Public Enterprises (Amendment) Act 2010

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PublicEnterprises_Amendment_Bill2010v12


Act No. 40 of 2010




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PUBLIC ENTERPRISES (AMENDMENT)
ACT 2010





Public Enterprises (Amendment) Act 2010 Arrangement of Sections





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Act No. 40 of 2010 Page 3




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PUBLIC ENTERPRISES (AMENDMENT) ACT 2010

Arrangement of Sections
Section

1 Short Title .................................................................................................... 5
2 Section 2 amended - Interpretation ............................................................ 5
3 Section 4 amended – Non-commercial activities ................................................... 6
4 Section 5 replaced - Additions and deletions of public enterprises from the

Schedule ...................................................................................................... 7
5 Section 12 replaced - Directors ......................................................................... 7
6 Section 13 replaced – Directors roles ......................................................... 7
7 Section 14 replaced - Appointment and termination of directors to boards

of public enterprises .................................................................................... 8
8 Section 15 amended - Board meetings and quorum ......... ................................. 9
9 Section 17 replaced - Balance sheet .......................................................... 9
10 Section 18 amended - Statement of corporate intent ........................................... 10
11 Section 19 amended - Half-yearly reports .................................................... 11
12 Section 20 amended - Annual report and accounts ......... .................................. 11
13 Section 22 amended - Information to be presented to the Legislative

Assembly ........................................................................................................ 12
14 Section 24 amended - Audits and the role of the Auditor General ...................... 13
15 Section 25 replaced - Protection from disclosure of sensitive information ......... 13
16 New section 32 inserted – Additional provisions dealing with directors ............. 13
17 New section 33 inserted – Management of Public Enterprise Subsidiary ........... 14
18 First and Second Schedule replaced ................................................................... 14





Public Enterprises (Amendment) Act 2010 Section 1





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Act No. 40 of 2010 Page 5




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PUBLIC ENTERPRISES (AMENDMENT) ACT 2010
Act No. 40 of 2010

AN ACT TO AMEND THE PUBLIC ENTERPRISES ACT

I assent,
GEORGE TUPOU V,

1st October 2010.


BE IT ENACTED by the King and the Legislative Assembly of Tonga in the Legislature
of the Kingdom as follows:
____________________________________________________________________

1 Short Title

(1) This Act may be cited as the Public Enterprises (Amendment) Act 2010.

(2) The Public Enterprises Act 2002, as amended, is in this Act referred to as the
Principal Act.

2 Section 2 amended - Interpretation

Section 2 of the Principal Act is amended by:

(1) Deleting the word and definition of “public entrprise” and substituting it with
the following:



“public enterprise” means an entity listed the Schedule to this Act.



(2) Deleting the word and definition of “subsidiary” and substituting it with the
following:

Section 3 Public Enterprises (Amendment) Act 2010





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“subsidiary” means a statutory board, company or other entity in
which a public enterprise has a controlling interest, ither through the
ownership of shares, or the vesting by Government or by the passage of
Legislation.



(3) Inserting in the appropriate places the following definitions:



““ Cabinet member” means a person who is a member of Cabinet in
accordance with section 12 of the Government Act (Cap 3);

“Government Policy Obligation” means goods or services provided
by a public enterprise, pursuant to a direction from Cabinet, for which
the user fees are insufficient to cover the full costs of provision of the
goods or services or both and provide a commercial eturn consistent
with the principal objective of the public enterprise;

“public servant” means a public service employee as defined in the
Public Service Act 2002; and

“user fees” means fees charged by a public enterprise to a user of
goods or services as consideration for the provision of those goods or
services.”.

3 Section 4 amended – Non-commercial activities

Section 4 of the Principal Act is deleted and replaced with the following new
sections –



“4 Objective of Public Enterprises

The principal objective of every public enterprise and subsidiary shall
be to operate as a successful business and, to this end, to be as
profitable and efficient as comparable businesses that are not state
owned.



4A Government Policy Obligations

(1) The Cabinet may instruct a public enterprise to pr vide a
Government Policy Obligation.

(2) Where an instruction is issued under subsection (1), the
Government and the public enterprise shall enter into an
enforceable agreement which shall:

(a) be in writing;

(b) comply with any enactment applying to Government
contracts and the Government’s budgetary and
procurement processes;

Public Enterprises (Amendment) Act 2010 Section 4





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Act No. 40 of 2010 Page 7




(c) be subject to approval by Cabinet;

(d) record the nature and quantity of the goods and or services
to be provided; and

(e) specify the total price to be paid for the goods r services.

