Home Loan & Mortgage Disclosure Bill; SARCC Financial Arrangements Bill: briefing

PUBLIC SERVICES SELECT COMMITTEE
06 November 2000
HOME LOAN AND MORTGAGE DISCLOSURE BILL; SARCC FINANCIAL ARRANGEMENTS BILL: BRIEFING

Documents handed out
Presentation by the Department of Transport (see Appendix 1)

SUMMARY
The Home Loan and Mortgage Disclosure Bill requires financial institutions to disclose who applies for loans, who gets approved, who gets rejected and the reasons for these decisions. This Bill is part of a comprehensive package that the Department intends to introduce in respect of home loans. There is going to be a ''package of interventions''. The intent is not to force banks to lending badly but to make public all information about lending practices. The ultimate effect should be de-redlining.

The aim of the South African Rail and Commuter Corporation is to enable National Government to take over the debt of the SARCC. The Bill also cancels the borrowing powers of the SARCC (subject to a few exceptions).

MINUTES
The Home Loan and Mortgage Disclosure Bill
The Director General of Housing and a Department of Housing official, Mr Thatcher, and State Law Advisor, Advocate Hoon, were present for the presentation.

Summary of presentation
Red-lining occurs where a financial institution draws a red line around a geographical area and refuses to give a home loan in that area. In the last few years financial institutions have increasingly de-invested in low income areas and this practice requires an intervention:
- In 1997/98 the Department did an assessment and found that 85% of homes in the low income bracket were financed through subsidies. Only 15% were financed through some form of credit.
- In 1999 94% of homes were subsidy-owned and only 6% were credit linked.
- In September this year they made another assessment. They found that only 2% of homes were financed through some form of credit.

The problem with this trend is that it puts the burden of providing low income housing onto government. The burden of low-cost housing cannot be left to government only. The intervention is to create an environment where lending can resume. They do not simply want to force banks to lend. The situation is more complex than that. They must ask financial institutions what prohibits lending in those areas. This must be identified. Therefore the Bill is aimed at financial institutions being required to give information on the home loans that they provide and do not provide.

Section 9 of the Constitution outlaws discrimination. Subsection 26(1) and (2) relates to the right to access to adequate housing. Section 32(1) is the right to access to information held by the State. Section 2(1)(e) of the Housing Act of 1997 says that government must take steps to get access for all to housing without discrimination.
Government has adequate measures in other pieces of legislation to prevent unfair discrimination. This Bill deals specifically with home loans.

The Bill sets out what financial institutions are supposed to disclose, the type of information to be disclosed and the establishment of an office of disclosure, how this office must be constituted and the issue of remuneration.

One consequence of the Bill is to amend the definition of home loan as it appears in the Usury Act.

This Bill is part of a comprehensive package that the Department intends to introduce in respect of home loans. There is going to be a ''package of interventions''.

Discussion
A committee member commented that the penalties for offences could be a paltry amount for banks. It was suggested that the penalty be left open-ended rather than inserting an amount into the Act. Further, he asked if this Bill would not lead to banks warehousing loans in a specific niche.

The Director General replied that warehousing loans could be a potentially unintended consequence of the legislation. In terms of warehousing, banks could regionalise their home loans and in this way still not advance home loans in certain areas. The legislation can circumvent this problem by prescribing what is meant by ''geographical area'' and what is meant by ''the loci of the bank''.

If conduct contravenes the Act ,then it is a serious offence. The Act will regulate this specifically. They will include this under the Regulations and the clause that deals with offences. They will be able to change the amount of the fine from time to time.

The DG added the following comments:
The legislation should have a knee-jerk reaction: if people know that a bank is using discriminatory practices then this bank will attract less investment because people will not want to associate with a Bank that has such a reputation. It is not government's intent to force banks to make bad lending. The intent is to:
- establish who applies for loans
- show who gets approved, rejected, and why?
- give the public information so that they can decide where they invest their money. It is about access to information.

Mr Suka (ANC) asked why the Mortgage Indemnity Fund (MIF) had been closed.

The DG replied that the MIF was set up as a safety net in the event that banks were put in jeopardy as a result of political unrest in the country. The fund closed because the reason for it being set up ceased to exist. Also, the fund was not sustainable. This is because government cannot afford to have R1.5 billion ''hanging around'' and not being utilised for essential services.

