Public Investment Corporation Amendment Bills (Private Members' Bill & Committee Bill): briefing, with National Treasury & GEPF input

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Finance Standing Committee

24 April 2018
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Standing Committee on Finance met for get briefings on the Public Investment Corporation Amendment Bills: both the Private Members' Bill and Committee Bill. National Treasury and the Government Employees Pension Fund (GEPF) were present to give inputs.

The Parliamentary Legal Unit outlined the amendments to the PIC Bill as proposed by the Committee. The main highlights were as follows:

Clause 3

Amends section 6 of the Act which deals with the Board of directors. In terms of the amendment the Minister must appoint the chairperson, ten non-executive board members, two executive members which are CEO and CFO as the Board of the corporation. The Minister must make the appointments in accordance with a process stipulated. The Minister must appoint the chairperson on the recommendation of the National Assembly.

The ten-non executive members must be appointed in consultation with cabinet. The ten -non executive board members must include: Representative from the department; Representative of each major depositor; and

Two representatives of a registered trade union whose members are the majority of the members of the GEPF. The clause further stipulates the procedure that the National Assembly to follow in order to make the recommendation of the chairperson. The clause lastly provides that directive on the management of the corporation issued by the Minister must be tabled in the National Assembly and published on the website of the corporation.

Clause 4

Amends section 10 of the Act which deals with investments of deposits. The amendment requires that a report reflecting all investments of deposits whether listed or unlisted to be annually submitted to the Minister for tabling and to be published on the website of the corporation.

National Treasury’s stance on the proposed amendments to the PIC draft Committee Bill was highlighted as follows:

Clauses 1 and 3- Objects of PIC

The current Act (i.e. Public Investment Corporation Act, 2004 (Act No. 23 of 2004”) provides in section 4 that the main object of the PIC is to be a financial services provider in terms of the Financial Advisory and Intermediary Services Act, 2002 (FAIS Act). The draft Committee Bill proposes that the objects of the PIC include the promotion, facilitation, support and assisting in the financing of buying the property for depositors, economic growth, job creation and development of infrastructure and the reduction of social inequalities and the interests of the poor and lower income earners. Treasury believed this is a client mandate matter and should not be included in the PIC Act. The PIC must act as investment manager in accordance with the instructions of the client, such as for example, the GEPF and other clients such the Unemployment Insurance Fund and the Compensation Fund. The PIC clients, such as the GEPF, mandate the PIC as an investment manager with the authority to act as its agent in managing and administering its portfolio in accordance with the Investment Management Agreement.

Clauses 4(a) and 8 of the draft Committee Bill & Clause 2(a) of the PM Bill) - Board

Taking the appointment of the Chairperson to the National Assembly may make the process too protracted which may affect investment decision-making and the operations of the PIC. Treasury proposed that the current arrangement in the Act that the Minister appoints the Chairperson and other members of the Board in consultation with Cabinet be retained. It is further proposed that the Act be amended to stipulate that the Chairperson and the Deputy Chairperson of the Board must be independent persons – Principle 7 of King IV read with Recommended Practices 31 and 32.

On the number of non-executive members sitting on the PIC board, Treasury proposed that the number be left to the Memorandum of Incorporation (MOI) of the PIC (determined by the State’s shareholder representative). A sufficient number of Board members are necessary to ensure independence and to accommodate the different Committees of the Board. It is proposed that the Act provides that the Chief Executive Officer and at least one other executive be appointed to the Board but the identity of the second executive and the total number of executive members be determined by the MOI.

The Democratic Alliance tabled the Private Member’s Bill and made several proposals on the legislation governing the PIC. In the proposal, Parliament should appoint the chairperson of the PIC. This would follow nomination of candidates from the public. The Deputy Minister of Finance should not chair the PIC; instead, the body should be chaired by an independent person. . It was wrong for the Treasury to suggest the PIC would not be forced to make public its investments as the PIC was holding R2 trillion of the money of employees of the state. Treasury had made a U-turn and was objecting to a clause promoting transparency in the PIC Bill. Treasury was overturning the work done by former Deputy Finance Minister Mcebisi Jonas two years ago to make public investments made by the PIC.

