Parastatals: Architecture of corporate governance -2

In as much as Tanzania privatized 219 State Owned Enterprises (SOEs) between 1995 and 2004, SOEs continue to play a vital role in Tanzania’s economy. Strategic SOEs that currently operate cover sectors such as transportation (rail, air) energy, water, ports, telecom, banking (TIB), insurance (NIC), housing, broadcasting and agricultural marketing boards. In financial year 2009/ 2010, the Government is reported to have invested Sh7.76 billion (or two per cent of GDP) in 238 SOEs and public authorities.

Operational deficiencies in SOEs

These impressive state assets, notwithstanding, it is important to heed from the report of the Controller and Auditor General for 2009/2010 that Tanzanian SOEs still reflect several operational weaknesses. For example, it is reported that only 51 of public authorities and other bodies, a term used in the Public Audit Act No 11 of 2008 to infer SOEs and public agencies, met the timeline for the submission of financial statements and accounts to the Controller and Audit general for audit (3 months after the end of the financial year to which the accounts relate). 115 institutions failed to comply for different reasons.

Moreover, it is important to note that SOEs are not immune from the concerns of citizens about their performance. Indeed, given their past abysmal performance records, the expectations of the public from them have become better informed and intense. And why should the citizens be not concerned when pursuant to the Audit Report of the Controller and Auditor General for Public Authorities and other bodies for 2009/2010 revenue collected by the Treasury Registrar in respect of dividends, loan repayments and other proceeds decreased from Sh84.1 billion in 2009 to Sh40.6 billion in 2010.

More acutely, however, the demands of the economic environments, from competition, technology changes, skills and quality of service, no longer distinguish private and public enterprise. There is now equality of roles and ideological ownership dogma carries insignificant advantage. In such an environment, SOEs have little choice but to leverage their performances and secure the trust and confidence of a tax paying public.

Corporate governance challenges in SOEs

In his Annual Report on the audit of Public Authorities and Other Bodies for the financial year 2009/2010, issued under Article 143 (4) of the Constitution of the United Republic of Tanzania, the Controller and Audit General has identified a number of corporate governance issues that confront SOEs in Tanzania. The following stand out: the lack of a composite law that enshrines the principles of corporate governance to ensure compliance with best practices; lack of clarity in the powers of the boards of directors affecting their effectiveness; blurred separation of powers among the Government, National Assembly and boards of directors; continued membership of Members of Parliament on boards of directors which violates agency-principal relationship; Board Director fees vary from one SOE to another without justifiable reason; SOEs are undercapitalized thus diminishing their capacities for optimum performance.

Moreover, 34 companies specified pursuant to the Public Corporations (Amendment) Act No 16 of 1994 have remained specified even after the dissolution of the Presidential Parastatal Sector Reform Commission (PSRC). In such a situation, the affected SOEs, which include Air Tanzania Corporation, National Insurance Corporation and Tanesco, are, legally, restrained from business expansion and fresh investments even when one now sees Tanesco executing contracts with external agencies.

It is also not clear whether the Consolidated Holdings Corporation (CHC) has taken over the restructuring and receivership powers of the PSRC which the Public Corporations Act (Amendment) 1993 had vested on the PSRC; appointments of persons to boards of directors are not well considered thus affecting board effectiveness; there are delays in appointing Boards and renewing Boards on expiry of terms; board audit committees are ineffective due to weak composition; internal audit departments are weak; there are inconsistencies in board meetings; there is lack of enforcement in ensuring boards meet at least four times a year and that board meetings do not end up becoming a source for income generation by directors; boards are weak in ensuring their fiduciary and duty of care roles exemplified by lack of seriousness in providing leadership over timely preparation of financial statements in line with the Public Audit Act of 2008.

The Controller and Audit General has done a comprehensively commendable job in outlining what clearly constitutes an excellent framework for the development of a corporate governance law to guide the operations of SOEs in Tanzania. However, I wish to offer a few additional insights on this important challenge and task.

Towards an effective corporate governance system for SOEs

The ideological context of SOEs has gone through a sea change from the earlier underpinnings of the socialist blueprint, the Arusha Declaration. Whatever governance system that existed to guide the operations of SOEs under a political economy regime of public ownership, it is a system that is no longer efficacious in a largely market driven economy. In such a changed environment, it is critically important for the Government to clarify a number of policy related and organizational issues. The dilemmas centre largely on multiple and conflicting policy objectives, weak supra- organizational control systems, unclear roles of different decision making authorities, including political interference and weak organizational systems within the SOEs.

Overarching policy foundation for SOEs

The first issue centres on the need for an overarching policy objective for SOEs on the basis of which key corporate governance principles could be shaped even when there exists significant commonality with principles applicable for private enterprise. Of course, operating under state monopoly conditions made life easier for SOEs. The same is not the case in the current highly liberalized competitive environment.

Yet how often do we sense that strategic SOEs continue to be treated by the owner – the Government – as if they still operated under monopolistic, socialist environments? Tanzania needs a public enterprise policy that clearly sets out what is expected of SOEs much as it is important to be careful not to pursue a “one size fits all” supra -policy regime. I think it would still be important to distinguish roles of individual SOEs simply because some may be more commercially inclined than others.

Supra-organizational architecture for SOEs

The second issue touches on the supra-organizational architecture for supervision and control of SOEs. There is a view that clarity of ownership of SOEs revolves around having a single government body that assumes and exercises responsibility for the governments’ stakes in all SOEs. Such a body is able to muster capabilities and competencies for providing effective accountability of SOEs. The downside, however, is that such a single entity could yet be another bureaucratic institution wielding too much power in a complex environment in which SOEs operate leading to all kinds of ostensible performance dysfunctions.

Role of Treasury Registrar

In Tanzania, the ostensible organizational supervisory and control architecture, since colonial times, has revolved around the role of the Treasurer Registrar, an office that was established by the Treasury Registrar Ordinance (Cap 418). As for the role of the Treasurer Registrar, it is only fair to state that over the years the office has failed to rise to playing and fulfilling the role of an effective supervisor and controller of SOEs.

Revamping the role of Treasury Registrar

However, lately, there has been a major transformation in the role of the Treasury Registrar. The office of the Treasury Registrar has been re-established pursuant to the Written Laws (Miscellaneous Amendments) (No2) Act No 11 of 2010 Part XV titled Amendment of the Treasurer Registrar (Powers and Functions) Act, Cap 370, as a body corporate with perpetual succession and shall, in its own name, be capable of suing and be sued, acquiring, holding, managing and disposing properties, exercising deeds and instruments, and entering in agreements.

Moreover, the office shall now exercise several supervisory and control responsibilities “to secure the proper management of the properties and other investments vested in him.” Such responsibilities are, for the first time, in the history of Government control of SOEs in Tanzania, not only comprehensive but also fit corporate governance best practice requirements. When fully implemented, with the office given the requisite staffing and budget resources as encapsulated in the law, the Treasury Registrar should be able to enforce a rigid corporate governance system on SOEs.

It is now the role of the National Assembly to follow up on the implementation of the new Treasury Registrar law and hold the Government to account on how the Treasury Registrar fulfils the mandate vested on his office by law.

What the National Assembly has to ensure, however, is that ministers, who have a legitimate right to supervise and monitor the performance of SOEs under their mandate, exercise their roles through the Aristotelian principle of “governance by laws, not by man” which should help to limit discretionary decision making powers on the part of ministers.

Presumably the Presidential Delivery Bureau under the tested able leadership of Omari Issa would also provide the much needed oversight in limiting ministerial interferences in the workings of parastatals and generally create the environment where service delivery takes pre-eminence above bureaucratic processes.