Mr Marais (ANC) referred to Clause 8(2)(e)(ii) of the Bill. This clause states that a member of the Office ceases to be a member if convicted of an offence and sentenced to imprisonment without the option of a fine. He asked if this did not have the effect of excluding pre-1994 political prisoners from the process.

The DG explained:
Clause 6 empowers the Minister to appoint the members. The clause deals with the recruitment of members and in this regard the Minister has total discretion. Clause 8(2) sets forth the reasons for which someone who is already in office may have to vacate the office. The conviction referred to in this clause relates to a conviction while the person is in office, and not previous convictions. When the person is in Office ''he may no longer be associated with such things''.

Mr Suka referred to clause 8(3) which states that a member of the Office may be re-appointed at the termination of his or her term of office. He asked for how many terms one could occupy Office.
The DG said that there is no limit to the terms of a persons re-appointment. This is in the Minister's discretion.

Ms Ntwanambi (ANC) suggested that there should be guidance as to the number of terms for which a person may be re-appointed or there would be room for corruption.
The DG replied that this was a new issue in SA. They are literally creating a new industry and they want to maintain expertise. They will not be able to develop experts in this field in anything less than 5 terms (15 years). They want to see the development of capacity in this area.

It was suggested that they include a clause which says that a credit rating will apply to the mergers and acquisitions of financial institutions.
The DG replied that this makes sense in a country like the US where mergers and acquisitions take place often. However in SA there are only about 5 major banks and they hardly have mergers and acquire on a daily basis. The recent Stanbic/Nedcor merger was the first merger in SA in the last ten years. Therefore in SA it will not be good enough to only apply a credit rating to this. They must go for things that happen more regularly. For example they are looking at applying a credit rating to the licencing of branches. They are consulting with the Reserve Bank about this.

Dr Nel (NNP) asked if the names of people would be included in the disclosed information as this would be a breach of confidentiality.
The DG replied that when the information appears on the system the individual becomes a number. The person's name will not be known, only the details of the home loan. Further, clause 3(3) of the Bill provides that no-one may disclose the required information unless it is done in terms of the Act or other legislation or it has been ordered by a court of law.

The Chairperson indicated that the Committee would vote on the Bill the following day.

SARCC Financial Arrangements Bill, 2000
Delegates from the Department of Transport were present. Ms Antoinette Nothnagel (General Manager: Special Projects) made the presentation.

Summary of presentation
In 1993 Cabinet decided that government would take over the South African Rail and Commuter Corporation's (SARCC) debt. However this process was delayed and in January 1999 the Minister of Finance requested the Minister of Transport to start these proceedings. There was a big debate as to whether it was a money bill or not. The legal opinion taken determined that it was not a money bill.

Government took over the debt because the SARCC provides a public service and they will never be in a position to repay the debt. Ms Nothnagel noted that this is not the same as the Transnet legislation because in this case there are no shortfalls on the pension fund.

The Bill also provides that the borrowing powers of SARCC (with a few exceptions) have been brought to an end.

The Department of Finance has budgeted for taking over the debt. It is a very uncomplicated Bill. Without the Bill, the loan will remain on the SARCC balance sheet but the interest on the loan will be paid by Finance. Thus, at the end of the day it is government's debt anyway.

The committee could not vote on the Bill as they were one opposition party member short of a quorum. They agreed to vote on the Bill the following day. The meeting was adjourned.

Appendix 1:
DEPARTMENT OF TRANSPORT

MEMORANDUM


To: MINISTER

Reference: PSI 6/3/8/5

Subject: TAKING-OVER OF THE DEBT OF THE SOUTH AFRICAN RAIL COMMUTER CORPORATION (SARCC)

1. PURPOSE
The purpose of the memorandum is to submit for your consideration a Cabinet Memorandum and a draft Bill regarding the taking-over of the debt of the SARCC. Letters addressed to the Minister of Finance, Minister T Manuel and the Minister of Public Enterprises, Minister J Radebe regarding this issue are also included for your consideration and signature should you concur with the contents thereof.

2. BACKGROUND
In 1993 Cabinet took a decision to take over the loan debt of the South African Rail Commuter Corporation Limited (the Corporation), withdraw their borrowing powers and put their annual capital needs on the budget of the National Department of Transport. This decision was taken because it was realised that commuter services will always require direct subsidisation by Government. The decision was, however, never implemented due to the imminent elections early in 1994.

