Independent System and Market Operator Bill [B9-2012]: consideration of Proposed Amendments (continued)

Meeting report

Chairpersons’ opening remarks
The Chairperson handed over to the Department of Energy (DoE) to finish off the presentation on the Proposed Amendments to the Independent System and Market Operator (ISMO) Bill, referred to as the A-Bill or A-list document.

Clause 18: Committees of Board
Mr Ngobeni reminded Members that there had been agreement in the last meeting that concurrence of the Minister in the appointment of one or more board committees was removed from the A-Bill. The board should be in a position to appoint its own committees. The King lll Report was looked at, in reference to the audit committee, and it stated that the audit committee was appointed by the shareholders. In the case if the ISMO Bill, the shareholder was government, therefore the Minister of Energy must have a say in the appointment of the audit committee. The board reports to the Minister. In the current state of the ISMO Bill, the shareholder was not allowed to have a say in the appointment of the audit committee and this was therefore contrary to what was outlined in the King lll Report.

Clause 20: Appointment of chief executive officer and chief financial officer
Mr Maduna Ngobeni, Director, DoE stated that there was a debate about whether to include the chief financial officer according to the provisions of the board. There was agreement that the chief financial officer be a board member but not be subjected to the same provision as that of board members. This meant that the maximum eight year tenure of a board member would not apply to the chief financial officer. The King lll Report was looked at for guidance on such matters. The report talked about the board having executive and non executive members; from the executive members, there need to be at least two of them which become board members and participated in the day to day running of the entity. The chief financial officer should be able to serve a bit longer. He suggested that Members look through the King lll Report as it stated that if the chief financial officer was not bound to serve only eight years, he or she became a permanent board member. This was then flagged as an issue to be discussed.

Clause 37: Intervention by the Minister/ Clause 38: Offences and Penalties
Mr Ngobeni said that clause 37 and 38 needed to be read together as they were related. He stated that the way the clauses were structured implicated an individual when certain information was not submitted as required by the administrator. The clauses dealt with the appointment of the administrator by the Minister for purposes of investigating ISMO. Concerns were raised that the way in which this was drafted criminalised certain actions taken by an individual and were since changed and clause 37(1)(c) was omitted. Clause 38(1)(b) was substituted with “(b) fails to give data or information, or give false or misleading data or information when required to do so in terms of section 36” The responsibility to criminalise individuals was therefore removed from the duties of the administrator.

Mr S Mayathula (ANC) asked where in the Bill the administrator was permitted to take action against an individual who fails to produce requested information or data.

Mr Ngobeni responded that clause 36 was a high level provision which allowed the Minister to establish an investigation on the financial position of ISMO. The administrator thus was given permission to call into order individuals who defaulted.

The Chairperson referred to clause 36(1) and asked whether the clause gave an indication of the terms of reference of the administrator. He asked that the department be clear and indicate where else in the Bill was the administrator covered in this regard.

Mr Ngobeni responded that clause 37 went into more detail about what the Minister may direct the administrator to do, seeing that the clause empowered the Minister to appoint the administrator.

Adv Ntuthuzelo Vanara, Senior Legal Advisor at Parliament, referred to the question raised by Mr Mayathula and argued that it was a legitimate question. Clause 36 empowers the Minister to appoint an administrator; clause 37 outlines instances where the Minister could intervene while clause 38 dealt with offences. Therefore if the Minister appoints the administrator, the administrator was given specific functions, of which some pertain to conducting investigations. He asked should there be blatant refusal to comply with the administrator in providing required information or data, where would the administrator be covered in the Bill to take the necessary actions against such individuals.

Ms Orateng Motsoai, Legal Counsel, Department of Public Enterprises (DPE), agreed with the concerns raised by Adv Vanara and stated that she did not agree with the deletion of the clause which empowers the administrator. A concern was raised about there being no other clause in the Bill which empowered the administrator to take action against non compliance.

Mr K Moloto (ANC) stated that 38(1)(b) was in order, and that the challenge was with 38(1)(c), as giving misleading information to the administrator was a serious offence. The problem however was that the clause was too broad.

Mr L Greyling (ID) argued that the normal rules of employment did not seem to apply under the administrator, because normally a person who disobeys direct instruction could be fired. What the Bill stipulated was that a person would not only be fired but would be liable to a fine and possible jail sentencing. He wondered why there was more stringent action against individuals who were charged with non compliance and why they were not treated under the normal rules of employment.

