Disposal of SAA government majority shareholding; with Ministers

Meeting report

Chairperson's opening remarks
The Chairperson said the meeting was due to the 9 March meeting with National Treasury where a question was posed about the 51% disposal of SAA. National Treasury asked for 14 days to respond to the question about information on the disposal and the role of National Treasury. The response was received from the National Treasury Director-General stating Treasury had no role in the disposal of the 51% of SAA.

Correspondence was submitted to the Minister of Public Enterprises based on Treasury’s response. The Minister of Public Enterprises responded by detailing the sequence of events which included highlighting the presence of the National Treasury and the Minister of Finance in some of the meetings about the disposal of the 51%.

Other correspondences were received. The Chairperson said he received a presentation from the Department of Public Enterprises and correspondence from the Minister of Finance explaining certain aspects of the sale and that there was not much National Treasury would be able to provide as information.

He stated they were in the meeting and arrived at the same page understanding. The Chairperson said the previous day he had received notification from the Committee Secretariat that National Treasury had withdrawn its presentation.

He said the Minister of Finance, the National Treasury Director-General and the Minister of Public Enterprises were present. The Committee had been briefed by the Auditor General on the audit processes for 2017/2018 and planning for the outstanding audits for SAA was underway.

Introductory remarks by Minister of Public Enterprises
Minister Pravin Gordhan said there had been several interactions over a long time between the Committee and DPE about SAA. The issues at hand had been developing for a long time. In some ways these matters stood outside of the normal audit process, this was about the announcement of the acquisition of a strategic equity partner in SAA. This was because the state was no longer willing to part with money from the fiscus for the operational capital of SAA amongst other reasons.

In the presentation, they try to crystallise some of the issues the questions seem to raise and responded to the Committee’s first letter when it asked for further information. In the Committee’s second letter of 3rd May, another set of questions was asked as well.

This was a commercial transaction in terms of the Companies Act and prerogatives. Government was 100% shareholder and owner and it made the decisions to support business rescue, exit from business rescue and clear up historical issues. Money was assigned by Parliament for this and the SEP process.

The Minister noted the presentation was sent to the Committee late last week.

The Chairperson clarified that he had received a set of questions and deemed it prudent to forward them in advance as opposed to the questions arising now to save time.

Mr B Hadebe (ANC) asked for clarity on the origin of the nine-page document sent the previous night.

The Chairperson explained that this was the Minister's response to a set of questions he had received from a Member. It was considered ideal to forward those questions in advance to DPE and the Minister of Public Enterprises to allow them to apply their minds and respond in writing.

Minister Gordhan asked in the interest of transparency if the Chairperson could indicate the Member who requested the information. The Chairperson’s comments seemed to have been in slight variance from the first two lines of the 3 May letter. The letter said after the previous request for the information on the disposal of SAA shares, the Committee would like further details as follows. The Minister said this seemed to be something that required a written response as opposed to a guide to oral questions that might arise in the committee. He wanted to state this for the record.

The Chairperson said all the issues would be dealt with at the end of the presentation.

SAA Strategy Equity Partner (SEP) process update
The presentation was led by the Minister and the content included:
Background on the chronology of events and business rescue
Purpose for securing an SEP for SAA
Roles and responsibilities for the SEP process
Conceptualisation of the selection criteria
Negotiation of the SEP terms
Finalisation of the SEP process
SAA 2017/18 annual financial statements

Background – Chronology of Events
Pre-Business Rescue environment at SAA was unsustainable. SAA’s performance had deteriorated over many years and this resulted in the airline depending on the state for funding.
SAA received R5 billion in February 2019 which was augmented by R5.5 billion in August 2019. The airline requested further funding to address the working capital shortfall.
SA Cabin Crew Association (SACCA) & NUMSA embarked on strike due to a wage labour dispute.
R4.1 billion bridging finance was required to support SAA until end of the 2019 financial year.
On 4 December 2019, a Cabinet Memorandum was forwarded to the President outlining the decision by Board to place SAA under business rescue.

Priorities considered as part of the Business Rescue process:
Accelerating cost cutting;
Restoration of confidence in SAA – especially forward bookings;
Ensuring efficient cash management;
Ensuring performance management;
Meeting with creditors;
Freeze contracts such as the Regulating Agreement for pilots; and
Consideration of unbundling SAA to retain assets with value and ensure sale of Air Chef, SAA Technical and Mango.