The Minister of Finance requested this Department on 8 February 1999 to proceed with this issue. (Annexure A).

Various meetings were held with the Department of Finance and the SARCC and the following questions arose which delayed the process, but were dealt with:

2.1. THE MONEY BILL QUESTION
The question arises whether the Bill should be a "money bill" contemplated in section 77 of the Constitution. Section 77(1) provides that a bill that appropriates money or imposes taxes, levies or duties is a money bill. In this regard, section 213(2) of the Constitution provides:

"(2) Money may be withdrawn from the National Revenue Fund only—
(a) in terms of an appropriation by an Act of Parliament; or
(b) as a direct charge against the National Revenue Fund, when it is provided for in the Constitution or an Act of Parliament."

The Constitutional Court has held that direct charges against the National Revenue Fund (NRF) contemplated in paragraph (b) do not have to be made by means of a money bill (See In re: Certification of the Constitution of the Republic of South Africa 1996 (4) SA 744; 1996 (10) BCLR 1253 (CC) paragraphs 418 to 422). The question is whether the Bill is an appropriation or a direct charge against the NRF.

Numerous discussions were held with the Department of Finance regarding this issue, as this Department was of the opinion that it should be a money bill. The Department of Finance requested us to obtain an opinion on the matter from adv. Gerhard Grové, who was intimately involved in the drafting of the new financial legislation and he has suggested some changes to the wording of the Bill. Adv Grové indicated that if the changes were made, which have been done, the taking over of the SARCC's debt obligations will amount to a direct charge against the NRF and the Bill will not have to be treated as a money bill.

2.2 BORROWING BY SUBSIDIARIES
The borrowing powers of subsidiaries were also discussed in depth with Department of Finance, SARCC and Adv Grové. The Bill removes the borrowing powers of the Corporation on a date to be determined by yourself in consultation with the Minister of Finance, except for purposes of bridging finance in the manner and subject to the maximum amounts approved from time to time by the Minister of Finance. This also involves removing the power of the Corporation to grant guarantees or suretyships for the obligations of other persons. The Bill accordingly also provides that the Corporation will no longer be able to guarantee or secure the debts or obligations of other persons unless they are wholly owned subsidiaries of the Corporation.

Adv Grové raised the question that if the Corporation will no longer be allowed to borrow money, the same limitation should apply to its subsidiaries (currently only Intersite). However, as an operating company, Intersite will not be able to operate property without being able to raise credit on a short term basis where its cash flow position is such that it does not have available funds. Suppliers will be unwilling to extend credit to it unless its directors or shareholders provide guarantees or suretyships. In the absence thereof it may be required of Intersite to prepay for goods and services, which is not conducive to efficient business operations. It is not intended that the Corporation be allowed to provide guarantees for any loans or loan facilities, but purely for normal day-to-day credit facilities related to business operations. Its directors cannot be expected to do so, and accordingly, the Corporation as sole shareholder will be able to provide such guarantees or suretyships. Adv Grové was concerned that this could lead to abuses, and accordingly the Bill provides that the power to provide such guarantees or suretyships will be subject to the conditions and limitations, if any, imposed by yourself.

3. CABINET MEMORANDUM AND DRAFT BILL
Numerous meetings were held between this Department, Departments of Finance and State Expenditure (Budget Office and Asset Management) and the SARCC. All parties are now satisfied with the attached documents.

This issue is extremely urgent as Asset Management's budget has been amended to include the bulk of this expenditure, as set out in the draft Bill, in this financial year. It might also be necessary to request the State Law Advisor to expedite the certification of this Bill.

A draft Cabinet Memorandum and a draft Bill regarding the taking-over of the debt of the SARCC are attached for your perusal. Letters addressed to the Minister of Finance, Minister T Manuel and the Minister of Public Enterprises, Minister J Radebe regarding this issue are also included for your consideration and signature should you concur with the contents thereof.

4. RECOMMENDATIONS
4.1 It is recommended for your consideration that the Cabinet Memorandum and the draft Bill regarding the taking-over of the debt of the SARCC be approved.

