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DEFENCE PORTFOLIO COMMITTEE
20 June 2003
ANTI-PERSONNEL MINES PROHIBITION BILL: CONSIDERATION OF NCOP AMENDMENTS; ARMSCOR BILL: DELIBERATIONS
Chairperson: Ms T Modise (ANC)
Anti-Personnel Mines Prohibition Bill [B44-2002]
Anti-Personnel Mines Prohibition Bill [B44B-2002]
Armaments Corporation of South Africa, Limited Bill [B18-2003]
AMD submission on Armscor Bill - circulated at meeting on 15 April 2003
NCOP Amendments to Anti-Personnel Mines Prohibition Bill (Appendix)
The Committee adopted two technical amendments to the Anti-Personnel Mines Prohibition Bill proposed by the National Council of Provinces (NCOP). The following matters were discussed on the Armscor Bill: the splitting of Armscor functions in Clause 4(2)(c) and whether Armscor should be involved in production activities at all; the "commercial opportunities" referred to in Clause 4(3)(a)(i); the name of the Board's accounting authority in Clause 6; whether public servants could be included as Board members in Clause 7(3); and whether the Minister of Finance should approve the salaries of Board members and the appointment and accountability structures in place for Armscor's CFO.
Anti-Personnel Mines Prohibition Bill
The Chair read out the NCOP's Proposed Amendments to the Bill (see Appendix), with which the Committee agreed.
Adv Gideon Hoon, State Law Advisor, said that the proposed amendments were acceptable.
Clause 4: Functions of Corporation
Sub clause 1
The Chair noted that the Committee was satisfied with the use of "required" in Sub clause 1(a).
Sub clause 2(c)
Mr S Thomo, Armscor Chairman, said that he had discussed provisions allowing Armscor to use its facilities to generate income with the Department's Mr Ramfolo, Chief: Acquisitions and Procurement. Armscor could either be funded by a transfer payment from the Department or by generating income internally. The Department was concerned that Armscor might seek to operate at a profit. Agreement had been reached that Armscor would use its facilities on a break-even basis.
The Chair asked whether Mr Ramfolo was suggesting that Armscor no longer needed to limit its activities to maintenance.
Mr Thomo replied that Armscor was not confined to maintenance only, and Mr Ramfolo recognised this. The problem lay with the phrase "and commercial matériel" in Sub clause 2(c), and the proper wording had to be found to capture the essence of this provision and avoid any confusion.
The Chair asked when the re-formulation of the sub clause would be finalised.
Mr Nick Sendall, Chief Director: Defence Policy, replied that the essence of the sub clause should relate to refurbishing, fixing or maintaining equipment after it has been bought. He proposed that Sub clause 2(c) be replaced with "establish a system for tender management and contracting in respect of the acquisition of defence matériel for and the acquisition or procurement of defence or commercial matériel in service with the SANDF". This would make the initial purpose of the provision clear: to capture both the initial buying of the equipment and its lifecycle downstream. The current clause did not do this.
The Chair observed that no agreement appeared to have been reached between Mr Thomo and Mr Ramfolo. The Committee would meet again the following week to discuss any progress made.
Sub clause 2(k)
The Chair said that, during public hearings on the Bill, it had been proposed that the word "facilitate" be replaced because its meaning was too broad.
Mr Thomo said that Armscor's function was actually to provide marketing support on defence matters to defence-related industries.
The Chair asked how "facilitate the marketing of defence matériel" could be worded to reflect the function of providing marketing support. How could the clause be clarified?
Adv Hoon replied that, in the context of the sub clause, "facilitate" simply meant to assist, whereas "provide support" went further. He said that he would have to look into this matter further.
Sub clause 2(l)
The Chair expressed concern about the use of "strategic" in this provision, because strategic matter would surely change from year to year. Perhaps it should be replaced with "current".
Mr Sendall replied that this would all be spelt out in the service level agreement. Perhaps the phrase "in the service level agreement" should be inserted after "identified".
The Chair agreed.
Mr Thomo said that it was actually the Department that decided what was strategic, not Armscor.
Sub clause 2(m)
Mr A Blaas (NNP) asked whether the Department itself would be responsible for providing the finance concerned in this type of situation.
The Chair replied that it would.
Mr Sendall explained that this sub clause was not based on a futuristic view. It is just one of those things that the Department had to have, even though it was not commercially viable. Currently, this was not the practice although it could be in future, especially domestically, in the context of global markets.
