Mpati Commission of Inquiry Report: PIC briefing, with Minister and Deputy Minister

Meeting report

Opening remarks
The Chairperson apologised that Members had not been on time and had kept the Minister of Finance waiting. He explained that they had been in the National Assembly plenary.

The Committee was to have met with the Minister or the Deputy Minister but they had been unable to meet on previous occasions. The President had delegated the Minister to recommend how the Mpati Commission of Inquiry Report could be implemented and Members had felt very strongly the previous week that the Deputy Director-General from National Treasury could not lead the discussion and they had required the presence of the Minister. The Minister had previously promised to engage with the Committee on the matter.

Introductory remarks by the Minister of Finance
The Minister of Finance, Tito Mboweni, greeted everyone from Magoebaskloof.

The Chairperson of the Public Investment Corporation (PIC) was there with his team. He had been asked to give a briefing on the steps being taken in the implementation of the recommendations arising from the Mpati Commission of Inquiry into malfeasance at the PIC.

The board of directors (BoD) at the PIC had decided, given the complex nature of the report, to appoint a competent person who would be assisted by others to try and make sense of what to do about some of the recommendations. The Chairperson of PIC would enlighten the meeting about what had happened in that regard.

Dealing with the Report and addressing the recommendations was a twin-track process. The first track was with the PIC BoD and the second track with National Treasury. Both tracks would come together in a Cabinet Memorandum which would be submitted early in 2021 and after that actions would be taken. A lot of work had already been done. The matters were very complex and there would be no shortcuts. They would get to the bottom of it and deal with the issues and malfeasance, so that going forward there would no repeat and funds would be safeguarded for pensioners in the Public Service, likewise funds for the compensation for occupational injuries and diseases and, thirdly, the funds for the Unemployment Insurance Fund.

He apologised for the delay in reporting and referred to his busy schedule. Members were well within their rights to expect him to report.

He handed over to the chairperson of the board of directors to introduce his team and the presentation. The Minister would come back later to buttress the Board’s input.

Briefing by PIC

Dr Reuel Khoza, Chairperson of the PIC board, introduced his colleagues:
Abel Sithole, CEO, was responsible for the implementation of the report
Adv Mkhubalo Ndaba, board member and chairperson of the Human Resources Committee
Dr Themba Gamedze, board member and chairperson of the Investment Committee
Ms Barbara Watson, board member and chairperson of the Social & Transformation Committee
Ms Futhi Mtoba, Deputy Chairperson of the board and chairperson of the Audit & Compliance Committee
Ms Tshepiso Moahloli, board member and Chief Director at National Treasury
Dr Sabelo de Bruin, non-executive director at the PIC

Dr Khoza indicated that he wanted it on record that those board members were present. He stated that the Minister had given the background and he was in alignment with what had been said.

Dr Khoza stated that the board members had begun work on the Mpati Report immediately after it had been released. It had immediately begun with issues such as the separation of risk and audit as well as the separation of investment matters and the CEO. The board believed that a well-run organisation was dependent on competence and ethical conduct. It was that lack of ethics that had led the PIC to where it was. The board was also looking at transformation and the weak IT system was being strengthened.

It had been determined that the board needed to have an advisory panel as they were not full-time board members. Ret Judge Mokgoro, together with a financial and legal expert, had been appointed, as was common practice across the world.

Dr Khoza assured the Committee that the PIC was working with other government institutions and had approached the Hawks (Directorate for Priority Crime Investigation) who were working closely with PIC, as was the National Prosecuting Authority (NPA) which had opted to make common cause with PIC. He would ask Adv Ndaba to accentuate some of the aspects he had raised.

Adv Ndaba explained that the Advisory Panel had been appointed to give advice on pertinent issues. The board was not handing over responsibility for the implementation of the recommendations of the Mpati Report. There were 276 recommendations. Recommendations had been allocated to 16 teams and they had been instructed to work on them together with the necessary workstreams. In addition, committees of the board had been instructed to deal with recommendations relevant to each committee.

Adv Ndaba chaired the Human Resources (HR) committee and more than 40% of the recommendations dealt with HR. A compass had been developed to track progress against the recommendations and, to date, 69% of those recommendations had been addressed or finalised.

Dr Khoza explained that there were matters that had to do with the shareholder and National Treasury, and the board would await consideration of those matters by National Treasury.

CEO Abel Sithole – Presentation
The presentation was made by the CEO but the Minister of Finance interjected on occasion to add further detail.