4.2 It is also recommended for your consideration that the letters addressed to the Minister of Finance, Minister T Manuel and the Minister of Public Enterprises, Minister J Radebe regarding the taking-over of the debt of the SARCC be signed should you concur with the contents thereof.

ACTING DIRECTOR GENERAL: TRANSPORT
DATE:


ACTING DIRECTOR GENERAL: TRANSPORT

1. The Cabinet Memorandum and the draft Bill regarding the taking-over of the debt of the SARCC are approved / not approved and / or ..............................................................

2. The letters addressed to the Minister of Finance, Minister T Manuel and the Minister of Public Enterprises, Minister J Radebe regarding the taking-over of the debt of the SARCC are signed / not signed and / or ........................................................................

MINISTER OF TRANSPORT
DATE:

DEPARTMENT OF TRANSPORT

CABINET MEMORANDUM NO............ OF 2000
COPY NO ....... OF .........

DATE: ....................

______________________________________

FILE NUMBER: PSI 6/3/8/5

SUBJECT: SOUTH AFRICAN RAIL COMMUTER CORPORATION LIMITED: TAKING OVER OF DEBT AND TERMINATION OF BORROWING POWERS

1. PURPOSE
To obtain approval for the South African Rail Commuter Corporation Limited Financial Arrangements Bill, 2000 (the Bill) for tabling in Parliament, which authorises the taking over of the Corporation's debt and termination of their borrowing powers.

2. SUMMARY
The Bill provides that the State will take over the total loan obligations of the South African Rail Commuter Corporation Limited (the Corporation) as they existed on 30 April 2000, in the amount of R2,281 million (Two billion two hundred and eighty-one million Rand) plus interest thereon from 1 May 2000 to the date of take-over. Other non-interest bearing debt of the Corporation of R219 million (Two Hundred and Nineteen Million Rand) will be appropriated on the budget of the Department of Transport. The Corporation will present certificates from its auditors to confirm the abovementioned amounts. The Minister of Finance is empowered by the Public Finance Management Act, 1999 (Act No. 1 of 1999) to borrow the amount necessary to cover the costs of taking over such loan obligations and net liabilities (Section 66(2)(a) read with section 71(f) of that Act).

The Bill will amend the Legal Succession to the South African Transport Services Act, 1989 (Act No. 9 of 1989) (the Legal Succession Act) to remove the borrowing powers of the Corporation on a date to be determined by the National Minister of Transport in consultation with the National Minister of Finance, except for purposes of bridging finance in the manner and subject to the maximum amounts approved from time to time by the National Minister of Finance as authorised by the Public Finance Management Act, 1999 (Act No. 1 of 1999). This also involves removing the powers of the Corporation to borrow money by means of financial instruments. It also provides that the Corporation will no longer be able to guarantee or secure the debts or obligations of other persons unless they are wholly owned subsidiaries of the Corporation, subject to the conditions and limitations, if any, imposed by the Minister of Transport. As a result, the provisions in section 31 of the Legal Succession Act making section 19 of the Act applicable to the Corporation, are also amended in the Bill. (Section 19 deals with matters related to the issuing of such financial instruments.)

3. BACKGROUND
In 1993 Cabinet took a decision to take over the loan debt of the South African Rail Commuter Corporation Limited (the Corporation), withdraw their borrowing powers and put their annual capital needs on the budget of the National Department of Transport. This decision was taken because it was realised that commuter services will always require direct subsidisation by Government. It would also enable the National Department of Transport and the Corporation to ensure that a greater emphasis is placed on funding capital needs, which will lead to a decrease in operating expenses. The decision was, however, never implemented due to the imminent elections early in 1994.

The main reasons which contributed to the debt position are the fact that since the inception of the Corporation in 1990, it has been required to borrow funds for capital expenditure while, prior to 1993, the Corporation was also required to borrow funds to cover operational shortfalls due to severe under-funding of operational expenditure. The Corporation should never have been required to borrow funds due to the nature of the subsidised socio-economic services it provides. The Corporation will thus never be in a position to repay loans from its own resources. The increasing interest burden on the loan debt thus has a detrimental effect on the operational funding requirements, and if the debt is not taken over the financial position of the Corporation can only continue to deteriorate.

