Minister of Public Enterprises on Eskom CEO re-appointment; DST Annual Performance Plan

Meeting report

The Minister of Public Enterprises, Lynne Brown, briefed the Committee on the re-appointment of Mr Brian Molefe. The Minister noted that, five weeks before, she had poked her nose into a hornet’s nest at Eskom when she instructed the Board to reconsider its proposed pension pay-out of R30m to Mr Brian Molefe. To say that the consequences of that decision unleashed a storm was to grossly understate the effect. Within moments of publication of the announcement by Eskom Board Chairperson, Ben Ngubane, that Mr Molefe was to return as Eskom’s Group Chief Executive, the issue was thrust to the centre of societal and political contestation. Old allegations had re-surfaced and new ones had been brought to light. These include serious allegations – that are regularly reported, and widely perceived, as fact. The Minister then said: “Do I regret interfering in the proposed Molefe pension pay-out? Well, she could not say she enjoyed having her integrity questioned. But, in the end, if our State-Owned Companies were to perform to their true potential at the vanguard of the developmental and transformative state, we ought to be clear the fog of allegations of impropriety that envelop them – one way or the other”.

The Minister paid tribute to Members, the media and members of the public who have invested time in investigating and reporting these matters, and she encouraged others to contribute to setting things straight. She went on to a brief progress report on unfolding issues pertaining to Eskom.

Firstly, the Minister noted that she a deployee of the ruling party therefore she was subject to the decision of the party.

Secondly, the Minister noted the political and government processes. She said that since Mr Molefe’s return to Eskom she had briefed the top officials, the Deployment Committee and National Executive Committee of the ruling party on the matter. The ruling party requested Government, led by President Zuma, to resolve the matter. In response, the President established an Inter-Ministerial Committee (IMC) on Eskom led by Mr Michael Masutha, Minister of Justice and Correctional Services, and included Mr Malusi Gigaba, Minister of Finance, Ms Nkhensani Kubayi, Minister of Energy and herself. The IMC had held several discussions and reached consensus. The Minister felt that the Committee would like her to announce the outcome of these deliberations. But all she could promise was that the announcement would be made soon.

Thirdly, there was an opposition’s court case. On this, she did not want to dwell too much on a matter before the court. What Members should know was that the Minister had submitted an affidavit and instructed her legal team to withdraw her opposition to Part A of the relief sought – that she set aside her appointment of Mr Molefe. The Minister would abide by the court’s decision on the legality of Mr Molefe’s return to Eskom. This was consistent with her support for Mr Molefe’s return to Eskom on the proviso that his return was legal.

Fourthly, the Minister took Members into her confidence on the subject of the Eskom Board. She could not ignore the fact that the Board was ultimately accountable for the fiduciary duties of the company. To this extent, the Minister continued working with the Board to ensure that Eskom’s sustainability was maintained and its developmental contribution to the South African economy was enhanced. Therefore, as the Shareholder Representative, her relationship with the Board was crucial in ensuring that public and investor confidence was restored as they continued engaging with the investor community to improve their investment rating.

Referring to Eskom’s performance, the Minister noted that it was not all doom and gloom, as some would have it. Eskom was an important economic driver. It was the fourth largest utility company in the world. It operated the only nuclear power station on the continent. It employed 46 000 people. It had recorded a profit for the 2016/17 financial year. It was ahead of schedule on its revised build programme. It provided more than 90% of the country’s electricity. These were not green shoots; they were giant trees.

Finally, the Minister expressed her deepest condolences, on behalf of Government, to the family of Thembisile Yende. She had asked her Department to ensure that Eskom provided the appropriate support to the Yende family and the police investigation.

Discussion
Ms C Labuschagne (DA, Western Cape) commented that the question of Mr Molefe was legal and ethical. Mr Molefe resigned based on the finding in the State Capture investigation. Resignation was due to an ethical issue. Further, there was a person who was suspended for the same reasons. Yet now the Board wants to reinstate Mr Molefe. How did the Minister expect the public to react if her department reinstate individuals who were suspended or resigned? The Department could not act illegally for the sake of making Eskom better. She said that the Minister should explain to the public how this was going to happen. Despite Eskom being financially viable and sustainable as a result of its actions, an illegal action could cost money and this could have an effect on both rich and poor people.

