PIC Bills: public hearings; Partial closure of SAA meeting

Meeting report

The Chairperson welcomed everyone and indicated Parliament passed a resolution on the Public Investment Corporation (PIC) Bill which would be gazetted and would remain in the public domain for three weeks. However, the Committee would welcome submissions up to the day the Bill was voted on. No final decisions would be made at the moment and Members would not pre-empt any outcomes. There were two Bills- the Committee Bill and the Private Members bill from Mr D Maynier. There were significant overlaps and four main areas of disagreement which the public needed to speak to during their submissions.
 
Congress of South African Trade Unions (COSATU) submission
Mr Matthew Parks, Parliamentary Coordinator, COSATU, said the organisation appreciated the Committee’s support for a PIC Amendment Bill. COSATU thanked Members for their principled support on this critical issue. Both the Private Member’s Bill and the Committee Bill were welcomed as they were both very progressive Bills that would significantly empower Parliament, depositors, unions and the public to play a more meaningful oversight role with regards to the PIC.

The current challenges facing the PIC that played out in the media were of the deepest concern to COSATU and its 1.7 million members and their families. COSATU views this as a matter of the highest concern and one that needed to be dealt with urgently to protect the hard earned pensions of workers. These funds are public servants’ deferred wages. They are workers’ unemployment insurance taxes and compensation funds. The PIC is not a slush fund for “dangerous eyes” as aptly described by President Ramaphosa to the South African Democratic Teachers Union’s 2017 National General Council.

COSATU’s proposals on the PIC Bills were as follows:

Investment Mandate (Section 5)
COSATU understood the mandate of the PIC is first to grow the government employees’ pension fund, the unemployment insurance fund and the compensation fund. Secondly, that these investments after generating healthy above inflation returns for their members and beneficiaries, namely workers, are to be invested in ways that will protect and create jobs, sustainable development, boost the industrialisation and infrastructural development of the nation. COSATU wanted to make it very clear to government that the PIC is not a slush fund.  It is not there to balance the budget.  It is not there for deficit funding.  It is not a kitty for cash strapped ministries. It is not a bailout fund for state owned enterprises that have been run into the ground by corrupt leaders. It is workers’ money. It is to take care of workers when they have retired, lost their job or been injured on duty.

Therefore, COSATU welcomed the proposed investment mandate in the Committee Bill. COSATU expressed its wholehearted support and urged Members to retain it in full. It is in line with COSATU’s proposed mandate for the PIC and believed is in line with the PIC’s commitment.
 
PIC Board (Section 6)
The existing PIC Act should be amended to remove the Minister’s de facto unilateral and sole discretion to appoint its Board. Currently the Act only requires the Minister to “consult cabinet colleagues” and to “give due regard” to depositor’ nominations”. These are not binding. Neither is it clear how depositor nominations would be made. COSATU strongly welcomed and accepted in full the proposals of the Committee Bill with regards to the appointment of the PIC Board. Also, COSATU welcomed the Committee Bill wording linking ministerial directives to the PIC’s investment mandate. This would be a critical tool in providing checks and balances and fighting corruption.

PIC Board Chairperson
COSATU understood the need for the state to provide guidance for the PIC Board in the form of the Minister or Deputy Minister for Finance chairing the board.  COSATU too wanted to see the PIC playing a key developmental role in the economy as its largest fund.

Major Depositors’ Representation
COSATU welcomed the wording requiring the PIC Board to include a representative of each major depositor.  This would ensure that the Government Employees Pension Fund, Unemployment Insurance Fund and Compensation for Occupational Injuries and Diseases Act designate representatives.

Union Representation
COSATU believed unions must have representation on the PIC Board. Whilst union representation was not a guarantee that there will be no corruption, it is a critical oversight tool for workers to push the fight against looting and protect workers’ funds. For COSATU this is non-negotiable. Unions must legally be guaranteed meaningful Public Service Coordinating Bargaining Council (PSCBC) deployed representation on the PIC Board. Anything less will be met with vociferous rejection and counter mobilisation by COSATU. Union representation should be selected by the PSCBC and in proportion to representation by unions at the PSCBC. COSATU and most other unions are based upon the principles of worker control. This is exercised by unions selecting their representation. This can best be done through the PSCBC and should be done on the basis of proportional representation as the most fair and democratic option. Union representatives should not be chosen by a Minister. This will compromise their independence and to whom they owe their appointment and accountability to.

