BOARD CHANGES AT ESKOM AND DENEL

The Ministry of Public Enterprises welcomes Wednesday's decision by the Cabinet ratifying the appointment of new non-executive directors at two state-owned enterprises (SoEs), Eskom and Denel.

Minister Malusi Gigaba also expresses regret over the fact he could not officially inform current Board members impacted by the changes beforehand owing to the premature publication of the Cabinet decision. Minister Gigaba also could not, as a result, discuss the envisaged changes with other stakeholders of Eskom and Denel.

On behalf the shareholder, Minister Gigaba thanks the outgoing non-executive directors of Denel and Eskom for their contribution and service to the nation.

Background

President Jacob Zuma, in his inaugural address, implored the government to reshape public policy and usher in an agenda of a developmental state. The latter requires the state to take a longer term view of investment and infrastructure development. The backlog in infrastructure investment requires a bold agenda by the government to meet the demand by the steady economic growth.

The implementation of the developmental state agenda requires a paradigm shift on the role of the state owned companies in the economy from trading strictly within the constraints of their balance sheets to exploring innovative ways to fund infrastructure development including partnership or cooperation with the private sector.

Consequently, the developmental state also requires a different governance and shareholder management model of SoEs. It calls for a degree of active participation by the shareholder representative in the areas of policy, planning, strategic direction and oversight.

The minister of Public Enterprises, as a shareholder representative, has a duty to ensure that SoEs are aligned to the vision of government and its objectives.

At the Annual General Meeting (AGM), and in addition to receiving reports on the performance of the SoEs, the Minister assesses the challenges of SoEs, the implications of policy imperatives on these, the skills required by the SoEs to meet their challenges and deliver on the government's mandate.

The Board members of SoEs are appointed on condition that the Minister may review their continued membership annually at the AGM. The Minister considers, amongst other factors, the following prior to reaching a decision whether a Board member should be retired or not:

• The immediate priorities of the government;
• The number of terms and number of years a member has served in the board;
• The collective skills required by the board to deliver on the government's priorities;
• The need to continuously instill innovation and new thinking;
• Prevailing demographics and gender representation;
• Collegiality and cohesion amongst Board members;
•  Availability of a Board member to devote their time to the affairs of the SoE;
• Avoiding conflict of interest; and
• Continuity and overall business sustainability and efficiencies.

The Minister has approached Cabinet for approval of Board changes in preparation of the forthcoming AGMs.

Denel

The Denel AGM is scheduled to take place on the 6^th July 2011.

During the 2010 AGM, four (4) members including the Chairperson whose terms were set to expire were requested to stay on for another year. These are the members whose terms were not renewed in this phase. Five (5) more members were required to bring the Board to its full compliment in terms of the Memorandum of Incorporation (MoI). Denel requires immediate business turnaround and strategic redirection.

Its sustainability and profitability are not beyond question. There is a need to review Denel's business case. It is necessary for Denel to also investigate whether it should not include civilian products in its product offering.

The appointments to be made by the Minister seek to fill the vacancies that currently exist and to allow members whose terms have expired to retire.

Eskom

The Eskom AGM is scheduled to take place on the 27^th June 2011. The total number of serving non-executive directors is twelve (11). Five of these have been on the Board since 2002, two have been on the board since 2005 and three of them were appointed in 2008. Only two were appointed in 2010.

It is Minister Gigaba's belief that Eskom should be rejuvenated and strengthened. He intends to introduce a Board with strong technical engineering, project and structured finance expertise, and policy and regulatory acumen. It is the considered view of Minister Gigaba that the collective knowledge of the incoming Board will position Eskom to meet the challenges of a developmental state and provide the necessary stewardship on the infrastructure build programmes.

Transnet

Cabinet has deferred the matter of proposed changes to the Transnet Board for further discussion and the Ministry will not comment on it until Cabinet has pronounced itself on the matter.

Statement issued by the Ministry of Public Enterprises, June 10 2011

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