(3) For the purposes of subsection (2), the total price of a
Government Policy Obligation shall be calculated as the total
cost of provision of the goods or services by the public enterprise
plus a margin to allow the public enterprise to meet its targeted
return on equity as set by the Minister.

(4) In the case where user fees are insufficient to cover the full cost
of the goods or services, the balance of the total price shall be
paid by the Government to the public enterprise.

4 Section 5 replaced - Additions and deletions of p ublic enterprises from
the Schedule

Section 5 of the Principal Act is deleted and replaced with the following:



“5 Public Enterprises

(1) The entities that are listed in the Schedule are public enterprises
for the purposes of this Act.

(2) The Minister may, with the consent of Cabinet, delete or add a
public enterprise from or to the Schedule.”

5 Section 12 replaced - Directors

Section 12 of the Principal Act is deleted and replaced by the following -



“12 Directors: Number and Remuneration

(1) There shall be no fewer than three or more thanseven directors
appointed to a board, one of whom shall be appointed as
Chairman.

(2) The Minister shall, with the consent of Cabinet, fix the amount of
remuneration directors shall receive.”.

6 Section 13 replaced – Directors roles

Section 13 of the Principal Act is deleted and replaced with the following –





Section 7 Public Enterprises (Amendment) Act 2010





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“13 Role of Directors

(1) A director of a public enterprise and subsidiary shall act in good
faith and in the best interests of the public enterprise, and shall –

(a) ensure that the public enterprise and subsidiary conducts
its business and all decisions made by the board are in
accordance with its principal objective;

(b) not act, or agree to the public enterprise and subsidiary
acting, in a manner that contravenes the law or the
constitution of the public enterprise;

(c) not agree to, cause or allow the business of the public
enterprise and subsidiary to be carried on in a manner
likely to create a substantial risk of serious loss to the
public enterprise’s creditors; or

(d) not agree to the public enterprise and subsidiary incurring
an obligation unless the director believes at the time on
reasonable grounds that the public enterprise shallbe able
to perform the obligation when it is required to do so.

(2) Sections 138 to 144 of the Companies Act (“Transactions
Involving Self-Interest”) shall apply to all directors of a public
enterprise and subsidiary whether or not the public enterprise is
registered under the Companies Act, and a reference in those
provisions to a company shall be deemed to be a reference to a
public enterprise and subsidiary.”.

7 Section 14 replaced - Appointment and termination of directors to
boards of public enterprises

Section 14 of the Principal Act is deleted and replaced with the following -



“14 Appointment and termination of directors to boards of public
enterprises

(1) The Minister, with the consent of Cabinet, shall appoint persons
as directors of public enterprises who, in the opini n of the
Minister, will assist the public enterprise to achieve its principal
objective.

(2) Subject to this Act, no member of Cabinet or the Legislative
Assembly shall be appointed or remain as a director of a public
enterprise except in the case where a new public enterprise is
established and Government sees the need to appoint Cabinet
members for an interim period, not exceeding 12 months from
the date the public enterprise is established, to es ablish the new
public enterprise.

Public Enterprises (Amendment) Act 2010 Section 8





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Act No. 40 of 2010 Page 9




(3) Except as provided in subsection (2) any director who registers
as a candidate to the Legislative Assembly shall be de med to
have resigned from the board of the public enterprise upon the
date of registration.

(4) Notwithstanding subsection (2), a person who is -

(a) under 18 years of age;

(b) an undischarged bankrupt;

(c) prohibited from being a director under the Companies Act;
or

(d) not a natural person;

shall be disqualified from being appointed as a director of a
public enterprise.

(5) Each director shall be appointed for a term of up to three years
and may be reappointed.

(6) A director may be removed from office by the Minister for
incompetence, incapacity, bankruptcy, neglect of duty,
misconduct, or failing to assist the public enterprise to act in
accordance with the principal objective.

(7) Where a public enterprise fails to comply with s obligations
under Part IV and Part V, a director, as a member of the board of
the enterprise concerned, may be removed from the board by the
Minister.”