The GEPF highlighted its positions on the PIC Bills. The GEPF had not retreated from its initial position on disclosure provisions. The PIC does not own the assets that it manages on behalf of its clients, no matter who that client is. So if you had to look at the annual financial service of the PIC, you will not see the investments of the GEPF in the statements of the PIC, you will see the investments of the GEPF in the GEPF annual financial statements. He emphasised the need for a broader understanding of the principal-agent relationship and governance structures in relation to the PIC and GEPF. The relationship was not unique to SA. The GEPF cautioned the law should not be changed in a manner that impinges other relevant laws and frameworks guiding such fundamental relationships.

Members emphasised the need for all decisions on the PIC to benefit workers whose money was being managed through GEPF. Also, transparency was non-negotiable. Fit and proper individuals who understand the investment space should constitute the board. He wanted the Deputy Minister to continue to chair the PIC. The position must not be de-politicised. The notion that politicians are inherently incompetent should be done away with as it was not true. Immediate frustrations must not make the Committee take permanent decisions. The democratic outcomes of the elections must be respected. The PIC is a very important institution as it deploys more than R2 trillion into the mainstream economy. They pointed out that although the broad objective was to legislate for governance, there did not seem to be much discussions around maximising PIC returns. Discussions on PIC must not just be political; the Committee would also have to recognise the financial implications of any decisions to be taken.

The Chairperson said Members would take final positions after public hearings. However, at this stage, it seemed reasonable to have the Deputy Minister as the chairperson of the PIC. Members seemed to be in agreement on many issues and the questions seemed to be mainly on wording of clauses. He was pleased most Members were not bringing forward one dimensional monolithic views.

Meeting report

The Chairperson welcomed everyone and indicated the Committee would concurrently deliberate on the two Public Investment Corporation (PIC) Bills; the Private Member Bill from the DA as well as the Committee Bill. During a previous engagement, the Committee had urged the PIC, National Treasury and the Government Employees Pension Fund (GEPF) to meet and map a way forward. The Committee Bill follows from these engagements, and public hearings for both Bills would be held on a later date.

Committee Bill presentation by the Parliamentary Legal Unit

Ms Noluthando Mpikashe, Parliamentary Legal Unit, highlighted the amendments to the PIC Bill as proposed by the Committee as follows:

Clause 1

Amends the definitions by inserting the definitions of Government Employee Pension Fund; National Assembly, and prescribe.

Clause 2

Substitutes section 5 of the Act which deals with the powers of the corporation. The clause seeks to add that when the corporation acts in accordance with the instructions of the depositors it must take into account the following: securing fund investment’s financial sustainability and security; creating and protecting local jobs; industrialising the Republic of South Africa’s economy, building the manufacturing sector and boosting exports; sustainable development; priority investments must be in the Republic of South Africa; the country’s development objectives; building a capacitated development state; and transformation of the economy and society.

Clause 3

Amends section 6 of the Act which deals with the Board of directors. In terms of the amendment the Minister must appoint the chairperson, ten non-executive board members, two executive members which are CEO and CFO as the Board of the corporation. The Minister must make the appointments in accordance with a process stipulated. The Minister must appoint the chairperson on the recommendation of the National Assembly.

The ten-non executive members must be appointed in consultation with cabinet. The ten -non executive board members must include: Representative from the department; Representative of each major depositor; and

Two representatives of a registered trade union whose members are the majority of the members of the GEPF. The clause further stipulates the procedure that the National Assembly to follow in order to make the recommendation of the chairperson. The clause lastly provides that directive on the management of the corporation issued by the Minister must be tabled in the National Assembly and published on the website of the corporation.

Clause 4

Amends section 10 of the Act which deals with investments of deposits. The amendment requires that a report reflecting all investments of deposits whether listed or unlisted to be annually submitted to the Minister for tabling and to be published on the website of the corporation.

Clause 7

Substitutes section 16 of the Act which deals with regulations. The clause provides for the procedure the Minister needs to follow when making regulations and requires tabling of the regulations once made in the National Assembly.

National Treasury presentation

Ms Empie van Schoor, Chief Director: Legislation, National Treasury, presented Treasury’s positions on the proposed amendments to the PIC draft Committee Bill as follows:

Clauses 1 and 3- Objects of PIC

The current Act (i.e. Public Investment Corporation Act, 2004 (Act No. 23 of 2004”) provides in section 4 that the main object of the PIC is to be a financial services provider in terms of the Financial Advisory and Intermediary Services Act, 2002 (FAIS Act). The draft Committee Bill proposes that the objects of the PIC include the promotion, facilitation, support and assisting in the financing of buying the property for depositors, economic growth, job creation and development of infrastructure and the reduction of social inequalities and the interests of the poor and lower income earners.

