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Hof Communications

Cape Town

25 March 2017 This editorial is the opinion of the editors of ParlyReport

Now you see it, now you don’t

t has now become almost impossible to avoid the use of the time-honoured expression “politics aside” when following legislative developments in Parliament. The body politic affects most

things all the time - from drafting a Bill to a government media briefing, from debating a departmental investigation to public hearings on new legislation. It all involves the ideology of who is in charge. In fact, the Oxford Dictionary describes “politics’ as follows: the activities associated with the governance of a country or area, especially the debate between parties having power. From this one can see how politics will always continue to dominate government policy, legislation, and the parliamentary process, since in the end all permeates down from Cabinet decisions. That’s the way it works. Until of course the moment occurs that corruption, cronyism and state capture dictate the parliamentary process itself. Then the fine line between policy and politics gets blurred. Shady motives such as personal gain or protection from the law become evident. What started out as well-meaning policy can get warped by politics and the passage of legislation becomes erratic, if not unconstitutional.

No change When this aberration of the democratic process occurs on a regular basis, the expression “politics aside” seems to come back into usage. This time for a different reason. Understandably, one cannot go through the whole laborious process in every debate and with every turn of inexplicable behaviour explaining the manipulation of facts or non-disclosure of relevant information; the influence that certain business persons have upon policy decisions; or the behaviour of state department heads who seems oblivious of their duties. Therefore politically-correct shortcuts become necessary in order that one’s own opinion is not involved. It’s sort of coded language that straight up and down people use as a replacement for the real thing. So, politics aside, President Zuma is still holding up the Financial Intelligence Centre Bill to combat money laundering. Politics aside, Minister of Mining, Mosebenzi Zwane, is still attempting to get fifty-six changes adopted under the already approved Mineral and Petroleum Resources Amendment Bill and, politics aside, the Expropriation Bill is back with Parliament once again.

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The good news Far more interesting is that, politics aside, the separation of powers is still working to a greater or lesser degree; the legislative process is still being respected by most and irritating some; and the Constitutional Court is still out there as our standard bearer, minus a number of computers. And, politics aside, we could be doing so much better.

Headlines:

Editorial: Now you see it. Now you don’t.

DTI carries on despite the noise

Home Affairs gets its way on border controls

Debt forgiveness evolves into new legislation

A more definitive story of the PetroSA R14.4bn loss emerges

Minister Brown gives overview on Eskom, Transnet, SAA & Denel

Treasury gives update on proposed 2017/8 taxation

Minister Davies says DTI is “clean” on corruption

inister of Trade and Industry, Rob Davies, told parliamentarians that access to the

Department of Trade and Industry’s (DTI) Black Industrialist Support

Programme only targeted “significant, involved and real operators in

whatever industry or sector they come from.”

He said that DTI had “very tight rules to gain entry and applicants had to be

personally involved in the business and they had to be prepared to take risk

with their own money.”

He was addressing the Portfolio Committee and Trade and Industry with senior DTI management

during which he responded to questions from MPs on DTI’s interpretation of “radical economic

transformation”, the term used by President Zuma in his SONA speech.

At the same time, he gave assurances to ANC MPs that no “fronting” existed in any DTI incentive or

support programmes and that DTI would reject this, if discovered.

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Radical transformation It had been pointed out to by Dean Macpherson (DA) that the South African

Communist Party (SACP) had made a statement to the effect that “radical

economic transformation was advantageous to a narrow group of black elite or

chosen few”.

He asked if he as Minister, or the DTI, was at variance with the President’s call in

his SONA speech. Dean Macpherson said all were aware that Minister Davies was a senior executive

of the SACP.

Minister Davies angrily responded to the suggestion that he and the Cabinet were at odds and which

suggestion he called “lame politicking”. In any case, he said, “the SACP has not rejected the

definition outright made by President Zuma”. He added, “I urge you all to be aware that there is a

deep seated fundamental change called for in South Africa as far as the patterns of ownership,

management and control are concerned.”

Business as usual The Minister said that currently twenty-seven black industrialists were being supported to the value

of R555m which had resulted in R2.5bn investment which projected to 5,235 direct jobs and 1,228

indirect jobs.

He named specifically K9 Pet foods in the agro-processing sector who were co-

funded by Woolworths and IDC supplying Woolworths branches nationally and

Microfinish automotive parts in Durban, co-funded by the Kwa-Zulu Natal Fund

and which exported to Europe and the Middle East.

He also quoted various job creation numbers for re-started industrial parks at a

cost of R166m, which had provided facilities and start-up for thirty-seven

SMMEs which in turn gave support to the surrounding communities; the establishment of SEZs

where at least R70bn was being invested with a target of 23,000 jobs; and the existing IDZs which

had so far accounted for 73,000 new jobs

Where DTI is working

Minister Davies covered in his briefing various aspects of developments in beneficiation and the

promotion of investment in instituting IPAP. He said that DTI and South Africa had experienced

success in the film, aerospace, railway equipment, pharmaceutical, agro processing and renewable

energy fields and now was prioritising development in the clothing and textile, mineral beneficiation

and automotive component sectors.

Minister Davies spent some time describing the “looming challenge of the fourth industrial

revolution” which was bound to change scenarios. “Most jobs

that exist now will not exist in the next decade”, he said “and

new jobs will require different skills and greater knowledge

abilities.”

He quoted a figure of 7 million job losses over the coming

years with disruptive change caused by robotics, 3-D printing

and artificial intelligence. All this would be in an atmosphere of a populist backlash, he concluded.

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Trade into Africa The Minister said a focus was now returning to SADC issues to promote more intra-Africa trade and

the industrialization of large regional markets and trade in terms of the Tripartite Free Trade

Agreement (TFTA). Agreements with the East African bloc and Egypt were due to be concluded

before the end of 2017, these countries being two of the 26 countries that had signed into the TFTA

in 2015 to co-operate with intra-Africa trade.

