National Ports Authority Bill: deliberation

Meeting report

TRANSPORT PORTFOLIO COMMITTEE
14 August 2003
NATIONAL PORTS AUTHORITY BILL: FORMAL DELIBERATION, CONTINUED

Chairperson: Mr J Cronin (ANC)

Documents handed out:
National Ports Authority Bill 27July 2003 Working document # 2
Suggested redraft: National Department of Transport (NDOT) on National Ports Authority (NPA) Bill

SUMMARY
The Transport Committee and managerial and/or legal representatives from the National Department of Transport, National Ports Authority and Transnet continued deliberating on the NPA Bill, with all parties making drafting suggestions. The main issues covered were: the divisional phases in the establishment and corporatisation of the Authority; the setting of the date of transfer; the need for flexibility regarding the nature of the transfer; compensation and how it will be determined; questions around taxes and stamp duties; the ring fencing of finances; and the exact role of the Regulator in terms of overseeing and monitoring the Authority. The Chair concluded that, subject to consultation, the next meeting would look at two clauses dealing with transfer and incorporation.


MINUTES
Transnet was represented by Mr Gasant Orrie, Attorney. The NPA was represented by Mr Frik Nolte: Senior Manager: Policy and Research, and Mr Glenn Penfold, Attorney. The National Department of Transport (NDOT) was represented by Mr Dumisani Ntuli, Director: Maritime Transport, and Adv. Maribolla S. Mphahlele, Manager: Legal Services.

Formal deliberation on NPA Bill
Mr Ntuli distributed copies of the outcome of the previous day's work and said it would clarify how the process would unfold. The word "divisional" had been added to section 3.1 (see document "Suggested redraft: NDOT on NPA Bill, section 3 - 4") to indicate that the process leading up to the establishment of the Authority was a divisional phase. Section 5(a) was also very important. The ideal situation would be where Transnet corporatises and then the conversion happens under section 4. If this Bill gave Transnet up to three years to corporatise and it did not happen, the shareholding Minister could turn the NPA into a public company. Those employed in the NPA division of Transnet would in such a case move over to the public company. The provisions under section 4 whereby the State could become the sole shareholder of this public company would be dealt with later. The NDOT believed this would assist transformation and help gain lost ground.

The Chair said Mr Ntuli's input provided much clarity.

Mr Orrie pointed out that a number of issues had not been addressed satisfactorily from Transnet's perspective. Transnet would like to see some flexibility built into the Bill's wording. In the current section 3 and 4, matters out of Transnet's control are triggering the transfer. Section 3.1 is not in line with Transnet's thinking. Transnet suggested the shareholding Minister should determine the date. When it comes to creditors and lenders, Transnet needs to know when the transfer happens because significant contracts are at stake.

Mr Penfold added that the subsidiary cannot act as the Authority until the transfer of assets has occurred.

The Chair said it has transpired that there are two processes at work - a bureaucratic process and a business process. They need to be aligned with one another in the wording of the Bill.

Mr Orrie said section 3.1 should reflect the wording of 27.1. The reference to "the date as determined by the share-holding Minister" is important, because there is an existing business as a going concern, there are day-to-day operational issues, existing contracts and employees. The smoothest way of effecting the transition is by being able to determine it.

Mr Ntuli said he thinks 3.1 talks about the division until the date of corporatisation, the date set by Transnet in consultation with the shareholding Minister.

The Chair pointed out that in terms of the continuity of business, the question is who pays the salaries. When the bureaucratic process is completed, the Minister will announce registration and that it would be running as a PTY LTD within a certain time.

Mr Ntuli said it was not his intention to have it read that until you have corporatised, you are not the Authority. The division will be recognised to be the Authority up to the point of corporatisation.

The Chair said everybody wants to see the NPA move from being a Transnet division to a PTY LTD. A date will be set that will not be determined by the administrative process, but by the shareholding Minister, who will say the registration process must be completed in three months. Thus the Minister's decision will be the trigger.

Mr Ntuli confirmed that Transnet wants the Minister to make such a statement.

The Chair asked whether section 3's reference to the NPA becoming a "private company" could be altered in order to avoid accusations of privatisation.

Mr Orrie answered that the word "private" has a certain meaning in terms of the Companies Act. He acknowledged that the Chair's concern is political. It could possibly just be cross-referenced in later sections.