On 4 October 2018, the President of the Republic of South Africa, Mr Cyril Ramaphosa, established a Judicial Commission of Inquiry into allegations of impropriety at the PIC. The presentation provided a summary of the progress made in resolving key matters affecting investment transactions, litigation cases & governance.

Actions taken to strengthen governance began when the new/interim board was appointed to rebuild the integrity of the organization. Board Committees had been reconfigured to strengthen governance and the Terms of Reference reviewed.  The Social and Ethics Committee’s function was enhanced to include monitoring the implementation of transformation and renamed the Social, Ethics and Transformation Committee.  The Audit and Risk Committee was separated to ensure that the management of risks impacting the PIC was given the required attention.

The Board of Directors established an Advisory Panel (AP) to assist with the implementation of the Report, to assist with the balancing of power, the promotion of independent judgement and the effective discharge of the Board’s responsibilities. The AP is chaired by retired Justice Yvonne Mokgoro and complemented by senior counsel Kgomotso Moroka (Legal Expert) and Mr Sello Moloko (Financial/Asset Management Expert).

The major structural weakness caused by an overconcentration of executive power that had been addressed by the approval of an interim organisational structure. The investment operations would be overseen by the Chief Investment Officer, while the PIC’s operations would be overseen by the CEO with the support of management who were no longer involved in the investment selection process. Various actions were taken to address governance.

The CEO provided a progress update on key investment transaction and litigation cases, including Ayo, SA Home Loans, VBS Mutual Bank, Sekunjalo / INMSA, and Steinhoff. Other investigations and disciplinaries were being handled by the Advisory Panel to ensure independence as management might be conflicted. Because the investigations had to follow legal processes, he could not give specific timeframes for the conclusion of those matters.

The PIC reported to National Treasury on a quarterly basis although National Treasury had direct access to the PIC dashboard that had been developed to follow the progress of the implementation of the recommendations.

The Minister pointed out that SA Home Loans was supposed to finance home loans for public servants. It was initially owned by PIC and a private bank and then someone suggested that the bank held 50% of the shares and the PIC split its 50% holding with a B-BBEE company. The PIC wanted a finder’s fee of R45 million for doing so but the B-BBEE company director said that he had been found, so the finder’s fee belonged to him. That claim was currently being addressed by the courts. 

The CEO explained that fortunately, the R45 million had never been paid, but the court action was about a claim for that R45 million. He had to be careful not to say too much as there were several court cases.

Regarding VBS, action was being taken against two officials who had left PIC. Action was also being taken against some people in PIC that had facilitated the matter with VBS.

Regarding Sekunjalo, the PIC investment in the media, loan conditions had not been met and hence action was being taken. There were also issues in the PIC in terms of one investment being substituted with another.

The Steinhoff matter was before the courts in multiple jurisdictions. The PIC was focusing on own jurisdiction. The Corporation also wanted to investigate what had gone wrong and hold people accountable as there had been a significant depreciation of PIC assets.

The Minister asked Members to understand that with Steinhoff, it was a case of investing in Steinhoff indirectly. The PIC had invested in a party that had invested the loan in Steinhoff, so the primary party was the one that had a PIC loan. He added that it was suspicious that such a large loan had been granted by the PIC. So, the PIC was joined to the Steinhoff issue because PIC money was invested in Steinhoff. The loans were still under some kind of protection.

The PIC reported to National Treasury on a quarterly basis but the National Treasury could view the dashboard at any time.

The Minister of Finance informed Members that if the Members went through the report, they would see the many examples of malfeasance. He added that when they read through the Report, they would see the inter-connectedness of political influence in wrongdoing. It was all over the place and one of the lessons learnt was that there had to be a code of conduct for public representatives and politicians about the fact that if they wanted to start a business, they should go to a private business. They should not come to the PIC because that was the public servants’ savings for the future. That was one of the things to be focussed on and recommendations would have to be made explaining why publicly exposed people should stay away from public institutions.

Dr Khoza stated that the PIC had gone a long way in implementing the recommendations of the Mpati Commission and had involved those institutions that needed to be involved. They were making common cause with the PIC and were making sure that the PIC was thorough in addressing the recommendations.

Mr Mavuka stated that the PIC was ready to respond to questions from the Committee. He believed that going forward the PIC was well-positioned to fulfil its responsibilities.