Private Members Bill wording
Union representation needs to meaningful. One union representative as provided for in the Private Member’s Bill will be meaningless. One person on a board can easily be outvoted, ignored, marginalised or bribed. Union representation has to be substantial and in line with the industry norm and principle of 50/50 representation between employee and employer. Union representative selected by the unions through the PSCBC will help to ensure accountability.

Committee Bill wording
COSATU strongly welcomed and supported the Committee Bill’s proposal for not less than two and not more than two union representatives selected by unions at the PSCBC in proportion to their composition. Union representation on the PIC Board must be mandatory and provided for in law and not voluntary or dependent upon the good will or personal preference of a Minister. 

In conclusion, COSATU expected Parliament to treat this PIC Amendment Bill as a matter of the highest urgency. It must be prioritised. It could not be dropped due to an excitement of elections. It must be adopted by Parliament by the end of 2018 and come into effect by 2019. Anything less would be a clear message to workers that their deep and legitimate anger, concerns and proposals were not taken seriously.

Federation of Unions of South Africa (FEDUSA) submission
Mr Koos Kruger, FEDUSA, expressed its agreement with COSATU’s submission and further submitted as follows:

Committee Bill
Proposed section 5(2) needed to be reconsidered. It should be clearly expressed to be subject to any investment mandate that may be given by any of its investors. It must allow the depositors to determine their own investment mandate and must oblige the PIC to act accordingly. The GEPF and the other two pension funds together have placed under the management of the PIC not less than 89% of the assets managed by the PIC. The proposed section takes no account of, and appears not to recognise, the duties of those pension funds to their members. Nor does it reflect the long-term objectives of its largest client, the GEPF. There should be nothing in the statute which permits the PIC to ignore or overrule or depart from the investment objectives of its clients. The phrase securing funds investments financial sustainability and security was vague and inconsistent with the investment mandate which should be given by pension funds to their investment manager, and that the interests of the pension funds and their members and beneficiaries should take precedence over any other interests. While it could be noted that the State is obliged to guarantee the benefits promised by the GEPF to its members, any failure of the investments of the GEPF affects the ability of the GEPF to meet its pension obligations and to improve benefits, to keep pace with inflation and to keep the employer contribution rate stable.

Section 3: proposed amendment to section 6(2) (Committee Bill)
FEDUSA found it unacceptable that the obligation to have regard to nominations submitted by depositors was deleted in respect of the twelve members of the board. Since the PIC invests the assets belonging to the depositors it is fundamental that depositors should have their views heard on who is to manage their money. In addition, the Minister should be under a statutory obligation to call for nominations from depositors and members of the public and to have regard to those nominations in making any appointment.

Section 3: proposed amendments to section 6(1) and (1A)
FEDUSA submitted that the chairperson should not be the Minister or the Deputy Minister, but rather be appointed from amongst the members of the board appointed following the prescribed process. It was not clear why the obligation to consult with the cabinet had been removed but FEDUSA suggested that the Minister should be obliged to consult with depositors before making any appointments.

AmaBhungane submission
Mr Stefaans Brümmer, amaBhungane, said the organisation’s comments were limited to sections of the Bills that impact on the free flow of information, since this falls within its advocacy mandate. The rationale for greater transparency was that PIC is South Africa’s biggest investor, and any risk to it was a risk to all South Africans. Principally, there were limited disclosure provisions currently on the back of recurring allegations of PIC power being abused for individual benefit or political/factional patronage. Disclosure would therefore deter bad decision-making. AmaBhungane’s proposals were as follows:

Clause 3: Minister appoints board members in consultation with Cabinet.
AmaBhungane called for the transparent selection of board. Like other institutions exercising significant public power and oversight, appointments to PIC board should follow a public interview process conducted by Parliament. Stakeholders and members of public would also have to make nominations.