Business Rescue: Impact of COVID 19
Revenue generation reduced and airlines were not generating revenue due to lockdowns.
Capacity reduction initially, subsequently a total shut down of the South African airline industry.
SAA operated repatriation flights for citizens in global destinations on behalf of government.

Purpose for securing SEP for SAA
Government had taken a decision that SAA needed to be saved and not liquidated
Government had indicated that it had no funds to continue supporting SAA for future operations
A number of Expressions of Interest (EOIs) for SAA as a group or its subsidiaries were received during the business rescue process
Cabinet approved DPE identify and conclude agreement with an SEP on behalf of government

Finalisation of SEP Process
On 11 June 2021 Takatso Consortium was announced as the preferred SEP
DPE commenced its due diligence on Takatso Consortium which did its due diligence on SAA.
After conclusion of due diligence, sale and purchase agreement was signed on 22 February 2022
Transaction will be concluded subject to satisfaction of all conditions and regulatory approvals.

Way Forward with Audits
Auditor-General is still the auditor for SAA
AG has just completed the 2017/18 financial year audit
It will commence the audits of 2018/19, 2019/20, 2020/21 and 2021/22
SAA is liaising with AG on the audit approach, fees and timing thereof.

Minister Gordhan said in response to the questions in the Committee 24 March and 3 May letters that when putting together the simple proposition there had been a fair and carefully constructed process for the SEP. The process was well on its way but it was taking time due to various legal processes. As the Minister of Finance would also indicate this was an atypical transaction outside the ambit of Section 217 of the Constitution. Broadly it fell within the ambit of the Constitution and the Companies Act which took into account the processes designed for this kind of transaction.

Minister Gordhan noted that the disposal was a commercial venture and piloting within a competitive environment SAA and this particular transaction had to be careful of what information was available to competitors. They were very cognizant of the fact that there should be maximum transparency and as they reached different stages and finally the conclusion of this process all necessary information, not of a competitive nature, would be made available to all interested parties. We have had interactions within government and hopefully the Committee.

Comments by Minister of Finance
Minister of Finance Enoch Godongwana agreed with the presentation made by the Minister of Public Enterprises. He made the following points: government’s responsibility to dispose of the assets is at issue – whether SAA was a financial drain and if its disposal was justifiable was at issue as well. Since SAA’s departure from Transnet in 2007, it had cost the state R49 billion and was no doubt a financial drain. The operational responsibility for dealing with all of these concerns was DPE's. The Minister of Public Enterprises has described the DPE process given Cabinet’s decision to dispose of SAA and reasons for the chosen route. On legislation compliance, lawyers concluded that Section 54 of the Public Finance Management Act was not applicable in this instance. The disposal of 51% of SAA shares fell outside of the ambit of Section 54. That section deals with the state-owned enterprise itself; not government’s disposal of the shares. They had to proceed without a Section 54 application.
 

Discussion
The Chairperson explained in the second letter to the Minister that it was a Committee practice to send questions before the meeting. This practice needed to be amended at another time. The responses from the Minister were dispatched the previous day which did not give Members time to look at them in detail.

Mr B Hadebe (ANC) said on 18 March Treasury replied in writing and said section 54(2) of the PFMA was not applicable for the disposal of SAA shares. He asked for clarification on Treasury’s comment that DPE notified them only after the conclusion of the disposal memorandum and the concerns Treasury raised about the terms and conditions of the disposal.

Mr Hadebe said taking into account DPE’s response that seemed to reject what Treasury said had created consequences in the public domain. He asked National Treasury to clarify if it sought to suggest that it was unhappy. Were there concerns that were not dealt with about following legislation?

Mr Hadebe asked if the concerns Treasury raised were normal and part of the execution of its mandate or were these concerns substantive that needed to be brought to the Committee to engage with.

The Committee needed to get an understanding and was aware that the process had not been concluded and some issues could be properly ventilated by the Committee as an oversight body until those issues were thoroughly processed and concluded.

He asked DPE and Treasury to clarify the contradictions that were in the public domain and there was tension between Treasury and DPE.

Public Enterprises & Finance Ministers' response
Minister Gordhan replied that there was no tension with Treasury. In interactions with Treasury and any department when a proposition is put forward on section 54, lawyers would be consulted and opinions would vary until there was clarity. A consensus was reached with the Minister of Finance that section 54(2) was not applicable to this and because the PFMA did not provide for these sorts of transactions the applicable framework was provided by the Companies Act.

The Minister said that Treasury was not necessarily involved in every step of the operational detail. Treasury’s concerns would be answered during their interactions with DPE to ensure clarity and alignment between both departments. Treasury and DPE had clarity and necessary alignment.