Mr J Julius (DA, Gauteng) said that the Minister was aware of allegations of destroying documents related to the case of Mr Molefe. Did the Minister try to investigate these allegations? Did the Minister find out what really happened? This could show the seriousness of the Minister about Mr Molefe’s investigation. Can you explain this investigation or whether there is investigation underway? The Minister was the shareholder in Eskom as representative of the government. From her responsibility as a shareholder, he asked why the Minister did not seek legal advice about reinstating Mr Molefe from Parliament back to Eskom. In this light, it looked like the Minister was protecting someone. It looks as if there was political interference, prejudice or betrayal. He felt that the Minister should have sought legal advice because she was aware of the State Capture report, allegations of destroying evidence and other implications associated with reinstatement. Why was it always opposition parties and NGO who had to intervene in these matters? The question of the State Capture should be resolved. It involved the President’s son and Eskom as well as Mr Molefe. The involvement of the President’s son through the Gupta family in the Eskom business should have motivated the Minister to seek legal advice. He said: get rid of this man, but I am not telling you what to do, but do you want the State Capture to go back to square one?

Mr E Mlambo (ANC, Gauteng) commented that the Minister did not appoint the CEO, but the Board did. However, the Minister was supporting the reinstatement of Mr Molefe. On the question of reinstatement, Dr Ngubane was in a good position to answer that question. Dr Ngubane should explain whether he did receive a letter of resignation from Mr Molefe.

Mr L Gaehler (UDM, Eastern Cape) asked if it was possible for an employee of institution, who had resigned, to be employed in another institution, and generate his/her pension payment from another institution. Was this possible? Was it impossible to find another CEO in the country who was not involved in the State Capture?

Mr C Smit (DA, Limpopo) commented that what he could see was that Mr Molefe resigned and that there was instruction from somewhere else that he could be reinstated. The Minister was using a short cut to ensure that the position was not advertised. The fact was that Mr Molefe changed Eskom policy and now people were paying a lot of money for electricity. The other was that the coal could not be bought directly because of the Broad Based Economic Empowerment (BBBEE) policy. The policy stated that coal could be bought through a middleman: who was actually a middleman? The Guptas; Jacob Zuma’s son; only these two were benefitting. The procurement policy was problematic. The re-appointment of Mr Molefe was controversial and South Africans were not happy with this.

The Chairperson asked whether the Minister sought legal advice prior to supporting the re-appointment of Mr Molefe. There ought to be a reason and explanation why the Minister wanted Mr Molefe to be re-appointed.

Mr Julius said that he had further two questions: If Dr Ngubane received the resignation letter; did he not feel that he has a duty to inform Parliament? On the question of coal contracts, did you engage with National Treasury to give you the go ahead?

The Minister said that she would answer overriding questions related to the State Capture report. As she has stated many times, the State Capture report recommended that the Commission of Inquiry ought to be established. Prior to such establishment, the Minister could not carry out her own investigation on that particular area of concern. She would welcome any investigation because Eskom was implicated. Coal was an old issue that went back to the apartheid regime. Coal was a raw material and the majority were excluded in the supply of raw materials. This had to change. The supply of raw material should not be based on colour. With regard to the coal issue, there were two investigations. There was an investigation in 2007. All these investigations provided recommendations that were easily to implement. There was a trend in Eskom that needed to be addressed. Comments needed to be taken into consideration. Facts needed to be put forward. Eskom spent R50 million on coal. In 2008, emergency coal was needed to deal with the load shedding. Emergency coal contracts were signed to keep the lights on. The issue was whether Eskom continue to purchase the emergency coal. Dr Ngubane, on the previous day, said that because Eskom could not continue to purchase emergency coal, there would be a load shedding; but Eskom had to fix that without load-shedding. Eskom’s major role was to keep the lights on. She would not like to see the recurrence of load-shedding that took place in 2014 and 2015. Load-shedding created unsustainability in the company. Her team was working on the set of references for investigation. There would be seven investigations that would look into the trends of the organisation and the coal procurement. There were other forms of procurement at Eskom that needed to be looked at. Eskom was a giant company whose contracts ought to be investigated. It remained crucial that Eskom should be sustainable. She felt sorry to see that Members felt that she was not concerned about seeing Eskom making money. Her role was to fix what she felt Eskom had done wrong and to ensure that Eskom was sustainable. She looked at Eskom suppliers from that context. One company lost a coal supply contract recently because its coal was not of quality. All issues such as these ought to be investigated. In her view, Eskom had 3000 to 5000 megawatts spare. Eskom had increased exports of electricity to other SADC countries by 60%. There was no way that there could be load shedding.

