03/07/2013 - 07:04

Power saga highlights governance issues

03/07/2013 - 07:04

Bookmark

Save articles for future reference.

In his usual forthright manner, state Treasurer and Transport Minister Troy Buswell made some pointed comments earlier this year about the role of the state’s port authority boards.

“I think it’s ludicrous that people operating at Port Hedland or Dampier, some of the largest ports in the world, basically need me to sign off on things like a new car for the CEO,” he told a ports conference.

“Boards shouldn’t be as hamstrung as they have been, especially for small and medium-sized asset investment decisions.

“If we can’t trust the boards to make those decisions, then we shouldn’t have them.”

It’s interesting to reflect on those comments in light of the deepening imbroglio surrounding another state-owned business, Verve Energy.

Verve has been in the news for two reasons – its planned merger with fellow energy utility Synergy and its bungled refurbishment of the Muja power station.

The merger has been strongly and consistently advocated by Premier Colin Barnett and his recently appointed Energy Minister Mike Nahan has taken up the cause with gusto, despite widespread opposition.

The concept is firmly opposed by the Economic Regulation Authority and every major business group in the state.

As the sole shareholder in Verve and Synergy, the state ultimately has the right to merge them.

It also needs to be accountable for its policy decisions, as it will be at the next election.

But who is accountable for the Muja mess?

The refurbishment of the old Muja power station was meant to cost $100 million and be privately funded.

It has ended up costing the state an estimated $280 million, after Verve entered an agreement with a private Victorian company and set up an off-balance sheet structure to take on large debts that were not consolidated in treasury’s annual accounts.

Mr Nahan has endeavoured to handle the whole issue, mostly by pinning the blame on dodgy engineering advice from Verve.

Through all of this, we have not heard anything from Verve’s chairman, David Eiszele, or its chief executive, Jason Waters.

Which begs the question, why have a board in the first place?

Presumably, the new six-member board that was announced this week to oversee the merger of Verve and Synergy has a clear understanding of its role.

The new board will be chaired by Michael Smith, who was appointed Synergy chair in 2006.

Mr Smith’s high standing in the business community was reflected in his recent appointment as national chairman of the Australian Institute of Company Directors.

Joining him on the new board will be Clough chairman Keith Spence, former UWA executive Margaret Seares and former Clough chief financial officer Michael Godard, among others.

Mr Eiszele, who formerly ran the old Western Power, campaigned against its break up and was widely seen as the person who could lead the remerger, missed out.

The board is an eminent group, but the reality is that its powers will be modest compared to a traditional public company board.

They will not have the freedom to make new board appointments. The minister needs to sign off on those.

They will not be able to appoint a new chief executive. That needs ministerial approval.

Remuneration is determined elsewhere and balance sheet management is handled by the WA Treasury Corporation.

Verve and Synergy are not alone in this regard.

It’s a similar story at other state-owned business enterprises, which have governance structures that look on the surface similar to those of a public company.

Admittedly, some have more autonomy than others.

But it’s clear where the buck stops; with the minister, who will have to bear any political fallout from the activities of these trading enterprises.

It would make more sense to refer to these boards as ‘advisory boards’, similar to the structures that some family companies have introduced.

In those cases, it’s also clear where the buck stops – with the owner of the business.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options