Government and Privatisation: Turkeys Don't Vote for Christmas!
By Andrew Keili (30/09/18)
I listened to a refreshingly honest interview on Radio Democracy of the Minister of Water Resources Dr. Jonathan Tengbeh on water supply in the country.
On the matter of Guma Valley Water Company he lamented the fact that his Ministry did not have much of an oversight role of Guma, quite unlike Salwaco which was directly under his Ministry, it was actually within the purview of the National Commission for privatization (NCP).
The mandate of his Ministry is "to formulate and implement policies for the development and management of water resources, in order to ensure all communities have improved access to safe drinking water, in a sustainable manner for socio-economic development". It would seem however that this mandate for Guma has been handed over to another body. The erstwhile Minister Momodu Maligi experienced the same problem in his stewardship of the Ministry and was often at odds with the NCP.
The whole issue of the NCP’s mandate and tenure of its oversight function over State Owned Enterprises (SOEs) under its care should perhaps be subject to scrutiny. The NCP started off with laudable aims.
The Kabbah government, cognisant of the failures and inefficiencies of the public sector, realized the need to have the private sector play a leading role in the revitalization of the economy. One of the main ways in which this could be achieved was by privatizing many of the SOEs that had become a burden on Government but were nevertheless vital in building the financial, infrastructural and other sectors. In 2002, an Act of Parliament was passed to set up a National Commission for Privatisation.
According to the NCP Act, the object for which the Commission was established was to serve as the policy and decision-making body with regard to the divestiture and reform of public enterprises; to transfer the management of all public enterprises to the Commission, and remove the interference in the management of public enterprises from the Ministries thereby ensuring transparency, corporate governance and avoidance of conflict of interest in the affairs of public enterprises.
In the early 1990s, there were 44 public enterprises which were engaged in a variety of economic sectors. The 1993 Public Enterprise Reform Act had divested 14 of these enterprises. In September, 2003 the Government re-launched its privatisation programme with the publication of a Strategic Plan for the Divestiture of Public Enterprises, split broadly into four sectors-finance, utilities, commerce and transport. The Strategic Plan set out an implementation programme for the period 2006-2003 during which it was envisaged that 24 public enterprises would be restructured and divested in some form.
Apart from some of the enterprises in the financial sector such as formal banks, almost all the enterprises operated at a loss, had excessive debt and were over staffed. Poor corporate governance by government-appointed Boards, management problems, lack of capitalization and inefficiencies in operation were the main reasons for their poor financial performance. Many of the enterprises operated in sectors where the policy, legal and regulatory framework were outdated, unclear, or completely nonexistent.
The NCP was established to serve as the policy and decision-making body with regard to the divestiture and reform of public enterprises. The management of all public enterprises would be transferred to the Commission. The Commission would serve as a prudent shareholder and manage and prepare all public enterprises for divestiture and delivery of efficient services. The Commission would be expected to deal with donors for all projects in the divestiture process and approve the appointment of divestiture advisers and consultants.
It was envisaged that the privatization process would stimulate domestic and foreign investment. It would also strengthen the quality and coverage of infrastructural and financial services and help refocus government resources. A secondary effect would be the increase in the scope and scale of private sector activities and the generation of employment through business growth. The Commission’s functions amongst others included acting as a prudent shareholder, fully representing the distinction between shareholding and management, managing and preparing all public enterprises for divestiture and delivery of efficient services and approving policies for divestiture.
The divestiture may take one or a combination of many forms. These include the following:
(a) The sale of the business to a private sector investor or investors or the sale of the assets of the business in part or as a whole;
(b) Joint venture of the State with a private sector investor;
(c) Management contracts with a single company or consortium of companies , of all or part of the public enterprise;
(d) Performance contracts;
(e) Liquidation of the public enterprise;
(f) Sale to other shareholders in the company where Government owns part of the shares;
(g) Leases, in the case of hotels;
(h) Employee or management buyouts so as to broaden local participation in the process.
The process for loss making enterprises engaged in production would be by outright sale without further capitalization. Performing enterprises would initially be run by management contracts of all or part of the enterprises until such time that full divestiture takes place. For commercial banks, the divestiture would be by a withdrawal of Government so as to increase the participation of such private investors as will enhance greater efficiency in the financial sector.
