7 Improving the restructuring process

One final substantive area that the policy framework seeks to cover is the manner in which the restructuring process can be improved in order to ensure that the accelerated agenda can be achieved. The department has been consulting participants involved in previous and current restructuring initiatives to gather suggestions as to how the process could be improved. Although many good suggestions were received, these solutions will still need to be implemented. The broad consensus achieved from officials across Government departments and with managers from SOEs however indicates that implementation of these suggestions will enjoy considerable support.

Problem statement

There is general consensus in Government and with SOEs that the following problems can be associated with previous and current restructuring initiatives:

• the restructuring process has taken longer and used many more resources than was initially envisaged. If there is to be an accelerated agenda for restructuring the process will need to be considerably re-designed;
• restructuring did not necessarily address all Government’s objectives and future restructuring initiatives should focus more attention on broadening the means for participation;
• the lack of clarity about the different roles both within Government and between Government and SOEs and other stakeholders has created significant bottlenecks which can, however, be overcome if roles and responsibilities are more clearly defined.

There was general agreement that if the restructuring process is to be accelerated, then it will need to be significantly re-engineered to remove current bottlenecks (to make it more efficient and effective).

Managing stakeholder involvement

Increased stakeholder involvement will be arranged through the Labour Relations Act, through the social plan framework negotiated at the 1998 Job Summit, and through the National Framework Agreement to address high-level political engagement. Government is committed to the National Framework Agreement as a vehicle for discussions with labour on strategic issues relating to the restructuring of SOEs. The National Framework Agreement will emphasise the sectoral level, facilitating the alignment of specific enterprise restructuring initiatives with the broader sectoral policy. These proposals will benefit the relationship between Government and affected stakeholders, such as employees and consumers.

Beyond the immediate concerns of the relationship with labour, the Department recognises that it needs to improve its communication processes with other stakeholder groupings around restructuring. The Department is looking into developing an alternative form of communication such as a web site on restructuring. The Department has already committed itself to making the information generated from its audit of SOEs available through this means, and it will be exploring ways of providing up-to-date information on the status of various restructuring initiatives by such means. It may also publish a quarterly bulletin on restructuring initiatives.

Streamlining the decision-making process

Within Government, some concerns were expressed on the decision-making process within restructuring. These have now been addressed through the revised structure of decision-making approved by the Office of the Presidency.

Basically, it entails a two-stream process whereby the detailed day-to-day restructuring decisions would be processed by an oversight committee and then passed on to a Ministers’ subcommittee for approval. The subcommittee would primarily involve the Ministers of Public Enterprises, Finance, Labour, Trade and Industry and the Ministers from the affected sectors, where necessary. In addition, all the major policy questions, like those of other departments, would be routed through the new FOSAD and Cabinet Committee structures.

Interrogation of restructuring proposals

The third area of concern is the extent to which there is mutual understanding of restructuring proposals across Government and between Government and the SOEs. Some officials feel that previous restructuring proposals have not been sufficiently studied, especially in relation to their links other initiatives. It is also felt that there has been insufficient debate on the broader longer-term impact of restructuring initiatives. Generally, there is a belief that the previous structures governing the restructuring process did not allow for this strategic debate. A common understanding of restructuring needs to be established between Government and SOEs, and there is possibly a need for forums where the restructuring (overall/sector specific) strategies could be debated.

It is suggested that Government should hold periodic workshops on sector specific strategies. These in-depth strategy discussions could inform both government officials and SOE management. Departments responsible for different sectors could periodically produce a short sectoral document setting out the restructuring strategy it would like to pursue. These documents could be circulated within Government and the SOEs and be used for the periodic strategy workshops. Such sectoral documents would also need to be lodged with FOSAD.

Although the oversight committee would deal mainly with transactions, it might also be worthwhile to introduce strategic discussions into the oversight committee to ensure that officials remain informed of the broader strategic consequences of their actions.

It has also been proposed that restructuring proposals more fully account for the micro- and macroeconomic and social impacts than is currently the case. Future proposals should include the following information:

• An explanation of why the restructuring is necessary in terms of an analysis of the enterprise performance related to local and international trends in the industry or sector.
• An assessment of new capacity requirements for regulation, management, employment and, if relevant, community and/or other private partners, with appropriate plans for providing training or other empowerment mechanisms
• An explanation of how the proposal may assist in meeting national objectives, including, as relevant, those related to economic performance, service delivery, employment, investment and income distribution, etc. (see Table 1 in Chapter 2)
• An analysis of the net impact on affected communities, regions and the national economy in terms of employment, prices, income distribution and economic growth
• An analysis of the direct and indirect implications for national and provincial budgets

Structures and roles

It has been noted that the IMCC Lekgotla in November confirmed that the Department of Public Enterprises is to be responsible for co-ordinating and leading the restructuring process, and that the Minister should report to Cabinet on restructuring. The Department will act as co-ordinator of the restructuring process, and its programme officers for specific sectors will work with the primary policy departments. However, it has also been noted that policy, regulation and shareholder functions are intertwined and that there is also a need for integration of key issues. Government as a whole needs to ensure that every restructuring process is dealt with in a sectoral context. The suggestions in the section above should be of assistance.