On the legal proof that she had used, the Minister stated that in fact the issue was associated with the MOI. When she refused the pay out the R30 million, the legal proof that was brought to her was from Eskom. Mr Molefe was in 2014, appointed in accordance with the 2014 MOI as per original employment. The 2016 MOI empowered the Minister to become part of this issue. She thought he had resigned and issued a statement on 11 September 2016. Mr Molefe was an incredibly good manager. He was able to turn around Eskom. He was responsible for the electricity sustainability. He was the one to determine the electricity price. Yes, Members were right – he was not the only good manager; there were other good managers out there. That was the part of the problem. The Eskom Board was about to advertise the position. They came a long way to be able to make a decision [of re-appointing Mr Molefe] that ought to be made. The decision was taken as a part of fixing the governance of Eskom. And getting all decisions verified. The issue of the coal contracts was not set aside. There was a need to do investigations on all allegations raised in the media.

On the destruction of documents, the Minister responded that it was very difficult to do an investigation. There were allegations without supporting proof. Having said that, she operated in climate where if she could not do it, the climate would become more suspicious. She advised Eskom to appoint an auditing company to go through the computers and conduct forensic investigation.

Eskom Board Chairperson briefing
Dr Ben Ngubane stated that members wanted to be assured that there would not be load-shedding. Electricity could not be stored. It was generated and went down the line. It ought to be used or else it affected the system. Eskom had to be between 49 and 50 frequencies so as to maintain the system evenly. If supply was exceeded by demand, the control centre would start switching off some parts of the country. That was what they called load-shedding. If the system collapsed more than that, there would be national crisis. The supply capacity was a result of all the generators. If four power stations had a shortage, there would be a danger. Therefore, the demand would exceed the supply. Eskom moved away from unsolicited tenders, buying coals without a public request for proposals. That was adopted by the Board of Eskom in 2008. The Board decided that there could not be further load-shedding. However, National Treasury cautioned the Board that it could not decide from whom it bought coal. Treasury had to give the go ahead. Despite the application lodged with Treasury, no go ahead was given. The nation would have been at risk if the power stations had no coal. He was stating facts. The population should know the climate in which Eskom found itself.

Dr Ngubane stated that in 1948, the National Party came to power. The NP was very clear on what empowerment of its people meant. It created railways and Eskom and various state institutions which ended up benefiting its people. It knew what it was doing. There were contracts that Eskom had entered into with other companies back in 1940s. The major supply companies were those that contracted in that era. Billions and billions of rand had always ended in these companies. In a democratic era, one could not allow that situation to continue. Parliament accepted BBBEE as one mechanism to remedy the past injustice through inclusion of the majority who were excluded. The enterprises who would supply Eskom should be conforming to the BBBEE. Which black owned company has accumulated billions of rand? There were none or perhaps very few. State Owned enterprises should engage with developmental transformation and this could not be done without procurement. Companies that were complaining were those companies that had been there for so long. This background was provided to show Members who had enjoyed the monopoly. They were sensitive issues. All these issues would come out when an investigation was completed.

On the question of Mr Molefe, Dr Ngubane said that he was employed as a permanent employee. The Cabinet later took a decision that he should be employed on a five-year fixed contract. He was moved from the first institution, to Transnet, and then to Eskom. Due to these transfers, he was losing out on his pension. These details were in his affidavits. Eskom hired his services for 10 years. That was in 2015 and not 2016. When the issue of the Public Protector came in, he applied for early retirement. The Board sought legal opinion on his application, the application was accepted. The rest was history. The media started talking about this and said that there was “arrangement” for his pension payment. There would no pension for a person who had resigned. When he applied for early retirement, he was free to pursue what he wanted to pursue. When he became a Member of Parliament, he had nothing to do with Eskom. If he were to take Eskom to court, Eskom could have to pay five years’ contract of service and this would have been a lot of money than R30 million. In terms of documents, the Minister has explained that the forensic investigation would take place.

Discussion
Ms Labuschagne sought clarity on the forensic investigation and from where the idea of paying a pension came from. When a person move out of company had two options: whether the pension was paid out or stayed. She said that when investigations are done, the reports should be shared with the Committee. Referring to his comment that Mr Molefe worked for two companies prior to joining Eskom, why was Mr Molefe losing out on his pension when they would have been paid and why was he eligible after 10 years?

Mr Gaehler commented that BBBEE could not be used as a defence because BBBEE was for members of the public who were vulnerable and not people who were better off and in high positions. The mere fact was that Mr Molefe had resigned and was a Member of Parliament. The Board Chairperson was supposed to advertise the position and not take an individual employed by parliament to fill the position. When the pension was suggested, Mr Molefe was a Member of Parliament and this needed an explanation.

