Transnet, Denel, Eskom: Gigaba faces storm over changes

[Steve Appleton]

From Business Day, JUne 13, 2011. http://www.businessday.co.za/articles/C ... ?id=145607

Gigaba faces storm over changes
LINDA ENSOR and NICKY SMITH
Published: 2011/06/13 06:38:34 AM

TRANSNET chairman Mafika Mkwanazi said yesterday he had an appointment to see Public Enterprises Minister Malusi Gigaba today to discuss the minister’s apparent favouring of someone else to chair the transport parastatal.

The Cabinet made new appointments to the Eskom and Denel boards last week, and said changes in the Transnet leadership were also in the pipeline.

"I am flying to Cape Town tomorrow to meet the minister at four o’clock to discuss these things. I am not able to discuss anything with the media until I know what the next steps are going to be," Mr Mkwanazi said when asked if he wanted to remain chairman of Transnet.

Eskom referred queries to the Department of Public Enterprises as board changes are a shareholder issue. Zola Tsotsi becomes the new Eskom chairman, replacing Mpho Makwana. Mr Tsotsi has previously chaired the Lesotho Highlands Development Authority, the Lesotho Electricity Corporation, and the Lesotho Water and Sewerage Authority. Nhlanhla (Zoli) Kunene was appointed Denel’s chairman for three years, replacing Sibusiso Sibisi.

The Congress of South African Trade Unions (Cosatu) and the National Union of Mineworkers (NUM) objected to Mr Gigaba’s failure to consult the NUM over the restructuring of the Eskom board. Cosatu said Mr Gigaba’s decision- making without consulting stakeholders was "absolutely unacceptable" and called on him to suspend the appointments to allow for a proper consultation.

Mr Gigaba responded on Friday to criticism by expressing regret that he had not been able to discuss the envisaged changes beforehand with the members of the boards and with the other stakeholders of Eskom and Denel. He said Eskom needed to be "rejuvenated and strengthened".

The Cabinet had chosen new board members with "strong technical engineering, project and structured finance expertise, and policy and regulatory acumen" who would position Eskom "to meet the challenges of a developmental state and provide the necessary stewardship on the infrastructure build programmes".

With regard to Denel, Mr Gigaba said the parastatal required "immediate business turnaround and strategic redirection. Its sustainability and profitability are not beyond question. There is a need to review Denel’s business case. It is necessary for Denel to also investigate whether it should not include civilian products in its product offering."

The agenda of a developmental state required that a longer-term, bold approach be taken towards investment and infrastructure development in order to address backlogs.

"The implementation of the developmental state agenda requires a paradigm shift on the role of the state owned companies in the economy from trading strictly within the constraints of their balance sheets to exploring innovative ways to fund infrastructure development including partnership or co- operation with the private sector," Mr Gigaba said.

[Steve Appleton]

From Business Day, June 13, 2011. http://www.businessday.co.za/articles/C ... ?id=145627

THE THICK END OF THE WEDGE: THE EDITOR’S NOTEBOOK
PETER BRUCE
Published: 2011/06/13 07:05:03 AM

IT MUST have been a shock to Eskom CE Brian Dames to wake up to the front page news in Business Day last Thursday that his immediate boss, chairman Mpho Makwana, had in effect been fired.

Less so the CEO of arms producer Denel, Talib Sadik, whose chairman, Sibusiso Sibisi, also heard in the same article that his role had come to an end. Sadik himself has had enough and is not renewing his contract.

What about PIC boss Brian Molefe, now CEO of Transnet, who heard his chairman, Mafika Mkwanazi, was leaving as well but, unlike the other two chief executives, wasn’t told who the new chairman would be?

There’s little question that Public Enterprises Minister Malusi Gigaba acted with great cruelty in axing these men without warning the way he did. Brian Dames, particularly, is so obviously good at his job, why would any shareholder treat him so badly? But equally, I wonder how you negotiate this stuff, and consult with "stakeholders" as everyone, in hindsight, is now saying he should have? One whisper, one phone call, and it leaks and your political enemies begin to try to spoil your plans.

Once Gigaba had made up his mind (or had it made up for him), he had to act swiftly. But he erred badly on the replacement for Mkwanazi at Transnet. The intended candidate as the new chairman at this vital and huge state-owned enterprise was Iqbal "Rafiq" Sharma, a former fairly senior official in the Department of Trade and Industry who first joined the Transnet board late last year.

