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COSATU /NEHAWU Submission on theThe draft State Property Management Company BillSubmitted to the Public Works, 15 April 2002 |
1. Introduction
COSATU and NEHAWU welcome the opportunity to comment on the draft State Property Management Company Bill (hereafter “the Draft Bill”). The property currently owned by the state is a strategic asset, which needs to be managed in a way conducive to the effective running of government as well as being consistent with broader developmental imperatives.
Public ownership of strategic assets must ensure the realisation of national strategic priorities.To achieve this requires a management system and cadre who have a clear sense of public responsibility and of national strategic priorities, and by those who understand the qualitative difference between publicly owned entities, and private-sector companies.
Draft legislation on the management of such strategic resources must ensure these objectives are realised and that developmental objectives are placed above a one-sided focus on the commercial value of the property and revenue generation as the overriding objectives.
The key aspect of the Bill is the establishment under the Companies Act of a public company, the “State Property Management Company”. According to the long title of the Bill this company will be responsible for “the strategic and operational management of the fixed asset portfolio of the State to derive benefits for the State from its property portfolio”. Our submission will thus in the main address precisely this issue. We are not convinced that a company is the appropriate institutional vehicle for this function. We propose instead that the Department of Public Works should consider an institutional form which addresses the current problems associated with state property management, while remaining within the public sector.
2. Management of state property: institutional arrangements
We do not believe that the current problems in the management of state property can best be solved by taking it outside the public sector and allowing it to be run as a company.
The Draft Bill seems to be premised on a number of assumptions, such as that the private sector is inherently more efficient that the public sector.These assumptions place private sector management of this strategic national resource as the answer to the ills of the current system. Reality and current experience however is different, and costly mistakes have to be financially carried by the state.
In recent years much emphasis has been made by the Public Service Commission and the Department of Public Service and Administration on the need to develop a public service cadre with a strong moral and ethical commitment to the public service. We are aware that one of the major arguments for this bill is in order to take senior management dealing with state property out of the public service and to attract senior professionals into this area of work at market related salaries.
Besides this argument undermining much of the moral and ethical arguments that have been put forward, there are many areas of governance which could potentially argue that they need higher salaries than are paid to public servants to attract and retain the skills that they need. What criteria would be used to decide that certain functions or skills are privileged and require higher salaries, while others are not? What this scenario does, and we have examples of this in the public sector already, is to create a “free for all” approach to remuneration and benefits. This goes against the ethos of a developmental state.
Such moves also undermine the ethos of the public service – which values commitment, collectivity, and putting the needs of the South African public first. It has already in past experiments of this nature led to divisions between public servants working in different areas, and an overall fragmentation of the public sector, and lowering of morale. Attempts to close the Apartheid wage gap within the public service and in the economy as a whole would be undermined. These are general concerns which we would have around particular functions “contracting out” of the public service.
Furthermore, evidence suggests that there will inter alia be job losses in moving from public service management to a company. Since there is a Public Service Co-ordinating Bargaining Council agreement on restructuring of the public service, which is legally binding on government, moves to change the nature of the current system of management constitutes restructuring and in terms of the legally binding agreement, this must be negotiated. Job creation and retention must be central to any restructuring process.
We would rather encourage a response to problems which addresses them within the institutional arrangements of the public sector. If there is a lack of skills to manage state property, higher salaries cannot be the only answer. We would tend to put more emphasis on a skills development strategy geared to addressing the problems, and drawing on local and international best practice on such activities.
The argument that senior management within the public service cannot be retained and recruited due to inadequate remuneration is in fact false. Within the public service, there is already flexibility in terms of salary scales at the upper echelons. In a negotiated agreement in the PSCBC in 2000, and as contained in circular 3 of 2000 to all heads of National/Provincial departments and provincial administrations, occupational salary levels 13 – 16 were taken outside of the PSCBC and negotiated separately. This meant that flexible remuneration packages are now applicable as from January 2001 for all occupational levels from director upwards in the public service.