The Chairperson thanked PIC for the presentation

Discussion
Mr I Morolong (ANC) thanked the Minister and the PIC board and officials for the briefing. He noted that, in the past, the CFO had been on suspension and that suspension had been extended. Was the PIC not encouraging instability by operating without a permanent CFO? There was a perception, that he agreed with, that the Committee had not been as vociferous as it could be in respect of challenges to the investment in respect of Steinhoff. Stories were now emerging that Steinhoff was moving its money out of the country. Had the allegations been validated?  Was there not a concern about the loss of the PIC’s investment? Was there a plan to sue the directors of Steinhoff in their personal capacity for the losses incurred? Should the PIC not start projecting losses from all of the investments and provide the information to the Committee? What did the latest downgrade by the rating agencies mean for the PIC? Did the PIC maintain an appetite for purchasing government bonds?

Mr W Wessels (FF+) thanked everyone, adding that it was at a difficult time of the year and everyone was tired and a lot of the information had been presented orally. Taking that into account and the fact that the Committee had not had frequent engagement with the PIC, he asked the Chairperson that the Committee resolve to have more frequent engagements with the PIC.

Taking into account the underperforming investments and the fact that the Mpati Commission did not investigate all investments because of time constraints, Mr Wessels asked how far the further investigations into investments that were not part of Mpati Commission were. On the other hand, how far was the investigation into investment expenses as far back as 2014, i.e. all fees paid for investments exceeding R5 million? The Commission had found that fees were not in line with the growth of the investments for which they were paid. One recommendation was the recovery of wrongfully paid fees. How far was that process?

He referred to the Investment Mandate Agreement. Why was there such secrecy about the Investment Mandate Agreement that members of pension funds could not see the mandate to find out what it was about? The Commission had found that the mandate was very loose but it was ongoing and so should be prioritised to be reviewed. How far was that review?

Mr Wessels asked about the consequences for all the transgressions and investments that were distressed. He had not heard how the consequence management would be handled.

Ms M Mabiletsa (ANC) commended the Minister and the Deputy Minister on a job well done. She noted that 276 recommendations were a lot. She was happy that they had been divided into 16 teams and a dashboard had been created to show progress. That transparency gave politicians comfort.

What worried her was the colour coded actions presented. There were further investigations still to be done and that might take a long time and delay the good work being done. What had been presented was really a progress report. She would wait for the finalisation of the implementation of the recommendations and the final report.

Mr A Lees (DA) wished Mr Sithole well in a very difficult job. He referred to the publication of the unlisted investments. He reminded Mr Sithole that it had been a great breakthrough in 2016 when the Committee had managed to get the list of unlisted investments published. However, the last published list of unlisted investments had been in 2018. Despite promises to publish the unlisted investments on a regular basis, it had not been done. Why was that? Could the list be published on the PIC website or in quarterly reports?

Mr Lees referred to the linked investments of Ayo, Independent Media, Sekunjalo, etc. He had understood that the PIC was going to obtain a preservation order of assets. Did it not happen? If it had not happened, he had no faith in the recovery of funds, ever. Was such a preservation order attempted and if it was, what was the outcome? If not, why not? In the view of the PIC, what were the chances of any recovery from that group and the extent of any such recovery?

He asked how much should be recovered from VBS and how much did the PIC believe could be recovered. The situation was dire. Steinhoff remained the biggest corporate fraud in the history of SA but the main protagonist had not even been charged. Who had borrowed the funds and how much was borrowed? The PIC must have known where the money was being invested. Who was the primary borrower and what security was there on those funds?

Mr Lees was pleased to hear the Minister recognise the issue of political connectedness.

Mr G Skosana (ANC) appreciated the Mpati Report which showed that, in many instances, the PIC had sound policies, processes and frameworks but, in many instances, they were not adhered to or deliberately manipulated. Legislation and procedures were repeatedly and deliberately violated. The challenges did not relate to policies, processes and frameworks or even legislation and procedures. The challenges were in dealing with the individuals of the PIC. Other recommendations would require other institutions, including law enforcement agencies, to assist in turning the institution around because the problems were so deeply rooted in the organisation.

He asked what the recommendations were in relation to the directors and other employees of the PIC that had benefitted unduly due to the positions of trust they held. Was there an update as to how far the law enforcement agencies were in terms of the matters that had been referred to them?