He said that these 26 countries represented a population group of 625m people with a combined

GDP of US$1.6trillion, all of which represented a building block for an envisaged continental FTA.

On the current TFTA, the Minister told parliamentarians that the East

Africa bloc were due to return with their responses shortly and

negotiations with Egypt were well advanced.

Once the “legal scrubbing” of TFT agreements were finalised, he said, the

arrangements would then be put to Parliament and the “not so

important task” of tariff schedules would commence. He concluded with remarks on the importance

of the Africa market with value-added exports and that in 2015, 26% of SA exports were to African

countries.

Brexit backburner Minister Rob Davies also commented on Brexit issues and that fact that he had been in discussions

with Dr Liam Fox, the UK’s Minister for International Trade, and talks had

centred around avoiding any disruption for SA-UK trade arrangements

whilst EU trade terms were re-negotiated. Nothing could be spoken about

in any case, he said, “until the UK has triggered the clause to leave the EU.”

Davies said the UK was SA’s eighth largest trading partner and exports for the period January -

November 2016 were worth R42.8bn and imports valued at R29.6bn. Top SA exports were platinum

products (40%), motor vehicles (12%), machinery (4%), grapes, citrus, apples and apricots (12.2%)

and flat-rolled steel (1.2%). Imports were in main motor vehicles (15%), petroleum (11%), spirits

(7%), equipment components (4.5%), medications (4%), books (2%) and bulldozers (1.7%).

AGOA always there On the USA, Minister Davies specifically mentioned the poultry issue, which quota was linked to

AGOA which gave the US agreed access to SA markets by law, not just by a

signed trade agreement. He said that poultry matters were subject of special

reports to Parliament and not part of DTI’s response to the SONA but he

reminded MPs that AGOA was an Act of the US Congress and it could not be

changed other than by another amending law.

It could not therefore be changed just because of a change in US trade policy, any variance in poultry

matters locally or labour issues or supply and demand. Industries had to adapt to global conditions

as they occurred.

AGOA deferred He said that he had met Robert Lighthizer, United States Trade

Representative appointee for the Trump administration, but the issue of

any continuity with AGOA had not arisen. Davies said he was aware that

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many of President Trump’s advisors were critical of past US trade policy but he was sure that AGOA

was not going to be a topic for quite some time.

For the moment, he said, there was no clear US agenda on any trade issues and when this was

annunciated, NAFTA, Mexico and EU matters would, he was sure, come first.

No divide and rule In question time, also, and under intense pressure once again from Opposition members, the

Minister reaffirmed he could, as a committed member of the SACP, work with President Jacob

Zuma’s definition of “radical economic transformation” and that opposition members were “working

with shadows”.

In answer to a request from an ANC MP requesting assurance that there was no

“fronting” with applications for incentives or finance under the Black industrial support

programme, Minister Davies firmly stated that all members of DTI were “clean as far as

state capture was concerned” and particularly emphasised the loyalty and dedication of

his director general, Lionel October.

Procurement worries The Minister was asked by Geordan Hill-Lewis (DA) about the National Treasury’s new regulations

on preferential procurement which were “apparently only be available to companies who have 51%

black ownership.” In his view, he felt that such a requirement defeated the very purpose of B-BBEE

legislation.

Minister Davies called on DTI DG Lionel October, Director-General, to respond to the revised

preferential procurement regulations, who said that DTI had looked at the B-BBEE Act (i.e. clause 4

(4) of the Regulations) because of an outcry amongst several companies. Most of these unfavourable

reactions were due to misunderstandings, he said.

DG October said that at present, in terms of the amended B-BBEE Act for any trader, every organ of

state could apply “pre-qualification criteria”. He explained that what MP Hill-

Lewis was referring to was sub-clause (c) which rather spoke about small

businesses being 51% black owned, which was a separate issue.

Minister Davies then added that “small businesses as defined would not be big

procurers and the requirement was that these small businesses should be black

owned”. The “scorecard” and the main B-BBEE process remained for larger

companies and corporates and, of course, parastatals, he added.

Out on a limb He said that in the case of state utilities, DTI had a major problem since they could not regulate for

nor monitor such bodies as Eskom, Transnet and SAA. This had to be resolved, he said, at Cabinet

level. He said they appeared to be a law unto themselves.

Expanding on another question regarding “fronting”, the Minister

added that the DTI received many applications for assistance but not

all were approved. He conceded that people did approach him

occasionally and all he would say to them was to tell them to apply to

DTI like anyone else. He could only speak for DTI, he said.

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Previous articles on category subject

BEE: Davies drives on with Black Industrialist Policy - ParlyReportSA

NRCS hammered over port delays - ParlyReportSA

SA’s economic woes not BEE, says DTI - ParlyReportSA

Border Agency Bill adopted but no real clarity on customs

n adopting the Border Management Authority (BMA) Bill, Parliament’s Portfolio Committee on

Home Affairs agreed with a wording that at all future one-stop border posts, managed and

administered by the envisaged agency and reporting to Department of Home Affairs (DHA), were to

“facilitate” the collection of customs revenue and fines by SARS staff present.

However, on voting, Opposition members would not join in on the adoption of the Bill until the word

“facilitate” was more clearly defined and the matter resolved.

Haniff Hoosen, the DA’s Shadow Minister of Economic Development said that

whilst they supported the Bill in general and its intentions, they also supported

the view of National Treasury that the SARS value chain could not be put at risk

until Treasury was satisfied on all points regarding their ability to collect duty on

goods and how.

Keeping track Most customs duty on goods arriving at border controls had already been paid in advance,

parliamentarians were told; only 10% being physically collected at SA borders when goods were

cleared.