State property and accommodation of government functions is critical for the efficient functioning of government. COSATU and NEHAWU do not believe that this function is appropriate for a company to perform. Notwithstanding the attempt in the Bill to stipulate the objects of the Company, any company tends to be driven primarily by profit maximisation. This would not necessarily be conducive to the optimum performance of government. Property management does have direct implications for the core functioning of the state.
Particularly in the event that shares in the Company are sold, as provided for in the Draft Bill, this could have a negative impact on the orientation of the Company as a service provider for government. We also do not believe that the Companies Act is appropriate governing legislation for the functioning of such a body, even with the exemptions from the Act provided for in the Draft Bill.
It is not clear to us to what extent the Department has examined other options for improving service delivery around property management before proposing the route outlined in the Draft Bill.
Further to the skills development and other strategies mentioned elsewhere in this submission, COSATU and NEHAWU believe that other institutional arrangements within the broad ambit of the public sector would be preferable to the setting up of a company.
Options which should rather be looked into include:
- Addressing the problems which have been identified within the current institutional arrangement of the Department;
- A separate unit within the Department;
- or A government agency.
We believe that these three options would all be preferable to the route proposed in the Draft Bill. In this respect the following advantages over a company need to be emphasised:
- Current institutional arrangement within the department
Over the past two years, much time and government resources have been ploughed into the restructuring of SAMDI, and the restructuring of the courses they offer. The past two years has seen a focused and intensive training programme targeted at senior management in the public service. These programmes have been designed specifically to give capacity in those areas where there have been identified weaknesses. The department which is looking after state property has been no exception to this. What is required is a proper audit of training that has taken place within the department, whether it has addressed the identified needs and what has been the outcome and impact of such training. Without this information, it is incorrect to jump to the conclusion that the managerial problems within the department are such that they require this function to be taken out of the public service.
- Separate unit within the department
A number of countries have moved to the model of specialised property management within the public service, through creation of a separate unit within the Department. This has allowed for government to bring about changes and redirect resources immediately, without having to be tied down with the restrictions of private sector legislation, as in this case the Companies Act. This option would also reap the benefits of the first option discussed above.
This would be our preferred option for the management of state property.
- A Government Agency
The South African Revenue Service (SARS) is also an example of a possible model to follow in relation to property management. SARS identified a lack of appropriate skills, and difficulty in attracting highly skilled people to their employ at public service salaries, as an impediment to their efficient functioning. This led to SARS being shifted out of the then Department of Finance, to being an “agency” of government within the public sector.
The South African Revenue Services Act (No. 34 of 1997) establishes SARS as "an organ of state within the public administration, but as an institution outside the public service". The Act stipulates that:
SARS employees are employed subject to terms and conditions of employment determined by SARS
(a) after collective bargaining between SARS and the recognised trade unions; and
(b) with the approval of the Minister.
This institutional arrangement allows SARS the flexibility in setting salaries at levels adequate to attract the requisite skills, while remaining within the public administration, and building in checks to ensure that the salary scale is not beyond the pail. A similar institutional model could be considered for a body responsible for the management of state properties. This would allow for the addressing of the skills shortages which have been identified by the Department, without going the route of a public company.
The institutional arrangement is the central concern which COSATU and NEHAWU have with the Draft Bill. If government accepts our proposal that an institutional arrangement within the broad public service is a more appropriate model than a public company, this would require numerous changes to various sections of the Draft Bill.
We have not set out detailed proposals along these lines at this point, but would be open to further interaction with the Department in this regard. Insofar as the Department has examined other institutional models, we would like to have sight of these and could comment further at a later stage as to what we would recommend as the optimum arrangements.
3.Further issues
3.1.Skills development
The lack of appropriate skills has been identified by the Department as a key rationale behind the changed institutional arrangements proposed in the Bill. Whatever institutional form is decided upon, this will remain a key challenge which will not necessarily be addressed by any one institutional model.