Mr Herman Swart, State Legal Advisor, said section 20 of the Companies Act refers to a "private company".

Mr Penfold suggested that the Bill could just refer to section 20 of the Companies Act, instead of using the word "private" in this draft.

Mr Orrie pointed out that consequential changes would flow from the amendments. The wording should allow for a proper transfer to be effected on that date with all the necessary terms and conditions being provided for. The Bill does not currently give Transnet the flexibility to deal with, for instance, balance sheet requirements. All that is now being reflected are Transnet's assets, but there is no indication where they come from. There is no provision made for any value to be attached to the business that is being transferred. The Transnet group structure can not reflect the underlying value of the NPA business. The Bill must say this transfer happens in terms of an agreement dealing with the terms and conditions for transfer and the relationship between Transnet and the subsidiary. It should also allow for assets that might be mistakenly transferred and must be transferred back. The Bill leaves no room for adjustments. It is not a question of specifying issues around compensation, but more about building the flexibility that will enable Transnet to structure the transfer - in consultation with the Minister - in a way that will satisfy the requirements of Transnet's balance sheet.

Adv Mphahlele said Mr Orrie raised the issue of compensation. Something must be given in return for assets, but it is not a matter that needs to be addressed at this point. There will be ample opportunities to resolve issues of quid pro quo. What is important now, is to build in flexibility. There is going to be a date and within that period all the issues can be discussed. By then it would have been established which assets would be transferred and how.

The Chair said he did not want an arbitrary decision to be made, nor that elections must pass without the issue having been resolved. Some flexibility must be given to the process, although the fine details can only be determined later. We should find a way that prevents us from having to decide if there should be compensation as that issue could be debated elsewhere.

Mr Orrie responded that Transnet is not seeking to write into the Bill that there will be compensation. However, the commercial reality is that more than R10 billion of assets are to be moved so the word "vest" is too restrictive. Transnet suggests that section 27 has the wording "transfer by agreement". The matter need not be taken further right now.

Mr Ntuli said the concern is about the transfer from the proprietor limited to the ultimate authority. The effect of what is decided under 4(a) will have an effect on the final dispensation. 4(a) talks about "internal" - it is under the control of Transnet. The Minister only steps in to create a public company if Transnet does not use its power to corporatise.

Adv Mphahlele said the kind of assets to be transferred would also be determined by Transnet itself.

Mr Farrow (DP) said one assumes Transnet has its assets registered and validated. In any transfer process, there must be a memorandum of agreement/acceptance between the parties.

Mr Ainslie (ANC) wanted to know of Transnet concerns if the whole process is going to be under its the control.

Mr Orrie said it is not a question of pace. The Bill will limit Transnet's ability to handle the transfer in a manner that also deals with its commercial realities. There might be uncertainty regarding exactly what the assets are. The legal meaning of "vesting" is that we cannot say "PTY LTD". Transnet just wants the flexibility to structure the transfer in a way that allows it to address its debts and balancing.

The Chair said there are fears and concerns surfacing. Somewhere along the line this is building a case for a quid pro quo, that at some stage there is going to be some sort of sale. That is why government made it clear that it will not buy from or give compensation to Transnet.

Mr Ntuli said 4(a) is trying to do exactly that. It happens outside the control of the shareholding Minister. Even the wording intends to empower Transnet to be able to transfer its assets and liabilities to the new entity.

The Chair said it seems like Transnet is being given power but is simultaneously being dogged by a clumsy process.

Mr Orrie suggested a solution for 4(a). He said if "vest" was left in 4(a), the meeting should deal with section 27, the actual transfer clause. Transnet would like to see that wording is built in to suggest the transfer happens by agreement. Transnet wants a new provision to be inserted in section 27. A reference to transfer by agreement (in the first phase) would allow Transnet, with the concurrence of the shareholding Minister, to determine exactly what the nature/basis of the transfer would be, as well as the terms and conditions. He pointed out that there is no reference to compensation.

Mr Ntuli said involvement of the shareholding Minister would lead to issues being discussed and a common understanding being reached on how things are to be undertaken.

The Chair felt the current draft leaves Government weak in the first stage of the process. The vesting over of assets is left entirely in the hands of an internal Transnet process. Government should be enabled to oversee the process and play a key role in deciding what the process is.

