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Chapter 2: National Strategy
Chapter 2 is comprised of three sections which collectively provide for the creation of a national strategy for national commercial state-owned enterprises, outlines the high-level requirements for the content of the national strategy and provides for the review of the national strategy. This Chapter responds to the identified need for a coherent strategic approach which underpins the state’s ownership in national commercial state-owned enterprises.
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- Section 3 enjoins the President to develop the national strategy on the advice of a Presidential Advisory Committee and after consultation with the ministers responsible for the national commercial state-owned enterprises and the holding company. The section further requires that the national strategy be publicly consulted after its development, that the comments be considered and that the national strategy be approved by Cabinet and tabled in Parliament.
- Section 4 outlines the high-level requirements which must be contained in the national strategy. Requirements include the approach to the manner in which performance of the holding company and its subsidiaries is to be measured and in respect of both the holding company, its subsidiaries and other national commercial state-owned enterprises sectoral and specific objectives and strategies; performance targets; costed and funded developmental obligations; any permitted alterations of shareholding; any recapitalisation and other matters relating to financial turnaround; any potential private sector investment; and how dividends are to be applied or disbursed.
- Section 5 provides for the five-yearly review of the national strategy to ensure that the strategic intent remains current and appropriate for the country’s needs. A provision is included for in-year review of the national strategy if required.
Chapter 3: Holding Company
Chapter 3 is comprised of nine sections and provides for the establishment of the holding company which will exercise the state’s shareholdings of selected state enterprises in line with the adoption of the centralised model.
The Chapter provides a bespoke set of governance, accountability and financial management provisions to ensure the transparent operations of the holding company, predominantly in terms of the Companies Act. As the PFMA does not, in the normal course of events, apply to the holding company or its subsidiaries particular attention has been placed on ensuring that the financial management provisions are appropriate for a state-owned company.
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- Section 6 establishes the SAMSOC as a holding company with the state as the sole shareholder and the President as its shareholder representative. The President is given the power to transfer the administration of this Act or any power or function referred to in this Act to a member of Cabinet in accordance with section 97 of the Constitution.
- Section 7 provides for the objectives of SAMSOC. These objectives include SAMSOC exercising the rights and observing the restrictions as a shareholder over any subsidiary or minority holding in a company. It’s objectives also include the provision of advice to the President on the development and review of the National Strategy, the phasing in of state enterprises to the holding company after the completion of the required due diligence. Also, SAMSOC’s objectives include the conducting of the required due diligence as provided for in section 16 and, on instruction from the shareholder, cooperate with the relevant Board in order to facilitate the implementation of transfers as contemplated in section 17.
- Section 8 contains the shareholder powers and duties which include promoting and supporting the functions of the holding company and reporting annually on these to Parliament on the commercial sustainability, developmental impact and material risks of the investment in the holding company. The shareholder powers differ from typical arrangements in respect of state-owned companies in that the shareholder confirms the appointment of directors recommended by the Board. While the shareholder has a right of refusal, there is no absolute right to appoint directors of own choice. These provisions have been included to ensure a level of political insulation for board appointments. The shareholder is also enjoined to undertake an independent assessment of board performance ever three years over and above the normal performance reviews and to publish the outcomes of this report to ensure transparency of operations.
- Section 9 contains the powers, functions and duties of the Board. As can be expected from the prior sections these include:
- The provision of advice on the development of the national strategy and the phased succession for the transfer of state enterprises to the holding company;
- On instruction from the shareholder, conduct the prescribed due diligence and, if appropriate, prepare for the onboarding of any state-enterprise as a subsidiary;
- Exercising the rights as shareholder on behalf of the state over its subsidiaries;
- Ensuring that SAMSOC and its subsidiaries operate in terms of the Companies Act in order to meet the expectations contained in the national strategy and in particular, adhere to a number of bespoke governance and accountability arrangements which are supported by an appropriate financial management regime. SAMSOC and its subsidiaries are given broad operational independence but any funding or guarantees from the state must be authorised by the shareholder and the Minister of Finance. This approach has been adopted to ensure that SAMSOC does not use its independence in a manner which places a drain on the fiscus; and
- The relationship between SAMSOC and its subsidiaries are governed by the use of typical corporate planning instruments. SAMSOC is responsible for ensuring that reporting frameworks and financial and operational performance
frameworks are in place for its subsidiaries. It is specifically recorded that the Board is responsible for the appointment of the Chief Executive Officer and the Chief Financial Officer. These mechanisms are further examples of the political insulation which the Bill seeks to address.
- Section 10 caters for the composition of the Board and confirms that the Board is responsible for recommending directors for appointment and when doing so must be mindful of their skill, knowledge, experience and integrity. A mechanism is created whereby the shareholder can refuse to appoint the recommended director but may not simply appoint his or her own choice of director. The size of the Board is limited as are the number of terms a director may serve in line with good practice. Both the Chief Executive Officer and the Chief Financial Officer are ex-offıcio directors of the Board.
- Section 11 contains a specific standards of director conduct provision which draws from the common law and the Companies Act but also includes a reference to SAMSOC’s developmental objectives, its business sustainability and the public interest as is befitting a state-owned company.
- Section 12 ensures that certain identified board committees are appointed including the nominations committee which is responsible for making recommendations in respect of future directors.
- Section 13 contains reporting provisions to ensure the transparency and accountability of SAMSOC to both the shareholder and the public. The reporting requirements include financial management provisions as well as the requirement to provide an integrated annual report which must be tabled at Parliament.
- Section 14 provides that the Public Audit Act will apply to SAMSOC and its subsidiaries. The provisions of that Act enjoin the Auditor-General to ensure that the audit of SAMSOC is made according to appropriate guidelines. As such, the Auditor-General may elect to authorise designated private sector auditors to undertake the audit functions.
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Chapter 4: Legal succession
This Chapter is comprised of three sections which cater for the internalisation of co-operative governance when facilitating required legal succession. The due diligence provisions discussed previously are contained in this Chapter as are legal succession provisions.
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- Section 15 is the co-operative governance provision and enjoins the Ministers responsible for state enterprises and the relevant organs of state to cooperate with SAMSOC to implement any required legal succession as contemplated in this Chapter.
- Section 16 is the due diligence section. The section provides for the accounting authority and other personnel of a state enterprise to cooperate with the holding company and to provide it with required information. The section further provides for SAMSOC to make recommendations to the shareholder and to recommend that a state enterprise shareholding be transferred to it or for corrective action to be taken prior to such transfer. The shareholder must share these findings and recommendations with Cabinet and after consultation with Cabinet determine that the state enterprise shareholding be transferred to SAMSOC.
- Section 17 provides the mechanism whereby the shareholding in a state enterprise may be transferred to SAMSOC and the consequent removal of the name of that state enterprise from the PFMA Entity Schedules and the repeal or amendment of law as set out in Schedule C on a specific date.
Chapter 5: Use of land and rights in land
This Chapter contains provisions relating to the use of land and land rights and contains two sections.
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- Section 18 contains a mechanism whereby subsidiary land holdings may be transferred to another subsidiary. The intent behind this section is to allow for consolidated property holdings to promote better efficiencies. Any such transfer is exempted from statutory fees and charges.
- Section 19 contains a provision for the use of state servitudes by a subsidiary company and that such right may be registered without attracting any statutory fees and charges.
Memorandum of Objects (summary)
The National State Owned Enterprises Bill
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