8 Section 15 amended - Board meetings and quorum

Section 15 of the Principal Act is amended by deleting subsection (2) and replacing
it with the following –



“(2) A board meeting shall have a quorum when at lest half of the members
are present, and if the Chairman is not present, the directors forming the
quorum will elect a chairman for that meeting.”

9 Section 17 replaced - Balance sheet

Section 17 of the Principal Act is deleted and replaced with the following:



“17 Additional Funding

A public enterprise may only receive funding from the Government in
the form of:

(a) equity;

(b) interest-bearing debt;

Section 10 Public Enterprises (Amendment) Act 2010





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(c) debt guarantees; or

(d) payment for the provision of goods or services.”.

10 Section 18 amended - Statement of corporate inte nt

Section 18 of the Principal Act is amended by:

(a) deleting the words “statement of corporate intent” and replacing it with
“business plan” wherever appearing;

(b) deleting the figure and word “1 month” from subection (1) and replacing
with “two months”;

(c) repealing subsection (3);

(d) deleting subsection (4) and replacing it with:



“(4) Each business plan shall specify, in respect of the next financial year
and the two years thereafter –

(a) a one-page summary of:

(i) how the objective of the public enterprise will be achieved;

(ii) the strategies to be pursued to achieve the obj ctive; and

(iii) key performance targets, which shall include but not be
limited to projections of revenues, net profit after tax and
return on average equity;

(b) the nature and scope of the activities to be undertak n;

(c) the performance targets and other measures by which the
performance of the public enterprise may be judged in relation to
its objective;

(d) a forecast statement of the financial performance for each
financial year of the plan;

(e) a forecast statement of financial position for each financial year
of the plan;

(f) a statement of any anticipated borrowing;

(g) a statement of principles adopted in determining the annual
dividend;

(h) any Government Policy Obligations from which the public
enterprise seeks compensation from the Government;

(i) a statement outlining the governance policies and practices,
including accountability standards and key performance
indicators relating to the management of all subsidiaries;

(j) such other matters as are agreed by the Minister and the board;
and

Public Enterprises (Amendment) Act 2010 Section 11





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Act No. 40 of 2010 Page 11




(k) projections of cash flow for the following six years, or such
longer term as agreed between the board and Minister, ncluding
explanations of the strategies and the key assumptions upon
which the projections are based.”



(e) deleting subsection (5) and replacing it with –



“(5) Prior to the board adopting the business plan it shall be submitted to the
Minister for review and the Minister shall submit comments to the
board for consideration no later than 30 days of receiving the draft
business plan.”



(f) deleting subsection (6) and replacing it with –



“(6) A board shall consider any comments made on the draft business plan
by the Minister and shall deliver the completed busine s plan to the
Minister on or before the commencement of the financi l year or such
later date as the Minister may determine.”; and



(g) deleting subsection (7).

11 Section 19 amended - Half-yearly reports

Section 19 of the Principal Act is amended by deleting subsection (2) and replacing
it with –



“(2) The report required under subsection (1) shall include a comparison of
the performance of the public enterprise with the business plan required
under this Act.”.

12 Section 20 amended - Annual report and accounts

Section 20(2) of the Principal Act is amended as follows:

(a) deleting “statement of corporate intent” in paragraph (a) and replacing it with
“business plan”;

(b) deleting the word “and” after paragraph (a);

(c) deleting the full stop after paragraph (b) and replacing it with “; and”;

(d) inserting the following as paragraph (c) -



Section 13 Public Enterprises (Amendment) Act 2010





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“(c) state the performance achieved against targets and total revenue
received during the year by the public enterprise from the Government
or other sources of consideration for undertaking a agreement in
response to a Government Policy Obligation.”.

13 Section 22 amended - Information to be presented to the Legislative
Assembly

Section 22 of the Principal Act is amended by –

(a) deleting subsection (1) and replacing it with –



“(1) The Minister shall table in Cabinet, within one month of receiving
them, the annual report of each public enterprise.”



(b) deleting subsection (2) and replacing it with –



“(2) The board of public enterprise shall cause a brief summary of the
annual report of the public enterprise and any of its subsidiaries to be
published within 2 months in a Tongan newspaper in both the Tongan
and English language after the Annual Report is adopted by the board
of the public enterprise. Such publication shall inc ude:

(a) a comparison of revenues, net profit after tax,return on average
equity, and non-financial performance targets with t ose
projected in the business plan for the same year;

(b) projected revenues, net profit after tax, and return on average
equity, and non-financial performance targets in the business
plan for the next financial year;

(c) where the copy of the annual report can be obtained or inspected,
including the fee prescribed by the Minister.