The Chair agreed with Mr Sendall.
Sub clause 2(n)
Mr Blaas asked whether this could be beyond the scope of the Department's matériel.
Mr Sendall replied that Mr Thomo and Mr Ramfolo had not yet reached agreement on the substance of this provision. It had been proposed that this sub clause be placed under Sub clause 5 instead, which would allow all service level agreement matters to be dealt with in one clause.
Adv Hoon agreed with Mr Sendall. This would also address the problem in Sub clause 1.
The Chair agreed.
Sub clause 3(a)(i)
Mr Blaas sought clarity on "commercial opportunities", asking whether this also included production.
Mr Thomo replied that the commercial opportunities concerned were spelt out in the South African Aerospace Maritime and Defence Industries Association (AMD) submission (document attached). This allowed Armscor to explore its capacity for generating income through the use of its facilities, so that it could offset any budget shortfall. The leasing of facilities to international parties was a commercial activity but could not be termed 'production' in this context.
Mr D Dlali (ANC) suggested that the provision might need to be clarified to rid it of all ambiguity, spelling out what could and what could not be done.
Mr Thomo reiterated that Armscor had no intention of competing with defence industry manufacturers. The enabling legislation clearly stipulated that Armscor would need permission from the Ministers of Defence and Finance before exploring any commercial opportunity.
Mr T Radebe, Director: Legal Support, proposed that the phrase "with the approval of the Minister" be inserted in the sub clause.
Mr Blaas suggested that the phrase "after exhausting the commercial defence industry" be added to Mr Radebe's amendment.
The Chair agreed. She asked Mr Thomo whether Armscor was involved in production at all.
Mr Thomo replied that Armscor was involved in producing prototypes. However, this was not Armsor's core business. Neither did it require ministerial consent.
The Chair observed that this contradicted what Mr Thomo himself had said earlier. He had said then that Armscor was not involved in production, and now he was saying that it produced prototypes.
Mr Thomo said that he agreed with Mr Blaas, proposing that the phrase "not locally available" be inserted in the provision.
Mr Sendall commented that this related to the Cameron Commission of Inquiry into Armscor, and especially to the issue of competition between adjudicators and players in the industry. However, the sub clause dealt with a specific, and not an everyday, function.
Adv Hoon said that he could draft a clause that would cover all these concerns.
Mr Ntuli (ANC) asked whether Armscor would retain the intellectual property rights to a prototype.
Mr Thomo replied that this depended on the structure of each deal concerned. Usually, when a particular technology was sold the rights to it were transferred as well. The rights to the name could also be sold and royalties would then be paid. This depended on the parties to the contract.
Adv Hoon added that this was addressed in Clause 22, but he was not sure whether that clause was sufficient.
The Chair noted that the Committee had agreed to Sub clauses (a) and (b).
Clause 5: Service level agreements
Mr Sendall reminded the Committee that Sub clause 2(n) would have to be added.
The Chair noted that the Committee had agreed to this sub clause, as amended.
Chapter 2: Board of directors and employees of corporation
Clause 6: Corporation managed by Board of Directors
Mr Sendall stated that the name of Armscor's accounting authority would need to be included.
The Chair asked for clarity.
Mr Thomo replied that Armscor had sought a legal opinion on this matter and had been informed that the accounting authority would be the Board, which would delegate powers to the Chief Executive Officer (CEO). This had to be provided for in the clause.
The Chair agreed that this should be done. During public hearings on the Bill, it had been pointed out that the South African National Defence Force (SANDF) was no longer represented on the Board. Why was this?
Mr Sendall replied that a conflict of interests could arise.
Mr Blaas proposed that the SANDF be included because there was no conflict of interest.
The Chair agreed. They would have specialised knowledge and experience in defence matters and would be able to provide practical advice. She asked whether there had been any cases to date in which a conflict of interests had arisen.
Mr Thomo replied that there had not.
Clause 7: Non-executive members of Board
The Chair noted that the Committee had agreed to Sub clauses 1 and 2.
Sub clause 3
Mr Dlali proposed that the provision include "a person wholly or partially employed by the State".
Mr Sendall said that there were two other concerns that would need to be taken into account. One was that the Board could include current members of the defence industry. The other was that retired members of the armed forces could also serve on the Board.
Adv Hoon said that, as he understood the provisions of the Public Service Act, a public servant was not permitted to engage in any other form of paid employment. He undertook to look into this.