Between 1993 and 1997 the Corporation did manage to repay borrowings to the amount of R1 182 million from operational savings, mainly effected through efficiency gains. Due to the following reasons, it will not be possible to further reduce the loan debt from own resources in future:

- Reduction of the subsidy from the National Department of Transport in real terms as shown in Annexure A;

- the increasing cost of maintaining an ever deteriorating asset base;

- the major increase in insurance costs due to vandalism and the risk linked to the ageing asset base; and

- an increased interest burden.

In order to address the financial problems of the Corporation, the Ministers of Finance and Transport agreed during 1999 on a roll-out plan which includes the following:


- The signing of a Memorandum of Understanding between the Minister of Transport and the Corporation which formalises their relationship.
The Memorandum between the Minister and the Board of Control of the Corporation has been approved by that Board and as soon as the new Board has been appointed (July 2000), the memorandum will be signed.

- Annual approval of the capital expenditure programme by the Minister of Transport.
The capital programme for 2000/01 amounting to R355 million has been approved by the Minister of Transport. Once the debt take-over has been effected, capital expenditure will be funded through the savings on interest. In future, a greater emphasis will be placed on funding capital needs, which will lead to a decrease in operating expenses.

- Signing of the SARCC/Metrorail concessioning-type agreement.
A four-year agreement (until March 2003) between the Corporation and Metrorail has been signed. This agreement allows Metrorail a "get-fit" period as agreed with labour through the NFA. Concessioning changes the business agreement from an input-based to an output-based service.

- Planning and implementation of the rail concessioning pilot project.
The Corporation, in collaboration with the national and provincial departments of transport, local government, Metrorail and organised labour, is currently involved in the preparation of the concessioning pilot project, through which empowerment opportunities for employees and historically disadvantaged individuals, companies and communities will be created.

- Rationalisation of commuter rail services.
Although major efficiency gains had been effected by the ringfencing of Metrorail within Transnet and the greater focus by the Corporation on the management of commuter services, further efficiency gains will only be possible through major rationalisation, which will be done in two phases. Under the first phase international consultants have been appointed to assist Metrorail with internal optimisation and the investigations have been completed in 3 of the 5 regions, while implementation has taken place in 2 regions. The envisaged saving is estimated to be in the order of R200 million per annum. The second phase is the rationalisation between commuter rail, bus transport and minibus taxis, which will be enabled by the new National Land Transport Transition Bill currently being considered by Parliament. It is envisaged that major efficiency gains within the total public transport sector will be effected.

- Institutional reform of commuter rail.
A steering committee consisting of all role players has been established to investigate alternative institutional formats. It is envisaged that the new institutions will be established towards 2002.

Magnitude of the debt
The amount of the debt and the net liabilities which are to be taken over amounts to R2 500 million. Of this amount, R2 281 million comprises loans as at 30 April 2000 plus interest, and the rest mainly of non-interest bearing debt, such as creditors amounting to R219 million.

Budgeted provision for take-over
The Department of Finance has budgeted for an amount of R2 464 million in respect of the take-over of the loans (R2 281 million plus interest). The specific dates of take-overs are: October 2000 - R800 million, November 2000 - R800 million and December 2000 - R681 million. The timing of the take-over has been fixed to take account of government's cash flow requirements. The remaining R219 million will be dealt with as a budget request in the normal budgetary cycle. It should however be pointed out that the borrowing powers of the Corporation can only be revoked once the total debt has been settled.

Options for the take-over of the debt
The options to appropriate monies for the debt take-over include appropriation through the Budget, or by an act of Parliament. The amount that will be borrowed by National Government will be utilised to redeem the Corporation's debt. The debt of the Corporation has already been included in the public sector borrowing figures and the expenditure measured in the National Accounts. The debt take-over will therefore only entail a reallocation of the debt from a public entity to National Government and will not affect the public sector borrowing requirement or the national account figures.

However, since the debt take-over represents a major policy shift, namely also to move the capital funding of the Corporation on budget, it is recommended that it be dealt with through legislation to subject it to parliamentary scrutiny as a substantive issue.

Procedure
The debt take-over needs to be approved by Parliament and for that reason, the South African Rail Commuter Corporation Limited Financial Arrangements Bill, 2000 has been prepared to effect the taking over of the R2281 million plus interest. The appropriation of the remaining R219 million will be dealt with under the normal budget procedure. The main reason for distinguishing between the take-over of the loans and the other non-interest bearing debt is that the latter represents net liabilities not immediately repayable and is best dealt with through the normal budget process.

