When no one is watching the watchers – The fate of State-Owned Enterprises

2 August 2017

The Passenger Rail Agency of South Africa (PRASA) appeared before the North Gauteng High Court early this year in Molefe and Others v Minister of Transport and Others, and the Court ruled that administrative action conducted by the State must be accompanied by a rational nexus. By then, the gravity of the trouble brewing at other State-Owned Entities (SOEs) had been highlighted repeatedly in the press. PRASA had previously made news headlines following reports by the Public Protector and the Auditor-General citing irregular expenditure and corruption within the parastatal. Not too long thereafter, PRASA was again making headlines in relation to the purchase of incompatible locomotives and the corrupt manner in which the tender for the trains was awarded. The impunity with which officials at the SOE continued to operate led to a scathing indictment of corruption of SOEs by the South Gauteng High Court in Passenger Rail Agency of South Africa v Swifambo Rail Agency.

The Court likened corruption to a cancer eating at the fabric of our society and emphasised the fact that “corruption if allowed to go unchecked and unpunished will pose a serious threat to our democratic state”. This has not rung more true than it does today.

As it so unfortunately happens, PRASA does not have the monopoly on corruption at SOEs. The presence of an independent and fearless media has led to the exposure through the #GuptaLeaks - a much-needed source of information - of the goings-on at SOEs such as Eskom, Denel and Transnet. At the heart of these revelations is the evidence that far too many SOEs are embroiled in corrupt activities, to the benefit of a disproportionate few. There are many other SOEs largely abiding by their constitutional mandates and legal obligations, however, the presence of corruption at any SOE, and the extent to which the corruption has penetrated, is worrisome.     

In 2016, Brian Molefe - then Chief Executive Officer of Eskom - resigned, after it came to light that he was involved in corruption at the power utility. His behaviour was exposed in a report by the former Public Protector. Molefe has since played a long-running game of musical chairs at Eskom - being reinstated, being retrenched, resigning and taking early retirement, to the tune of over R30 million. All whilst Public Enterprises Minister Lynne Brown looked on and seemingly enabled his behaviour. The dubious golden handshake came after the involvement of a number of top Eskom officials, including now embattled Chief Finance Officer, Anoj Singh. The participation of former Chairperson of the Board, Ben Ngubane, in the unlawful conduct is contrary to the primary objective of his role at Eskom, which is to ensure adherence to the principles of good corporate governance.

A Board of Directors is appointed to perform an oversight function. Its job is to ensure that an organisation does not operate outside its mandate and that it carries out its functions in a lawful, transparent and accountable manner. Ngubane facilitated the exact opposite. The Board must report to the member of the Executive responsible for the SOE concerned. In this case, the Minister of Public Enterprises enabled and fostered corruption. She too, failed to carry out her oversight function and reappointed Molefe, despite concrete evidence of his maladministration being tabled. The list of offences and fraudulent use and pocketing of taxpayers’ money is long, and the timeline is riddled with inexplicable ‘mistakes’ and oversight failures.

Eskom and PRASA are joined by Transnet and Denel. Transnet fraudulently awarded tenders to multiple Gupta-linked companies. The individuals involved obtained kickbacks for circumventing - and often completely disregarding - tender processes. It is telling that the corruption at Transnet dates back to a time when Molefe and Singh held positions there. 

Denel is the largest manufacturer of defence equipment in the country. Evidence from the #GuptaLeaks proves that the Gupta family attempted to sell state arms manufacturer Denel’s weapons to India, in a deal that would have lined their pockets with millions more in taxpayers’ money. The Directorate for Priority Crime Investigation (the Hawks) are now investigating transgressions at Denel.

Oversight at SOEs has escaped the Board of Directors and Parliament, who are the primary gatekeepers. The result is that the Courts have become inundated with corruption-related matters. The Constitution requires a high standard of professional ethics and that services be provided fairly and without bias. This is evidently not a standard followed by these SOEs as they execute public functions. The fact that SOEs feature regularly in courtrooms and in the media is a testament to the flouting of constitutional principles intended to hold them accountable to the public they serve. The exercise of public power for self-enrichment - to the detriment of the country - should not be tolerated. The founding values of the Constitution include openness and accountability. These values must inform all decisions taken by government, at any level. 

By Rebecca Sibanda, Legal Assistant, Centre for Constitutional Rights, 2 August 2017