Mr Mayathula suggested that the word “reasonable” be inserted before the word “directive” in clause 31(4)(c).

Mr Moloto agreed with Mr Mayathula’s suggestion and stated that clause 38(2) and 38(3) had serious criminal implications as Mr Greyling had pointed out. It was therefore up to a court of law to determine whether the directive given was reasonable or not.

Mr Ngobeni responded and agreed that there was no need to criminalise such actions as there were processes which had to be followed for non compliance. The suggestion made to reword clause 37(4)(c) would be taken into consideration.

Mr Moloto wondered what the implications would be of removing the last part of clause 38(1)(b) which deals with the implications of disregarding instructions from the administrator.

Adv Vanara stated that the reality of the situation was that an administrator got on board when things had gone wrong. Therefore the administrator was there to, among other things, conduct investigations. An investigation would not be successful if information was withheld from the administrator. Criminal charges would then be laid against individuals who withheld information and/or failed to comply.

Mr Moloto stated that reference to the administrator in dealing with non compliance was being removed by DoE and wondered what the legal implications of this would be.

Mr Ngobeni replied that the reason why there was a proposal to remove any reference to the administrator was that the clause seemed to criminalise an individual. However, he stated that all comments and concerns raised by Members would be taken into consideration.

The Chairperson stated that clauses 36 and 37 were dealing with abnormal circumstances, but the same circumstances could arise when dealing with normal matters when operating ISMO. The chief financial and chief executive officers could request information and be confronted with non compliance. However, there were certain procedures which needed to be followed when dealing with such cases, but by undertaking the services of an administrator implied that the situation was not a normal one. In such circumstances all ISMO staff members would be required to contribute to restabilising the functioning of ISMO, therefore serious action should be taken against staff who do not comply.

The Chairperson reiterated that the DoE had initially proposed that clause 37(1)(c) be omitted , in conjunction with the last part of clause 38(1)(b) and asked whether the DoE was still comfortable with these proposals.

Adv Ntombi Mnyikiso, from the Office of the Chief State Law Advisor, stated that the only amendment in clause 37(4)(c) was to qualify the administrative functions of the administrator.

Mr Moloto argued that under clause 37(4)(c), Mr Mayathula’s proposal to insert “reasonable” needed to be adopted.

Mr Ngobeni replied that amendments would be made accordingly.

Mr Mayathula referred to clause 37(7)(a) and asked why the role of the administrator was not considered in the first part of the clause. Reference to the administrator was only made when the Minister lost confidence in the board. He asked how there could be something wrong with ISMO and nothing wrong with the board and how the board and the administrator could be operational at the same time. The relevance of having a non operational board was therefore questioned.

Mr Moloto agreed with Mr Mayathula and argued that if there was an administrator, the assumption was that the board was dissolved.

Mr Greyling responded that Members needed to bear in mind the importance of ISMO and that it was not a normal state owned entity as it affected the entire electricity grid. In a situation where ISMO ran into financial difficulty for example, an administrator would be called in; the board would then still be dealing with the daily operations of ISMO.

Mr S Radebe (ANC) stated that when the services of an administrator are sourced, the board needed to be dissolved, and the two could not operate at the same time. The Minister would then intervene when the ISMO board had failed.

Mr Moloto agreed with Mr Radebe and reiterated that the board could not operate concurrently with an administrator. An administrator therefore was called in to exercise his/ her full administrative powers without any interruption. The appointment of an administrator showed that confidence in the board had been lost.

The Chairperson asked whether clause 37(4)(a)  was not equivalent to the dissolution of the board. He asked if the exclusion of ISMO in the clause referred to the exclusion of ISMO. A concern was raised that the terms of placing ISMO under administration were not articulated clearly in the Bill.

Ms Motsoai agreed with the Chairperson that clause 37(4)(a) was structured in a way that suggests that the board does not exist. She argued that Members needed to be mindful of the administrative steps which needed to be taken prior to the dissolution of a board and the appointment of an administrator. While the services of an administrator were being used, the board would be placed under suspension while investigations were taking place. The board would therefore only be dissolved after the conclusion of investigations and the Minister was satisfied that the board needed to be dissolved.