I am sure he’s a wonderful chap but whoever thought he could carry Transnet and lead it into negotiations in the international finance markets wasn’t thinking straight. The Cabinet meeting last Wednesday that approved the other changes brought to it by Gigaba had little trouble turning Sharma down, leaving the minister with a real headache.

There are three main theories about why he might have been nominated in the first place: first, that he was favoured by the Gupta family, the Indian business group that is particularly close to President Jacob Zuma . Through their associations with partners such as Lazarus Zim, the Guptas potentially stand to win big if rail and rolling stock tenders go the right way in the coming years.

The once disgraced and now reblessed Siyabonga Gama is back (under Gigaba) running Transnet’s freight rail operations and, as Gigaba noted in a speech at Wits days before axing Mkwanazi, SA in the next decade will become the largest market for trains and locomotives in the world after China. So there is a truly hideous amount of money at stake.

Another theory ignores the Guptas and suggests a wider conspiracy, if it can be called that, to have a weak and inexperienced chairman at Transnet so the party, through, Gigaba, can more easily direct the coming wave of tenders to its own political and financial benefit.

A third line of thinking is that, as CEO, Molefe has found his feet and didn’t fancy a former CEO (Mk wanazi) breathing down his neck with all sorts of operational advice.

Whatever, the immediate result of last Wednesday’s Cabinet decisions is this — for a lot of senior and senior-middle managers at these big SOEs, the sweeping away in a flash of their chairmen would have been deeply, deeply debilitating, confirming, if they ever needed reminding, that the companies they work for are in fact driven by political whim and not by a commitment to proud and stable leadership.

It is hard to put money to that kind of psychological damage, but you are kidding yourself if you believe it doesn’t exist.

Which is not to say that, having got (almost all) of his leadership team in place, Gigaba cannot make a success of his tenure at Public Enterprises. He can. He wants to draw business into closer ties with his SOEs and he will find himself knocking on many open doors. They will judge him on how they are treated. Being told what to do won’t go down well. But being offered genuine opportunities with long-term returns would not only guarantee the creation of steady jobs, but would go a long way towards cementing positive investor confidence in our future.

[Steve Appleton]

From Business Day, June 13, 2011. http://www.businessday.co.za/articles/C ... ?id=145674

MONDAY COMMENT: ANC plan resembles old Nats’ volkskapitalisme
It’s finally here. From Blade Nzimande’s putsch to take over the Setas, to the decision by Public Enterprises Minister Malusi Gigaba to fire the boards of three parastatals, to the National Planning Commission’s treatise on the future, the curtain is rising on a new economic era.

TIM COHEN
Published: 2011/06/13 07:47:15 AM

{....Big snip....}

DOES the reconstitution of the Transnet, Denel and Eskom boards comply with good corporate governance generally, and the new Companies Act specifically?

This is a weird question, but it’s now relevant because the King 3 code and the new Companies Act are both applicable to state-owned enterprises.

Yet the dynamic between shareholder and management is entirely different. In private companies, the board is there to represent all shareholders equally, and to try to ensure that the company "survives and thrives", in the words of the King 3 code.

Surviving and thriving means considering the interests of a broad range of issues and stakeholders, which obviously includes staff and creditors.

To do this, private companies have this complicated institution of independent directors. King 3 defines an independent director as someone who is "not representative of a shareholder who has the ability to control or significantly influence management or the board", among other criteria.

Yet state-owned companies by definition only have a single shareholder, the state. So what does "independence" mean in this context? So many of the functions of independent shareholders are to make sure that all shareholders get treated the same and minority shareholders don’t get treated unfairly. Independent directors are also there as a kind of double-check on management.

Yet, like a wholly owned subsidiary, the boards of the state-owned enterprises really serve at the pleasure of the institution in the first instance. Gigaba, representing the government, has the legal right to summarily dismiss the boards. But with no clear reason?

Stakeholders presumably also have some rights too. And in Eskom and Transnet’s case, some of the most important are bondholders. Consequently, it’s worrying that all foreigners have been ousted, since much of the credit to both Transnet and Eskom is provided by foreign institutions.

Looking at the new directors, I struggle to find anyone representing anything other than the politics of government, in which case, why have boards at all? The effort seems like a power game rather than an attempt to strengthen the boards, and it’s exactly that kind of political whimsy that destabilises these organisations —– and shows why state companies under-perform private companies.

It certainly has the same obsession with nationhood, the same belligerence, the same hostility to freedom.