Mr Julius was of the view that given that Mr Ben Ngubane came from the vulnerable, he expected him to be championing the poor. The government was working towards healing wounds of the past but Dr Ngubane should not come and lecture them on the developmental state. He should rather explain to the Committee how many black CEOs of other state owned companies received the same treatment enjoyed by Mr Molefe. R30 million was not a joke as this amount could not be paid to other black CEOs if, let say, they were to be treated equally. He asked what Dr Ngubane was doing to redress the past because it appeared that what he was doing was no different from past practices. He wanted to know whether Dr Ngubane had no obligations to tell Members about circumstances that led to Mr Molefe’s departure and how the Board manufactured the idea to pay his pension out. The pay out of pension was surrounded on Mr Molefe’s departure and return. All this was illegal as they were based on manufactured circumstances to justify the paying out.

Mr O Sefako (ANC, North West) welcomed the Minister’s belief. He commented that the procurement policy was not drafted in a static way. It reflected the history of suppliers and needed to be revisited and reviewed. The review ought to be guided by the history of suppliers especially what they had been charging.

Mr Smit commented that Members were not against BBBEE principles; rather they were against a BBBEE model that benefited a small group of highly connected individuals at the expenses of the poor black majority, which had to pay more for electricity due to the escalated costs. The question to answer was what could be the price to pay a middleman and another supplier? This ought to be justified. The second thing was the whole model around the state capture had created crisis and this crisis was not being looked into. It was only the Gupta family that could supply and why was it only Gupta’s company that could supply Eskom?

Mr Gaehler asked if the shareholder was informed beforehand about the R655 million prepaid for coal. This was taxpayers’ money and could not be paid without informing the shareholder.

Ms N Mokgosi (EFF) asked the Minister to explain what was really happening in Eskom or what Members should say was happening. The question of saying that Mr Molefe resigned on the 11 November 2016, and today they say – or he says – that he never resigned. He said that he was leaving voluntarily and that they should accept his resignation. At the same time, Eskom informed the media and South Africans at large that Mr Molefe had resigned but now the story had changed. Eskom was stating that he did not resign. Having not resigned, Eskom was saying that it would reinstate him. How did he become a Member of Parliament if he did not resign?

On whether she was informed about the pre-paid coal, the Minister responded that she was guided by the PFMA and the MOI as well as the legislation establishing and regulating Eskom. In terms of financial performance, Eskom was not required to seek approval from the Minister. Her mind was working towards other international companies and the things they did, including setting up a structure. Her mind was working towards setting up a structure that would report directly to the Minister; it would deal with contingency planning, liabilities, assets and so on. Generally, Eskom did not need to come to her. In terms of the PFMA, some areas required her approval as well as that of the Minister of Finance. There were a number of ways that she would like to look at Eskom.

On the question of BBBEE, the Minister responded that the facts on BBBEE demonstrated that, at that moment, 72% of coal procurement was in white hands whereas 28% was in black hands. The TEGETA contract was 6.7%, representing R4 billion rand. She reminded Members that Eskom spent R50 billion a year on coal procurement. The problem with these figures was merely based on Members’ opinions and assumptions. People had rights to express their opinions – but there was no right to respond to opinions.

The Minister remarked that the majority of South African coal ownership was in white hands and that was why BBBEE was important. However, the Minister was not saying that the white minority should be deprived of their contracts. No. She was saying that all people should be able to share the national wealth on an equitable basis. A working model was needed. That model would fix this problem if it promoted inclusiveness. There should be a framework that actually helped everybody.

The Minister remarked that if one had worked for a company for 15 years, one should be entitled to a good pension. Mr Molefe worked for three state-owned companies that he had to fix. And there was no company where he was able to claim his pension. Although she objected to the payment of R30 million she later supported such payment because Eskom decided to rescind his contract. However, it was later decided that he should return and continue to work on the basis of the previous fixed contract under which two years were left. She still believed that R30 million was too enormous. She had a relationship with the Board of Eskom and such relationship was regulated by the statute and other legal documents. The Minister was awaiting an audited report of what the Board had done within the last six months.

The Chairperson agreed that a model that accommodates all was needed and thanked the Minister for her time. Members needed time to discuss the brief and noted that all members would agree that the transformation of Eskom was needed.

Department of Science and Technology (DST) Annual Performance Plan for 2017/18
Dr Phil Mjwara, Director General, noted that the 2017/18 planning cycle was undertaken with these being some of the issues under consideration: year three of medium term strategic plan implementation, budget cuts, increased traction on implementation of government’s Nine Point Plan, growing appreciation of the potential contribution of Science, Technology and Innovation (STI) toward socio-economic transformation, growing appreciation of the Operation Phakisa methodology and a number of policy related initiatives underway (see document).

