Transnet investigation report on corruption (postponed); Transnet Second Defined Benefit Fund beneficiaries

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Public Enterprises

22 August 2018
Chairperson: Ms l Mbganga-Gcabashe (ANC)
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Meeting Summary

Committee members registered their discomfort at being briefed about the investigation report by Transnet executives who were being investigated. It was highly inappropriate to be briefed by those who are alleged to be implicated. After a committee caucus, the Committee decided to give the newly appointed Transnet Board space to deal with the investigation report recommendations. A later meeting with the Board would be scheduled.

The Transnet Second Defined Benefit Fund was established in 2000 for the benefit of existing retired members and qualifying beneficiaries. The Committee expressed its concern about the delays in resolving this matter. The Committee could not understand Transnet’s difficulty in paying these struggling pensioners a better rate and it was an embarrassment for the government.

The Board Chairperson said it was committed to deal with the pensioners in the most humane manner.

Meeting report

The Chairperson welcomed Transnet and the Department of Public Enterprises (DPE). The purpose of the meeting was to receive briefs from Transnet on the outcomes of the investigation report on allegations of corruption and irregularities and on progress in addressing the concerns of Transnet Second Defined Benefit Fund beneficiaries

Transnet briefing on investigation report on corruption
Transnet Group Chief Executive Officer, Mr Siyabonga Gama, said he could begin by giving a brief outline of the contents of the briefing.

Members’ comments
Ms N Mazzone (DA) raised a concern that the Committee could not accept briefs from Transnet executives if they had just received letters from the Transnet Board which could allegedly implicate them.

Ms D Rantho (ANC) agreed that it would be inappropriate for executives to give the brief if the executives had received letters from the Board. The eligibility of the executives to present a brief was in question.

Ms G Nobanda (ANC) was of the opinion that it did not make a difference since the Transnet executive was part of the persons invited by the Committee.

The Chairperson resolved that a five minute break should be taken for Transnet Board to sort out who would present the brief and for the Committee to have a caucus meeting.

Caucus break

After the break, the Chairperson said that the Committee had only recently learnt that the Board has issued letters to some executives. The Committee therefore had decided to give the Transnet Board time to continue with its processes and to completely familiarise themselves with the investigation report. The board had just being inaugurated hence it would not be able to present the report as it did not have a good grasp of the report and it needed to take ownership of the report. The Committee had resolved to focus only on the second part of the agenda on the progress of Transnet’s Second Defined Benefit Fund since it was not entangled in any controversy. The Chairperson invited the Transnet Board Chairperson to give the brief.

Transnet update on addressing concerns of Transnet Second Defined Benefit Fund beneficiaries
Dr Popo Molefe, Transnet Board Chairperson, said Transnet Board Member, Prof Edward Kieswetter, would present the progress on concerns raised on Transnet Second Defined Benefit Fund beneficiaries but the executives would answer those questions that the Board could not yet answer.

The Chairperson accepted the proposal.

Prof Edward Kieswetter, Transnet Board Member, gave an overview of the Transnet Second Defined Benefit Fund, the status of the class action and the progress made. Two pension funds are in contention Transnet Pension Fund (TPF) and the Transnet Second Defined Benefit Fund (TSDBF). In 1990, early in its existence, the Transnet Pension Fund had an actuarial deficit of R17.1bn, meaning 22% of its liabilities were covered by the fund’s investments. Until 2003, the beneficiaries received additional increases on top of the statutory percentage of 2% per annum contained in the rules. In 2003, based on the advice from senior counsel who confirmed that the rules provided for increases of 2% per annum or more and no less, the trustee used its discretion in this regard. Also, an amount of R309m was apportioned that it was agreed would be used to serve the pensioners. Transnet worked closely with the Department of Public Enterprises (DPE) to obtain government support for the additional funding of the Transnet Second Defined Benefit Fund, but these discussions were terminated. The class action sought to have an annual increase of not less than 70% of the inflation rate plus interest for TPF and TSDBF members. An order that Transnet pay R17.1 billion which is supposed to be what Transnet owes from the commencement date of 1 April 1990 and an order that Transnet pay R309 million plus interest that were monies apportioned from the surplus in 2001.Transnet was summoned and served on 1 June 2015 but Transnet filed exceptions to show that the claims were defective. He asked the Committee to note that according to the rules additional increases cannot be more than 2% and the actual deficit was not a debt but the liabilities against the assets. Both parties are currently conducting a good faith discussion to ensure that the matter was resolved out of court.

Ms Mazzone remarked that the pensioners’ case had gone right up to the Constitutional Court as a class action suit and it is very serious. She expressed concern that pensioners were dying and the current payout did not meet needs the way it was. She asked Transnet if the case could not be resolved without going through extended court battles as the pensioners were already in their eighties and did not have the luxury of time on their side. She asked if Transnet was embarking on an information strategy as part of reason the court battle was drawn out was because the pensioners were receiving incorrect feedback. She asked for clarity about the information that some pensioners received only R140 per month because of deductions they were unaware of.

