How commercial parastatals will change in planned law

Entities targeted by the bill are those engaged in businesses that are guided by commercial principles and do not rely on annual Treasury budgets for financing. The Treasury says the changes are aimed at creating value for the public.

The draft law stipulates clear procedures for establishing commercial entities. The proposed law grants powers to the Council of Ministers to approve the establishment of the Egyptian government under the Companies Law. The line ministry or relevant ministry, through the Treasury, will be required to demonstrate the business case for establishing a new business entity, based on the feasibility study report.

The study must confirm the financial and economic feasibility and indicate the reasons that prevent existing entities from practicing commercial activity. This is likely to address the current situation where the President and Cabinet Ministers have powers to establish parastatals using procedures laid down in various laws such as the Government Corporations Act and the Public Finance Management Act.

Critics argue that lack of adherence to procedures, coupled with vague definitions in various laws, has led to the proliferation of state-owned entities, some of which perform overlapping and dual roles.

The draft law stipulates that commercial parastatals must be managed by a 10-member board of directors. It consists of a chair, who is an independent director, six independent directors, a nominee for both the Treasury and the Executive, in addition to a chief executive. The CEO shall be an ex-officio member of the Board of Directors.

The Chairman is elected from among the independent members of the Board of Directors. This differs from the current arrangement where the president appoints chairmen in wholly government-owned business entities. The Chairman also currently has powers under the State Corporations Act to give general or specific directions to the Board of Directors regarding the performance of its functions. This has in the past been criticized because it partly interferes with the management of state-owned entities, leading to suboptimal performance.

The bill stipulates that the person to be elected president must have proven business leadership or relevant professional experience with at least five years of senior management or leadership experience, among other qualifications.

The bill stipulates that the Secretary of the Treasury appoint a team “to conduct an orderly, transparent, and competitive process for researching and selecting persons for nomination” to the board if the entity is wholly owned by the government. CS will then appoint independent directors from a list of candidates.

The process appears close to that followed when appointing members of independent constitutional committees. This is expected to lead to a certain level of independence in decision-making by the Board of Directors, which oversees management performance. This is likely to mitigate instances of nepotism and undue influence by the government in the appointment of board members of parastatals as identified in the 2013 Presidential Task Force report.

Qualifications for selection committee members include demonstrated leadership or senior management experience in the private or public sector for at least 10 years. The committee must develop its own procedures for appointing board members, and will be required to “maintain an adequate record of all of its meetings, including minutes.”

For business entities not wholly state-owned, the Treasury Board will participate in the election of independent directors by shareholders in proportion to the government's share. This is almost the same process followed under the current legal framework.