Minister Gordhan noted these were cabinet decisions being implemented and all necessary work being done was within that mandate. There would be healthy debates as no two lawyers would agree on a difficult and complex issue but once there was sufficient clarity you could have the necessary alignment which they currently had.

The Minister of Finance agreed with the Minister of Public Enterprises. The back and forth between the departments did not mean there was in fighting it was just an internal process of preservation of expenditure and money. The questions were a matter of detail and the disagreements were a matter of detail in dotting i’s. He agreed with the Minister of Public Enterprises. It was the nature of Treasury to ask questions and for departments to answer. This did not mean there were contradictions.

Questions
Mr Hadebe was happy the matter was clarified and said it could be assumed there were cordial relations between the two departments.

Mr Hadebe asked as section 54(2) was not applicable which legislation would be applicable and if there had been similar transactions before that the Committee could see to get an understanding of this transaction.

From the responses from both Ministers, it seemed that everything had been done accordingly and had met all legislative requirements. He asked if his assessment was correct. The three questions posed to Treasury were not necessarily the prerogative of Treasury. All questions on the disposal had to be posed with DPE and the decision therefore by the Cabinet would be informed or was based on certain legislative authority.

Mr Melanchton Makobe, DPE Acting Deputy Director-General of Legal, Governance and Risk, replied the applicable provision was Section 112(2) of the Companies Act which stated a company could not dispose of all or a greater part of its assets or undertaking unless such disposal was approved by special resolution of its shareholders. It was the shareholder who had the right to dispose of the shares in terms of the provisions of the Companies Act. The shareholder would have to take a resolution to that effect which was what DPE had followed in this disposal.

Mr Hadebe asked if Treasury was happy with the usage of this legislation even though the responsibility to ensure legislative requirements were met was DPE's. He asked if the correct legislative prescript was followed. He acknowledged he posed the question to the wrong department and asked for DPE’s response to his question instead.

Minister Gordhan said the necessary provisions have been complied with in recognition that section 54(2) was not applicable. DPE was satisfied as they were operating on sound legal grounds.

Mr Hadebe asked, as government would no longer be the majority shareholder, if there was the development of a model that would ensure continuous oversight of SAA. If the development had not commenced, would it commence after regulatory actions were concluded? The Committee had a legal obligation to follow up on all SAA outstanding issues including audits, irregularities, mismanagement and misappropriation of tax funds. He asked about the conclusion of the outstanding audits and the projected timeframes.

Public Enterprises Minister & SAA Chairperson response
Minister Gordhan replied that the SAA Chairperson would indicate the arrangements made with the Auditor General. There was an existing model and eventually there would be a new model. The state was already a minority shareholder in other entities and these entities did not appear as business entities on the parliamentary radar.

As they moved towards concluding some of the work being done in the Presidential State-Owned Entities Council (PSEC) a new model would be developed that set out the basis upon which government's investments in various commercial entities would be supervised.

Mr John Lamola, SAA Interim Executive Chairperson and Chief Executive Officer, replied that the audit was the primary focus of the new board. SAA had managed to conclude the 2017/2018 audit and had a successful Annual General Meeting. The audits have been prepared by the former management and governance structures for the 2018/19 and 2019/20 financial years. However these had not been audited due to the business rescue, Covid and the technical issue of the determination of the going concern.

Negotiations were underway with the Auditor General. He noted the first time the Auditor-General did SAA audits was the 2017/18 financial year. Before this, it was audited by Price Waterhouse Cooper (PWC). This was a new introduction of intensive engagement with the Auditor-General which involved discussion of the fees the Auditor-General would charge. Fee structures were determined at the AGM with shareholders. All those negotiations were concluded and the Auditor-General is putting together a capable team to do the audit for the past four years. The Auditor-General would be going through all findings and post-audit events that would be recorded in the annual financial statements as they would be published. The aim was to finalise all contractual issues with the Auditor-General by the end of May so that actual auditing could commence.

Questions
Ms V Mente (EFF) pointed to the statement in DPE’s presentation that the situation was untenable and therefore the government could not restart the business with SAA. It seemed the strategic partner had not contributed. She asked if the partner had contributed what the amount was as government had assured them the situation at SAA was no longer untenable.

Ms Mente asked for clarity on the Minister of Public Enterprises' statement that government required a partner who would finance operations without government backing. However, the partner’s contribution had not been mentioned but government had backed the partner and started the operations. She had understood that SAA would be privately owned.

