to retain dividends to government rather than seeking bail outs. So partially, one would say that the Boards of Directors should rather look to enforce their mandates given by government.

 “When it comes to SOEs and most of the Directors’ appointment, it is more based on the revenue they can derive from sitting in these boards rather than the efficiency they can provide to run these companies.

“If you look into most SOEs, only a few would be able to accredit the changing of the Board of Directors to overall change in the performance of the company. So it is really impossible for you to point out and say a specific SOE was performing like this

and when we changed the Directors to these people we started seeing this change.

That does not really happen, it is very rare.” “In Namibia, SOEs have acquired a hard-earned reputation for mismanagement. Outright theft and misappropriation of funds do occur, and in several high-profile cases money has mysteriously gone missing after being invested with other companies (the notorious Avid, ODC, and GIPF scandals alone add up to almost N$700 million lost).

More common is simple incompetence and mismanagement. The government has spent billions on the national airline over the years, and Air Namibia received almost N$700 million in this year’s budget, with similar yearly subsidies planned going forward.

 TransNamib received a bailout to the tune of more than N$300 million. NWR has been another candidate for regular bailouts, asking government to step in several times and still costing the taxpayer N$66 million between 2016 and 2019.

SOEs have also been characterised by board dysfunction and infighting among senior leadership”, IPPR said in a 2016 briefing paper on, SoE governance in Namibia. MVA, Chief Executive Office, Rosalia Martins-Hausiku has also blamed some of the delays in compiling reports on the auditing process, “What we have experienced as MVA fund is that the delay is normally in auditing our financials. I think you have to check with the Auditor General’s office”.

When she spoke to The Villager in June she explained that her office is still not aware on who will audit their books, “Our financials have been ready for a while. I am not sure whether they have a back log or so”.

The Roads Construction Company former chief executive officer Tino Hanabeb said the financial reports were not a priority at the institution in the past. “For RCC, the last financial statement that were done were for  2010/ 11 financial year, but last year we did three, we did 2011/12 ; 2012/13 and 2013/ 14 last year and now the auditors  have to do 15; 16 and 17. I think that historically that was not the focus here at RCC, and as a company we have now to pay for historic things that were not done but we are at least trying to regularise them,” he said.

Commercial SOEs

Government has 17 commercial enterprises which are supposed to generate revenue on behalf of government in order to help fill economic gaps. The board of directors of these SOEs are remunerated according to the three tiers as stipulated in the government gazetted.