However, with revenue targets very tight under current circumstances both SARS and Treasury have

been adamant that it must be a SARS employee who collects any funds at border controls and the

same to ensure that advance funds have indeed been paid into the SARS system.

The Bill, which enables the formation of the border authority itself, originally stated that it allowed

for the “transfer, assignment and designation of law enforcement functions on the country’s borders

and at points of entry to this agency.”

Long road It was the broad nature of transferring the responsibility customs of collection

from SARS to the agency that caused Treasury to block any further progress of the

Bill through Parliament, much to the irritation of Home Affairs Minister, Malusi

Gigaba. It has been two years since the Bill was first published for comment.

DHA have maintained throughout that their objective is to gain tighter control on

immigration and improve trading and movement of goods internationally but Treasury has

constantly insisted that customs monies and payments fall under their aegis. The relationships

between custom duty paid on goods before arrival at a border to Reserve Bank and that which must

be paid in passage, or from a bonded warehouse was not a typical DHA task, they said.

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Breakthrough It was eventually agreed by DHA that SARS officials must be taken aboard into the proposed

structure and any duties or fines would go direct to SARS and not via the new agency to be created

or DHA.

This was considered a major concession on the part of DHA in the light of their 5-year plan to create

“one stop” border posts with common warehouses shared by any two countries at control points

and run by one single agency. More efficient immigration

and better policing at borders with improving passage of

goods was their stated aim.

Already one pilot “one stop border post”, or OSBP, has

been established by DHA at the main Mozambique border

post by mixing SAPS, DHA and SARS functions, as previously

reported.

To enable the current Bill, an MOU has been established with SAPS has allowed for the agency to run

policing of SA borders in the future but Treasury subsequently baulked at the idea of a similar MOU

with SARS regarding collection of customs dues and the ability to levy fines.

Bill adopted At the most recent meeting, Chairperson of the PC Committee on Home Affairs, Lemias Mashile

(ANC) noted that in adopting the Bill by majority vote and not by total consensus, this meant the

issue could

be raised again in the National Council of Provinces when the Bill went for consensus by the NCOP.

Objectives The Agency’s objectives stated in the Bill include the management of the

movement of people crossing South African borders and putting in place “an

enabling environment to boost legitimate trade.”

The Agency would also be empowered to co-ordinate activities with other relevant state bodies and

will also set up an inter-ministerial committee to handle departmental cross-cutting issues, a border

technical committee and an advisory committee, it was said.

Mozambique border As far as the OSBP established at the Mozambique border was concerned, an original document of

intention was signed in September 2007 by both countries. Consensus

on all issues was reached between the two covering all the departments

affected by cross-border matters.

Parliament was told at the time that the benefit of an OSBP was that

goods would be inspected and cleared by the authorities of both

countries with only one stop, which would encourage trade. In any country, he explained, there had

to be two warehouses established, both bonded and state warehouses.

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Bonded and State warehouses Bonded warehouses, he said at the time, which were privately managed and licensed subject to

certain conditions, were to allow imported goods to be stored temporarily to defer the payment of

customs duties.

Duties and taxes were suspended for an approved period –

generally two years but these had to be paid before the goods

entered the market or were exported, MPs were told. The

licensee bore full responsibility for the duty and taxes payable on

the goods, which could be removed only after all the customs

requirements had been met.

State warehouses on the other hand, SARS said at the time, were managed by SARS for the

safekeeping of uncleared, seized or abandoned goods. They provided a secure environment for the

storage of goods in which the State had an interest. Counterfeit and dangerous or hazardous goods

were moved to specialised warehouses.

Slow process

MPs noted that it had taken over six years for the Mozambique OSBP to be finalised. SARS said

there were many ramifications at international law but added two discussions

with Zimbabwe for the same idea had now taken place. It was hoped it would

take less time to reach an agreement as lessons had been learnt with the

Mozambican experience.

On evasion of and tax, SARS said in answer to a question that losses obviously occurred through

customs avoidance and evasion, so it was consequently it was difficult to provide an overall figure on

customs duty not being paid, as evasion was evasion. Smuggling of goods such

as narcotics, or copper, which could only be quantified based on what had been

seized. The same applied to the Beit Bridge border with Zimbabwe where

cigarette smuggling was of serious concern and through Botswana.

In general, it now seems that Home Affairs is to adopt an overall principle of what was referred to as

having one set of common warehouses for one-stop declaration, search, VAT payment and vehicle

movement with a SARS presence involving one common process for both countries. The

presentation of how this would work was shown in a combination of boxes and arrows only.

Where we are now

MPs noted that it now seems that the new BMA Bill is building on earlier experience but said that

the whole process seemed to be taking an inordinately long period, put down by Home Affairs to the

fact that so many departments in the two or three countries involved must be consulted and

consensus obtained.

The Bill now goes to the NCOP.

Previous articles on category subject Border Authority to get grip on immigration - ParlyReportSA

Mozambique One Stop Border Post almost there - ParlyReportSA

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Long road started for Credit Act debt relief processes

n line with her social beliefs, ANC MP and chairperson of Parliament’s portfolio committee,

Joanmariae Fubbs, has received approval from the National Assembly to

proceed with the preparation of a Bill amending the National Credit Act. This is to

introduce debt relief measures with the purpose of alleviating growing national

household over-indebtedness.

In her presentation to Portfolio Committee on Trade and Industry, Fubbs said that the Committee

would first be tasked by undertaking a socio-economic impact assessment to determine the most

effective interventions and at the same time to undertake a cost and benefit analysis. Financial

implications for the State would be thoroughly investigated, it was said, prior to considering any

draft amendment per drafting rules.

Tightening up the rules The proposed Bill will aim to make the National Credit Act simpler to enforce

with a more rigorous approach, Fubbs said, and hopefully lead to more effective

criminalisation of those who contravene the Act. Such would provide a more

powerful mandate for the National Credit Regulator.