Ms Mente asked about the transaction being conducted under a special resolution what the resolution was and the benefits for the country if 51% would be owned by the partner. As a minority shareholder, what was government's oversight role?

Ms Mente noted that money had been lost through a PIC investment due to the lack of oversight. In this instance, this would be repeated as funds were being pumped into a business over which government did not have oversight. What systems would be used to monitor public funding contributions? How far along and what were details of the system being developed in the Presidency?

She asked for clarity on the question of why Treasury was not pleased with the transaction. She also asked what final numbers would determine the percentage spilt of ownership as the agreement had already been signed on 22 February and if this would change the contract.

Ms Mente asked if in the contract there was the possibility of government purchasing a bigger stake in the shareholding. It seemed the resolution was not thought out and she asked what were the elements that had not been finalised. What process and criteria were used to choose the strategic partner and how this partner would benefit SAA and South Africa?

She asked for clarity on how the partner agreed to purchase SAA and how due diligence was conducted because SAA did not have audited financial statements for the past four years. How was the worth of SAA determined during the Business Rescue where was uncertainty on SAA’s assets. She noted the sale of SAA’s aircraft by a former CEO, Coleman Andrews. She stated that they were selling SAA without concrete evidence of its financial standing.

If the partner was bringing stability to the aviation industry and as a majority shareholder directing the business, how would government benefit? As due diligence was performed by DPE on the chosen partner, she asked for a detailed profile on Takato Consortium as it was important for the Committee to know to whom the shares were being sold. She also asked for the resolution with the net worth of SAA.

Ms Mente said she was dissatisfied with the response that SAA had cost the state R49 billion since its removal from Transnet as this was not honest. The large number was an exaggeration to make it seem as if South Africa had no people to run SAA and therefore with the R49 billion SAA had failed dismally. No breakdown of the R49 billion was given.

The 2016/17 financials used in engagements with the business rescue practitioners stated SAA had a loss of less than R2 billion. The gap between revenue income and operations was small. She asked for a detailed breakdown of the R49 billion, the losses and how it was spread over the years.

They were selling everything much like Coleman Andrews and when the partner ran into problems we would have to purchase the stake back. She asked for clarity from both ministers as the 2016/17 financials indicated SAA people were doing the right things and what was being done about this situation.

Ms Mente said Eskom would fall victim to this too because of a failure to monitor developmental models that seek to transform sectors. SAA had a strategic partner but there was no clear and strategic development model on how SAA would be dealt with. How was the money government contributed being monitored and where was it going?

Public Enterprises Minister response
Minister Gordhan replied that some of the questions had been answered. The transaction had not been concluded therefore currently the partner was not a partner and did not own 51% of SAA. The partner would only be contributing once the transaction was concluded.

SAA was currently running on R2 billion set aside as part of the R10.5 billion for interim flying. The revenue generated and this R2 billion were being utilised for operational purposes. DPE wanted to conclude the transaction as soon as possible so the responsibility to fund operations would be that of the majority shareholder.

Government as a minority shareholder would have the rights accorded to a minority shareholder and a provision for a golden share which entitled government to certain preemptive rights which included branding, government approval on certain transactions and defending the
national interest. Government would own 49% and the normal rights would follow that equation.

Minister Gordhan replied that financing SEP would take two forms, an input of R3 billion when the transaction is concluded to meet operational capital requirements and thorough due diligence and evaluation of current assets in the form of property and landing slots at overseas airports which amounted to R3 billion. An arrangement of preferential shares would be entered into and finalised when the transaction is finalised. This meant government would benefit once the airline became profitable from being the first shareholder to receive dividends from the profit, this would be perpetual until changed by a future government. This arrangement would result in an annuity that would be paid to government’s fiscus.

The state benefits from not funding a bottomless pit. It was clear SAA had not made a profit since 2011. The Coleman Andrews saga was irrelevant in this instance as the focus was SAA as a whole and they sought to secure SAA’s future, retain staff, expand SAA’s operations and move away from a scenario where the options were either liquidating or restructuring using the resources of a strategic partner. What was strategic was government’s choice in bringing in a South African based partner with aviation skills and train new aviation experts and use experienced aviation experts. There were more black pilots and there were many opportunities available to them.

The critical issue faced by government was to liquidate or restructure through the provisions of the Companies Act on business rescue. The government decided the direction and DPE’s job was to execute this mandate. A training and layoff scheme was denoted and money was made available for it. Engagements were had with other departments on availing funds as this process needed to be revitalised.

On oversight, government was a minority shareholder and if the transaction was successful, SAA would not be registered in Schedule 2 of the PFMA as a commercial government enterprise. Work was being done in the Presidential State-Owned Entities Council to ensure the government stake in SAA and other commercial enterprises would be given a lot more commercial attention than what an ordinary department might be able to do. The President had stated in the State of the Nation Address (SONA) that government was moving towards a holding company model where sound state-owned entities would be put into a holding company and run on a professional basis without day to day political interference. Parliament would be informed of the developments.

The final numbers were determined through due diligence exercises that we performed on Takatso Consortium and SAA. This was the basis upon which the numbers had initially been agreed on and if anything changed then the final agreement would change as well. This point had not been reached because the regulatory process needed to be concluded and once concluded the relevant structure in Parliament would be informed. Theoretically, government could buy the stake back but this is dependent on other factors.

A due process was followed with the assistance of a transaction advisor in selecting a partner as reflected in the presentation. The validity of financials and assets was established through a due diligence process.

Minister Gordhan replied that Takatso had two partners, Global Airways and Harith, as stated in the presentation. If more information was required, they would ask Takatso. Terminology such as 'honesty' should be avoided as this was a process to help parliamentarians understand what was going on. There was no denying SAA had been part of the corruption and this was reflected in the Zondo Commission Report. SCOPA would have to determine how the Zondo Commission findings would be dealt with.

Discussions between SAA and the SEP were extensive on the development of black talent and maintaining staff demographics reflective of South Africa. Opportunities for black people had to be ensured throughout the system. Training opportunities needed to be opened as they were blocked. On the future role of the airline and development, a lot of opportunities were open to SAA arising from the African Continental Free Trade Agreement, interconnectivity sought within Africa and discussions between SAA and Kenya Airways on a future relationship to meet Africa’s requirements.

The recent rise in oil prices and therefore jet fuel due to conflict in Europe needed to be monitored to ensure SAA and the aviation industry could cope.

Treasury Director-General's response
Mr Dondo Mogajane, Treasury Director-General, replied that from 2007 to date R49.71 billion had been spent on SAA. In 2007 R744 million was spent on a labour restructuring plan. In 2009 R1.6 billion was paid for working capital requirements. In June 2017 R2.2 billion for guaranteed debt was paid to Standard Chartered Bank and in the same year, Citi Bank was paid R3 billion for guaranteed debt. In December 2017 R4.8 billion was paid towards repayment to lenders and the working capital. In February 2019 R5 billion was paid to domestic lenders for guaranteed debt. In August 2019 R2 billion was paid towards working capital requirements to keep SAA afloat. In September 2019 domestic lenders were paid R3.5 billion. The recapitalisation of SAA before business rescue cost the state R22.8 billion.

From July 2020 R3.6 billion was repaid as part of the post-commencement funding as per the business rescue process. In August 2020 R2.1 billion was paid towards post commencement funding. A series of payments were made towards legacy debt that was guaranteed. In August 2020 R4.6 billion was paid. In July 2021 R4.3 bill was paid. In July 2022 R1.8 billion would be paid as part of a commitment made during business rescue. In August 2020 R10.5 billion was paid as part of the implementation of business rescue. These payments amounted to R49.71 billion. This breakdown was available public information that had been presented before SCOPA and other committees.

Questions
Ms Mente asked if the development of the oversight model by the Presidential State-Owned Entities Council would be done soon as the Committee was now going to be a party to funding SAA without the means to monitor the funding. She asked what role the Committee could play to ensure there was no fruitless expenditure.

Ms Mente asked in which areas the strategic partner would bring aviation expertise and was the partner going to deal with industrialisation and the hiring of personnel. This needed to benefit the country and the partner should be strategic in a manner that benefits South Africa.

On the R49.71 billion she said a breakdown was not what she wanted but rather to say there was a failure to monitor funds spent on SAA as no oversight measures were in place.

The Coleman Andrews saga was relevant as they were selling 51% of SAA. The sale of SAA shares was a replacement for corruption as oversight measures could not be implemented.

Monitoring the R49.71 billion should have occurred in areas where oversight was lacking so the challenges could be resolved. The breakdown from 2007 to date was not useful. It meant SAA was operational at some point and when it fell short of its mandate, what were the monitoring measures put in place by government? Funds had already been given for SAA operations and what were the measures put in place to ensure there was no corruption? One wanted to avoid future ministers having to say the SAA sale was a mistake and it was unable to purchase the stake back as it would be too expensive. She asked who determined the price of SAA and if the financial statements were available.

Public Enterprises Minister response
Minister Gordhan said the last question was answered and was unsure if what was asked fell within the ambit of SCOPA. On the work of the Presidential State-Owned Entities Council, government would decide within the year when legislation that reflected the President’s SONA announcement would be brought to Parliament.

The reference to fruitless expenditure was unclear and there was a serious proposition about ensuring in a post-State Capture environment that SOEs were managed as they were the site of major financial extraction that occurred. The question of oversight was certainly valid but in a state capture environment, these measures do not work or are hidden until an interrogation such as the Commission was done and revealed what went on in that particular period.

Industrialisation would be the outcome if SAA and the aviation industry were successful. SAA stabilising and expanding operations would react to industries in the East Rand close to the airport, Municipalities had been discussing acropolises and industrial sectors being further developed. Much of this was corrupted during State Capture.

There was a relationship between the growth of SAA and the aviation industry which included the industrialisation outcomes and the skill training of people required to run successful airlines in South Africa. Oversight did not entail involvement in the nitty-gritty of the business and required operational expertise on the particular enterprise. There were systems in place in various parts of government but much more development was needed in this regard.

Questions and Answers from both Ministers
The Chairperson replied about what fell "within the ambit of SCOPA". The interactions with SAA needed to reach a logical conclusion. The interactions between the Committee and SAA were long and documented. This was a major development for SAA and it would not be prudent of the Committee not to want to be kept abreast with SAA issues so they could be correctly concluded. SAA proceeding to other spaces in Parliament was fine.

The cancer of State Capture was difficult for the country due to the impact. The parliamentary process on the State Capture Commission reports would unfold and the Committee would be given its role in dealing with this. The President was due to submit an implementation plan and a determination would be made by Parliament.

Ms Mente added the Committee was there to serve the country and condescension from ministers was not needed. SCOPA was there to police anything funded by the public purse.

Minister Gordhan thanked the Chairperson for clarifying the scope of the interactions with SAA as it was useful to understand where Parliament fit in the State Capture phenomenon. He addressed Ms Mente and said nothing he has done was condescending and he took exception to that. They would ensure that the parliamentary accountability process would be taken care of in their responses.

Mr A Lees (DA) said the Democratic Alliance had called for SAA to be in business rescue in 2014 but was ridiculed by ministers. Much of the R49.71 billion could have been spared had they listened. Government was not trying to deal with the business rescue process in his opinion as the Minister had written in his 4 May letter that it was the banks who refused to provide SAA funding unless it was put in business rescue. The Minister confirmed in the presentation that the banks insisted a certain person be appointed as the business rescue practitioner. The banks persuaded government to authorise the SAA board to put SAA in business rescue; these banks had guarantees and stood to lose no money. Under business rescue, a compromise payment of R32 billion was given to other creditors who had unreasonably given credit to a bankrupt SAA. He asked which banks had prompted the business rescue process.

Minister Gordhan replied that the banks were the four major banks – First Rand, Standard Bank, Nedbank and Absa. He noted the final interaction was not with DPE but between the SAA board and the financial institutions.

Mr Lees disagreed with Minister Gordhan's statement that the transaction was transparent. His opinion was that it was not transparent as responses had not been given to some questions.

The Chairperson asked that there be no engagement in dialogue outside the ambit of questions.

Minister Gordhan said the transaction was commercial and within a commercial context some information could only be made available once the transaction was concluded. SAA’s competitive edge could not be compromised through this.

Mr Lees asked what the average losses were at 31 March 2022 whilst SAA had been operating over the last six months.

Minister Gordhan replied that this question would cause difficulty as information of a competitive nature could not be made available. He asked the Committee to ask questions within the outlined parameters. Loss and profit would be made available in the financial statements.

The Chairperson said the transaction was still a work in progress and the Minister would not respond to market-sensitive matters.

Mr Lees disagreed with the Minister’s statement on commercial sensitivity. South Africans in effect were shareholders and it was concerning that the Minister declined to respond.

Mr Lees said the Minister of Finance understood this was a committee of Parliament and there was no way he could table a report and then withdraw it. He asked why the Minister of Finance withdrew the report.

Minister of Finance Godongwana replied that he did not withdraw the report as it was not a report but an internal Treasury document which discussed questions that had been posed to the Minister by Parliament. The document contained no sensitive information.

Mr Lees said the document stated: Treasury presentation to SCOPA presented by the Minister of Finance. It was now in the public domain but it concerned him as it seemed the Minister was throwing the Treasury Director-General under the bus. The presentation made clear Treasury had no involvement in the substantive matter of the agreement until after it was signed.

Mr Lees said that Minister Gordhan had replied that Takatso did not have 51% of SAA yet as there were still outstanding regulatory issues. Mr Lees stated that these would be resolved and effectively the agreement had been signed and it could only be changed if both parties were in agreement. There was a long list of concerns Treasury had with the agreement. Of great concern were the guarantees. The DPE presentation stated the guarantees had been cleared but the Treasury document indicated the agreement required R16.4 billion guarantees to remain in place. He asked who was right in this case.

Mr Hadebe raised a point of clarity. The Committee had received the Treasury document and it respected Treasury’s decision to withdraw it. It would be unfair to engage with the document. He asked the Chairperson to rule on this.

The Chairperson stated he understood the document to be withdrawn and that was the reason for his announcement at the start of the meeting. The Minister of Finance withdrew the document and the issue ended there. The Finance Minister had been asked to comment after the DPE presentation. As it stood Treasury could not be bound by a recalled document.

Finance Minister Godongwana said a distinction needed to be drawn. Director-General Mogajane sent a letter to Parliament and the substance of the letter was that Treasury did not participate in the transaction. This was confirmed by the DPE presentation as the operational responsibility was DPE’s. He was not throwing Mr Mogajane under the bus. The process run by DPE was correct.

On the guarantees, it was Treasury’s job to minimise exposure. Some guarantees existed which included the R16 billion. This was part of the R49.7 billion expenditure on SAA. In the negotiations on the agreement, they had ensured moving forward, when guarantees were reduced, there would be no further exposure.

Minister Gordhan said they all had a responsibility to reduce guarantees and contingent liabilities for the state. The original guarantee was about R19 billion and was reduced and is currently under R3 billion. As the Treasury Director-General pointed out there were still outstanding payments and once concluded these guarantees would disappear over time.

In the agreement, there could be conditions precedent which were the outstanding issues that required clarification about whether government fulfilled all its obligations in terms of the historical costs related to the transaction and as those assurances were provided these conditions precedent necessity for guarantees fall away. The transaction was still in progress greater clarity was being reached each day. The transactions would minimise the demand for guarantees and contingent liabilities on the fiscus.

Mr Lees agreed that the guarantees needed to be reduced. The question to the Minister of Public Enterprise was if it was a condition of sale that the remaining government guarantees would remain in place.

Minister Gordhan replied that when questions on historical costs have cleared, the need for guarantees would fall away and the outstanding amounts to banks would be the biggest concern. Many matters had been dealt with including an R980 million payment to pilots. Some creditors needed to be paid R750 million in August 2022 and R760 million in August 2023. There was no R16 billion guarantee and this was a dynamic process between government and the SEP. Concerns would be addressed as they arise.

Mr Lees said his question was not answered and he presumed the agreement of sale did not include a condition that the remaining guarantees would remain in full force. Takatso would be purchasing SAA without government guarantees. He asked if the creation of preferential shares was included in the signed agreement before the 51% was transferred.

Minister Gordhan replied that these matters were being addressed by lawyers and it was referring to the direction taken to create preferential shares as a mechanism that benefits government in the long term once SAA was profitable. The creation of preferential shares was a legal process that he could not comment on without approval from the legal team.

Mr Lees said it should be part of the signed agreement. He understood the motivations for preferential access to profits and hoped there were profits. It was easy for majority shareholders to manage a business in a way that minimised profits. It was a concern that the preferential share would not result in something material. Takatso would get 51% of a liability free SAA with significant assets and there was no real financial benefit for government aside from no longer having to bail out SAA.

He was concerned there was no access to the terms of the agreement and that taxpayers would not be spared from future financial commitments. The terms of the agreement needed to be disclosed sooner rather than later.

Minister Gordhan asked for clear questions so he knew to what he was responding. He was glad they agreed on the preferential shares. It was true a business could be managed in a way that reduced or extended profits but government would not be a passive shareholder and hopefully, future administrations would exercise government’s rights to ensure the public sector was not disadvantaged. The aim of a commercial entity was to make a profit and benefit shareholders. Concerns would be raised if this was not the case. It was on this basis SAA would work.

Mr Lees asked that the due diligence report prepared by Norton Rose Fulbright be made available.

Minister Gordhan noted that he would need confirmation from the lawyers if the due diligence report could be made available.

Mr Lees said SAA currently was a creation of an Act of Parliament. He asked if the Act would be amended to accommodate the change of ownership.

Minister Gordhan replied that the lawyers were working on the matter and government would work out an efficient way Parliament would deal with this. It was clear after the transaction SAA would not exist as how it was envisioned in the current Act and this needed to be changed.

Mr Lees asked if the disposal of shares did not require the Act to be amended or rescinded. Parliament could refuse to amend the Act to make this deal possible. This was not a legal technicality but a substantive issue for this transaction.

Minister Gordhan replied that the Act would be repealed but the transaction had to be concluded first. There was a question on the relationship between the Companies Act and SAA Act on what informed what process. However, the ultimate exercise of repealing the Act would be Parliament’s responsibility.

Mr Lees was disappointed in the need for the full disclosure of the agreement. He made comments on the departure of Treasury Director General Mogajane from state employ.

Mr S Somyo (ANC) noted the DPE presentation stated that the SAA sale did not involve the SOE itself and therefore extensive involvement from Treasury was not required. There was an acknowledgement of areas where Treasury was consulted but it was the responsibility of DPE. His question was answered when Ms Mente asked about the actual costs that determined the percentage split of SAA. The answer was filtered into the fact that the deal was not finalised and therefore the operations were not controlled by the strategic partner yet. He asked for the timelines for actual finalisation of the deal for determining stability and the exposure of taxpayers.

Minister Gordhan replied that the timeline would be soon but some things slowed down the process. He would have preferred the regulatory process to start earlier in the year but Parliament would be kept abreast of progress. He intends to conclude the regulatory process and finalisation of the transaction in two to three months but this depended on the discretion of the lawyers.

Mr Somyo said there was a limitation due to the question of when the process would be finalised and Parliament’s involvement in these details. In the briefings, negativity about the actual process was not needed but rather support for government’s success in reducing its exposure to unnecessary expenditure. The quicker these processes, the more assurance of no further government commitments for SAA operations.

The Minister of Public Enterprises agreed with this sentiment.

The Chairperson apologised for the time constraints. There would be the navigation of budget votes over the next few weeks and there would be a house sitting on 25 May for Africa Day.

The Chairperson asked if DPE would be taking care of SAA's historical liabilities and if so how would this would be done.

Minister Gordhan said through the business rescue process a section of the creditors were paid. The outstanding creditors were part of the R10.5 billion paid in August 2020 as part of the implementation of business rescue. The rest would be paid in August 2022 and August 2023. In respect of staff, the voluntary service packages through the business rescue and negotiations between DPE and labour unions were agreed to and paid as part of the R10.5 billion. A portion of unflown ticket liability had been paid and the outstanding payment would be dealt with through vouchers. Both AirChefs and SAA Technical had been restructured and would be returned to profitability in this current financial year. This was possible due to restructuring aggressively with staffing and cutting cost structures. Business rescue allowed for a process that provided a financial buffer for staff that had to leave the employ of SAA.

Closing remarks
The Chairperson said these were matters the Committee would want to probe further. He asked to bring the meeting to a close on the basis that the transaction was still in progress. There were still outstanding SAA audits which were the Committee's purview and these audits could provide answers to the questions it had.

He reiterated that the developments at SAA had compelled the Committee to monitor SAA. The first interaction the Committee had with SAA was and still was due to outstanding financial statements because a logical conclusion needed to be reached and the submission of financial statements and annual reports to Parliament was legally mandated.

The Chairperson stated that SAA would be firmly on SCOPA’s radar as it conducted post-mortems on the financial management of public accounts. SAA’s outstanding audited financial statements would still be interrogated by the Committee.

The Chairperson thanked the Committee and said this could be used as a case study on how to improve parliamentary oversight, particularly on SOEs. There would be ongoing SAA interactions.

A letter from the UDM was received by the Speaker that related to SAA matters and it would be sent to the Committee. He thanked both the Minister of Finance and Minister of Public Enterprises.

The Chairperson thanked the Treasury Director General for his service to the country and wished him well in his future endeavours.

Mr Hadebe thanked the Minister of Public Enterprises for engaging with the Committee.

Minister Gordhan, in his closing remarks, said that the transaction had no precedent and was still in progress. To Mr Lees, the key to robust debates was respect. The Chairperson’s point on oversight was important and there were lessons to be learned. Oversight needed to be continually reformed as to the depth of knowledge and information required.

The Chairperson said they agreed about State Capture and the burden of responsibility was what they were going to do about it.

The meeting was adjourned.