The Bill provides for the taking over of the loans of the Corporation, the cancellation of their borrowing powers and the approval of a bridging facility for day-to-day cash flow management in an amount to be determined by the Department of Finance as contemplated in section 66(5) of the Public Finance Management Act, 1999. The borrowing powers will only be revoked on a date determined by the Minister of Transport in consultation with the Minister of Finance. This provides flexibility for money to be appropriated through the budgeting process for the R219 million of non-interest bearing debt and does not necessarily restrict appropriation to one budgeting cycle. Other consequential amendments removing the powers of the Corporation to borrow money through the issuing of debt instruments are effected to Chapter 5 of the Legal Succession to the South African Transport Services Act, 1989, to bring it into line with this Bill.

The Bill provides for the Corporation to retain its ability to guarantee or secure the debts of its wholly owned subsidiaries subject to the conditions and limitations, if any, imposed by the Minister of Transport. A subsidiary of the Corporation, such as its property management company, Intersite, is an operating company which is involved in normal business operations, and most suppliers will not provide credit to any private company (a (Pty) Ltd company) without surety by the directors or shareholders of such company. The directors are not the owners of the company, and as such it cannot be expected of them to provide such surety. Suppliers then require the shareholder (in this case the Corporation) to provide such surety. In the absence thereof it may be required of Intersite to prepay for any goods or services required, which is not conducive to efficient business operations, and provides opportunities for fraud or embezzlement not normally associated with business. It is not intended that the Corporation be allowed to provide guarantees for any loans or loan facilities, but purely for normal day-to-day credit facilities related to normal business operations.

4. FINANCIAL IMPLICATIONS
The amount of the debt and the net liabilities amount to R2 500 million. On approval of this Bill by Parliament, an amount of R2 281 million plus interest will be consolidated into national government debt. The remaining R219 million will be appropriated through the budget process as part of the budget of the National Department of Transport.

5. COMMUNICATION IMPLICATIONS
None

6. OTHER DEPARTMENTS/INSTITUTIONS
The following have been consulted:

Finance (Budget Office and Asset Management)
South African Rail Commuter Corporation Limited
Public Enterprises

7. CONSTITUTIONAL IMPLICATIONS
None

8. RECOMMENDATION
It is recommended that Cabinet approves:

- taking over of the debt and net liabilities of an amount of R2 500 million, being R2 281 million plus interest through the Bill and R219 million as a budget appropriation through the Department of Transport;

- cancellation of the borrowing powers of the Corporation on a date to be determined by the Minister of Transport in consultation with the Minister of Finance;

- the attached South African Rail Commuter Corporation Limited Financial Arrangements Bill, 2000, which enables the above recommendations, for submission to Parliament in the third term of the current Session.

9. CONTACT PERSONS
Mr S Msikinya (Department of Transport)

_____________________________

REPUBLIC OF SOUTH AFRICA

SOUTH AFRICAN RAIL COMMUTER CORPORATION LIMITED FINANCIAL ARRANGEMENTS BILL

(As introduced in the National Assembly in terms of section 75 of the Constitution: Explanatory summary of Bill published in Government Gazette No. ..... of ....... 1999.) (The English text is the official text of the Bill.)

(MINISTER OF TRANSPORT)

BILL
To amend the Legal Succession to the South African Transport Services Act, 1989, to remove the powers of the South African Rail Commuter Corporation Limited to borrow money, on a date to be determined by the Minister of Transport in consultation with the Minister of Finance, except for the purposes of bridging finance in limited circumstances; to limit the powers of the Corporation to guarantee or secure the debts or obligations of other persons to persons who are wholly owned subsidiaries of the Corporation and subject to the conditions and limitations, if any, imposed by the Minister of Transport; to provide that the State shall take over all loan obligations and net liabilities of the Corporation in a specified amount; and to deal with matters connected therewith.

BE IT ENACTED by the Parliament of the Republic of South Africa, as follows:—

GENERAL EXPLANATORY NOTE:

Words underlined with a solid line indicate insertions in existing enactments.

[ ] Words in bold print in square brackets indicate deletions from existing enactments.