Mr F Shivambu (EFF) stated that during the PIC presentation, the Minister had spoken about politicians who had dealings with the PIC. He wished that the Minister had included the specific deals in the report. Who were those politicians who had influenced the deals in the PIC? Maybe the Minister should respond to that question. There was a process of bastardisation of politicians everywhere. If you were a political leader, you were corrupt. If you were a political leader, you could not be trusted. That was why part of the recommendations of the Commission was that the Deputy Minister should not be the chairperson of the PIC board. That was against legislation that both Houses of Parliament had passed. The legislation was on the President’s desk and he should sign it.

Mr Shivambu proposed that the Committee should resolve that the President should sign the PIC Bill into an Act of Parliament unless he felt that there were constitutional issues preventing him from signing the Bill. The PIC should be aligned to government’s policies and so the board should be chaired by an elected representative. If someone could be trusted to be in the Executive, that person could surely be trusted to lead the PIC? He would raise that issue again later on.

He asked what the PIC’s exposure to Naspers was in nominal terms. The GEPF had invested almost R250 billion in Naspers. It was dangerous for the PIC to have such exposure in one corporation because what happened to Steinhoff could happen to Naspers, leading to the eradication of the value of investments. More than R250 billion would be lost if what happened to Steinhoff happened to Naspers. That spoke to the investment policy of the PIC. Where did the PIC invest and what was the quantum invested in each and every one of the companies? That had to be dealt with in terms of the issues. What was the value of investments made since the current PIC board had been appointed? What was the value of assets managed by other asset managers? Everyone knew that the PIC subcontracted to other asset managers so what was the value of assets personally managed? Of the assets externally managed, how much was owned by Black investment management companies where the funds were managed by black investment managers because the imperative of the PIC had to be driving black people into the mainstream of the economy and there should be no apology for that.

Mr Shivambu asked about the board’s involvement in the PIC. He asked if the chairperson had ever asked for a loan from the PIC. Had any members of the board, including the chairperson of the investment committee, ever ask for a loan from the PIC? Did they have loans from the PIC or were they asking for loans from the PIC? There was a document to which the chairperson should respond. He had been part of the Lion Pride Investment Holdings. The company had wanted to a 25% interest in SA Home Loans which was the company that the Minister had been complaining about. The PIC chairperson should say whether it was false and, if not, he should provide clarity on the situation with concrete information. In percentage terms, he wanted to know the difference between the listed component and the unlisted component of investments. He knew that the listed component was so much larger than the unlisted component.

He informed the Minister that it was not true that the PIC had direct exposure to Steinhoff only through Jayendra Naidoo and Lancaster. The PIC had direct exposure to Steinhoff. At the time that Steinhoff collapsed, the reports received in Parliament was that the PIC had the equivalent of R20 billion in direct investment through Citibank. The Minister should not understate what the PIC had lost in the Steinhoff collapse. He asked for a clearer and more believable account of how the PIC was going to recover that money.

He added that the Bill passed by the Fifth Parliament was on the President’s desk and had to be signed into law so that a full time board of the PIC could be constituted. The current board was supposed to be interim. Now that the Commission had completed its report, there was nothing in it for Parliament to revisit and the Bill had to be signed.

Ms P Abrahams (ANC) referred to the transgressions of law and regulations. How did that happen when there were internal risk structures and what had been done? She saw that there had been a split in internal controls. Could the PIC provide details? What had been done regarding the human element of the transgressions? Had anyone uncovered why, when emails were circulated about the CEO and the CFO, the PIC did not act but were satisfied with the explanations of the CEO? Part of the work had to be about how a systemic change would be effected.

She asked whether the pie chart told the Committee that a change in culture had taken place. The fact that meetings had taken place did not alone change culture. How had the culture actually changed? 45% of performing investments was not high. What did that tell the Committee about the informed choices in investment?

The Chairperson had a question for the Minister and chairperson of the PIC. The President had appointed a judge to lead the Commission and it had made findings and presented recommendations. Then the PIC appointed another retired judge to lead a panel of advisors. Looking at the composition of the board and management of the PIC, together they had more than 100 years’ experience. What was not there in the board that it needed a retired judge to head an advisory panel and how much was being spent on the advisory panel? Could the board give the rationale for that decision?

He noted that the previous time the Committee had met the PIC in Cape Town in the Auditor-General’s office in August 2019, there had been many concerns about the deteriorations, including the audit performance of the PIC. What was being done to improve the audit performance of the PIC? Another question at the time was about the legal foundation of writing off investments. The Auditor-General had asked why debts were written off against businesses that continued to operate.

The Minister stated that he would answer all the political questions but the board chairperson would deal with the technical questions.