Disclosure: annual report on investments
AmaBhungane noted the position by Treasury/PIC/GEPF that “the PIC as asset manager should not be compelled to disclose information about another entity and its clients without consent.” However, amaBhungane believed giving provision for disclosure would merely codify a practice of the past two years, where there had been no evidence that these disclosures had done harm. With GEPF also being a public entity, Parliament could impose “consent” and this was nothing new as GEPF law imposes significant disclosure requirements. Regulations could prescribe classes of information to be disclosed such as: the price paid; the extent of any discount; and the external fees associated with the transactions and to whom they were paid.

Clause 7
Obligating the Minister to consult Parliament was welcomed. However, regulating process could be strengthened and could go further to require: that the Minister: prescribe the classes of information to be disclosed by PIC; public participation; and Parliament’s approval.

Extending disclosure: Minutes of decisions
Leaks show internal concerns about risky investments were being ignored by PIC, and conditions precedent were not being applied. Therefore AmaBhungane believed the solution would be radical transparency. It proposed the insert of Promotion of Access to Information Act (PAIA)-like provision for access to investment decision minutes. PAIA itself was not appropriate as it excludes “minutes of a meeting … to take a decision in the exercise of a power or performance of a duty conferred or imposed by law”. Further, any member of public should be able to request, and PIC must provide in seven days, any minute regarding investment decisions, provided: a prescribed period has passed after the investment was made. Disclosure may be refused for reasons of commercial confidentiality, subject to reasonable efforts to redact. No record may be refused if overriding public interest.

Examples over the years necessitate aforesaid transparency. The cases in point included: political exposure; some frequently empowered people; deals of questionable value for PIC; and unclear or questionable terms. PIC may well be justified in supporting black economic empowerment, but the potential for abuse meant there was need for more transparency.

Discussion
Mr N Nhleko (ANC) pointed out the need to thoroughly interrogate oversight mechanisms to ensure better outcomes and performance of public entities and institutions. To strengthen corporate governance and guarantee adherence to principles, there was need for more investment in technical managerial skills. This went beyond mere representation. Broadly, there was need to strike a balance between representation and strengthening management mechanisms. He referred to AmaBhungane’s call for a provision to the effect that “no investment record may be refused if overriding public interest”. Who would make a determination about what constitutes overriding interests?

Mr D Maynier (DA) noted that transparency requirements loomed large in both Bills; and seemed to have broad support. Transparency requirements would obviously require yearly disclosure. He asked whether the Committee should consider an additional clause which would compel the PIC to disclose investments above a specified threshold within a reasonable period. It did seem transparency provisions enjoy broad support, and therefore the Committee would have to deal with pushbacks against these provisions, from Treasury and the GEPF, at a later stage.

Mr F Shivambu (EFF) said funds invested by the PIC were owned by workers through GEPF. He agreed that workers should be represented within the PIC board but there should be minimum skills requirements for individuals constituting the PIC board. Asset management is a skills intensive process. He believed it was not the case that PIC was misusing funds as portrayed in the media. As it stood, GEPF had expressed its confidence in having PIC as its fund managers. Some of the allegations levelled against the PIC were not sensible and were part of a narrative which serves to criminalise collective efforts by the PIC to facilitate black participation in the economy. This explained the huge onslaught against PIC, which must be rejected with contempt. If PIC should disclose all its investment interests then it should follow that all private sector asset managers should do so as well. Some of the proposals brought forth were a means to sabotage public entities so that they become less competitive. Also, the PIC board must be chaired by the Minister or his/her deputy. The PIC has been doing relatively well compared to other private institutions and was contributing towards the inclusion of black people in the mainstream economy. 

The Chairperson said the public would have to come up with formidable arguments to convince the majority of the Committee that anybody apart from the Minister or his/her deputy should chair PIC board. It was highly unlikely the Committee would agree to this. The question could be about what could be done to ensure the PIC chairperson was held to firmer account both by the GEPF and trade unions on one side and Parliament on the other. He agreed that worker representation would need to possess asset management skills. The PIC was utterly crucial to transforming the economy and the majority felt it was not doing enough to address transformation. AmaBhungane had done excellent work overall, bar that it might have conscious and unconscious class biases. However, the majority did not believe its suggestions were doable in the current context of a market economy. It was highly unlikely the Committee would agree that minutes of investment meetings be released in the public domain.

Mr Nhleko said the call to do away with the Deputy Minister as PIC chairperson should not be entertained. He suspected the view was premised on a sweeping notion that all Africans are corrupt.

Mr Parks said his organisation had heated discussions with its affiliates on who should chair the PIC board. For COSATU, the key issue was transparency and accountability and it was quite happy with the Committee proposal to have the Minister or his/her deputy as chair. Union representation was a strong point for COSATU as it is a tool for accountability. Further, COSATU believed disclosure should be reasonable and done through stipulated criteria. Disclosure should be sensitive to the needs for operational confidentiality and release of information should be under circumstances where corrupt practices are suspected. The PIC had done a good job but believed stakeholders should err on the side of caution to ensure this is maintained. The more checks and balances the better.

Mr Kruger said FEDUSA would submit further motivation for its positions before the Committee votes on the Bills, if need be.

Mr Brümmer said AmaBhungane is a small non-profit organisation which certainly did not have any economic interests at PIC. The job of investigative journalists was to look for chinks in the armour. This was their watchdog role which was in no way meant to undermine the operations of any public entity. Transparency is an antidote to corruption, not transformation. In recognition of the potential pushbacks, amaBhungane was not asking for minutes to be disclosed without any hedging. It was proposing that there be safeguards in both directions, which could include redaction of sensitive information. The PIC would have to decide whether there is an overriding public interest if information is requested from them.

National Treasury submission
Ms Empie Van Schoor, Chief Director: Legislation, National Treasury, took the Committee through proposals sent to the Committee in the form of a letter by the Minister. The proposals on the Bills were as follows:

PIC Board
The Committee Bill provides in clause 3 that the Act stipulates that the Minister or, if so designated by the Minister, the Deputy Minister is the chairperson of the Board. However, the current Act and the Memorandum of Incorporation (MoI) does not specify who is to be appointed as chairperson. The Minister is the responsible authority for the PIC as a public entity, and is also representing the State as a sole shareholder. The Board must account to the Minister and the Minister must account to Parliament for the entity. Therefore it is not advisable to have the Minister as the chairperson. It is proposed that the Act does not identify the chairperson and that the current provision that the Minister appoints the member of the board (including the chairperson and deputy chairperson) in consultation with Cabinet be retained. Should the Minister, in consultation with Cabinet, appoint the Deputy Minister as deputy chairperson, the appointment of an independent deputy chairperson, as advised by King IV, should be made. This has been the practise.

Disclosure of investments
The Private Members’ and Committee Bills (clause 4) provide for a report reflecting all listed and unlisted investments of deposits must annually be submitted to the Minister for tabling with the Treasury’s annual report and published on the PIC’s website. However, Treasury believed the disclosure of investments made on behalf of depositors should only occur with their consent. It should be considered whether the disclosure of investments is not a matter to be dealt with by depositors in accordance with applicable law, and not the PIC that acts on behalf of depositors. If this provision in this Bill is retained, it is proposed that it be subject to the depositor (client)’s consent and be limited to be unlisted investments. As the disclosure of listed investments, it is not supported because it will entail a collation of all the listed investments which can influence the market. Other investors can very easily see what the PIC’s positions and views of the market are, and that is risky since the PIC is the largest investor on the JSE. 

Discussion
Mr D Maynier (DA) asked if Treasury would agree that the effect of its proposals on disclosure would limit accountability as the GEPF annual report is presented after the PIC one, later in the year. The sequencing of the disclosures was not unimportant and had the effect of frustrating accountability within PIC.

Ms T Tobias (ANC) said it was problematic that disclosure of sensitive investment information was being called for without justification such as suspicion of wrongdoing. How does AmaBhungane call for disclosure provision whilst there was PAIA? She argued the only reason for such disclosure to be requested was on behalf of rivals in the market economy.

Mr Brümmer said amaBhungane envisaged a model where any public institution document could be accessible to the public such as in Sweden. Requesting that information be made available was in no way an accusation for wrongdoing.

Ms Tobias said although comparisons to international standards should be made, South Africa is a developmental state with unique features. It could not be juxtaposed with developed countries such as Sweden.