Definitions
1. In this Act, unless inconsistent with the context, "Corporation" means the South African Rail Commuter Corporation Limited established by section 22(1) of the Legal Succession to the South African Transport Services Act, 1989 (Act No. 9 of 1989) (hereinafter referred to as the principal Act).

Amendment of section 23 of Act 9 of 1989 as amended by section 16 of Act 52 of 1991 and section 3 of Act 47 of 1992

2. Section 23 of the principal Act is hereby amended—

(a) by amending subsection (4) thereof as follows:

"(4) The Corporation shall have the capacity and powers of a natural person of full capacity in so far as a juristic person is capable of having such capacity or of exercising such powers, except—
(a) the capacity or power to borrow money, subject to paragraph (d) of subsection (5), and
(b) the power to issue guarantees, indemnities or securities to secure or indemnify the obligations of other persons that are not wholly owned subsidiaries of the Corporation."

(b) by amending the introductory sentence of subsection (5) thereof as follows:

"(5) Without derogating from the generality of the provisions of subsections (1), (2) and (4) but subject thereto, the Corporation shall have power—"

(c) by amending paragraph (d) of subsection (5) thereof as follows:

"(d) to [borrow,] lend or invest money, and to borrow money only for purposes of bridging finance in the manner and subject to the maximum amounts determined from time to time by the Minister of Finance in the national sphere of government;"

(d) by replacing paragraph (e) of subsection (5) thereof with the following paragraph:

"(e) to open an account or accounts in the name of the Corporation with one or more banks registered under section 17 of the Banks Act, 1990 (Act No. 94 of 1990) in which all moneys received by the Corporation are to be deposited and from which its expenses are to be paid, and to do everything necessary to operate such accounts, and also to draw, accept, endorse or discount cheques, promissory notes and bills of exchange."

(e) by replacing paragraph (f) thereof with the following paragraph:

"(f) to enter indemnities, guarantees and suretyships and to secure payment in terms thereof in any manner, only in so far as such indemnities, guarantees and suretyships relate to the liabilities or obligations of any wholly-owned subsidiary of the Corporation and subject to the conditions and limitations, if any, imposed by the Minister;"

Amendment of section 31 of Act 9 of 1989 as amended by section 22 of Act 52 of 1991, section 7 of Act 47 of 1992 and section 2 of Act 43 of 1995

3. Subsection (1) of section 31 of the principal Act is hereby amended as follows:
"(1) The provisions of sections 13 and 18 [and 19] of this Act shall apply mutatis mutandis to the Corporation, provided that[—
(a)] the reference in sections 13(7) and 18(1) [and 19(1)] to the Minister shall be interpreted as a reference to the Minister of Transport.
[(b) the reference in section 19(1) to the memorandum of association and the provisions of the Companies Act, 1973, shall be interpreted as a reference to the capacity and powers of the Corporation in terms of section 23.]

Taking over by State of loan obligations of Corporation

4. The State shall take over the total loan obligations of the Corporation, as they existed at 30 April 2000, in an amount of R2 281 000 000 (Two Billion Two Hundred and Eighty-One Million Rand) plus interest thereon from 1 May 2000 to the date of such taking-over by the State.

Short title and commencement
5. (1) This Act is called the South African Rail Commuter Corporation Limited Financial Arrangements Act, 2000.
(2) Sections 2 and 3 of this Act shall come into effect on a date to be determined by notice in the Government Gazette by the Minister of Transport in the national sphere of government, in consultation with the Minister of Finance in the same sphere.

MEMORANDUM ON THE OBJECTS OF THE SOUTH AFRICAN RAIL COMMUTER CORPORATION LIMITED FINANCIAL ARRANGEMENTS BILL

Background
The Bill is designed to give effect to an earlier Cabinet decision to take over the loan debt of the South African Rail Commuter Corporation Limited (the Corporation), withdraw its borrowing powers, except for bridging finance, and put its annual capital needs on the budget of the National Department of Transport.

Since its establishment in 1990, the Corporation has been obliged to fund its capital needs, and, before 1993, also part of its operational needs, by borrowing money. The Corporation provides socio-economic services on a subsidised basis. This means that its fare revenue is not sufficient to cover its operational and capital costs, and therefore that if the full shortfall is not forthcoming from government, it has to make up the difference by borrowing.

The amount of the debt and the net liabilities which are to be taken over will amount to R2 500 million.