Dr Khoza stated that he would answer Mr Shivambu’s question that had been addressed to him when the team got to that question. He began with the concern expressed by Mr Morolong about not having a permanent CFO. The PIC shared that concern and was dealing with the situation. It was in the arena of the HR Committee. Adv Ndaba, who was chairperson of HR committee, would deal with that. He asked the Legal Unit to respond to Mr Morolong on the slowness of dealing with the Steinhoff case. The Minister would address the latest ratings downgrade.

Adv Ndaba stated that the PIC was concerned about the position of the CFO but the current CFO had won her disciplinary case. Simultaneously, there were other investigations into other matters that she had to answer to as well as the matter that had come out of the Commission’s Report. At the last meeting, the board had asked the CEO to look into getting closure on the case as it had taken far too long to finalise the matter. He imagined that in the next meeting the CEO would put a proposal to the board.

Adv Ndaba said that the perception was that Steinhoff was being treated with kid gloves. Recognising those concerns, the board had met with the NPA and the DPCI (Hawks) to get an understanding of what was happening. The board was satisfied with the explanations. The PIC was concerned because of the large quantum of the investment but, from a process point of view, the PIC was in touch with the authorities.

Dr Khoza concurred that the Steinhoff matter was complex and asked the PIC legal department to explain the situation.

Dr Gamedze explained why the Steinhoff case seemed sluggish. Steinhoff had caused quite a lot of energy to be expended. The fraud had occurred at some point in time over the past few years but finding where the fraud was committed, and under which jurisdiction, was proving to be a challenge. It was a South African firm but was listed on the Frankfurt Stock Exchange and was actually domiciled in the Netherlands. In every case, one had to take it to the correct jurisdiction or one was passed from pillar to post. The Financial Intelligence Centre had fined the arch perpetrator quite a lot of money, but the case required coordination in multiple jurisdictions which might not have same urgency or as high a priority as the PIC, but he assured the Committee that justice would be served.

Dr Khoza asked Mr Sithole to tell the meeting of the practical steps that had been taken and how they were making common cause with the authorities.

The Minister requested that the PIC be brief as it had been a long day.

Mr Sithole responded to the question concerning Steinhoff by pointing out that all matters of a legal nature might be sub judice so the PIC had to be careful about how it addressed such matters. Mr Shivambu was correct regarding the depreciation in the asset value being in the region of R20 billion, and the PIC was pursuing all of it. Currently the PIC was asking for the PWC report to identify parties who could be pursued in a court of law. It was one thing to make allegations but another to take someone to court. The Minister was correct that the PIC had funded a B-BBEE group, Lancaster, with a loan of R9 billion. Its value was close to R30 billion. That matter was being pursued both in terms of the direct investment and the loan.

Mr Sithole responded to Mr Morolong’s question regarding the impact of the ratings agency downgrade on the portfolio. The first downgrade in March had had a severe impact of around R223 billion as it had coincided with Covid-19. The good news was that the PIC had recovered most of the losses but the Corporation still had to deal with the impact of Covid-19. The latest downgrade had had virtually no impact on asset prices.

He assured Mr Wessels that the PIC did not write off distressed assets; it impaired assets. Distressed assets were not all as a result of malfeasance. Some assets just did not perform well. The PIC did not stop those assets. If an entity went into liquidation, the PIC would be a creditor. Over 60% of investments had performed very well. As to the question of whether unlisted companies were a better investment than listed companies, he pointed out that listed companies provided better returns but the PIC invested in unlisted companies because it was looking for social returns as well as financial returns. Social returns included job creation, educational investment, provision of health facilities and infrastructure.

Mr Sithole addressed the question of fees. The PIC had a comprehensive list of fees paid out that had been presented to SCOPA and he was sure that it could be shared with SCOF. It was not possible to recover fees where there had been a valid contract but the PIC was pursing any questionable payments, such as in the case of SA Home Loans.

He stated that the consequences of underachievement would depend on the reasons for the underachievement and might result in the normal process of re-training and guidance. Where there had been malfeasance, action was taken in terms of legal processes or the disciplinary processes of the organisation.

Mr Sithole was satisfied with the review of the investment mandate as it had proceeded substantially, driven mostly by the client, the Government Employees Pension Fund (GEPF), that had secured professional expertise to assist in reviewing the investment mandate. He expected changes as the strategic location was currently being discussed. The revised mandate should be finished by the end of the first quarter of 2021.
Regarding the transparency of the mandate, he could only say that the mandate belonged to the client and the PIC was merely a recipient of the mandate. He recommended that the Committee approach the GEPF. He suspected that it was not in the public domain because it contained terms and conditions for investment which were competitive issues that the client might not be comfortable making public.