The proposals will also allow for a State “debt counselling framework” for low-income workers and a

better capped debt relief system, says Fubbs in the presentation, to bring further influence on over-

borrowing and over-spending.

Fubbs put it to the Committee that the amendments will also attempt to provide legal certainty on

the in duplum rule, the common-law rule that provides that interest on a debt will cease to run

where the total amount of arrear interest has accrued to an amount equal to the outstanding

principal debt.

The statutory version of the common-law precedent adds costs and charges into the total amount of

arrear interest, capped by the principal debt.

The nub of the issue The Bill, says Fubbs, “seeks to address the problems and the ‘mischief’

surrounding indebtedness of low income workers and the very poor in the

light of the fact that the problem of debt has been exacerbated in South

Africa by slow economic growth and retrenchments.”

She pointed to the study undertaken by the National Credit Regulator which also indicated a need to

amend the National Credit Act as now proposed.

Capping charges DTI's 2006 National Credit Act which became law later in 2007, was aimed at addressing reckless

lending, protecting consumers and promoting responsible credit granting. Experts point to the fact

that the Act does not speak to the issue of credit life insurance, which is a charge levied to cover the

cost of life cover insisted upon by lenders and which is excluded specifically from the in duplum rule.

As well as the cost of the credit life insurance, the current Act, it would

appear, completely misfires on the costs of the initiation of the loan and

setting-up administration fees. It is reported, said Fubbs, that some

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lenders even offer interest free loans as an incentive in the light that they make considerably more

profit from credit life insurance and other charges.

In other words, the cost of the loan is not being disclosed initially to the consumer. Debt with no

solution follows in many cases for those with no assets or income. It is this undeclared cost that has

alerted DTI.

Worrying facts As far back as 2012, the NCR reported that the value of credit granted to consumers in South Africa

had increased by 9.31% to R10.2bn. At the time, the value of the outstanding gross debtors book

increased by 3.76% to an extraordinary R52.30bn.

The numbers continue to show that this is not being achieved by DTI Minister Rob Davies, who

supports the new draft Bill and he has requested that DTI to publish a National Credit Act Policy

Review Framework for public comment. This will add value to the socio-economic assessment

needed, he said at the time.

Who is to be eligible? Chairperson Joanmariae Fubbs now proposes that persons classified as NINA (no income no assets)

plus a tier of householders slightly above this, retrenched

persons and those suffering from “unforeseen

circumstances” will be eligible for “debt holiday periods”,

reducing debt incentives to recover from debt and

cancellation of debt under circumstances defined.

The NINA remedy on debt, started in New Zealand and used in many countries, is to allow a debtor

not having any income or assets to obtain an interim court order allowing for a “debt holiday” for a

three-year period, free of any requirement to make re-payment on any debts. If after the three years

that person still has no income or assets the debt is revoked.

What kind of lending? Whether much of the proposed changes will be handled by regulation or in the body

of legislation, says Fubbs, is still to be decided as well as the kind of debt that will be

eligible. Much debate will surround this issue no doubt but the main targets will be

reckless lending and itemised cases of non-reckless spending.

When? Fubbs, in her usual orderly manner, gave parliamentarians her hoped-for timelines. For committee

debate leading to a proposal; input of all reports from committees; joint tagging; parliamentary

deliberations; legislative drafting; public involvement; consultation with DTI on final draft and House

voting procedures, she estimated at the best it could be some 18 months to enactment.

Previous articles on category subject

Credit regulations to squeeze racketeers - ParlyReportSA

National Credit Amendment Bill changes - ParlyReportSA

National Credit Act Bill aims to help consumers - ParlyReport

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Parliament rejects PetroSA strategic plan

arliament’s Portfolio Committee on Energy chairperson, Fikile Majola, told the board of PetroSA

and its new acting CEO, Kholly Zono and with Minister of Energy Tina

Joemat-Pettersson present, that their proposed strategic plan for the company

was little more than a “wish list” and was totally unacceptable for parliamentary

oversight in its current form.

PetroSA is a subsidiary of the Central Energy Fund and in the same stable as the Strategic Oil Fund

which holds feedstock reserves at Saldanha Bay, which reserves appear to have been sold without

Treasury approval to Dutch oil giant, Vitol.

The PetroSA board had been called to Parliament to explain the 2014 R14.4bn impairment in the

PetroSA books now carried over with interest charges of R1.4bn being relevant to the 2016/7 year

under review. They were also asked to produce their future plan for the national oil company.

Think again Majola told Interim Chairperson, Bekhabantu Ngubane, board member Owen

Tobias, acting CFO PetroSA Webster Fanadzo’ together with CEO Zono that they

should all return to Parliament again, this time with CEF management and

preferably with the CEO of the Strategic Fuel Fund, to present a properly

backed up strategy which gave future operational focus, investment direction

to be taken, intended strategic partnerships and approved channels of future

funding.

The strategic plan which was presented was accompanied by a few slides, included such subjects as

converting existing gas to liquid refinery processes to obtain more feedstock; establishing a trading

and marketing unit; exiting non-core businesses and the acquisition of downstream fuel and oil

product outlets.

Shadow Minister of Energy, Gordon McKay, stated that the plan given was an insult to the

Committee and represented everything that was currently wrong with PetroSA.

Ikwhezi and R14.4bn The meeting, called to debate disastrous east coast drilling exercises to supply

Mossgas with offshore gas resources and known as Project Ikwhezi, was

investigated and the forensic report conducted led to the suspensions of the

company’s then CE Nosizwe Nokwe-Macamo and its then CFO Lindiwe

Mthimunye-Bakoro.

The report as presented to the Committee again turned out to be an updated version of previous

“sanitized” reports and was still not the original as seen by the Minster of Energy after original

investigations into the impairment. Chair Fikile Majola said he had a copy and would let DA’s Gordon

Mackay see it. It still has not entered the public domain.

