SAFTU’s submission to the Parliamentary Committee on Public Enterprises, 17 October 2017
SAFTU condemns possible use of PIC funds to bail out bankrupt SOEs
The South African Federation of Trade Unions was shocked when Finance Minister Malusi Gigaba’s told the COSATU Central Executive Committee on 30 August 2017 that he could not guarantee that the government will not attempt to use the funds of the Public Investment Corporation (PIC) to capitalise state-owned companies and other projects.
This followed earlier reports that the government was wanting to use workers’ money from their pension and provident funds to bail out loss-making state-owned enterprises, in particular South African Airways (SAA), which reportedly needs almost R12 billion to stabilise its cash flow and guarantee no loss of jobs.
If the reports are accurate, it also means the minister either lied or wilfully misled Parliament when, in response to a question, he denied that he was investigating the possibility of SAA seeking funding from the PIC.
88.2% of the R1.857 trillion which the PIC manages is in the Government Employees Pensions Fund (GEPF), which exists to ensure that retired government employees and their dependents get a decent retirement income; and a further 6.7% is of the PIC’s money is the Unemployment Insurance Fund (UIF), which provides short-term relief for retrenched workers.
This means that 94.9% of the PIC’s funds is workers’ money! And the PIC is legally mandated to invest that R1.857 trillion in a way that will maximize its income, in socially desirable projects and in widespread, safe and well-managed companies that are most likely to be profitable and provide the best return to the PIC and ultimately to the members of the scheme.
Bailing out SOEs, which have been bankrupted through mismanagement and corruption, cannot possibly fulfil any of these mandates, and it has been opposed by the PIC’s CEO Dan Matjila, SAFTU and other unions, and especially the public service workers themselves.
The GEPF holds the money contributed by public servants to provide them and their dependents with an income when they resign, retire or die. The PIC is therefore obliged to ensure that this money is invested responsibly and wisely.
To use workers’ money for a R12 billion bailout of SAA would be bad enough but it is reported that after bailing out SAA, the government will be looking for more cash for similar bail-outs for Eskom, PetroSA and Denel, which have been at the centre of allegations of corruption and mismanagement by the network of looters around the Gupta family.
They are exactly the sort of dodgy investments which the PIC’s mandate to invest responsibly ought to exclude. SAFTU is also particularly concerned that the PIC’s Chairman is Sfiso Buthelezi, who is also Deputy Finance Minister, and who has been accused of being a beneficiary of companies that illegally secured contracts worth at least R150 million from the Passenger Rail Agency of South Africa (Prasa) and some of its suppliers, while he was its board chairperson.
Such massive bailouts would put the PIC itself in danger of becoming bankrupt, because the GEPF is a defined-benefit pension fund, which legally must pay out the full pensions and benefits that its members are entitled to.
If its money has disappeared down the drain in failed investments in these loss-making SOEs, the Treasury will have to bail out the GEPF itself to fill the gap, to make sure these workers receive their pensions. So indirectly, taxpayers will have paid the price, by injecting millions of rands, via the GEPF, into the pockets of bankrupt SOEs.
This diversion of tax revenues will deepen the country’s economic crisis, and will inevitably lead to tax increases and/or spending cuts, further delays in implementing the national health insurance scheme, comprehensive social security, free education, infrastructure expansion and maintenance, and to less spending on essential services.
It will therefore be an assault of the living standards not just of retired public servants but all poor South Africans and on the goal of creating a better life for all!
SAFTU however rejects the call by FEDUSA that if its members’ savings are used to bail out state entities, the workers’ pension funds should be handed to privately owned money managers.
This would put the management of workers’ pensions into the hands of private companies motivated by the search for maximum profits, regardless of the ethics of the companies in which they buy stakes, with still no guarantee that they will make any better returns than the PIC and will be even less accountable to the public than the PIC.
The PIC itself must be made more democratic and accountable, so that the employees have representatives to take decisions on how their money should be invested and mandate the PIC officials to implement these policies.
