Water and Sanitation Minster Nomvula Mokonyane acted this week to allay investor concern at the lack of a properly constituted board at the state-owned Umgeni Water Board, although serious doubts remain about corporate governance at the state-owned utility.
PUBLICATION: BUSINESS DAY | WRITER: NEELS BLOM | DATE: 28/09/2017
Umgeni Water is SA’s second-biggest water board and provides potable water to about 6-million people and raw water to industry in KwaZulu-Natal. It has a turnover of R2.4bn and a five-year capex programme of R7bn.
The utility’s acting CEO, Thami Hlongwa said on Wednesday that there was no reason for concern that Umgeni would be unable to honour its debt obligations. It has two bonds in issue, together worth R1.535bn, and a loan from the European Investment Bank of R385m. Umgeni’s debt would be met comfortably at maturity from cash flow and adequate provision had been made for this, said Hlongwa.
Concern about corporate governance at the utility was first raised by asset manager Futuregrowth, a unit in the Old Mutual stable. Futuregrowth is the single-biggest investor in Umgeni, according to Hlongwa.
On Wednesday, Andrew Canter, Futuregrowth’s chief investment officer, said the core governance issue was that Umgeni’s board was dismissed and the utility’s insistence that its accounting authority vested in Hlongwa, its acting CEO.
"Our understanding of the Public Finance Management Act is that the board is the accounting authority at the utility," said Canter. "And Umgeni has no board. Further, our legal opinion is that the Water Services Act requires that Umgeni must have a properly constituted board and that such a board is the accounting authority. Our interpretation is, therefore, that Umgeni Water does not have an accounting authority, and this, plus the complete absence of a board and its sub-committees, has raised serious doubt about corporate governance at Umgeni."
Hlongwa was appointed as acting CEO by the board before the expiry of its term at the end of June 2017, said Umgeni spokesperson Sputnik Ratau. The minister subsequently appointed Hlongwa as the accounting authority, Ratau said.
The Department of Water and Sanitation, meanwhile, said on Wednesday that Mokonyane would be appointing an interim board at Umgeni Water, pending the finalisation of a process for the appointment of a permanent board.
"The interim board will be expected to meet as a matter of urgency to immediately attend to the corporate governance and financial management matters at the utility, including the composition of an independent audit committee to oversee the finances at Umgeni Water," said Mokonyane.
City Press reported last week that Canter had threatened to withdraw funding from Umgeni over concerns about corporate governance, but on Wednesday Canter said that this was not accurate.
He said Futuregrowth had, at no point, issued such a threat. In August 2016, Futuregrowth said it would stop lending money to Eskom, the Industrial Development Corporation, the Development Bank of Southern Africa, Transnet, the South African National Roads Agency and the Land Bank over what it called conflict between government entities. However, most of these agencies subsequently appealed to Futuregrowth after attending to the governance concerns raised.
Read the online article here.