Ms Mnyikiso agreed that clause 37 was part of the administrative processes which needed to be followed as dissolution of a board was not the same as suspension. Dissolution was final and board members had to be reconstituted newly.  The administrator therefore had the function to investigate ISMO and investigation did not always lead to the dissolution of the board. When the board has been dissolved, the Minister may appoint an administrator to lead ISMO.

Mr Radebe stated that his understanding of 37(3) was that the Minister would source the services of an assessor to investigate; this would give the board an opportunity to explain itself.

The Chairperson replied that no reference was made to an assessor in the Bill. An argument was made that a two-stage approach needed to be taken before the dissolution of the board, which included the introduction of administration and appointment of an administrator and the subsequent suspension or dissolution of the board.

Mr Mayathula referred to clause 37(1) and stated that the board would be given a chance to explain itself to the Minister and why it had failed, before an administrator was called in. Once there was certainty that the board had failed, an administrator needed to be called in.

Mr Moloto stated that the board was not covered by the Labour Relations Act or any other act; therefore shareholders had the right to recall the board without giving any explanation. Board members were not employees. Under 37(1) the reasons why a Minister may dissolve a board were clearly stipulated and asked for clarity about how the board could still be operational when an administrator was appointed.

Mr Mayathula referred to clause 37(3) and stated that reference to ISMO was reference to the board, and when the board had failed, it needed to be dissolved.

The Chairperson asked if there were legal guidelines for placing an entity like ISMO under administration.

Ms Mnyikiso responded that because there was a Minister, the matter fell under public administration. Therefore the Minister was guided by existing legal guidelines for state owned entities.

The Chairperson asked what PAJA was.

Ms Mnyikiso responded that it was the Promotion of Administrative Justice Act (PAJA) which serves to guide the actions of the Minister during public administration.

The Chairperson asked whether it applied to situations such as those in discussion.

Ms Mnyikiso replied that it applied.

The Chairperson asked what the terms were for putting ISMO under administration.

Ms Motsoai replied that under PAJA the Minister needed to give a 14 day notice to the board before it was recalled.

Mr Moloto asked that Members be clear about whether they were dealing with a public entity or a company and asked in what role the Minister was acting in the matter. He argued that the shareholders’ rights were stipulated very clearly in the Companies Act, labour relations did not apply.

The Chairperson reiterated his question about what the legal implications were for placing ISMO under administration. Clarity was asked about PAJA and the Companies Act and which of these took precedence over the other in this matter.

Adv Mnyikiso responded that Members needed to remember that they were dealing with public administration and corporate law rolled into one state owned entity. Members therefore needed to bear in mind that ISMO was not a normal state owned entity, and the Minister was a shareholder on behalf of the state.

Adv Vanara reminded Members that during the public hearings, Eskom had made a plea that the ISMO Bill touched on provisions which ordinarily would had been left in the existing Companies Act and that these issues should not be rehashed in the ISMO Bill. Eskom’s concerns were that once issues dealt with in the Companies Act were rehashed in the ISMO Bill, there would be some conflict of interests. The reality was that ISMO was a specific type of state owned company and the Minster was a shareholder, the Bill therefore gave, to a certain extent, the right that people be heard, which was enshrined in the Constitution. PAJA therefore gives effect to a right that has been provided for in the Constitution, while the Companies Act was not supreme to the Constitution, but it was correct to say that if the shareholders lose confidence in the board, it was sufficient for them to be recalled. However, before board members are removed, they are awarded an opportunity to explain themselves to the Minister. Clause 37 of the ISMO Bill raised an issue which was a policy issue, which was the involvement of the administrator, under the conditions stated in clause 37(1)(a-d), clause 37(3)(b) then stipulated the intervention of the Minister in the directives stipulated in clause 37(1)(a-d). However, the steps which should be taken by the Minister in dealing with the board did not envisage the dissolution of the entire board, and this was seen to be problematic. Therefore the policy decision that Members had to make was whether to appoint the administrator in the presence of the board or to first dissolve the board then appoint the administrator afterwards.

Ms Motsoai responded that clause 37 was very confusing and proposed that DoE go back and redraft the clause. With reference to clause 37(4)(b), she asked what the purpose of the board was during the appointment of an administrator, seeing that the board could not perform any of its duties or exercise any of its powers in the presence of the administrator.