Treasury believed this is a client mandate matter and should not be included in the PIC Act. The PIC must act as investment manager in accordance with the instructions of the client, such as for example, the GEPF and other clients such the Unemployment Insurance Fund and the Compensation Fund. The PIC clients, such as the GEPF, mandate the PIC as an investment manager with the authority to act as its agent in managing and administering its portfolio in accordance with the Investment Management Agreement.

Clauses 1, 2, 3 and 8- Banking Licence for PIC

Granting a banking licence to the PIC is not recommended since it will change the nature of the PIC as an asset manager regulated by the Financial Sector Conduct Authority (FSCA) (previously Financial Services Board) under the FAIS Act and Financial Sector Regulation Act. It will codify the nature of investments and will also not accord with the PIC receiving its mandate from the client. If the purpose of this proposed amendment is to enable the PIC to provide a housing loan scheme, this is a client’s mandate matter, and in any event, providing a housing loan scheme does not require a banking licence. However, should the Committee decide to enable the PIC to obtain a banking licence, the PIC should be subject to all the requirements of the Banks Act, and it not be exempted from compliance with the Banks Act.

Clauses 4(a) and 8 of the draft Committee Bill & Clause 2(a) of the PM Bill) - Board

Taking the appointment of the Chairperson to the National Assembly may make the process too protracted which may affect investment decision-making and the operations of the PIC. Treasury proposed that the current arrangement in the Act that the Minister appoints the Chairperson and other members of the Board in consultation with Cabinet be retained. It is further proposed that the Act be amended to stipulate that the Chairperson and the Deputy Chairperson of the Board must be independent persons – Principle 7 of King IV read with Recommended Practices 31 and 32.

On Trade Union representation, the proposed direct trade union representation on the Board will undermine the framework governing the relationship between the employer and employees through the Public Service Co-ordination Bargaining Council (PSCBC). Members and pensioners of the GEPF and the employer have equal representation on the Board of the GEPF. The current Act allows for depositor representation on the PIC Board. It was proposed that depositor representation be made compulsory by stipulating at least one representative of a depositor (such stating the largest by value of assets).

On National Treasury representation, the inclusion of a representative of the National Treasury on the Board is supported since the Minister administers the PIC Act and is the Executive Authority of the PIC, in terms of the Public Finance Management Act.

On the number of non-executive members sitting on the PIC board, Treasury proposed that the number be left to the Memorandum of Incorporation (MOI) of the PIC (determined by the State’s shareholder representative). A sufficient number of Board members are necessary to ensure independence and to accommodate the different Committees of the Board. It is proposed that the Act provides that the Chief Executive Officer and at least one other executive be appointed to the Board but the identity of the second executive and the total number of executive members be determined by the MOI.

Private Member Bill presentation

Mr D Maynier (DA) tabled the Private Member’s Bill and made several proposals on the legislation governing the PIC. In the proposal, Parliament should appoint the chairperson of the PIC; and this would follow nomination of candidates from the public. The Deputy Minister of Finance should not chair the PIC; instead, the body should be chaired by an independent person. It was wrong for the Treasury to suggest the PIC would not be forced to make public its investments as the PIC was holding R2 trillion of the money of employees of the state. Treasury had made a U-turn and was objecting to a clause promoting transparency in the PIC Bill. Treasury was overturning the work done by former Deputy Finance Minister Mcebisi Jonas two years ago to make public investments made by the PIC. He found it "absolutely staggering" that the PIC and the GEPF had done such an about turn and were now opposing greater transparency. This was especially the case in light of the latest controversy surrounding the PIC’s investments, or potential investments, in Sagarmatha Technologies, and VBS Mutual Bank, which is under curatorship. The real question was why the GEPF, which invests the savings of thousands of public sector workers, would not want investments concluded by the PIC on its behalf disclosed to Parliament. Also, he had written to the Chairperson requesting a hearing on the PIC’s investment in Ayo and its potential investment in Sagarmatha. He also wanted to know if the Minister had seen Treasury’s submission on the PIC Bill.

Ms van Schoor, in response, said Treasury did consult with the Minister before tabling its stance on the amendments to the Bill. The Minister gave Treasury the go-ahead to present the document.