Mr Maynier asked for the PIC CEO’s views on calls for transparency. The impression was there is some form of rollback and PIC was no longer willing to disclose its dealings.

Mr Shivambu felt there was a narrative which was being built around PIC; that it was in a crisis. This narrative originated from individuals with vested interests. These issues needed to be explored further during the next meeting with the PIC.

Mr Dan Matjila, CEO, PIC, commented on the calls for disclosure provisions. Because the PIC was acting in a market economy- it had to compete against the private sector, and it was doing well in terms of delivering on its mandate and exceeding client expectations. Some information was available on the JSE's register of shareholding by different entities. The PIC was prepared to publish information, but it should be managed in a way not to create anxiety. More so, PIC is an asset manager and its operations were not any different from other asset managers in the country.

Mr Maynier said the CEO’s position on the call for greater transparency was unclear. The argument was PIC should be subjected to higher levels of scrutiny precisely because it invests in government employees’ funds, a defined benefit scheme. This meant the risks lie ultimately on taxpayers and the public.

Mr Shivambu said regulatory frameworks that exist for the private asset managers should be applicable to the PIC as well. That there are individuals seeking to undermine the standing of PIC should not be understated. However, the Committee should not be party to such machinations. 

Mr Deon Botha, Head: Corporate Affairs, PIC, said details of listed investments were in any case publicly available, but could not be disclosed by the PIC, because of possible media headlines of “PIC losing confidence…” in one sector if its investment decisions change year on year. Listed investment information was just too market sensitive.

The Chairperson said fundamentalism on transparency without taking the national context into account would not be wise. On the whole, there were limits to what the PIC could do in a market economy. These issues would be explored further during the next meeting in the presence of the Deputy Minister.

Deliberations on draft resolution on South African Airways (SAA)

The Chairperson said the committee section met following the events of the last meeting with SAA which was subsequently cancelled. The committee section had agreed that there was a mistake on their side. However, there was no malice intended by any Member or staff. The persons involved acted in good faith and had apologised. The committee section was urged that, in future- when it came to an application for such a sensitive issue like closing a part of a meeting, the Chairperson must be involved directly. It was a misunderstanding and a botch-up. He added the Committee was acutely aware of how competitive the airline industry was. It was not fair to expect SAA to report on market-sensitive issues in the public domain that would serve to the advantage of its competitors. The rules require that an application be made to the Office of the Speaker for a part of the committee meeting to be closed. The closure of a part of a meeting with SAA was consistent with stipulated rules. Therefore, if the Committee is granted the permission to discuss such sensitive matters in a closed session, documents discussed in a closed session would be separated from those dealing with issues that are addressed in an open meeting. However, if the Committee decided that the matters raised in the closed meeting were not market sensitive‚ the documents presented to the Committee would be disclosed to the media. A resolution on holding closed meetings will be adopted next Tuesday.

Mr Maynier opposed the draft resolution. SAA is a public company and was required to account to Parliament.  He noted the reference to Rule 184 on the draft resolution, which the Committee had to comply with. The rule has three conditions in which a meeting could be closed. There was however no provision for closing a meeting on the basis of the discussion of market sensitive information. Also, there is no definition of what would constitute market sensitive information in law- this was vague.

Adv Frank Jenkins, Parliamentary Legal Advisor, said holding parliamentary meetings behind closed doors was closely regulated by the rules of Parliament. The constitution also stipulates that committee meetings cannot be closed in an open and democratic society unless it is reasonable and justifiable to do so. He believed SAA matters would legitimately fall within the rules of Parliament.

Mr Shivambu said the Committee should make it clear that Treasury had not been able to usher SAA to recovery since the airline was shifted from the Department of Public Enterprises. Also, Cabinet had taken a decision to merge SA Express and SAA assets. Therefore, it would be wise for SAA to be shifted back to the Department of Public Enterprises. This should be a Committee resolution and should be communicated to Treasury during the next meeting.

The Chairperson said the recommendation by Mr Shivambu had already been made previously. He also spoke to the respective Ministers and pointed out that the challenges at SAA were structural and more about strategy rather than finances. Another resolution to that effect could be passed during the next meeting. He reiterated that the SAA resolution on closing part of the next meeting would be adopted on the next meeting.

The meeting was adjourned.