He told Ms Mabiletsa that the Commission had been very specific in terms of what the PIC had to look at but he could not go into details. The PIC looked at what the Commission had enjoined the organisation to investigate regarding either the actions of specific PIC officials or with regards to investment-making decisions. For example, what information had led to an investment in Ayo and the decision to invest needed to be investigated.

Mr Sithole responded to Mr Lees’s concerns. The publication of the unlisted component had continued. It was available but perhaps it was about how he had attempted to access the information. It was provided in an Annexure to the Annual Report and could be accessed on the website of the client, the GEPF. Regarding Ayo, the PIC had instituted action to recover the R4.2 billion from Ayo. An action had been instituted to preserve the funds but that had to be sanctioned by a court, which had not yet granted a preservation order, so the PIC was pursuing the matter and keeping an eye on the funds.

He had already addressed the Steinhoff issue and explained that the reason for seeking the PWC Report was to see if individuals could be identified. The amount involved in the VBS matter was R475 million.

Dr Khoza asked him to address the chief culprit of Steinhoff, the former CEO.

Mr Sithole repeated that PIC was looking for information in the PWC Report to pursue the directors, including the CEO. He was aware of the movement of Steinhoff funds offshore but the PIC had been in contact with the Reserve Bank and none of the money owing to the PIC was being moved. He added that, as Steinhoff was an internationally listed company, most of its funds were legally outside of SA.

Mr Sithole told Mr Skosana that he could allay his fears that the recommendations would cripple the organisation. The recommendations were not complete because some would take longer as they might involve other people who had rights. The PIC was looking at a timeframe of 12 months to address the recommendations, but it could not predict how long court issues would take. The bulk of the PIC operated very well, which was why clients continued to support the PIC. It was not the entire PIC that had been involved, but there were culture challenges, etc.

He stated that the recommendations pointed to only one director and that director was no longer at the PIC.
Four staff members named had already left the PIC but the organisation might be following legal action against them. As far as the staff who were still working for the PIC were concerned, disciplinary actions had been taken and recommendations applied. The NPA and DPCI had taken statements from staff and there was a commitment from both entities that legal and prosecutorial actions would follow.

Mr Sithole responded to Mr Shivambu’s question about Naspers. He was correct. The PIC had a large exposure amounting to R229 billion in Naspers so the concern about risk was right and proper. It was a significant asset, but the reason that the Naspers investment was so big was that it had grown so big and the PIC had benefitted significantly from that growth. It had performed well for the portfolio. Naspers was also a big portion of the total equity market in SA. To avoid such a situation, the PIC could invest more in the unlisted space or look at offshore exposure. Addressing the Naspers issue was a concern for the PIC and GEPF, but there were valid reasons for it being such a big portfolio.

Regarding new investments made by the board, he stated that the board had been very cautious and had strengthened processes and procedures but had invested R1.4 billion in the period. Black investment managers managed R150 billion. Most of the assets were managed in a way determined by the client that enjoined the PIC to follow a particular strategy which would not be served by diversifying even more to external asset managers. The PIC did not get greater benefit from external asset managers but it was committed to supporting black asset managers. PIC was proportionally the biggest supporter of black asset managers in SA. The PIC supported between 40% and 60% of black asset managers in SA.

The Minister asked Mr Sithole to come to an end.

Mr Sithole categorically stated that the PIC had not been approached by the chairperson of the PIC board for a loan but the chairperson could address the question further.

Dr Khoza responded to the question of whether anyone on the board had borrowed from the PIC. Five years previously, when PrimMedia was up for sale, he had been part of a consortium that had applied to the PIC for a loan but had been brushed aside with gusto and the members of the consortium had learnt the lesson then.

Mr Shivambu asked for a more comprehensive account of which of the current or past members of the board had applied for or received a loan from the PIC.

The Minister requested the CEO to adhere to matters relating to the Mpati Commission.  

Mr Shivambu and the Minister engaged in the first of several dialogues.

Mr Sithole responded to the question of the performance of the unlisted component which, as he had indicated, was less than the listed component.