A good 15 years after it was set up, many of the SOEs slated for privatization are still in government hands, with oversight provided by the NCP, which is often at odds with line Ministries. How did this situation arise in which many of the enterprises are still in the same condition with inefficient management teams and high indebtedness after all this time?
My good friend and former Mayor Winstanley Bankole Johnson has always been one dissatisfied with the perpetual role of the NCP in the management of key parastatals, and not been one to mince his words of shy away from controversy, he wrote thus in an article a few years ago: "Privatization is not synonymous with management restructuring. The NCP Head is neither a Super Chairman of all Parastatals; nor does the privatization Act of 2002 allow NCP representation on the Boards, or their meddling in the management, recruitment, promotion and procurement processes of Parastatals as they currently do. The NCP Act is overdue for review if government is serious about reducing corruption and overstaffing in Parastatals."
Johnson accused the Commission of “sitting on the Boards, meddling in the management, and getting involved in staff recruitment and promotion at all levels and instructing CEOs and senior management staff of Parastatals to do their bidding over and above directives from their respective Board Directorates”. He cited the fact that “the former Governor Samba Deen Sesay, on account of sustained dismal performances (even with NCP representations on their Board), invoked Section 31 of the Banking Supervision Act by wresting, and later reverting direct day-to-day supervision of the S.L commercial Bank Ltd.” As evidence of NCP’s ineffectiveness.
Truth be told, there have been some successes. The unbundling of the National Power Authority has helped usher in private sector participation into the electricity sector with improved results. Privatising certain aspects of the Port’s operation and leaving the SLPA to play the role of a landlord have led to efficiencies in port operations including loading and clearing. Though Sierratel and Sierra Leone airport Authority may have mixed results, there could be light at the end of the tunnel if the partial privatisation programmes in train are executed well. There appears to be some positive movement at the government printing Department.
Despite these successes, some SOEs have been fraught with a lot of difficulties, compounded by ineffective Boards and considerable interference by government in their operations. These may include Sierra Leone Housing Corporation, Sierra Leone Road Transport Corporation, Sierra Leone State Lottery and Sierra Leone Broadcasting Corporation. But does anyone know what is happening to these corporations? Mining and General Services, Sierra Leone Postal Services, Sierra Leone Daily Mail. Seaboard West Africa?
The main Banks, Sierra Leone Commercial Bank and Rokel Commercial Bank have shown over the past two years or so that with proper management they can run profitably. The extent of government interference over the years despite the oversight of the NCP has been exemplified by the number of non-performing loans from politically exposed persons. SLCB is still 100 percent government owned and there are uncertainties about the plans for divesting of government’s 51 percent shares in RCB.
The new NCP Chairman is a smart, astute and humble person who should know that his success as NCP Chairman ironically will be judged by the extent to which he keeps to the privatisation strategy and gets government interference out of these enterprises. Undoubtedly this will not be an easy task as successive governments have always treated SOEs as personal cash cows for politically connected Board members and other political associates to milk. It was refreshing to see SOEs included in this year’s budget process and having them grilled in public for a for their budgets. This should only be temporary and the privatization originally planned allowed to take root.
And back to Guma! Government should try to solve what appears to be an incessant fight between NCP and the Ministry of Water Resources over Guma. Dr Tengbeh was no doubt being diplomatic when he said they are trying to” collaborate and have a combined strategy”. The Guma Valley Water Company was established in 1961 by the Guma Valley Water Act, 1961 to manage the provision of water to the Freetown municipality. At inception, it had the capacity to provide water for 350,000 inhabitants. To date, this number has more than tripled.
A review of technical commercial and financial practices is being undertaken with donor assistance. The privatization of water is a controversial issue but Private sector participation can be encouraged in areas such as storage, security, support services like metering and bill collection. The Company is faced with problems of insufficient water production, poor distribution, high loss water rate, poor billing and revenue collection. There are insufficient funds to undertake major investments in infrastructure expansion and improvements of the system. Their situation is not helped by the huge indebtedness of government MDAs to Guma.
The NCP is obviously faced with a considerable number of challenges which may include capacity problems of the Secretariat, ability to contract specialists and ability to attract domestic and international investors. The government should perhaps review NCP’s mandate, have its strategic plan revised and look at its interrelationships with parent Ministries, under whom these SOEs are placed. This should not be left solely to NCP. After all Turkeys don’t vote for Christmas!
Courtesy: By Andrew Keili, Ponder My Thoughts