We extend this call to all SOEs: The SOEs plays a critical role in the development of our country, not only in the provision of the infrastructure but also in the provision of critical services. Currently a lot of these SOEs are facing financial crisis as a result of mismanagement and corruption. We believe that the appointment of persons with expertise will go a long way in restoring hope. SAFTU also calls for the appointment of workers into these boards, which will increase transparency and accountability.
SAFTU is also very concerned at the letter sent by Finance Minister Malusi Gigaba to his Deputy Minister, Sfiso Buthelezi, who is also the PIC’s Chairperson, demanding an internal forensic audit of the PIC.
Gigaba is demanding that the board appoint a reputable independent forensic company to audit “outstanding matters not done by the internal audit, as they (the internal auditors) do not have the capacity to audit additional matters, as per my request”. He wants the PIC Chairperson to investigate:
The amounts of money spent on transactions.
The transactional advisers and/or sponsors.
The amounts paid by the PIC to those transactional advisers or sponsors.
All the BEE consortiums listed in those transactions: “This must specifically state each individual or legal entity that has participated in that consortium.”
He also requests a list of transactions “concluded with parties that are classified as PIPs (Prominent Influential Persons)” and “that the PIC discloses the details of individuals or companies who have been funded by the PIC or participated in a PIC transaction more than once in the past three years. This should also reflect the amount of these transactions,”
Given that presumably the PIC is already regularly audited, the only logical explanation of the minister’s call for this additional audit is that he is fishing for evidence that could justify the suspension of its CEO Dan Matjila, who has opposed the idea of investing money in organizations like SAA or Eskom because of the financial risk.
Matjila has already been accused of funding a project linked to an alleged lover for an amount of R21 million but an internal audit cleared him of wrongdoing. Yet it is alleged by The Star’s ‘sources’, that Gigaba wants to know who Matjila has benefited, to obtain a so-called smoking gun to pin on the chief executive through investments and transactions the PIC entered into over the past three years.
SAFTU supports the call for the Minister to meet trade unions to clarify what is going on, and the federation would support a truly independent, non-partisan investigation of the PIC, covering the last seven years. If that reveals that Matjila is guilty of anything then he must face the consequences.
National Treasury spokesperson Mayihlome Tshwete has denied that the minister’s letter sought to target Matjila, that people had nothing to fear from the probes if there was nothing to hide, and that Gigaba had sought to bring the PIC saga to its finality.
The reality is the exact opposite. Far from finalizing the matter this letter has increased workers’ fear that a scapegoat is being sought, so that the minister can replace him with someone more accommodating.
Workers’ pension and provident fund savings must never be used to rescue SOEs that have been ruined by the actions of their corrupt directors and managers, thieving politicians and private company executives. It is they, not the workers or the tax-payers who must be made to repay the stolen and wasted money, and those involved must be prosecuted and punished if proved guilty.
SAFTU supports the call by its affiliate NUPSAW for the National Treasury not to use the PIC to re-finance bankrupt SOEs and not to squander workers’ money in either public companies bankrupted by cronyism and corruption or private companies who use the workers’ money to enrich themselves.
There must be an immediate moratorium on any further use of GEPF funds by the PIC until the boards of these loss-making entities have been sacked and replaced by democratic and accountable representatives of the community, workers and the country.
Instead of bailing out SOE’s the PIC should do more to ensure that workers and their communities directly benefit from their pension funds. SAFTU calls for the immediate investigation of the possibility of setting aside a specific amount within the PIC that could be used to lend money to public servants to buy their own houses. Currently public servants “earn too much” to benefit from the RDP housing schemes and “earn too little” to borrow from the commercial banks. The Government’s housing scheme of is a ridiculous R900, cannot enable them even a rent a backyard. The R1200 subsidy for those who are bonded to the banks will hardly ease the burden of bond repayments. This is the reason why only 5% of the public servants own their own houses. This must change.