Dr Z Luyenge (ANC) also expressed concern about the perpetual suffering of the pension fund beneficiaries. This was serious since the beneficiaries did not have time on their side to go through court cases since many were either dead or sick.  He asked Transnet to confirm that the beneficiary records were captured in its database to ensure that those funds did not remain unclaimed. Was there any possibility of an out of court settlement in the dispute? How did Transnet deal with historical issues of race and gender discrimination in allocating pension funds?

Mr E Marais (DA) said the main challenge was the fixed 2% annual increase. He asked Transnet how this could be changed in favour of the pensioners.

Ms Nobanda asked why Transnet was not implementing Constitutional Court judgement that favoured the pensioners. What was Transnet’s difficulty in paying its pensioners and why has it taken such a long time to do so? She was the view that this is an embarrassment for government. She asked for more updates on pension funds as the delays in paying the beneficiaries increased the suffering of the pensioners.

Mr S Swart (ACDP) echoed the concerns about the delay because pensioners were dying without receiving the pension fund benefits. Was the Transnet Board aware of allegations that Gupta-linked Trillian leveraged the Transnet pension funds to hedge itself to secure deals that it entered into? If yes, had it investigated the allegations? The legal costs for these cases were high and therefore Transnet needed to try to reach an amicable out of court settlement with the pensioners.

Ms Rantho was concerned that the delay meant that the benefits might not be paid to the beneficiaries. Did Transnet have a record of all its beneficiaries as it was taking time to administer the benefits? She asked why, despite the Constitutional Court judgment of 26 April 2018 which dismissed exceptions to the claim raised by Transnet‚ the Transport Pension Fund and Transnet Second Defined Pension Fund a few years ago, it still delayed the payouts. She asked if Transnet had the names of pensioners who were alive as the payouts could fall into wrong hands. She asked for a timeline when Transnet would pay all beneficiaries.

Prof Kieswetter replied that Transnet was painfully aware of balancing the real human plight of pensioners and Transnet was not trivialising this at all. The steps taken to address this and show its responsibility was it was making discretionary payments of about R523m to members, driving a change in rules to address the 2% gap in the fund rules, and it was having continual engagements to seek an out of court settlement to ensure that the payouts to the correct pensioners would not take too long. Pension funds are legal funds that operate according to complex rules. In coming to an agreement, all parties must agree to the benefits. The class action of 2014 sought an order that Transnet pay the Transnet Pension Fund an amount of R309m with interest from the surplus in 2001. The historical funding deficit of R17.1bn was never a debt due by Transnet, and both the Transnet Pension Fund and the Transnet Second Defined Benefit Fund were both correctly in surplus.

Ms Nokuthula Khumalo, Transnet Company Secretary, identified a few points about where Transnet had considered the pensioners. Transnet has used its discretion to pay out pensioners who have had a long service record and are older than 65 years while driving a change in the rules to address the 2% rule of the fund. Previously disadvantaged people have been prioritised and Transnet has contributed to the TSDBF to ensure that widows receive the benefits.

Mr Siyabonga Gama, Transnet Group Chief Executive, said that the court judgement was about a procedure and the judgement has been implemented. Transnet is concerned about the plight of its pensioners and presently negotiations are taking place for an out of court settlement to ensure that the time and costs for the payout are reduced. There is a consideration to increase the statutory 2% per annum but it is only the trustees who can increase it and it would have to go to the Minister of Finance and head of National Treasury for approval because of its financial implications. Transnet had talked to the parties in the pension fund and that board was told that Transnet would go to court to retrieve those funds.

Ms Helen Walsh, Transnet Head of Group Taxation, clarified that some people were paid a R140 pension per month but each case had to be examined too understand why because there were deductions in the payout. Enormous efforts are in place to ensure that beneficiaries are identified before payouts are made and records are checked against the National Population Register. Transnet traces unclaimed beneficiaries’ and Transnet’s communication is ongoing.

Mr Mohammed Mahomedy, Transnet Acting CFO, said he did not have any more information to add.

Transnet Board Chairperson, Dr Popo Molefe, said Transnet was committed to ensure that the pension challenges were sorted out quickly and invited the Committee to interact with the Transnet Board in a unique way. The Gupta-linked Trillian matter has been brought to the attention of the Board and is being dealt with.

The Chairperson asked DPE to comment.

Mr Lebohang Ntwampe, DPE Acting Deputy Director General:  said it was working closely with Transnet to sort out the issue and they welcomed any other opportunity the settle the matter.

The Chairperson appreciated the responses of the Transnet Board and executive and the DPE.

The Committee approved the 15 August 2018 minutes and the meeting was adjourned.

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