He advised Ms Abrahams that transgressions had been dealt with. Disciplinary actions within the PIC had already been taken and actions implemented. Some investigations were ongoing so there would be further disciplinary processes in the future. The PIC had strengthened the decision-making processes and implemented the separation of duties. The CEO was no longer also the Chief Investment Officer (CIO) and the PIC was looking for a CIO. A Chief Risk Officer had been appointed and a Chief Technology Officer was being recruited. Power was being devolved in the organisation.

Mr Sithole stated that in response to the Commission’s recommendations, the PIC had looked into the change in emails and had found that there was no basis for the Noku emails. However, the PIC had itself been concerned about strengthening the IT system and that had been done even before the Commission’s recommendation. When it came to changing culture, that was not an event. It required careful management of people and issues. One had to pay attention to matters. He could not point to an indicator of culture change but he could assure Ms Abrahams that changes were being made. It had been difficult during the Covid-19 when people were working remotely but changes were taking place. People applied themselves to their work and did not cut corners.

He assured the Committee that the advisory panel was not there to do the work of the board. The panel gave comfort for the public, could attest to what the board and the PIC officials were doing and what had been done regarding the recommendations. The Judge could say that they had attended to matters fully and completely. Secondly, certain aspects involved the PIC and its officials and the PIC could not deal with itself, so an independent body was appointed that could manage those aspects of the recommendations. The budget for the advisory board was R10 million.

He informed the Committee that the issues of the Auditor-General were serious, but there had been a significant improvement in the latest Annual Report which had improved to only a few findings and they were not adverse findings. Most of the issues went back some years, so the audit was not qualified but there were still findings. The PIC had to address those findings even though most of them were historical issues from 2014/15. In respect of writing off debt, he explained that the PIC did not write off assets, they only impaired debts and pursued whoever owed money to the PIC.

Mr Sithole corrected a point that he had made about investments by the current board. It was not R1.3 billion but, if one looked at pages 20 and 21 in the actual Report, there were significantly greater amounts that the board had invested. It was much higher than R1.3 billion.

The Chairperson noted that the meeting had been scheduled for three hours. It was one minute to nine. If there were no follow up questions, he could adjourn the meeting.

Dr Khoza thanked his colleagues for obliging and supporting the CEO in leading the charge but there were a few political questions that the Minister had indicated that he would handle.

The Chairperson noted two follow-up questions.

Mr Shivambu was not satisfied with the response from the chairperson of the PIC. His specific question was whether Dr Khoza had applied to buy 25% of SA Home Loans or whether he was part of a consortium that had wanted buy 25% of SA Home Loans, which was owned by the PIC. In the previous meeting, he had asked about the exposure of the board members and that had not come out. The board chairperson had said that he had asked for a loan to buy PrimMedia but he wanted a declaration of all other board members regarding their exposure to the PIC in terms of loans that they had, or had applied for.

Ms Abraham agreed that the meeting should end but the conversation should continue because the Mpati Commission required more than the three hours that the Committee had allocated it that day.

Dr Khoza responded to Mr Shivambu. He stated that it was good corporate government practice that all governors declared all their investments and other directorships. All board members had done that. Those who thought they might be conflicted, had explained at great length so that the board understood the issue so that there was no conflict at any stage. At every board meeting, members had to declare and indicate if they would be conflicted by any matter that was to be discussed and the member would be recused appropriately. Lists were available for Members to scrutinise.

Mr Shivambu asked if Dr Khoza had put in an offer to purchase SA Home Loans.

Dr Khoza stated that the question had been responded to by the CEO.

Closing remarks by the Minister of Finance
The Minister stated that the meeting should not endorse the two resolutions proposed. The first one was proposed by Mr Wessels and the second by Mr Shivambu. He opposed both resolutions and if they were not attended to, they might be recorded in the minutes as having been adopted.

The Minister stated that the PIC policy on extending loans to people had to have a strong collateral guarantee clause. That had been discussed with the PIC, so the board or the PIC had to deal with it. People could not get a loan for nothing.  People could not just go to PIC without a strong collateral agreement so that there was recourse through the courts to access the collateral.

Secondly, he asked for the listed and unlisted page to be flighted for him to make his point. The Minister said it was part of a public relations nightmare. The listed portfolio had seven exposures and the unlisted had three exposures: AFRICA (ex SA Equity) 0,53%; Property 2,34%; Local (Isibaya) 3,18%. The percentages for the unlisted component seemed very small but it was not as small as it looked because they were talking billions. The Minister pointed to the results of the Isibaya investment which were: 45% Performing; 22%
Underperforming; Watchlist 32%; Distressed 32%. If one added together the underperforming, the watchlist and the distressed, it was more than 45% and greater than the performing number. It did not look good, especially to investors. What did it show? That was a conversation that he had to have with the board.  It was in the underperforming where the malfeasance was taking place. People came and asked for money and when they were given it, they went and bought a Mercedes and the business became distressed. It could not just be written off or impaired. The board had to get into that. It had to look at the collateral offered.