The Chairperson stated that clause 37 was articulated in three stages; the first was articulated in 37(1) and 37(2), where the Minister gave way for initial remedial action to be taken by the board. The second stage in clause 37(3) and 37(4) was the suspension of the board and the introduction of the administrator. However this seemed to have caused a lot of confusion. The final stage was outright dissolution. DoE was then asked to give clarity on what it had hoped to achieve from the clause.

Mr Moloto agreed with Adv Vanara that the issue of whether to keep the board active during the appointment of an administrator was a policy issue which needed further attention. The board and the administrator could not coexist. He proposed that in this matter, the board be dissolved when an administrator was appointed. Another issue that needed clarity was that of PAJA and the duties of the Minister as the shareholder.

Mr Mayathula proposed that the policy matter be endorsed and that the board be removed prior the appointment of the administrator.

Mr Radebe seconded the proposal on this. Another issue which was raised was that DoE must be able to clarify the time period of the administrator. In clause 37(3)(a), reference was made to a “reasonable opportunity” be given for the board to be heard, he then asked what DoE meant by this.

The Chairperson responded that it was up to the committee members to decide on the timeframes.

Ms B Ferguson (COPE) endorsed the policy proposal and suggested that the entire clause 37 be rewritten and restructured.

Mr Ngobeni agreed that the clause would be amended accordingly so that it became much clearer - while taking into consideration the inputs from Members. 

Ms Mnyikiso recapped and asked whether Members were in agreement that clause 37(1) and (2) be retained and that 37(3) and (4) would be deleted.

The Chairperson asked whether clause 37(5) could not be restructured.

Mr Moloto argued that there was nothing wrong with clause 37(5) and asked for clarity as to why Members proposed that it be restructured. The Minster had every right to review the performance of ISMO whilst it was under administration and was required to table a report on his or her findings.

Ms Motsoai clarified that clause 37(5) read in isolation was fine, but it was very confusing when read in conjunction with clause 37(4)(b). But since Members were in agreement to delete 37(4), clause 37(5) made more sense.

Mr Moloto argued that if clause 3 was being removed, then clause 37(7) needed to be relooked at.

The Chairperson reminded DoE that the appointment of the administrator needed to be taken into consideration somewhere in the Bill.

Mr Mayathula proposed that in clause 40(1)(i) the words “ as set out” be replaced with “in terms of”. He then asked for clarity about what the DoE was referring to in clause 40(1)(c) when it spoke of “an organ of state”. As in clause 40(2)(a) “an organ of state” was a reference to ISMO.

Mr Ngobeni responded that that it was an error in wording and would be looked at.

Clause 39: Regulations and Policy
Mr Ngobeni stated that in clause 39(2) the phrase “and its subsidiaries” be removed. A new clause was inserted which talked about how the Minister would deal with regulations, the Minister would have to bring the regulations to Cabinet and from there, the regulations would be brought to Parliament. The policy element would be left out and should not be included as one of the things that needed to come to Parliament.

The Chairperson asked whether there was a need for clause 39(3)(b) to be removed.

Mr Moloto asked for clarity on whether it was a normal practice that before a Minister tables policy it be brought to Parliament. The responsibility of Parliament was to oversee the implementation of the policy.

Mr Ngobeni replied that normal practice was that when the Minister determines policy, he or she consults with Cabinet for policy direction; reference was made to the Integrated Resource Plan (IRP). DoE therefore proposed that policies not be tabled in Parliament. This was therefore some of the proposals that came from the public hearings.

Mr Moloto reiterated his initial question and asked why was it was that when Cabinet endorses policy it needed to go through Parliament for approval. Regulations were there; the only matter was they needed to come to Parliament for approval before implementation.

Mr Greyling agreed with Mr Moloto on the regulations, especially since the establishment of ISMO was a technical process which was going to be implemented in phases. However public comments from the National Economic Development and Labour Council (NEDLAC) proposed that regulations be brought to Parliament before their implementation.

Adv Mnyikiso stated the DoE had tried to work on clause 39, and suggested that clause 39(3) be removed and wondered whether more work still needed to be done on the clause.