PetroSA was allowed by Chair Majola to present the latest “sanitized” impairment report for the

record but MPs questioned the fact that the facts presented turned up little that was new to them

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other than PetroSA was, for the current year 2016/7, to carry forward some R1.4bn in its books as

interest on the original impairment.

The committee said that the issue of the R14.4bn impairment had been in the PetroSA books for

three years now and that matter had to be resolved and that further interest charges had to be

resolved. This was “just to avoid being called, at the best, dysfunctional”, said one MP.

Running out of gas What was different with this version of the impairment investigation, however, was that it was

originally disclosed by Siswe Ntsaluba Gobodo (SNG), who were appointed at the time to conduct an

independent investigation to establish the extent to which executives had failed to discharge their

duties, that the impairment was attributed to 80% being due to lower than expected gas reserves at

sea and 20% to weak oil prices at the time.

This confirmed to MPs at the meeting that the focus had to be upon on geological advice taken and

whether such advice was ignored, by whom and what skills such persons employed at PetroSA had

to interpret geological facts in a decision-making role.

Chairperson Ngubane confirmed to parliamentarians that other than delayed

deliveries of equipment which had contributed to cost overruns, the main

cost factor in the loss incurred was due to contracted PetroSA drilling rigs,

after “excellent initial drilling outcomes encountered tight gas” and which

resulted in less volumes extracted.

The report confirmed that the moment then came as to whether to proceed with horizontal drilling

along a geological fault line to locate further veins since much cheaper vertical drilling was producing

even worse results, the report.

Project Ikwhezi only ever produced 10% of its planned output, according to experts.

Poor management The report also indicated that poor management decisions were displayed at this stage and

operations contained no “trigger points” to reach consensus that drilling operations should cease.

SNG in their investigations concluded with recommendations regarding who was to blame but

Committee Chairperson, Fikile Majola, said he was “extremely concerned” as to how the PetroSA

board at the time had handled these recommendations. Nothing, he said, seemed to have been

implemented.

Gordon Mackay (DA) said those responsible should be identified, whether

employed now or whether they had been asked to resign, and criminal charges

laid. Owen Tobias and chairperson Ngubane both confirmed that it was far too

late to consider such retrospective actions and which in any case would be hotly

contested.

Tobias confirmed on behalf of the PetroSA board that the contracts of the previous Group CEO and

Group CFO had been terminated with settlement offers.

Adding insult MPs said they were “horrified” to see that in the light of these results some senior executives were

still being paid performance bonuses. It was explained to the Committee by board members that

they were not “performance bonuses” but bonuses previously written into their

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employment contracts which had nothing to do with financial results. They were therefore legally

entitled to receive the bonuses.

On this subject, Gordon Mackay complained that the SNG report had recommended that action be

taken against the Vice-President New Ventures Upstream over the Ikwhezi loss yet, as far as he was

aware, this person was still at PetroSA with the same title, doing the same job and probably, he said,

one of those who received a bonus.

Turnaround time Fikile Majola concluded that it was high time that the issue of the R14.4bn loss was “buried and got

over”. All focus had now to be on the future, he said, and added that it “was no good coming up

with a document like this”, pointing to the stratplan produced by PetroSA.

He asked how it was possible that issues such as the sale of SFF oil

reserves “slipped through their fingers” when planning future

scenarios on feedstock and there were no feasibility studies

included in their strategic plan, no specific projects identified in

detail but just areas of focus. One could see, he said, that people

had to be appointed that “had the right skills not only to run

PetroSA but plan its future.”

Chair Majola repeated that any such a plan had to have facts and numbers backed by financial

guarantees, not just ideas on paper. Mackay agreed and said this was necessary to avoid a repeat

of Project Irene fiasco when PetroSA attempted to acquire Engen downstream activities and it later

became evident there were insufficient funds to conclude the deal.

Exit Towards the end of the meeting, the Minister peremptorily got up and left the

meeting without acknowledging the chair. Chair Majola noticed this but

continued that he was insistent that Parliament finds out who was responsible

for the loss and whether PetroSA failed to follow the advice of a previously

employed chief geologist, Andrew Dippenaar.

He wanted to know whether PetroSA proceeded with drilling operations on wrong advice or

whether outside pressure from any other party had caused PetroSA to follow the road leading to a

loss now reaching nearly R16bn, with interest.

From what was presented by the board of PetroSA it was stated that every attempt was being made

to keep the Mossgas refinery going with a turnaround projected. The

2020 strategic objective, they said, is “to become a fully integrated,

commercially competitive national oil company, supplying at least 25%

of South Africa’s liquid fuel needs by 2020. We aim to achieve this by

sustaining the Mossel Bay GTL refinery as a profitable operation and use

it as a platform to sustain our company”

Portfolio Committee on Energy have asked PetroSA therefore to return with a plan on how they are

planning to achieve such a target rather than having a “vision” presented. “Everybody, including

employees, needs to know in detail what their plans are for the Mossgas refinery”, said Majola.

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Previous articles on category subject

Hide and seek over R14.5bn Ikhwezi loss - ParlyReportSA

CEF hurt by Mossel Bay losses - ParlyReportSA

PetroSA has high hopes with the Chinese - ParlyReportSA

Minister Lynne Brown worried on leadership issues

n a remarkably open discussion Public Enterprises Minister, Lynne Brown, confirmed to MPs of

the Portfolio Committee on Public Enterprises that since South

Africa’s domestic economy had grown at a far lower rate than

anticipated since 2007, consequently the financial sustainability of the

SOCs in the Public Enterprises portfolio had been considerably and

adversely affected.

However, they were continuing to meet their operating mandates, she

said, referring to Eskom, Transnet, SAA, Denel, SAFCOL, Alexkor and SA Express.