In addition to this, both government and the private-sector pensions and provident funds must set aside a percentage of the funds to be invested in government bonds that are dedicated to building infrastructure in residential areas where workers reside. This should include building bridges, roads, cinemas, sporting facilities, etc. Currently the fund managers interpret the “maximum return mandate” too narrowly to mean money can only be borrowed to mega projects in the city centres to build more glass-fronted buildings. This then leads to the deepening of inequalities in society.
SAFTU notes that if this attack on the living standards of South Africans succeeds it will have been carried out by a minister who claims to want ‘radical economic transformation’, proving yet again that this is nothing but empty rhetoric, being used for factional purposes. His record as Finance Minister clearly shows that he fully supports the Business as Usual approach and has done nothing to move from this predecessors’ neoliberal, pro-capital agenda, or to confront the spread of corruption.
These latest moves by Gigaba further justify the submission by SAFTU affiliated-unions for a Section 77 notice at Nedlac, which has now been granted. It demands a clear plan from government to change direction and plot a new growth path to change the structure of the economy and ensure redistribution of wealth and land, and to create opportunity for all. It further demands that the crisis in the education system, health service and public transport be fully addressed.
SAFTU’s view is based on its socialist policies for the full implementation of the Freedom Charter, and the nationalization of the commanding height of the economy, because that is the only way to provide a way out of the misery and despair which the majority of South Africans are facing every day, and the corruption and mismanagement of the country’s resources and our descent into a failed state. This is real ‘radical economic transformation’!
Lastly this haring takes place in a particular political context. More and more South African are getting worried about the overall programme to drive the country into becoming a predatory or a kleptocratic capitalist state.
35. The evidence in the public domain establishes a clear and compelling case of suspected criminal wrongdoing on the part of many SOEs and certain private-sector company directors. The Minister of Finance in his then capacity as the Minister of Public Enterprises played a very direct role in the capturing, Guptarisation and domestication of the SOEs. Much of this evidence has been in the public domain for several months now.
36. This includes:
The Public Protector’s ‘State of Capture Report’, released on 14 October 2016, which is publicly available at http://www.pprotect.org/
Advocate Budlender SC’s report for Mr Sexwale, the Chairperson of TCP released on 29 June 2017.
The evidence of Ms Mosilo Mothepu, the former CEO and Executive Director of Trillian Financial Advisory (Pty) Ltd (“TFA”), a wholly owned subsidiary of TCP. Ms Mothepu furnished evidence to the Public Protector, which was cited in the Public Protector’s State of Capture report and which was leaked to, and reported on, by the Sunday Times on 23 October 2016. Ms Mothepu subsequently gave a statement to Adv. Budlender SC for the purposes of his investigation.
The evidence of Mr Litha Nyhonyha and Maghanderan Pillay (both directors of Regiments Capital (Pty) Ltd, “Regiments”) produced in civil litigation they have instituted against Dr Wood and Trillian.
The “GuptaLeaks”, which have been reported on widely in the press and have implicated several of the persons implicated in the crimes detailed hereunder.
The Organisation Undoing Tax Abuse (“OUTA”) report titled “No room to hide: a president caught in the act”, released on 28 June 2017. This report contains damning allegations, supported by evidence obtained from the GuptaLeaks, against the TCP’s former controlling shareholder (until 25 July 2017) and key Gupta-associate, Salim Essa; the Eskom Executives, Mr Brian Molefe, Mr Anoj Singh and Mr Matshela Koko. This report is publicly available on OUTA’s website at: https://www.outa.co.za/zuma-caught/
The G9 Forensic investigative report commissioned by Eskom’s Assurance and Forensic Unit, into alleged unlawful payments made by Eskom to one of TCP’s wholly owned subsidiary companies, Trillian Management Consulting (Pty) Ltd (“TMC”). The G9 report was furnished to Eskom and the Minister of Public Enterprises as an interim report on 14 September 2017
37. We know the mandate of this committee is to focus on the PIC, but this committee cannot afford to ignore the context. Regrettably, because of the state-capture activities, we have a Minister of Finance we simply cannot trust. This massive credibility gap makes us not to trust any of his actions no matter how genuine these may look at face value.