Hybrid Governance Model: What is Jooste on about?

In July 2016, Public Enterprises Minister Leon Jooste introduced the Hybrid Governance Model for Public Enterprises, which seeks to restore order in a chaotic sector that has experienced a plethora of challenges.

Jooste is adamant that the new model, a departure from the Dual-Governance Model and which has been touted by some as a necessary evolution of the crucial public sector, holds the potential to significantly reduce total public enterprises debt, currently estimated at about N$43 billion.

Criticism of the Dual-Governance Model is anchored around the fact that all public enterprises from trusts, commercial entities, regulatory bodies, funds to educational institutions such as the University of Namibia (Unam) were governed using the same model.

There is no one-size-fits-all approach, Jooste said in the formative years of his new model.

While the new model has not yet been promulgated, Jooste is confident that the tabling of the consolidated amendment, in the form of the 2018 Public Enterprises Bill, is imminent.

However, according to Klaus Schade, a research associate at the Economic Association of Namibia, public enterprises can improve their performance once other areas, such as the composition of boards, qualification of management, relationship between board and management, accountability of boards and management, transparency and adequate financial resources receive adequate attention.

Government has acknowledged that the previous (SOE) model has not achieved the expected results when line ministries and the State-owned Enterprise Governance Council were responsible for the oversight of public enterprises, he told us.

The new hybrid model will clarify responsibilities and communication lines. Moreover, the Ministry of Public Enterprises will play a more active role as shareholder and provide policy guidance to public enterprises without getting actively involved in the day-to-day management of these entities, said Schade.

Responding to questions from New Era, Schade noted that the Ministry of Public Enterprises has already done some groundwork and collected statistics about public enterprises reporting, such as annual financial statements that indicate there is much room for improvement.

Establishing a strong monitoring system will certainly support the ministry in its role as an active shareholder. Allocating the responsibility for commercial public enterprises to one ministry will also support the development of expertise within the ministry and hence should improve oversight functions, Schade added.

In a recent statement made at the Public Enterprises CEO Forum, which took place in Swakopmund in June, Jooste said his ministry has worked tirelessly on the legislative instrument that will bring the Hybrid Governance Model to life.

That said, we now have a clear understanding and appreciation of the way forward whereby commercial public enterprises will start reporting to their new shareholder ministry, namely the Ministry of Public Enterprises, while the non-commercial public enterprise will continue to report to the relevant portfolio ministry with guidance and support from the Ministry of Public Enterprises on best practices for good governance. In the new governance model for public enterprises, the extra-budgetary funds will report to the Ministry of Finance, also with good governance support from us, said Jooste.

Jooste has admitted that one of the challenges of the new model was regarding the definition of the various public enterprises. After much deliberation, it was resolved that objective criteria for a commercial public enterprise are that this entity provides a product or renders a service, has the potential to generate a sustainable profit, can reasonably be expected to pay dividends to the shareholder, and is established by an Act and/or incorporated as a company under the Companies Act, such as NamPower, NamPort and MTC.

Meanwhile, objective criteria for a non-commercial public enterprise are that the enterprise provides a product or renders a service in the best interest of the public, is wholly or partly sustained by government support, either via a subsidy or on a cost-recovery basis, and is not expected to pay dividends to the shareholder. Examples include regulators such as the Communications Regulatory Authority of Namibia (CRAN), the Electricity Control Board (ECB) as well as educational institutions such as Namibia Training Authority, University of Namibia (UNAM) and the Namibian University of Science and Technology (NUST), and marketing bodies such as AMTA and the NTB.

Lastly, Jooste's Hybrid Governance Model proposes that extra-budgetary funds (EBF) are non-commercial, non-profit institutions that are both controlled and financed by government to carry out government policies, are funded by government subsidies, taxes, tax levies or other public charges, may have their own governance structures and, often, a legal status that is independent of government ministries and departments.

These entities may have separate banking and institutional arrangements that are not included in the annual national budget. Examples of such public enterprises are the MVA Fund, Environmental Investment Fund and the War Veterans Trust Fund.

In the allocation of existing public enterprises in the three buckets: commercial, non-commercial or EBF we may still encounter a few challenges but broadly these set criteria should do away with much of the confusion about the status and related governance and reporting lines for our public enterprises.

That said, and the classification of existing public enterprises in hand, we can now start the broad-based national dialogue on the real, actual transformation of the public enterprise sector, said Jooste. The public enterprises minister added that his ministry intends to be an active shareholder in commercial public enterprises and hopes to start the transformation process with commercial public enterprises while encouraging the non-commercial public enterprises and EBFs to undertake cost efficiency audits, in addition to seeking full compliance in terms of the Public Enterprises Act.

This includes timely financial reporting, timely submission of 5-year Integrated Strategic Business Plans and timely annual plans, signed governance and performance agreements, submission of pertinent policies, adherence to the remuneration guidelines, etc.

As the active shareholder for the commercial public enterprises we will seek answers to the following pertinent questions to confirm the raison d'etre (mandate) for these enterprises, which in turn will inform how we relate to these enterprises going forward, said Jooste.

He explained that the intention is to test all public enterprises' current businesses and business models against their original mandates. Based on this assessment of relevance, importance and impact, the pubic enterprises ministry will seek to update the mandate or refocus the public enterprise back to its original mandate, or recommend the restructuring of a public enterprise.

This may inter alia include the consolidation of public enterprises; public private partnerships (PPP); public listing of shares; re-integration of public enterprise functions into portfolio ministries; transfer of assets from the public enterprise to other state-owned entities,etc.

Source: New Era Newspaper Namibia