“Their performances are intimately linked to a context of low economic growth” and each of these

are faced with either challenges ranging from financial and operational sustainability to policy

decisions that have had an adverse impact on their viability, particularly with SA Express (SAX). With

the last-named we are doing something about the issue right now.”

She said the media had adequately covered the subject of the plan which

was now public knowledge but broadly speaking an agreement for a possible

three-year merger of the technical divisions of SAA, SAX and Mango had

already been signed.

She added that the consultancy advising DPE is the same US company working through a local

company that is dealing with the question of profitability and re-organization of SAA. As far as the

national airline was concerned, she said she was pleased to report that DPE was “close to fixing

things.”

Vacuum at the top Added to the problem of a non-buoyant economy, Minister Brown also remarked upon the serious

problem of the number of CEO vacancies that had arisen over recent months, particularly referring

to Denel, SAFCOL Alexkor and Eskom. Some of these vacancies are now being resolved, she said, but

operations had been badly affected by lack of direction at the helm.

During question time, DA’s Natasha Mazzone queried the vacancy for the CEO’s

position at Eskom which had been limited to only those who had managed a

group that generated the same revenues as a large SOC, thereby excluding most

experienced CEOs countrywide.

Mazzone argued that Eskom needed some “new blood” with extensive

operating experience and that the current system of selection “only led to CEOs

from the various SOC’s shuffling between the various utilities to replace controversial acting CEOs.”

Minister Brown agreed totally with the argument in broad principle and agreed with

parliamentarians on “a need for new people” but she felt the request put out for a new Eskom CEO

was broad enough and could achieve such a requirement, providing there was careful selection.

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Not going away

In general, the debate between Natasha Mazzone and Minister Brown was on a

cordial level, to the point when the former raised what she referred to “the

elephant in the room”, particularly referring to the State Capture Report.

The Minister was asked what action was being taken to hold those accused in the report to account

on violations of trust, collusion and corruption and she was asked for an “independent judgement of

the allegations contained in the state of capture report”, particularly relating to the operation of

SOEs under her control.

PMFA every time

Minister Brown said that it remained her view that any PFMA violations, particularly in the case of

Eskom, must be investigated and that there should be a commission of

enquiry, all matters raised in the state capture report that were relevant

brought to the table and discussed openly.

“This would be the only way to dispel rumours and get the bottom of any

trouble, she acknowledged, but she stated that it was the President’s prerogative to appoint such a

commission of enquiry. She said that she herself “had not followed up on any of the matters

contained in the state capture report since it was for the President to act on the report.” Both Brian

Molefe and Matshela Koko, the current acting CEO, are named in the Public Protector’s report.

Delay report delayed

On the Denton report into earlier matters regarding load shedding and delays in the construction at

Medupi and Kusile and load-shedding ramifications, the Minister said that had read the draft which

she was happy to provide to MPs on the Committee when she got it. At the moment, it is “settling

down with other people”, she said.

She added that the MD of Denton’s had told her that “this draft was

what had given rise to the final report” and which provided

recommendations. The Minister did not indicate whether any of the recommendations or which

ones were implemented.

The final report, she reconfirmed, she had not seen but said “In the meanwhile I recommend to you

the Deloittes report of 2008, as it deals with the financial implications of delays in the New Build

programme and the escalation of finances”. She assured MPs that all versions of the Denton report

would shortly become available.

Pros and cons She said Eskom faced uncertainty regarding the role of the company in the future build programme,

the negative impact of the IPP programme on its balance sheet, and its environmental compliance

costs.

On the positive side, Eskom had an average excess of 4000 Mega Watts of electricity and despite its

challenges, Eskom continued to maintain a positive financial performance with the company posting

a net profit of R4.6bn in the 2015/16 financial year.

R340bn would be required to meet environmental compliance

obligations, Minister Brown said, placing “significant pressure on

electricity prices”. She also noted that Eskom always suffered from

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regulatory uncertainty regarding NERSA Multi-Year Price Determination process, always posing a

challenge in estimating revenue and thus the ability to meet debt repayment obligations.

The Minister said what Eskom often had was a medium-term financing problem and the cost of

diesel always featured in this matter. She said she was pleased that despite all its troubles, the

Eskom staff had continued to maintain a profit, posting a net figure of R4.6bn for the 2015/16

financial year with a promise of a further net profit for the year ending March 2017.

As for Transnet Minister Brown said the Transnet contribution to the economy was to “improve strategic corridors

and to explore new revenue streams to improve its long-term sustainability.” Its biggest threat to

its finances at present was, in her view, the idea being mooted of “corporatizing” the Transnet

National Ports Authority which she said could totally jeopardise essential Transnet investment plans.

In general, Minister Brown said that “Transnet’s funding model need to be re-designed” and the

expansion of its rail network undertaken sooner rather than

later. The manufacture of locomotives and rolling stock for

African markets was becoming important to ensure

sustainability of the company. R200bn was still to spent on

infrastructure over the next five tears.

Breakfast at Tiffanys

DA’s Mazzone asked the Minister why, in such difficult times, State utilities were

“wasting millions of rands of what was essentially public money” by donating to Mr

Jimmy Manyi of the Progressive Professionals Forum towards Gupta-owned New Age

breakfasts and, more recently, on a breakfast for Free State Premier Ace Magashule.

Minister Brown said did not agree with such expenditure and commented, “I cannot

see why Eskom needs to advertise in this manner. It is not as if anybody doesn’t know who Eskom

is.”

She added that she could not place an outright ban advertising by SOUs but whilst she encouraged

support of schools, bursaries, skills training and similar projects which “were doing very well”, she

agreed with Natasha Mazzone that she could not see any value to both Transnet and Eskom in

sponsoring New Age breakfast events.

Flying too high Denel was doing fine and had just posted its best results, the Minister said.

Denel, she said, was structured to meet its financing requirements for its

market by relying on client advance payment on export orders and “paper

support” for the balance of a sale. This exposed Denel to working capital

and cash flow shortages and a long-term re-capitalisation was required if Denel was to enter this

lucrative market.

Silence We have not heard from Treasury despite my appeals, she said, “From media reports, I learn that

Treasury has said that it is uncomfortable with the deal Denel has made with Salim Essa’s VR Asia to

form Denel Asia to enter this market.”

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Lynne Brown described the move a “strategically essential” to ensure that

Denel remains the State’s localised supplier of essential equipment and

supplies for defence, the police and corrective services. She said that Denel

was a “flagship of state entrepreneurship” and she was disturbed by

Treasury’s inability to come to the party.

“A long-term sustainability programme with adequate guarantees from Treasury is urgently needed

and I have written to the Treasury twice and heard nothing”, she said, “and Denel stands as an

example of a state-owned company working well with strategic partners in the private sector.” She

quoted example of contracts such as the A400 wing sections, Hoefyster, Al Tariq weapons and mine

resistant military-type vehicles.

Chugging along Minister Brown ended her debate with Parliament on SOCs with the

note that it was her opinion that “upon analysis, SOCs in South Africa

have demonstrated that they contribute positively to the economy and

they are assisting with the developmental and transformative

objectives of the country.”

To her it was important, she said, that the main SOCs under her control were meeting their

mandates and she needed support in “lobbying through” the Shareholder Management Bill, which

would change the whole structure of public utilities in South Africa. “There are the larger utilities

and over 700 smaller SOUs.

“We now have the model, what it would look like and it will work. It took the Chinese about fifty

years to get it right and their SOUs, such as Sinopec, are world leaders.”

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Treasury’s initial response to Budget queries

n a meeting of the Finance Standing Committee, National Treasury gave parliamentarians some

initial responses on some of the tax issues contained the recent 2017/8 Budget speech given by

Minister of Finance, Pravin Gordhan.

The formal response in the National Assembly by Minister Gordhan on the Rates and Monetary

Amounts and Amendment of Revenue Laws Bills is yet to be made but the Budget is open for

comments until 31 March and scheduled for response thereafter.

Tax on SSBs Ms Yanga Mputa, Chief Director, Legal Tax Design at

National Treasury, confirmed a re-think on the tax

exemption threshold for a sugary beverages tax had

taken place and confirmed that Treasury is now

considering introducing a threshold of 4g/100ml and

for the rate itself to be reduced to 2.1c/g of sugary content.

I

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It was confirmed by Ms Mputa that 100% fruit juices and vegetable juices would now be exempt

from taxation because of the job loss issue, the extent of which was being investigated by Treasury.

Also, only “fizzy” and concentrate drinks will be subject to tax, she said.

Sugar job losses Under questioning about what the job loss figures were that were being

taken into consideration and the investigations being undertaken to re-

establish the numbers, she said the original proposal, before the tax

hearings took place, was for a higher tax rate 4g/100ml for which it was

assumed that estimated job losses might be 5,000.

The new proposals include several thresholds, as well as a study of what

might happen in this respect if a 100% fruit juice sugary tax was imposed.

It was logical to assume, she said, that with a lower threshold number now agreed job losses would

be lower than 5,000 when the higher rate was considered but this was still to be researched.

Dividends Ms Mputa also confirmed that an increase of 20% rather than 15% had been allowed for under the

dividend withholding tax and the consequent increment would come into effect once the 2017/8

Rates Bill was passed by Parliament.

There had been a query in hearings on the exact meaning of “dividend paid” and it had been agreed

to give a definition given in full as an explanatory memorandum attached to the Rates Bill when

enacted.

Infrastructure Ian Stuart, Chief Director, Fiscal Policy, noted that the persistent

underspending by government departments on infrastructure projects had

to be tackled in earnest and, as a start, Treasury had introduced a fund with

a facility of multi-year financing. This fund could also “respond to poor levels

of maintenance of existing infrastructure”.

Under questioning on why, in Treasury’s opinion, further funds had to be continually raised by

government to borrow more money when there was continued underspending by departments, DG

Stuart explained that this was an issue that National Treasury took very seriously.

Whilst the current underspend is about R6bn a year, whilst this is not insignificant he said, “it is still

small share compared to the R1 trillion that is collected per year but the fundamental issue was why

the underspend on infrastructure projects critical to the NDP.”

Start-up delays The facts on the ground were, he said, that in starting any large infrastructure project there were so

many preconstruction spend preliminaries, such as feasibility analysis, budgeting planning and start

up co-ordination plans which required much technical work before any such major project began.

Thus, the major portion of funds dispersed out to actual completed building dates was inevitably

delayed and there was a need to hold monies over until the actual “shovel-ready” date.

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Such a fund now being created was also an excellent way, DG Stuart said, to deal with low levels of

maintenance of existing infrastructure, a different subject but where execution and payment timing

was also difficult.

Lower incomes Mr Chris Axelson, Director, Personal Income Taxes and Savings, answered a

question on why bracket creep relief was only provided at the lower end of

incomes by saying in fact the relief flows through to every individual throughout

the tax system.

“Although the relief affects individuals with low incomes, the overall revenue

impact of relief was much greater than one realized simply because the knock-on effect of adjusting

the bottom end gives benefit to all tax payers above that level”, he said.

Axelson also referred to queries on World Bank data figures which seemed to infer that South Africa

had one of the highest tax to GDP ratios in the world. He said such data was totally misrepresented

in the case of SA, since the data used by the World Bank handled social security contributions,

provincial taxes and local taxes in totally different manner and it was like comparing apples to

oranges.

Relatively strong DG Stuart ended the debate with the Finance Standing Committee by

saying that National Treasury believed that South Africa’s fiscal numbers are

quite strong “given the circumstances”, since the country’s balance sheet

“could show that fiscal sustainability had improved in the past four years

and was expected to do so once again in the current financial year.”