Dr Mjwara said that DST had prioritised the following policy initiatives for 2017/18, including, establishment of a Sovereign Innovative Fund, expansion of the Sector Innovation Fund, review of the Intellectual Property Rights from Publicly Financed Research and Development Act and expansion of Hydrogen South Africa Programme, finalisation of the Innovation for Inclusive Development Strategy, development of a new White Paper on STI and the finalisation of the STI Institutional Landscape Review, and completion of 64 MeerKAT antennae commissioned for a single polarisation array.

Dr Mjwara noted that the 2017/18 Annual Performance Plan had 49 performance indicators. The APPs of the public entities under DST had been approved by the Minister In 2016/17, DST received an unqualified audit opinion with no financial matters issued by Auditor-General and it was aiming at receiving a clean audit opinion in 2017/18. The MTEF allocation for 2017/18 was R7.5 billion and R7.9 billion for 2018/19. DST was experiencing fiscal challenges caused by the budget cut in two ways: It had 42 unfilled vacancies and there had to be a reduction in targets in a number of indicators as compared to 2016/17.

Dr Mjwara, referring to the provinces, noted that there were no concurrent functions and that national footprint was established through entities, project implementation, and innovation integration into regional plans. Some examples of provincial footprint were provided (see document).

Discussion
Mr J Parkies (Free State, ANC), referring to the provincial footprint, asked why these examples were drawn from four provinces only (Eastern Cape, Northern Cape, Gauteng and Mpumalanga) and whether there were no examples from other provinces. Commenting on research institutions, he asked if DST had had an opportunity to analyse its impact on employment. He commented that it was difficult to quantify their work. How do you conceptualise their work in terms of an inclusive economy?

Ms Mokgosi commented that she was impressed to see that DST had women in leadership. She asked whether the background of students supported for undergraduate science studies was checked.

Mr Julius, referring to challenges experienced by local government, asked if DST was confronted by municipalities about the challenges they had.

Mr Mlambo welcomed the presentation. Referring to the White Paper on STI, he asked if DST could elaborate further on it.

Mr Gaehler asked what DST was doing in order to attract more researchers and if there was collaboration between DST and the Departments of Basic Education and Higher Education. What was the role of DST insofar as PhD students were concerned?

Ms Labuschagne asked for further clarity on research initiatives, on the state of the climate change research network and the status of report submitted to Cabinet.

Mr Sefako asked if there was linkage between the indigenous system and European system of education

The Chairperson asked about the implications of the budget.

Dr Mjwara responded that there was collaboration between DST and the Department of Education. The Department should share with the Committee information about the work the Department does from time to time. He could come and present on work done in each province. For example, there was a lot of work that the Department did in the Eastern Cape, Free State and KZN and everywhere. Four provinces were chosen as a highlight.

On the impact of DST institutions, Dr Mjwara responded that there were different mechanisms that were used to conduct oversight. However, their impact could be reflected in the Annual Performance Plan and Annual Report of the institution in which its impact would be assessed. The impact could be reflected in the knowledge developed by an institution, in tracking the number of jobs they had created, and in the number of initiatives that were undertaken. The second measure of impact was students who had graduated, especially their demographics. The third measure was to assess whether these institutions were providing the right sciences to society. Every five years such analysis was done to determine if their sciences could be adjusted. On employment, he noted that DST could track down graduates to see if they were absorbed by the labour market and if the demographics of graduates – and their employment thereof – were equitable. These institutions were doing a wonderful job. There were a number of initiatives in Limpopo aimed at ensuring that there were black-owned companies in agriculture sector.

Dr Mjwara spoke of an initiative which supported the population in rural areas with aim to support indigenous knowledge. There were other decisions that were made to ensure that indigenous knowledge was promoted. There were initiatives being run by DST along with the Department of Health.

On the question of the student backgrounds, Dr Mjwara responded that facts could be given when DST returned to brief the Committee.

Referring to municipal challenges, Dr Mjwara responded that there was an agreement between DST and the Department of Cooperative Governance and Traditional Affairs (COGTA), in particular, and with the House of Traditional Leaders in general on how DST could share the knowledge of its institutions for improvement of service delivery. The institution would present to municipalities on how it could contribute to improvement of service delivery. That was something that needed to be institutionalised and a plan should be drawn to illustrate how innovation could be beneficial to municipalities and provincial governments. For example, in June, there would be Youth Indaba on technological innovation.

Referring to the White Paper on Science, Technology and Innovation, Dr Mjwara noted that the White Paper was still under drafting process and was expected to be finalised by the end of June. There would be a briefing on the White Paper by DST.

The committee minutes of 17 May 2017 were adopted.

The meeting was adjourned.