The National Department of Transport and the Corporation are involved in a number of initiatives to increase efficiency, rationalise services and reduce dependency on outside funds. These include concessioning of certain services, and a rationalisation of all public transport services in terms of the National Land Transport Transition Bill, 2000, which is currently being considered by Parliament.

Objects of the Bill
Section 213(2) of the Constitution provides that money may be withdrawn from the National Revenue Fund only by an act of Parliament. Legislation to allow the government to borrow the money to cover the Corporation's debt and approve payment and transfer of this money to the Corporation to off-set the debt, must therefore be tabled. Accordingly the Bill provides that the State will take over the total loan obligations as they existed on 30 April 2000 amounting to R2 281 million plus interest thereon to date of take-over. The remainder of R219 million representing non-interest bearing debt such as creditors will be appropriated through the normal budget process. The Minister of Finance is empowered by the Public Finance Management Act, 1999 (Act No. 1 of 1999) to borrow the amount necessary to cover the costs of taking over such loan obligations and net liabilities (see section 66(2)(a) read with section 71(f) of that Act).

The Bill also amends the Legal Succession to the South African Transport Services Act, 1989 to remove the borrowing powers of the Corporation on a date to be determined by the National Minister of Transport in consultation with the National Minister of Finance, except for purposes of bridging finance in the manner and subject to the maximum amounts approved from time to time by the National Minister of Finance. This also involves removing the powers of the Corporation to borrow money by means of financial instruments. Its powers to guarantee the obligations of other persons or entities are also limited to normal day-to-day credit facilities related to normal business operations of the Corporation's wholly owned subsidiaries, subject to the conditions and limitations, if any, imposed by the Minister of Transport. As a result, Chapter 5 of the Legal Succession to the South African Transport Services Act, 1989, is also amended to bring it into line with the Bill.

Consultation
Although the Bill is being introduced by the Minister of Transport, it was developed jointly with the Minister of Finance and the Corporation. The Department of Public Enterprises has also been consulted.

Parliamentary procedure
The Departments of Transport and Finance are of the opinion that the Bill should be dealt with in terms of section 75 of the Constitution.

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M 3/6/8/4
To: Mr T Manuel
Minister of Finance

TAKING-OVER OF THE DEBT OF THE SOUTH AFRICAN RAIL COMMUTER CORPORATION (SARCC)

Your letter dated 8 February 1999 and my letter of 4 February 2000 as well as our subsequent discussions regarding the financial position of the SARCC, have reference.

First of all, I would like to apologise for the delay in adhering to your requests but I am sure you understand the difficulties we had to address. Officials of our Departments have met on various occasions, and the Cabinet Memorandum and Draft Bill attached hereto, are based on the outcome of those discussions. These documents are submitted for your urgent consideration please.

I would also like to thank you and your Department for the guidance and assistance in this regard.

FROM: ABDULAH M OMAR MP
MINISTER OF TRANSPORT
DATE:

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M 3/6/8/4

To: Mr J Radebe
Minister of Public Enterprises

TAKING-OVER OF THE DEBT OF THE SOUTH AFRICAN RAIL COMMUTER CORPORATION

Cabinet took a decision during 1993 to take over the loan debt of the South African Rail Commuter Corporation Limited (the SARCC), withdraw their borrowing powers and put their annual capital needs on the budget of the National Department of Transport. This decision was taken because it was realised that commuter services will always require direct subsidisation by Government. The decision was, however, never implemented due to the imminent elections early in 1994.

During February 1999, the Minister of Finance requested my Department to proceed with this issue. An approach to deal with the debt was developed after a comprehensive investigation regarding the total financial position of the SARCC was completed. Copies of the Cabinet Memorandum and draft Bill are attached for your information please.

Please note that this will lead to amendments to certain sections of the Legal Succession to the South African Services Act, 1989. As you are aware, you have legislative competence over that Act, whilst I have competence over Chapter 5 which deals specifically with the establishment and business of the SARCC.

The Department of Finance has adequate funding to take over the debt in this financial year, and I need to submit this matter to Cabinet urgently. Please inform my Office by 3 July 2000, whether you are in agreement with the proposed Cabinet Memorandum and draft Bill.

FROM: ABDULAH M OMAR MP
MINISTER OF TRANSPORT
DATE: