Pretorius's Proposal to amend the Land Bank Act: National Treasury submission

Meeting report

The Chairperson noted the apologies of the Deputy Minister of Finance, who had other commitments in Pretoria.

Pretorius’s proposal to amend the Land and Agricultural Development Bank of South Africa
Act: National Treasury comments
A private Member, Mr Pretorius, had made a proposal to amend the Land and Agricultural Development Bank of South Africa Act (the Act).

Mr Lungisa Fuzile, Deputy Director General: Asset and Liability Management), National Treasury, briefed the Committee on the concerns that National Treasury (NT) had in regard to this proposal.

He noted that a key aspect of institutions such as the Land Bank was the decision making processes relating to the appointment, dismissal and operation of boards, which involved decisions on how the institutions operated and exercised power and authority. If the Minister, in the process of appointing the Board, had limited scope, then there was a chance that his authority over the board would be diminished.

It was very important for the Minister to be able to direct the activities of the board through interactions with the Land Bank. National Treasury believed that in order for the Minister, as the Executive Authority responsible for the Land Bank, to exercise proper authority, he or she must have the power to appoint the board. The proposal by Member Mr Pretorius suggested that the Minister would choose from an “approved short list”, which meant that the Minister would be limited to choosing only names on that short list, not going outside of it, which would diminish the powers and authority of the Minister over the board.

As far as possible, the board must be responsible only to one authority responsible for the institution. The board accounted to the Minister. The Minister in turn was accountable to Parliament. Parliament’s influence over the Land Bank and its board should go through that line of accountability. National Treasury believed that the proposal to have another authority significantly involved in the appointment of the board would result in two centres of power, which would make it difficult for effective control by the Minister, as the responsible Executive Authority, over the activities of the board. That would undermine the accountability of the Minister in respect of the Land Bank. It would also reduce the effectiveness of the role of the Minister of Finance in the oversight of the Bank.

Sound principles of corporate governance required that oversight control be detached from implementation. If Parliament, as proposed in the legislative proposal, ended up being too close to the board, almost to the point of appointing, it would be difficult for Parliament to divorce itself from the failures of the board on the one hand, as it would be difficult for the Minister to be responsible and accountable for the failures of the board. The Minister could say that since the choices for the board were made by Parliament, therefore the problems were caused by Parliament.

He reiterated that the Minister would find it extremely difficult to effectively exercise his powers as Executive Authority over the Land Bank and to fulfil his duty to represent the majority shareholder of the Land Bank if he did not have sufficient authority and discretion to appoint the board.

Mr Fuzile highlighted that if for any reason the board felt that their appointment had effectively been “imposed” upon the Minister, it might not feel answerable to the authority of the Minister. There was the risk that some members of the board could feel that they were politically mandated, and owed their Executive Authority nothing and were answerable to Parliament instead. This would fly in the face of Section 6 of the Act, which provided that the board members were individually and collectively responsible to the Minister.

Section 4(2) of the Act currently provided that Parliamentary committees must be invited, in writing, to provide nominations to fill vacancies on the board. Committees had an opportunity to propose nominees, should they wish. Therefore, the current legislation did make provision for Parliament to make nominations, and the Minister was expected to consider those nominations, which was what had happened in the last round of the appointment. Parliament gave a list of about five names, selected from about one hundred. However, he pointed out that the public was also permitted to make nominations. He could understand the frustration of Parliament when it nominated people who might not finally be appointed to the Board.

The current arrangement, in terms of which the Land Bank fell under the executive authority of the Minister of Finance, was not necessarily a permanent arrangement. The Land Bank was transferred to National Treasury at the time when it faced certain difficulties. In practice, the Minister of Finance asked the Minister of Agriculture, Forestry and Fisheries and the Minister of Land Reform and Rural Development also to nominate, and then they were involved with the Minister of Finance in the appointment process. There was already a difficult balancing act involving three ministers, although the ultimate responsibility lay with one.

The current Act was crafted to provide for an appropriate relationship between the Minister of Finance and the board. It clearly defined the powers of the Minister and those of the board of directors in line with cooperative governance principles. It allowed for the Minister to give broad policy guidelines and for the board to ensure that they were taken into consideration in the preparation of the institution’s business plan and operations.

It seemed an anomaly that the current provisions of section 4(2) of the Act, which opened up the process for the public and Parliament, did not provide for the appointment of the board, and he submitted that if Parliament were to limit the Minister’s authority still further, this would exacerbate the situation.

In summary, Mr Fuzile concluded that the proposal by Mr Pretorius would radically and negatively alter the relationship between the Minister and the board as it was currently provided for in the Act, by substantially restricting the discretion and role of the Minister in the appointment of the board. There was no reason to do so. Although the current provisions were not particularly helpful, at least Parliament, the public, the Minister of Finance and the two other Ministers consulted could all make nominations. However, this meant that with larger numbers of nominations, those nominated by Parliament may not finally be appointed. He reiterated that Parliament could already exercise effective oversight over Land Bank without increasing the involvement of the parliamentary committee in the appointment process. For these reasons, National Treasury recommended that the Committee should not approve the legislative proposal.

Ms Bednor-Giyose added that in examining the legislative proposal National Treasury did an analysis of varying legislations in respect of boards of different institutions in legislation and it was correct that there was some involvement by Parliament in the different types of institutions, such as the SABC board. She argued again that the purpose and operation of these institutions, and therefore of their boards, were significantly different from financial sector institutions. The Minister of Communications appointed the members of the council of ICASA, from a shortlist approved by the National Assembly, but this was appropriate for an institution that operated in the public communications arena. The Minister appointed the board of the Human Sciences Research Council from a shortlist compiled by a panel of experts, as approved by National Assembly, who then made recommendations on the board. For financial institutions, the model consistently used was that either the major shareholders (for instance, of the Reserve Bank) or the executive authority to whom the institution was responsible would make the appointments. In respect of the Reserve Bank of South Africa, the Governor and the Deputy Governor and three other board members were appointed by the President, in consultation with the Minister of Finance and the existing board of the Reserve Bank. The various private shareholders of the Reserve Bank appointed about half of the directors, and there were processes for the election by those shareholders. Only the Land Bank Act differed.

Discussion
The Chairperson commended the analysis given by the legal unit and asked that it be submitted in written form, so that the Committee could understand the similarities and check on the challenges.

Ms A Dreyer (DA) noted the discrepancy in the appointment procedures of the various boards, and agreed that there did not seem to be consistency. The South African Broadcasting Association (SABC) and Independent Communications Authority of South Africa (ICASA) boards were appointed by Parliament, whilst the Minister appointed boards of other institutions.

Ms Dreyer submitted that the essential point was not about the function they performed but about who funded those institutions. In all instances, the funds originated from the taxpayer, and therefore Parliament, which was the ultimate oversight body over taxpayers’ money and the way it was spent, should have the authority over appointment of boards. If the Minister appointed the members of the board they would have to please the Minister, because their jobs depended on the Minister. If Parliament had the role of appointing members to the board, then those board members would know they would have to account finally to Parliament.

Mr Fuzile responded that he understood the concerns about institutions using public funds. He pointed out that, when compared to departments, there was a minimal, even remote possibility of abuse of public funds by boards. Parliament, despite the risk of misuse of funds in departments, did not appoint Directors-General, who were powerful accounting officers. If Parliament were to appoint a Directors General who might fail, Parliament would have to accept that it made a bad choice in that appointment. However, Parliament distanced itself from that process and left the Minister to appoint Directors General – in other words it allowed the Executive to appoint the administration. If the administration failed, Parliament had every right to hold the Minister accountable and to ask officials to come before it and deal with the failures. Parliament was actually more empowered when it was not involved in the appointment, because it could then hold the Minister accountable.

Mr Fuzile said that most institutions were capitalised through government money. This meant that all the money used belonged to government, in effect the taxpayer. The Development Bank of Southern Africa (DBSA) had cost government R200 million to establish many years ago, but had since never asked for a cent. It was using government money, and all the money that it “owned” effectively belonged to government and it was therefore still answerable to government. Parliament would not want to have a stronger say in the running of an institution to which it did not appropriate money each year.

He commented on Ms Dreyer’s suggestion that the board may be tempted to please the Minister. That might be the right thing to do. Parliament must then ensure that what pleased the Minister was the same as what was in the best interests of the nation. If the Minister stated what he or she wanted to accomplish with the Land Bank through its corporate plan, reporting to Parliament on what had been achieved at year end, there was nothing incorrect if the aims and results were aligned to what Parliament wanted for the country. There would be a problem if the Minister were to push the institution to do something that was not in the interests of the country, but that was what Parliament was to oversee.

He emphasised that National Treasury believed that it was not necessarily the direct involvement by Parliament in the appointment of the boards or the officials that would make Parliament powerful, but the maintenance of a safe distance whilst exercising more stringent oversight over the Executive Authority.

Ms Bednor-Giyose added that an important point to be borne in mind, on which she would make a written submission, was that the each institution had significantly different functions. The functioning of SABC was vastly different from the role and functioning of finance institutions such as the Land Bank and the Development Bank of Southern Africa. The appropriate governance structure and the role of the boards also differed according to the type of institution and its role in society. An appropriate appointment mechanism for one might not be feasible or achievable or appropriate for another institution. Each board and its appropriate appointment process should be assessed individually. She suggested that for institutions with a similar role – such as those fulfilling the development finance type of functions – should have consistent relationships between the Executive Authority, the board, the Chief Executive Officers, and the legislature, but it was not necessarily appropriate that this be extended to a wider range of institutions that did not share these functions. She did not agree that a single model appointment process would work for all.

Ms Dreyer made the point that it had been said that the Minister should have final oversight and be held to account. That had not happened previously. Land Bank had landed itself in extremely serious financial difficulties, was failing to collect payments, did not follow proper debt collecting systems, gave loans to people with very high risks, leaving itself open to bad cash flows, and did not prevent corruption or act quickly when allegations about corruption began to surface. The formerly-very proud and effective institution virtually collapsed, and had to be rescued with a huge injection of taxpayers’ money and interventions. It was hoped that it was now on the way to recovery. Even the present dispensation where the Minister of Finance had oversight would not automatically prevent a similar recurrence, and the present model did not, in her view, ensure that good governance was in place. She reiterated that Parliament should play a stronger oversight role and the board should be accountable to Parliament.

Mr Fuzile did not think that the reason that the Minister acted in a particular way, or the reason that the board did not exercise its responsibility, had anything to do with the fact that the board was appointed by the Minister. The current legal position was that the corporate plans were approved by the Minister, the Executive Authority, that quarterly reports and annual reports should be submitted to the Minister, and that approvals were made by the Minister.  Almost all the operational issues in relation to institutions were governed by other pieces of legislation and were channelled through the Executive Authority, not Parliament. He reiterated that the solution lay in Parliament exercising more stringent control over the ministers, ensuring that whatever happened in the institutions was in line with what served the nation rather than what served the interests of the Minister. That would not necessarily be achieved by Parliament appointing the board. Instead, Parliament needed to watch that the Minister was exercising his or her authority properly.

Ms J Sosibo (ANC) asked for clarity on what would happen if a board were to be appointed by Parliament, and then failed.

Mr Fuzile responded that that was an anomaly, because the Minister would still be accountable. This was one of the reasons why this proposal was not helpful in that it gave one authority the power to appoint while making another accountable for failure. The proposal said the Minister would choose from an approved list. However, it was possible that the Minister might not be comfortable with anyone on the list. Mr Fuzile added that any legislation that dealt with appointment must also deal with dismissal of members of the board. If an appointment followed a particular route, then dismissal would also have to follow a similar route, because the power to appoint and dismiss were linked.

Ms Bednor-Giyose agreed, but several pieces of legislation did not appropriately deal with this situation, or with how, if problems arose at institutions, they must be effectively addressed to ensure that good governance of the institution was not significantly disrupted or hindered for a lengthy period. This was indeed a point that must be considered when amendments were made.

Ms Sosibo asked if the proposal allowed the Minister to look for people outside of the list if he or she was not happy with the list of names proposed by Parliament.

Mr Fuzile responded that this question should have been put to the sponsor of the proposal. The way the current proposal was formulated suggested that it was not possible for the Minister to appoint people outside of that list. The proposal contained a clause to the effect that if the relevant Portfolio Committee was of the opinion that no suitable candidates were available among the nominations submitted to it, then the Portfolio Committee must recommend to the National Assembly that fresh nominations be called for. If that proposal was approved by the National Assembly, then the Minister must call for fresh nominations. He pointed out that the process of appointment would be started because there was a vacancy on the board. A protracted process, where new nominations were called for, could well leave the institution rudderless or powerless for a time. A shorter process, involving fewer people, was preferable. Even the current provisions required too many names, to be submitted from a wide variety of sources, and this was not helpful. Outsiders making nominations were not necessarily aware what skills were needed at a particular institution, and it would be more meaningful if the process were to provide, for instance, for specific required skills to be set out. He said that the current process did allow the Minister, in the event that he or she was not happy with the list provided, to deviate from it and make other appointments. He reiterated that the best that Parliament could do to test that the board was acting correctly was to hold the Minister, who made the appointments, to account.

The Chairperson wondered whether government as a whole, not only National Treasury, had analysed the trends, and if Ms Bednor-Giyose had an understanding as to what moves government intended to take on similar structures. He acknowledged that the diminution of the powers of the Minister would be unacceptable, but equally he would want to understand what the current general thinking was, if it was not confidential.

Mr Fuzile responded that National Treasury did do a preliminary analysis about the processes for appointing boards and there were evaluations. In the finance “family”, there was no entity, other than the Land Bank, where there was involvement by Parliamentary committees, so Land Bank was in an anomalous position when compared to, for instance, DBSA, the Reserve Bank, PIC and the Independent Development Trust. The Land Bank provision for others to nominate could generate resentment, since it was not generally known by one group who may be compiling a list that other groups were doing the same, whilst the Minister, in the final result, still had the discretion to ignore the lists and choose someone else.

Mr Fuzile offered to submit written information on the position for other institutions. The Chapter 9 institutions were in any even answerable to Parliament and therefore Parliament had a bigger role in appointments to their boards, because their failure meant failure for Parliament. However, these institutions still had a role for the Executive Authority to ensure that the concept of serving the public interest, which was embedded in the mandate of those institutions, was not undermined. Other boards were also accountable to Parliament. He agreed that the National Treasury review of the development finance institutions had highlighted some inconsistencies, not necessarily in relation to the appointment of the board members, but more in relation to the appointment of Chief Executive Officers (CEOs) of those institutions. The question was raised whether there should be one model. If the CEO accounted to the Board, and the Board accounted to the Minister, then perhaps the board should always appoint the CEO.

The Chairperson asked whether National Treasury had ever discussed who was the ultimate custodian of the Land Bank Act. For instance, if the Committee wished to consider amendments, he questioned whether all Ministers must be involved in discussions on these. He asked whether National Treasury had met with the two other Ministers who were consulted by the Minister of Finance to discuss these challenges.

Mr Fuzile responded that effectively a committee was set up, comprising the Minister of Finance, the Minister of Agriculture, Forestry and Fisheries and the Minister of Land Reform and Rural Development, supported by a technical committee comprising of officials from the three departments. The Land Bank officials were sometimes invited, depending on what was discussed. The three Ministers had a Memorandum of Understanding that set out what their respective roles were in respect of matters relating to the Land Bank. The Act made reference to the Minister of Agriculture. The mandate of the bank also indicated that what it did was not within the scope of National Treasury. That was the reason for the Minister of Finance setting up that committee, so that all departments would have a say on policy that touched on land reform or agriculture. It was not a legislated arrangement but it was an arrangement that worked. However, he conceded that this agreement did not deal with who would be responsible if there was a legislative issue, but this was a matter that could be discussed.

What it did not do, because it was not anticipated, was to deal with the issue of who would be responsible if there was an issue on legislation, but it could be discussed with that committee.

The Chairperson thanked the officials from Treasury and asked that the written submissions should reach the Committee by the following Thursday.

Ms Dreyer noted that, although she was not present at the previous meeting, she had noted from the minutes that National Treasury was to be asked to comment whether the legislative proposal would impact negatively on the developmental goal of the State, which she did not think had been addressed.

Mr Fuzile said it was implicit in the comments he had made. The committee to which he had referred tried collectively to ensure that they could direct Land Bank to ensure that it contributed to the developmental objectives of government, through supporting agriculture and land reform. The ministers, through the Minister of Finance, influenced the Land Bank through its board. The Minister would advise the Land Bank how he and the other two ministers wished it to assist in certain mandated issues. The Board would negotiate with the Minister, as the executive authority, as to the support that would be needed. The Minister conveyed this back to Parliament, who approved capitalisation after hearing what the Land Bank wanted to do. The Minister was the authority and the direct line of reporting and accountability. That relationship should not be weakened. At the end of the year Parliament would look at the annual report of the institution, compare it to what the institution had said it would do, and take the Minister to task if necessary.

The Chairperson agreed that the developmental state was a vital focus in the current government.

Members failing to attend meetings
The Chairperson noted that the Committee could not continue with other business because it lacked a quorum. He expressed concern at the lack of attendance at Committee meetings, and asked that it be taken up at the Political Parties’ Chief Whips’ Forum. It was embarrassing for Parliament to schedule meetings that did not produce the intended goals. Although he understood that Fridays were sometimes awkward in terms of family responsibilities and social issues, he pointed out that Friday was still a working day.

Ms Dreyer supported the Chairperson’s sentiments. She pointed out that many Members had to fly to other parts of the country to be with their families, and although obviously all those present wished to spend more time with their families, they also had a commitment to their voters to be present, to do their work and take Parliament seriously. It was a matter of self-discipline. Failure to attend meetings created poor perceptions of Parliament and of politicians.

Ms Sosibo concurred. She would take the matter to the Chief Whips’ Forum.

New legislative proposals
The Chairperson informed Members that there were three new legislative proposals referred to the Committee, and asked them to study the relevant documentation before the next meeting.

The first concerned the matter of the Mofokeng and Mokoena petitions, who were inmates at Leeuwkop and Kroonstad Correctional Centres. This petition had been referred in error to the Select Committee, who agreed that this was an error but pointed out that this Committee had made significant progress in considering it. The Chairperson said that this Committee would now hold a joint meeting with the Select Committee to finalise the process.

A legislative proposal had been submitted from Mr Ian Davidson, MP, which was intended to strengthen and regulate the participation of party-political office bearers, public representatives, as well as political parties in contracting with the three spheres of government.

A legislative proposal was received from Ms Cheryllyn Dudley, MP, in relation to Choice on Termination of Pregnancy.

The meeting was adjourned.