We would thus propose that the Department puts in place an accelerated skills development strategy to deal with the skills shortages which have been identified, and that this be given to SAMDI to oversee.
3.2.Composition of the Board
Section 9.(3) of the Draft Bill sets out the areas of expertise which should be taken into account by the Minister in appointing the Board – namely, “persons who have shown ability in and experience with financial, legal, commercial, property management, administrative or industrial matters”.
COSATU and NEHAWU propose the substitution of the term labour for industrial in this section.We believe that this would identify more clearly the specific type of expertise which should be taken into account, and would be conducive to a more appropriate sectoral balance within the Board.
3.3. The level of rentals and impact on departmental budgets
Section 16 of the Draft Bill provides that:
The Company must determine market related fees for services rendered to its clients and determine the rental amount or prices for state owned assets or negotiate the rental amount or prices in relation to assets on behalf of clients, taking cognisance of prevalent market prices.
While we are not necessarily opposed to this provision, in practice it is likely to mean increases in rentals for at least some government departments, as their rental costs move from subsidised rates to “market” rates. COSATU and NEHAWU’s concern is that this increase in costs should not have the effect of squeezing departmental budgets and forcing them to cut other capital or personnel expenditure.
While this issue might not strictly fall within the parameters of the Draft Bill, it is a consequence that could directly arise from the changes introduced by the legislation. We would thus propose that government should put in place mechanisms to guarantee that, where departmental costs are pushed up by increased rents as a result of these changes, the departmental budgets should be increased accordingly.
3.4. Responsibility of the body to provide accommodation
Section 18 of the Draft Bill provides as follows: (1) For the period determined by the Minister by notice in the Gazette, any national government department must approach the Company to provide the necessary accommodation and the Company will supply or enter into any negotiations on its behalf to obtain satisfactory accommodation. (2) Any other organ of state which needs accommodation may approach the Company to provide accommodation to it under the conditions contemplated in subsection (1).
Whatever the precise institutional form of the body might be, it is important that it plays the central role uniformly across the public sector in relation to property management. Otherwise, there would be further fragmentation of the public sector, as well as a problem of individual departments negotiating leases for property which may not be in the interests of the state as a whole. Having a single body responsible for property management across the public sector brings the benefits of economies of scale, as well as a holistic approach across departments, to minimise wasted space and ensure optimum financial and operational functioning of the state as a whole.
So while we broadly support section 18, we would propose three amendments in the light of the points raised above.
Firstly, we believe that government departments should approach the body responsible for state property management to meet their accommodation needs – not just for a certain period but on an ongoing basis. We would thus propose the deletion of the words . For the period determined by the Minister by notice in the Gazette,
Secondly, we propose that this subsection should refer not only to national government departments but to all government departments – thus the word should be deleted from 18.(1).
Thirdly, in relation to other organs of state, the Draft Bill provides that they may approach the Company to address their accommodation needs. While noting the requirement of some flexibility in relation to the various organs of state, we would propose some strengthening of this section. As with government departments, other organs of state should have to approach the Company/other body responsible for state property management in relation to their accommodation needs. If however the Company is unable to meet these needs (and a precise meaning of this could be spelt out), they would then be able to pursue a private route.
This approach balances the need for flexibility with the advantages of a more uniform approach as discussed above. After all, all organs of state are part of the public sector. It is also consistent with the principle of positioning the public sector as the preferred provider of services, especially to other organs of state.
3.5. Regulator
As a point of clarity, the long title of the Bill mentions one of its objects as being “the establishment of a regulator to oversee the exercise of [the company’s] powers and duties”. However, the body of the Bill does not seem to mention the setting up of a Regulator.
COSATU and NEHAWU would submit, in line with our above proposal that the responsibility for state property management should be within the broad public sector, that a regulator is not necessary in this case. The body set up to manage property on behalf of the state, and its board, should be directly accountable to government through the Minister of Public Works.
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