State-Owned Enterprises

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According to international management conference definition, State-owned enterprises (SOEs) are described as companies that are established by the government with a sole aim of improving the countrys economy. Their primary goal is not to make a profit as it is for the private organizations; they fill the gap between the private organization and the need for the consumers who are the citizens of the country. SOEs control the majority of the economies development (International et al. 2014). SOEs are viewed as the enablers of the governments visions and the key to the achievement of the courtiers development goals and more so in South Africa they have to cover the broader part of South African. In SOEs, the majority of the shareholders are the government, and at times, the government is the sole owner of the SOE. Unlike the case of private organizations, SOEs are governed by an act of parliament. The act of parliament, in this case, determines the goals and limits the SOEs are supposed to go to when it comes to management and the manner of management in the company. The act details the SOEs objectives, the companies financial affairs are governed by the public finance management act also known as (PFMA). The main goal of PFMA is to ensure that the funds which are allocated to the SOE are appropriately accounted for, and the expenditure is at minimal. On the other hand, in the private organizations, a board of directors is elected by their shareholders who still have the power to remove them from power.

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Being controlled by an act of parliament limits them as compared to private organizations. For instance, SOEs can only raise debit finance and even with the case that the debit finance is not enough they cannot use additional equities to gain more funds as there is only one shareholder and he is responsible for raising the total funds that the company requires (Moeti & Khalo, 2007). To gain more funds for the business, they will have to seek approval from the Treasury, which may take a lot of time and also be a tedious process. Regarding private businesses, they can use any method to raise capital to achieve their desired goals. The main aim of the board of directors in any company is to protect the businesss assets and ensure that the company is making a profit and their shareholders are receiving a real return. Boards are the highest governing authorities in such institutions; they also have additional duties, for instance, the appointment of the company managers. In the case of first world countries, the board of directors is also responsible for protecting the employees welfares, environment and the society (Moeti & Khalo, 2007).

South African context also known as the Companies Act of 2008 stipulates that the board of directors must act in the good faith for a proper purpose and that the company must act in the best interest of skills and diligence to the expected person.

Globally, state-owned enterprises are known for their good work and efforts toward ensuring that the citizens of the particular country are receiving their basic services. For instance in China, after the tremendous boom era, SOEs has played a great role in ensuring that the countries have had tremendous growth. Other examples of countries whose failing SOEs have later turned to be of much help to the citizens are Brazil and India and, in turn, contributed to the growth of the countrys economy.

Research carried by Mokuele on Managing shareholder interests in state-owned enterprises in South Africa (2003) showed a shift in the position that is held by many capitalist, shift from the old eighties notion about SOEs. Countries are now acknowledging that SOEs have a role to play in nation development and nation building (Mokuele, 2003).On the surprising edge, even the Gulf states have revolutionized their SOEs and are making a lot of progress to the countries development.

An important and interesting note about South Africa is that they had recommendations from Washington that state should avoid being too much involved with the control of its productive assets. Washington warned the South African government that direct control leads to bureaucratic quagmire and eventually becomes a burden to the nation (Mokuele, 2003).

State Owned Enterprises in South Africa

South Africa is a transitional country which has a history of employing SOE as a tool of boosting economic development. In South Africa, SOEs are more than 300 in broad ranges of activities, some of the South Africa SOEs in South Africa extend to outside the countrys borders. The contribution of the State-owned enterprises to the countries development has been of great significant though they have been faced with operational and structural problems. The problems results to unequal and irregular patterns leading to uneven service deliveries and developments in the country (Mokuele, 2003). These problems have their roots from the outdated and traditional modes of operations that have been employed in the government-owned enterprises. Their performances have been put into question together with their role in the countries mixed economy (World, 2014).

Researchers from World Bank researching on Corporate governance of state-owned enterprises a toolkit (2014) explains that the government of South Africa in 1994 adopted a Development and Reconstruction Program (DRP). The program was aimed at rebuilding and developing the country to meet their basic needs through democratizing the society and the government, rebuilding the human resource and through the use of SOEs. The government of South African has a vision for the SOEs in that country. Its vision is that they should be able to contribute to the improvement of the countries and, in turn, the standard of living. The vision of reforming the South African governance ranges from short terms to long terms goals; the South African government believes that with the reformation of the SOEs managements they will be able to provide better services in the field of infrastructure and other beneficial services. Among the wider benefits from SOEs are that they would in the future be able to provide better services for the use of world-class expertise and lead to a developing continent.

