Inadequate Oversight Over Parastatals Cripples Service Delivery
blurb:isstoday:220022008parastatals
22 February 2008: Inadequate Oversight Over Parastatals Cripples Service Delivery
While it takes little cerebral effort to see that all is not well in most state-owned corporations, a generous dose of mental dexterity is required to remedy the problems. This not only pertains to accounting officers and departmental directors-general, but also to executive officers, including cabinet ministers, who are often required to give direction to the parastatals.
Unfortunately, departmental leadership and oversight over parastatals leaves much to be desired. Most South Africans are by now acutely aware of the skills shortage plaguing Eskom, which is partially to blame for a serious energy crisis that may last for half a decade. The parastatal, however, should take less blame than its political stewards, including the Department of Minerals and Energy, who have failed to institute the necessary precautions. Citizens will now have to put up with the consequent steep rise in the price of electricity.
The Department of Agriculture and Land Affairs’ leadership and oversight role over the beleaguered Land Bank has also not been particularly impressive. This is perhaps not surprising given that the department has itself been, in the last two consecutive years, struggling to obtain unqualified audits, with the Auditor General (AG) unable to verify 69% of its comprehensive sample of the parastatal’s assets. Also a cause for concern is that there are reportedly more than 1,200 vacancies in the department.
The current woes in the Land Bank are largely reflective of the departmental deficiencies in the Department of Agriculture and Land Affairs. The AG recently tabled the Bank’s fourth consecutive qualified audit. In certain respects the Bank’s financial position could not be verified. This had something to do with loans that were issued under questionable circumstances. A subsequent forensic report into allegations of corruption at the Bank also confirmed that some of the loans issued ‘lacked logical business sense’. As a result, the Bank’s operating capital has tumbled from R3,1 billion in 2001 to R1 billion in 2007. Early last year Cabinet approved a R1,5 billion guarantee and a R700 million cash injection. Without this recapitalisation, the Bank may not have been able to pay its own funders. The parastatal was meant to generate its own profit rather than rely on the taxpayer to subsidize it.
While servicing emerging farmers may have led to the loss of established commercial farmers as clients, thereby shrinking the capital base, the Bank’s real source of decline can be traced directly to failure by the Department of Agriculture and Land Affairs to appoint suitable management. As in the case of Eskom, the pressure to transform has seen the Bank losing many of its experienced members to commercial banks. The ministry has clearly been unable to handle this issue skilfully.
The real losers in the end are the emerging farmers the Bank is meant to help. More than R1 billion appears to have been sanctioned to fund land developments for golf estates, theme parks and residential property, rather than needy farmers. The minister is herself on record stating frankly that she would find it difficult ‘to explain to Parliament that the Land Bank was funding golf estates and other property development projects’.
Stories of fraud, corruption, violations of tender rules and contraventions of the Public Finance Management Act have also been common in the South Africa Post Office (Sapo). A former Sapo CEO, who is credited with steering the loss-making parastatal to its first profit during the 2004/05 financial year, wrote that he was ‘confronted with a loss-making organization draining state resources of nearly R1 billion per year, and accumulated pension and medical aid deficits of R1,2 billion and R1,8 billion respectively.’
The remarkable success story however was short-lived as the former CEO’s successor brought against his predecessor allegations of impropriety relating to a R100 million contract to revamp Post Office branches countrywide. Were the Communication minister’s intervention in the mudslinging match that followed more decisive, she would now not be mulling over the almost R2 billion summons the Post Office faces after a seemingly unpremeditated cancellation of contracts due to suspected corruption. Potential liabilities include a R1, 3-billion claim from a cellular company, R60-million from a cancelled biometric contract, R269-million damages claim from a former CEO and another R250-million from a transport logistics deal.
The ineffectiveness of departmental leadership extends beyond national government to the provinces. In this regard not many entities could compete with the now defunct Mpumalanga Economic Empowerment Corporation (MEEC). The MEEC saga began with its former chief accused of using about R2.5 million of taxpayer and donor funds entrusted to the parastatal to maintain his luxurious lifestyle. MEEC loans appear to have been authorised in return for kickbacks, which the chief allegedly pocketed. This shameful situation was made worse when high profile investigators began to accept bribes in exchange for protecting the chief against prosecution. This culminated in one of the province’s largest corruption trials, where it emerged that some of its most powerful government officials, including a former premier and an axed provincial director-general, were complicit in bleeding the parastatal dry.
In the final count, the public the parastatals are meant to serve is left worse off. Economists have long championed privatisation as the solution to the corruption, mismanagement, incompetence, inefficiency and other related ills that bedevil most state owned entities. However, in South Africa such entities are necessary to redress past imbalances in the provision of goods and services. The ultimate solution lies in fast-tracking managerially competent South Africans to manage the parastatals efficiently. This is where the country’s political leadership is seriously wanting.
Andile Sokomani, Researcher: Corruption and Governance Programme, ISS Cape Town