Mr F Shivambu (EFF) said the onus of making legislation rests with Members, as lawmakers. National Treasury and other stakeholders could only make inputs or comments. He emphasised the need for all decisions on the PIC to benefit workers whose money was being managed through GEPF. Also, transparency was non-negotiable. Fit and proper individuals who understand the investment space should constitute the board. He wanted the Deputy Minister to continue to chair the PIC. The position must not be de-politicised. The notion that politicians are inherently incompetent should be done away with as it was not true. Immediate frustrations must not make the Committee take permanent decisions. The democratic outcomes of the elections must be respected. The PIC is a very important institution as it deploys more than R2 trillion into the mainstream economy. He added because the DA had been frustrated by previous events at the PIC and in the government, it was trying to use this to change the make-up and processes of appointments in the body.

Ms T Tobias (ANC) said the Committee might have to reconsider the clause which sought to limit PIC investments within the confines of South Africa. This provision should be further analysed and discussed as it could limit PIC potential returns as this would mean the corporation would not be able to tap into foreign markets. The Committee needed to be careful about preventing the Deputy Minister from chairing the PIC. She agreed that when it came to the appointment of the chairperson, Members must be careful when calling for the de-politicisation of the position. The fact that South Africa is a developmental state, Members must not lie to themselves that the country has transformed such that the commanding heights of the economy are in the hands of the people. She said this was not a corporate issue, where the Companies Act applied.

Ms G Ngwenya (DA) said there had to be flexibility in PIC’s investment mandate, and to recognise that the Minister should decide whether investments are in line with client mandates. She pointed out that although the broad objective was to legislate for governance, there did not seem to be much discussions around maximising PIC returns. Discussions on PIC must not just be political; the Committee would also have to recognise the financial implications of any decisions to be taken.

The Chairperson sought clarity about whether the PIC is a state–owned company. He said Members had to exercise caution in their call to not have the Deputy Minister chairing the PIC. The Committee had to be give serious thought about it. Someone with a clear grasp of the imperatives of the country should chair the PIC. If the Deputy Minister must be chair, then Parliament must have a much larger oversight responsibility. However, the Committee was not taking any definitive positions at this stage. On the appointment of trade union representatives, the modalities would also have to be canvassed together with the views against such representation by some quarters. On process, the Committee would have to find the time to finalise the Bill in Committee by end of May. On Mr Maynier’s comments, it was not for Mr Maynier to demand the view of the Minister on the Bill on specific clauses. The Minister would not, in the ordinary course of being briefed by officials in the Treasury, know about specific clauses of the Bill. The Minister would receive a general overview of the Bill, and not the detailed clauses. What Mr Maynier was demanding was out of line, as the Minister would not get a clause-by clause briefing.

Government Employees Pension Fund input

Mr Abel Sithole, Principal Executive Officer, GEPF, outlined the GEPF’s positions on the PIC Bills. The GEPF had not retreated from its initial position on disclosure provisions. The PIC does not own the assets that it manages on behalf of its clients, no matter who that client is. So if you had to look at the annual financial service of the PIC, you will not see the investments of the GEPF in the statements of the PIC, you will see the investments of the GEPF in the GEPF annual financial statements. He emphasised the need for a broader understanding of the principal-agent relationship and governance structures in relation to the PIC and GEPF. The relationship was not unique to SA. He cautioned the law should not be changed in a manner that impinges other relevant laws and frameworks guiding such fundamental relationships.

The Chairperson said Mr Sithole’s comment presumed Members were “operating like idiots”- that Members did not actually know what they were doing. This was not the case as Members were mindful of numerous political imperatives and the aim of the amendments was not to be destructive. In addition, the Committee had a complement of competent researchers assisting it to deal with specialised work.

Mr Shivambu reiterated that inputs from the GEPF, PIC and Treasury were noted but the Committee was not compelled to take them on board. Members, as public representatives, should give guidance consistent with the country’s developmental objectives. He suggested another meeting where all parties clearly articulate their positions which would then be debated and reconciled to move forward.

The Chairperson welcomed the engagements saying they had given the Committee insights to ponder upon. After public hearings, the Committee would then take final positions. However, at this stage, it seemed reasonable to have the Deputy Minister as the chairperson of the PIC. Members seemed to be in agreement on many issues and the questions seemed to be mainly on wording of clauses. He was pleased most Members were not bringing forward one dimensional monolithic views. On Mr Maynier’s letter to the Committee requesting a special briefing on Sargamatha, there would not be a special sitting but the Committee would discuss the matter on a later date.

The meeting was adjourned.

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