The Minister pointed out that it was an important issue that he hoped the Members of the Committee would get into.

Another issue was that of politically exposed persons. It was a very important point that had to be dealt with and it included EFF members exposed through VBS and they should not run away from it.

Mr Shivambu called for a point of order.

The Minister and Mr Shivambu engaged in a dialogue until the Chairperson called on Mr Shivambu to present his point of order.

Mr Shivambu stated that there was not a single report that implicated a single EFF member. It was rubbish and the Minister had to stop accusing them.

The Chairperson acknowledged the issue raised but asked that everyone adhere to the rules of Parliament and to have such dialogues outside the meeting.

Minister Mboweni stated that the Mpati Commission had recommended that the chairperson of the PIC board should not be a political person in order to improve the governance process. The current arrangement was a guinea pig arrangement to see if it would work if the chairperson of the PIC board was not the Deputy Minister – and it was very clear to him that it had worked very well. In implementing the recommendations of the Commission of Inquiry, that would be taken into account.

The Minister referred to the issue of Sekunjalo and Ayo. He suggested that the Committee should invite the chairperson of Sekunjalo and Ayo and the previous CEO of PIC to have a conversation on how those arrangements were made. It would be very wrong to tarnish the entire Sekunjalo organisation or the whole Ayo organisation as that would be unfair but it would be a good idea to get the view from their side. That which was due to PIC as a dividend from its investments had to come to the PIC but one had to be very careful not to destroy somebody’s business.

He agreed with the decision of the board of the PIC to put in place a process which had requested Ret. Judge Mokgoro to go through the many recommendations and to provide a way forward.

The Minister was of the view that the malfeasance that had happened in VBS, which involved some of the EFF members no matter how much they denied it, should not detract from the fact that the VBS model was a good model as it had reached into the most distant and rural areas of the country. The problem was that it had been invaded by the wrong people, as the inquiry “The Great Bank Heist” had found, but the model was a good model. He would fight for the model to return. It had been doing very good work in the North and North-East part of SA, but it had fallen into the wrong hands.

He thanked the Chairperson and the Members for the meeting and for calling everyone to order. He said it was time to retire for the night and when young people wanted to debate with old people, they should do it somewhere else.

Mr Shivambu stated that the Minister was not a Committee Member so he could not object to the proposal that Mr Shivambu had put before the Committee. The Minister could not interfere with the parliamentary process. The proposal was before the Committee. The Minister’s objection was just hot air.

Mr Wessels agreed that it was not proper for the Minister to interfere in the business of the Committee, especially as he had given no reasons for objecting to the proposals.

Closing remarks
The Chairperson thanked Members, the Minister, Deputy Minister, the PIC board and management and officials. The next meeting would be in the first quarter of the following year. The meeting that evening was intended to be only a presentation of the recommendations. The next meeting would be a formal meeting and issues raised by Members would be processed at the next meeting in a proper manner. Nothing was rejected but no resolutions would be taken at the current meeting.

He acknowledged the pie chart developed by the PIC to implement the Mpati Commission of Inquiry recommendations. The Minister had said that he would propose a memorandum in Cabinet. The Committee awaited that memorandum.

The previous week, the PIC had met with SARS and National Treasury to discuss how they would implement the Nugent Commission recommendations. The Committee acknowledged that as the instrument it would use to measure the implementation of resolutions. He asked that the PIC fine tune any timelines and all the recommendations that had been clustered on the pie chart as that would be used as a measurement stick.

The Committee would continue its oversight over the PIC. The Committee continued to be concerned about many of the SoEs as they were not performing to their expectations. The PIC was the biggest SoE in the country and if the PIC collapsed as was happening with other SoEs, it would have a serious impact on the country. It was a very, very important SoE. The Committee would make sure that all recommendations were implemented.

The Committee still had to receive the PIC 2019/20 Financial Report with the audit opinion. By that time, the Committee would have met to discuss all the recommendations of the Commission.

He reiterated that the issues raised by Members were not being put aside; they would be processed.

The Chairperson thanked the Minister, Deputy Minister, the board and officials of the PIC for the briefing.

The meeting was adjourned.