In their research they stated that in 1999 South African government declared that they were to give the biggest priority to reforming the four main SOEs in the country; Telecom which provides telecommunications, Transnet which is responsible for transport, Eskom which is responsible for generation of electricity and Deniel a company responsible for defense production in South Africa. The four named above SOEs of South Africa controls over 90% of top 30 South African SOEs. They also provide an average 86% of turnover and a total of 94% of the total net income that is earned by the top SOEs in South Africa (Khoza & Adam, 2007). This is a clear picture that the four SOEs dominate the primary strategies of developments in South Africa and dictates the overall economic and industrial progress of the country.

In this research paper, the focus is on the performance of the SOEs in the energy sector. In this case, we consider Eskom. Eskom is a South African SOEs company which is responsible for generation and distribution of electricity in South Africa. Eskom is owned by the government and supplies 95% of the electricity that is consumed in the country. As indicated in the white paper, there is an industrial revolution in the energy sector (Khoza & Adam, 2007). The white paper which is a government publication acknowledges that the revolution in the energy sector is primarily due to poor management and structures that are used by the government SOEs and electricity utilities having to meet new pressures that are mainly resulting from the global markets and foreign investors who are coming to South Africa. In the white paper, it was indicated that South Africa is not immune is not immune to the revolution needed and now that it is part of the global economy and will have to meet the global expectations more so in the energy sector. The white paper laid the objectives of the energy sector as follows:

First is to increase the access and affordability of energy services from the households who have been historically disadvantaged, the small firms, small businesses and the community in general

The second role of states in the white paper was to improve on the Energy governance; this entails the introduction of reforms and new structures in the energy sector to ensure that they can face the problems that are faced by South African Energy Sector (Khoza & Adam, 2007). The roles and functions of each institution in the energy sector will be classified, and the operations of the institutions should be transparent, and its their role to make the membership more representative.

The third role of the energy sector from the white paper is to stimulate economic development. The South African government encourages competition in al, areas of energy. The main aim of this is to ensure that there is the effective delivery of services resulting from the competition.

It is the role of the energy sector to manage all the energy-related environmental impacts. The government initiates initiatives that will ensure that all the household which ensures that there is ease in accessing of energy and energy services. The government through the energy initiatives works towards ensuring that there is better management in the energy sector which will, in turn, lead to better utilization of energy-related emissions and utilizations. With the best team in play for the management, they will be able to world with the best models and structure of management to ensure that they the best are achieved from the energy sector.

Finally, the white paper outlines the role of the energy sector as ensuring supply through diversity. With the increased opportunities that have presented themselves in the energy sector, it is the role of the government to ensure that they pursue the security of energy by encouraging diversity from both the supply and primary carriers.

Competition is expected to be high in the South African energy sector with new companies expected to venture and explore into this business.

In South Africa, the distribution of electricity is faced with many challenges. 1998, government white paper, restricted the ability in archiving the primary objectives in meeting the aggressive electricity goal to ensure world class supply quality, and continuing in delivering low cost and equitability priced electricity to all customers. The main challenges faced by South Africa in electricity are:

There are substantial differences in the financial health of municipal distribution.

There is a wide difference in the prices paid by the various customers. This difference cannot be explained fully by the costs associated with serving different segments.

Economic of scales, skills, and specialization are not embraced by many of the small distributors; this leads to low-quality performance.

Electricity is not evenly distributed across all the regions, some the poorest areas have the highest need. Without enough and transparent funding mechanisms there will be a significant risk that in times of minimum resources many distributors will be unable to fund their targets (World Bank, 2014).

The overall aim is to create a more transparent and accountable electricity supply system, with different generation companies, ensuring competition, with better service delivery to customers, and with the provision of electricity to poorer households. But much needs to be done to fulfill this aim.

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