Mr Sendall observed that defence force personnel were not allowed to occupy new posts for one year after leaving the service.
The Chair agreed with Mr Dlali's proposal.
Sub clause 4
Mr Dlali proposed that the term of office be capped at six years.
Adv Hoon said that this would not be a problem. The phrase "and may be re-appointed for another term" could also be inserted at the end of the provision.
The Chair noted that the Committee agreed with the clause.
Sub clause 5
Mr Thomo recommended that the Minister should not be given the power to determine the salaries of non-executive Board members because, as far as he knew, this is not the case with any other similar boards.
Adv Hoon replied that the Minister had to approve the salaries concerned because they would be paid from state funds and were accountable to Parliament. Treasury also had to be consulted.
The Chair asked the Department to provide Committee members with copies of a report on the allowances and salaries paid to the board members of parastatals, including Armscor.
Mr Thomo said that the Armscor Board was unlike the boards of other parastatals because it also served as a tender board. It sat once a month, whereas other boards tended to meet quarterly. The practice was to pay the company or institution employing the board member, and not the individual member him/herself. Members were also paid a travel allowance that was determined by the distance travelled. The total remuneration package per board member was in the region of R2 thousand per month.
Clause 8: Vacation of office by members of Board
The Chair said that Sub clause (a) had to be amended to bring it in line with the consequential amendments already made to Clause 6. The Committee agreed.
Clause 9: Meetings of Board and decisions
The Chair noted that the Committee had agreed to this clause.
Clause 10: Chief Executive Officer
Mr Blaas proposed that it be made clear to whom the CEO would be held accountable.
Adv Hoon stated that this would not be necessary, because the CEO would be directed by the Board.
Clause 11: Chief Financial Officer
Mr Thomo asked who would be responsible for appointing the Chief Financial Officer (CFO).
Mr Sendall replied that the relevant chapter in the Public Finance Management Act (PFMA) regulations stipulated that the CFO was appointed to assist the Board. He did not, however, remember what the PFMA said about appointing the CFO.
The Chair asked for clarity on the functions of the CFO and his/her relationship with the CEO and Armscor as a whole. Who would the CFO report to?
Mr Sendall replied that he was unsure and would have to look into this. He assumed that the CFO would be an executive director and would therefore be part of Armscor's top management structure. The CFO would be subordinate to the CEO and would probably not report directly to the Board.
Adv Hoon added that this was spelt out in the PFMA regulations, as well as in the Treasury regulations.
The Chair asked for this matter to be clarified. The impression created by the provision was that the CEO and the CFO would be on the same level, whereas the Department was saying that the CFO would actually be subordinate to the CEO. She proposed that the phrase "appointed by the CEO after consultation with the Board" be inserted. The Committee agreed to this amendment.
Clause 12: Committees
Mr Blaas asked whether Members of Parliament were covered by the clause.
Adv Hoon replied that they were covered by the Constitution.
Mr Thomo proposed that the phrase "and with the approval of the Minister of Finance" be removed from Sub clause 3.
Adv Hoon replied that he would consult Treasury on this before reporting back to the Committee.
The Chair agreed.
Clause 13: Employees of Corporation
Sub clause 1
Mr Thomo asked for clarity on the phrase "subject to the written directions".
Adv Hoon replied that this was a policy decision. He reminded members that the purpose of the clause was to provide general direction.
Mr Sendall added that it meant that the CEO would perform his/her functions in keeping with policies approved by the Board.
The Chair observed that this would not relate to day-to-day tasks.
Mr Thomo proposed that "the recommendations and" be inserted after "subject to".
Adv Hoon replied that this could be done.
The Chair agreed.
Sub clause 2
Mr Thomo asked why the approval of the Minister of Finance was also included in this provision. It appeared that his approval was often required. The phrase "and the concurrence of the Minister of Finance" should be removed.
The Chair agreed, and asked Adv Hoon to look at the proposed formulation.
Clause 14: Conflict of interest
The Chair noted that the Committee had agreed to this clause.
The meeting was adjourned.
Appendix: NCOP Amendments to Anti-Personnel Mines Prohibition Bill
1. On page 7, from line 36, to omit all the words after "question" up to and including "necessary" in line 37 and to substitute:
unless the state in question takes immediate steps to rectify the situation giving rise to the contravention.
1. On page 10, in line 20, after the second "to" to insert "property or to".
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