“The primary deficit, the main lever of good financial health, has narrowed for the past four years

and it will narrow in the next financial year again”, he said. “There is a good chance that we may get

into a surplus in the next financial year”. He noted the last time that SA last had a surplus was just

before the crash of 2008.

“This will be of psychological benefit to the market and this stabilisation could well affect us

positively the opinion of the rating agencies”, Stuart concluded.

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20

LEGISLATION CURRENTLY TABLED IN PARLIAMENT

s of March 20, 2017, excluding draft Bills still with government departments for comment, the

following Bills are tabled for parliamentary process as Parliament re-opens:-

B7-2017 PLANT HEALTH (PHYTOSANITARY) BILL

Minister of Agriculture, Forestry and Fisheries

Meetings to be scheduled

B6-2017 CYBERCRIMES AND CYBERSECURITY BILL

Minister of Justice and Constitutional Development

Meetings to be scheduled

B5-2017 APPROPRIATION BILL

Minister of Finance

In process

B4-2017 DIVISION OF REVENUE BILL

Minister of Finance

Bill passed by NA

B3-2017 ROAD ACCIDENT FUND AMENDMENT BILL

Minister of Transport

The Committee is still to schedule meetings on this Bill.

B2-2017 CRIMINAL PROCEDURE AMENDMENT BILL

Minister of Justice and Correctional Services

First meetings 29 March 2017

B1-2017 TRADITIONAL COURTS BILL

Minister of Justice and Correctional Services

Passed to Traditional House of Leaders

B24-2016 PERFORMERS' PROTECTION AMENDMENT BILL

Minister of Trade and Industry

Passed to Traditional House of Leaders

B22-2016 NATIONAL VELD AND FOREST FIRE AMENDMENT BILL

Minister of Agriculture, Forestry and Fisheries

First meeting to be scheduled

B14-2016 JUDICIAL MATTERS AMENDMENT BILL

Minister of Justice and Correctional Services

Public comments invited

A

21

B13-2016 RED TAPE IMPACT ASSESSMENT BILL

Hon H C Kruger

Public comments to be assessed

B12B-2016 REFUGEES AMENDMENT BILL

Minister of Home Affairs

Bill about to pass to President for signature

B11-2016 NATIONAL FORESTS AMENDMENT BILL

Minister of Agriculture, Forestry and Fisheries

First meetings to be held. Briefings undertaken

B10-2016 LIQUOR PRODUCTS AMENDMENT BILL

Minister of Agriculture, Forestry and Fisheries

Briefings held. Meetings for next session after Easter

B9B- 2016 BORDER MANAGEMENT AUTHORITY BILL

Minister of Home Affairs

Bill has reached reading stage in National Assembly

B8-2016 THE COURTS OF LAW AMENDMENT BILL

Minister of Justice and Correctional Services

Scheduled for further meetings

B7-2016 NATIONAL LAND TRANSPORT AMENDMENT BILL

Minister of Transport

Further meetings to be scheduled

B6 -2016 PROTECTION, PROMOTION, DVPMNT & MNGT OF INDIG. KNOWLEDGE SYSTEMS BILL

Mi-2016nister of Science and Technology

Debate proceeding

B1 INSURANCE BILL

Ministry of Finance

Debates proceeding

B40-2015 PROTECTED DISCLOSURES AMENDMENT BILL

Minister of Justice

Debate proceeding

B39-2015 BROADCASTING AMENDMENT BILL

Minister of Communications

Further meetings to be scheduled

22

B38-2015 ADMINISTRATIVE ADJUD. OF ROAD TRAFFIC OFFENCES AMEND. BILL

Minister of Transport

Meetings to be scheduled. Public hearings held.

B37-2015 FILMS AND PUBLICATIONS AMENDMENT BILL

Minister of Communications

Debate reaching conclusions.

B35-2015 FOREIGN SERVICE BILL

Minister of International Relations and Cooperation

Briefing undertaken. Meetings in process

B34 2015 FINANCIAL SECTOR REGULATION BILL

Minister of Finance

Meetings to be scheduled

B33B FINANCIAL INTELLIGENCE CENTRE AMENDMENT BILL

Minister of Finance

Bill with President for assent

B24 – 2015 EXTENSION OF SECURITY OF TENURE AMNDMENT BIL

Minister of Land Reform

Bill at final reading stage in NA

B23-2015 TRADITIONAL AND KHOI-SAN LEADERSHIP BILL

Minister of Cooperative Governance and Traditional Affairs

Meetings to be scheduled

B21-2015 PUBLIC SERVICE COMMISSION AMENDMENT BILL

Minister of Public Service and Administration

Meetings to be scheduled

B11– 2015 PLANT BREEDERS’ RIGHTS BILL

Minister of Agriculture, Forestry and Fisheries

Meetings to be arranged

B8-2015 PLANT IMPROVEMENT BILL

Minister of Agriculture, Forestry and Fisheries

Public Final Readings in NA

B4D-2015 EXPROPRIATION BILL

Minister of Public Works

Bill referred by President for further consideration by Traditional House of Leaders

PMB5-2015 LABOUR LAWS AMENDMENT BILL

Private Members Bill

Further meetings to follow

23

B100P-2014 MEDICAL INNOVATION BILL (PRIVATE MEMBER BILL)

Narend Singh MP

Bill to be withdrawn and replaced. Further meetings 2017

B15B-2013 MINERAL AND PETROLEUM RESOURCES DEVELOPMENT AMENDMENT BILL

Minister of Mineral Resources

Bill to be returned to NCOP with provincial mandates, then to NA

Patrick McLaughlin PARLYREPORT

Hof Communications Parliamentary Representatives

Government Relations

(The opinions expressed here are that of the authors and not necessarily those of the American Chamber of Commerce in South Africa

NPC)