Adv Vanara stated that section 44(4) in the Constitution stated that there should be a separation of powers between the executive, legislature and judiciary. The role of Parliament was to oversee the passing of laws. The function of the executive was to develop and implement policy. On the development and implementation of policy, the role of Parliament was to see that the executive act consistently with those policies. Therefore a proposal that stated that the legislature needed to approve policy was inconsistent with the Constitution. However, there needed to be differentiation between policy and regulations. Regulations was delegated, secondary law making which had been delegated to the executive; however it would be irresponsible delegation to say the legislature could not oversee policy developed by the executive. With regard to facilitating public involvement, the Constitution did not mandate the executive to consult with the public in drafting legislation.

Mr Ngobeni stated that the Minster would develop policy and consult with members of the public. A section which dealt with regulations needed to be included in the Bill, clause 39(4) was therefore inserted.

Mr Mayathula asked why no mention was made to Independent Power Producers (IPP) in the ISMO Bill.

The Chairperson agreed that the inclusion of IPPs in the Bill was necessary and that they had to be strictly defined.

Mr Moloto asked if IPPs were not strictly defined in the Bill, could it not be assumed that any reference to ‘generators’ was a reference to IPPs.

Mr Ngobeni agreed with Mr Moloto that reference to ‘generator’ was inclusive of independent generators (IPPs) as well.

The Chairperson reiterated that changes were made about how the Minister should handle policy and regulations.

Adv Vanara stated that the issue of the transfer of assets was very broad but clause 39(d) could be interpreted to include the transfer of transmission assets even though it was an issue which was still to be discussed. Discussion on the transfer of transmission assets should therefore be excluded from the Bill entirely.

Mr Greyling stated that reference to ‘assets’ in the Bill included other assets such as computers etc and did not only include grid assets. He asked how other assets could be incorporated into the Bill without silently making reference to the transfer of assets.

Adv Vanara replied that the provision was too open ended, as a result, someone else could interpret it in a way that was not intended by the Bill and that could be problematic. He suggested that the transfer of transmission assets should therefore be explicitly excluded from the Bill. Reference to transmission assets should therefore be limited in the principal Act.

Mr Moloto asked for a motivation from DoE about what they had in mind when talking about assets outside of ISMO.

Mr Ngobeni responded that it agreed that transmission needed to be excluded explicitly from the provision. However certain assets which were necessary for the functioning of ISMO needed to be transferred from Eskom.

Mr Moloto agreed with Adv Vanara that transmission assets should be excluded from the provisions in the principal Act because 39(d) was too broad. This would prevent a situation where the Minister transfers assets which were not provided for in the Act.

Ms Mnyikiso stated that the issues covered in clause 39(c)(d) would be re-looked at and that the legal team would get back to the Committee on the matter in the next meeting.

Mr Moloto asked if it would not be possible to do something about the last sentence in clause 39(d).

Ms Mnyikiso responded that it would be a valid option and would be considered.

Clause 40: Transfer of assets, rights, liabilities and obligations
Mr Ngobeni suggested that in clause 40(1)(a) the words “on the effective date and” be removed.

The Chairperson referred to clause 40(2)(4) and asked whether one month was enough for the chief executive officer of Eskom to perform functions pertaining to ISMO to hold an election as provided for in subsection (5).

Mr Ngobeni responded that one month was sufficient and that the work of ring fencing started a while ago, however a provision could be made for the Minster to extend the timeframe if needed.

The Chairperson responded that it was not necessary to extend the timeframe. He referred to clause 40(6) and asked what the “such question” referred to and asked for an example of a question which could arise.

Mr Ngobeni replied and stated that the legal advisors would have a look at the wording and rework it if necessary.

Ms Mnyikiso responded that the application of PAJA stated that the ‘question’ would be decided by the chief executive officer of Eskom.

Clause 41: Transfer of functions and deemed validity of licenses
Mr Ngobeni stated that on clause 41(1) it was emphasised that the functions of ISMO would be transferred in a phased manner. Clause 41(2) was reworded with “as parties may agree” added at the end of the sentence. Cause 41(4) was reworded with “as related to ISMO” to it.

The Chairperson stated that the DoE was expected to take into consideration all inputs made and confidently come up with a clear A-List which would be considered on Tuesday, 19 March. The document would be circulated to Members the day before the next meeting.

The meeting was adjourned.