Parliamentary oversight

Parliamentary oversight is a critical feature of the restructuring function. The Ministry of Public Enterprises is to work in close collaboration with the two Parliamentary committees assigned to such oversight. These committees are the Portfolio Committee on Public Enterprises, comprising representatives from the National Assembly and the Select Committee on Public Enterprises, whose members are drawn from the National Council of Provinces.

Members of Parliament have taken a keen interest in the Ministry and its operations. Because the Ministry considers well-briefed and informed committees to be vital, it has been policy to disclose as much information as possible to oversight committee members without placing the competitive commercial interests of the SOEs concerned in jeopardy. To this end, detailed briefings are regularly provided to committee members by Ministry and departmental officials either at the instigation of the Ministry or upon request from the committee directed through its chairperson. Committee members have also pursued matters in respect of the process with the Ministry at these meetings or in private with ministerial officials.

Over and above briefings and occasional visits to the SOEs by the committees or representative groups drawn from the committees, it is customary to discuss the pending legislation in the committee prior to discussion and voting in the plenary session. Legislation emanates from the Ministry of Public Enterprises for drafting and approval by the state law advisers before being submitted to Cabinet by the Ministry of Public Enterprises and then to the Portfolio Committee on Public Enterprises. Once approved by the Portfolio Committee the Bill is forwarded for discussion and approval in the National Assembly. Thereafter, the President signs the legislation into effect.

The relationship between Government and the SOEs

A number of concerns about the relationship between Government and specific SOEs have been raised. These include questions around the roles of SOE management and Government’s technical task teams, especially when the SOEs have technical expertise that is often lacking in Government. It has been noted that SOE management may have vested interests and, therefore, their participation would have to be carefully considered depending on the issue in question.

It has been accepted that the problem of clarifying roles will be addressed through the protocol on corporate governance and shareholder compacts (see the above discussion). However, these roles may differ during and after the restructuring phase. It has been argued that, although the shareholder appoints the board and the board has duties and is financially liable, the restructuring and transformation of SOEs vest with Government as shareholder. Government therefore needs to ensure that the views of the boards and management are solicited before initiating the restructuring process, and it may want the boards to take responsibility for driving transformation once a restructuring plan is agreed upon. These issues are likely to be better clarified once the shareholder compacts have been finalised.

Mapping the restructuring process

In order to gain a better idea of the restructuring process, the Department set out to map the main processes involved in restructuring. (The high-level process maps are included in the Appendix.) There are four main processes involved in restructuring:

1. Strategic analysis
2. Enterprise restructuring planning
3. Transacting
4. Post-restructuring management

Each of these processes has been further defined to cover the main activities of the Department of Public Enterprises, although links to the work of other departments, Cabinet, stakeholders and the SOEs are indicated on the maps.

1. Strategic analysis involves developing a list of restructuring priorities from an analysis of the SOE information collected in the SOE database maintained by the monitoring unit. This list is also defined through reference to an SOE operating environment report (comprising macroeconomic, sectoral and legislative and regulatory reviews). Once the set of restructuring priorities has been defined, the Department of Public Enterprises requests a restructuring plan from the SOE concerned. This plan is assessed against the SOE operating environment report and updated by the SOE where necessary. Stakeholder engagement takes place around the restructuring plan and once an acceptable plan has been developed, Cabinet approval is sought.
2. The Department of Public Enterprises receives the high-level restructuring plan after Cabinet approval and appoints advisers who prepare a detailed enterprise restructuring plan. This process will largely involve due diligence research and the identification of appropriate restructuring mechanisms. There will also be stakeholder involvement around the detailed restructuring plan, which is then approved by Cabinet.
3. After receiving Cabinet approval for the detailed restructuring plan, a detailed work plan is formulated. The Department of Public Enterprises then moves into the transaction management phase where it largely project manages the process. Cabinet approval is sought for the portfolio of potential bidders, the portfolio of potential buyers and, finally, the selected purchasers, after which the deal is concluded and proceeds collected.
4. Finally, the SOE portfolio is managed. This includes developing shareholder compacts and performance agreements, monitoring SOE performance in terms of the compacts and the PFMA, and evaluating the impact of restructuring. The Department of Public Enterprises takes responsibility for maintaining the database of SOE information and the share, guarantee and indemnity portfolios for Government. Stakeholder engagement is again sought in assessing SOE performance. The Department periodically reports on SOE performance to Cabinet and other relevant government structures.

Conclusion: improving the restructuring process

There is general agreement that the restructuring process that has developed since 1995 could be substantially improved. Suggestions include the following:

• Arrangements to improve stakeholder involvement could take advantage of the LRA and Social Plan and the NFA to address high-level political engagement.
• Government should seek new methods for communicating with other stakeholders, including quarterly bulletins and a web site.
• The new two-stream structure that distinguishes between day-to-day decisions and those that require a strategic or policy input would expedite decision-making.
• Periodic strategic workshops and the circulation of short sectoral strategy documents would improve the overall strategic understanding of restructuring priorities in Government and between Government and the SOEs.
• The Department of Public Enterprises would lead the restructuring of SOEs and co-ordinate the activities of policy departments and Finance through a number of sector-specific programme officers.
• The roles and responsibilities of Government and the boards and management of SOEs in the restructuring process should be identified and then clarified by the proposed shareholder compact and a revised protocol on corporate governance.
• The new maps of the restructuring process (see the Appendix) should assist all stakeholders in understanding how restructuring will proceed.