(d) a brief statement describing all financial trans ctions entered into
between the public enterprise, its subsidiary and the Government
in the preceding year, including:

(i) any injection of capital whether in the form ofdebt or
equity, the amount, the rate of interest, if applicable, and
any repayment terms;

(ii) the total amount of debt guarantees issued by the
Government in favour of the public enterprise;

(iii) the total amount paid by the Government for the provision
of goods or services and, where that amount exceeds 10
percent of the annual revenue of the public enterprise, a
brief description of the goods or services purchased; and

Public Enterprises (Amendment) Act 2010 Section 14





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Act No. 40 of 2010 Page 13




(iv) any other payments made by the Government, and where
such payments exceed 10 percent of the capital of the
public enterprise, a brief description of the reason for the
payment and whether the public enterprise must repay all
or any of the payment made.”.

14 Section 24 amended - Audits and the role of the Auditor General

Section 24 of the Principal Act is amended by inserting a new subsection (2) as
follows:



“(2) The Minister may require the Auditor General to conduct an audit of a
public enterprise. Upon receipt of such request in writing by the
Minister, the Auditor General shall conduct an audit forthwith.”.

15 Section 25 replaced - Protection from disclosure of sensitive
information

Section 25 of the Principal Act is repealed and replaced with the following –



“25 Protection from disclosure of sensitive information

(1) Nothing in this Act shall be construed as requiring any public
enterprise or subsidiary of a public enterprise to include in any
report, required under this Act and available for public
disclosure, any information which in the opinion of the board
could damage the commercial interests of the public enterprise or
its subsidiary and could, except for the provisions f this Act, be
properly withheld.

(2) If any person seeks to challenge the decision of the board to
withhold information under subsection (1) they shall present their
arguments to the Minister, whose determination will be final.”.

16 New section 32 inserted – Additional provisions dealing with directors

The Principal Act is amended by inserting a new section 32 as follows:



“32 Additional provisions dealing with directors

A public servant may be appointed or continue to be a director in a
public enterprise, subject to the following:

(a) no more than one public servant shall be appointed or continue to
serve on the board of any public enterprise at the same time, and
if more than one public servant is serving on a board at the time

Section 17 Public Enterprises (Amendment) Act 2010





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this Act comes into force, the Minister shall determine which
public servant may continue to serve and shall immediat ly
notify the public servants and public enterprise ofhis
determination in writing; and

(b) no public servant may serve as chairman of a public enterprise.”.

17 New section 33 inserted – Management of Public E nterprise Subsidiary

The Principal Act is amended by inserting a new section 33 as follows:



“33 Management of Public Enterprise Subsidiary

The board of public enterprise shall ensure that governance and
management of every subsidiary is conducted in a manner that is
consistent with the standards of governance and management that are
established by this Act. In particular the board of the public enterprise
shall ensure that:

(a) each subsidiary prepare a business plan that includes the
information set out in section 18(4) of this Act and any such
other matter as may be agreed between the board of the public
enterprise and the board of the subsidiary;

(b) directors are appointed to the board of the subsidiary on the basis
that the public enterprise believes on reasonable grounds that the
person is the best qualified to assist that subsidiary achieve the
principal objective; and

(c) rules are adopted for every subsidiary dealing with the
appointment and removal of directors, the constitution of a
quorum of directors, the frequency of meetings, the conduct of
director performance reviews and the remuneration of
directors.”.

18 First and Second Schedule replaced

The Principal Act is amended by deleting the First Schedule and Second Schedule
and replacing them with the following –









Public Enterprises (Amendment) Act 2010 Section 18





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“SCHEDULE
(Section 5(1))

Public Enterprise Subsidiaries


1. Ports Authority
2. Shipping Corporation of Polynesia Limited
3. Tonga Airports Limited
4. Tonga Broadcasting Commission
5. Tonga Communications Corporation Limited
6. Tonga Development Bank
7. Tonga Investments Limited
8. Tonga Post Limited
9. Tonga Power Limited
10. Tonga Print Limited
11. Tonga Timber Limited
12. Tonga Water Board
13. Tongatapu Market Limited”





Passed by the Legislative Assembly this 20th day of September 2010.

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