Mr Orrie then moved to subsection 27.2, suggesting the following insert: "all assets, liabilities, rights and obligations relating to the business of NPA of SA vest in NPA Propriety Limited." This is intended to take care of concern regarding Transnet transferring all assets. A new subsection was also suggested for 27.8 to allow for adjustment or rectification if there were agreements or contracts that were mistakenly included in the transfer. Transnet believes this will provide flexibility - a check and balance - to ensure the transfer happens in a co-ordinated and properly regulated manner that gives certainty to the process.

Adv Mphahlele asked for clarity on 27.8 and its referral to "agreement" and the new concept of "the State as represented by the shareholding Minister". The introduction of the State as a new concept should be avoided.

Mr Swart wanted to know who the parties were and if this included the Minister.

Mr Orrie said nothing would happen without the shareholding Minister.

The Chair said the aim was to create confidence between the key parties for the Bill to be completed. The fears and uncertainties on all sides must be made known in order to arrive at an informed decision.

Mr Orrie raised the issues of taxes and stamp duties. He said the reference is only to taxes and levies arising from the transfer of assets, not an exemption from income tax etc. There is a reference to income tax, because there could be income tax implications if a capital gain is regarded as income rather than for VAT purposes. There will be stamp duties for the creation and issuing of shares. Provision should be made for the issuing of shares to Transnet at the first and second level. There could be a significant amount at stake. 0,25% on R10 billion is a considerable amount.

Mr Ntuli said that section 27.9 regarding stamp duties and taxes was sufficient from NDOT's perspective.

The Chair pointed out that 27.9 does not mention Capital Gains Tax and Income Tax as far as it relates to the transfer. He asked how the costs would be incorporated.

Mr Swart said that the drafters would have to acquaint themselves with this very technical clause and insert it in the Act itself. Many major changes had to be fitted into the Bill. It must also go to the Treasury. Next Wednesday might be too soon for another meeting on the Bill.

Adv Mphahlele said issues were being raised that has never been formulated. Talk of issued shares brings a different dimension to the discussion. Approval might even be needed at ministerial or Cabinet level.

The Chair said that if you have a shareholding Minister right from the start, there presumably are no other shareholders. But some share reality might lead to stamp duties. It does not make sense if the Minister pays himself stamp duties.

The Chair felt the meeting agreed in principle that there will be clauses to exempt payments in terms of the transfer aspect and incorporation. These will be specified at the next meeting. It is important that these particular processes be exempted because the aim is to exempt the State and its entities.

Mr Orrie pointed out the de facto position is that the State is only a shareholder in Transnet.

The Chair said it is agreed that - subject to consultation - the next meeting will look at two clauses, one dealing with transfer, the other dealing with incorporation.

Mr Orrie referred to section 3 and 4 of the original pages (14 - 17) and said the new draft does not clearly state a move straight into the public company phase. This is not in line with the understanding of what the original intention of the phrase.

The Chair answered that NDOT was categorical - after three years, the shareholding Minister has the ability to bypass phase two and create a public company.

Mr Ntuli added that the mandate is very clear. It was envisaged that if no corporatisation happens within three years, it would move straight to the Authority.

Mr Orrie returned to the issue of the "date of conversion". He said the Bill does not state how to move from Transnet as a shareholder to the State as shareholder. An instrument was needed to make the transfer more effective.

Adv Mphahlele said such a legal instrument was this Act. It can be used from the date of conversion when the State is the shareholder. It presupposes that there is movement of shares from Transnet to the State.

Mr Orrie said it could be left as it is. On the conversion date, the shares previously held by Transnet will be vested in the State.

Adv Mphahlele said there is slight problem with section 26. The reference to PTY LTD, specifically "all persons who immediately prior to the date", envisages a situation where, if the shareholding Minister is corporatising the NPA, there will not be an the interim phase of PTY LTD, but a move straight to the Authority.

The Chair said the purpose is to cover the eventuality.

Mr Ntuli referred to section 71 (Chapter 8) on postponing the ringfencing of finances. There seems to be an indication from Government that it is too long to postpone ringfencing. It should begin with corporatisation.

The Chair said that this is about a process of ringfencing because 50% of revenue comes from the NPA. In the final stage, the Authority will not cross-subsidise other entities.

Mr Orrie noted that all the references in section 27 to the Authority becoming a successor to the PTY LTD had now been deleted.

The Chair then discussed the Regulator (see document "Suggested redraft: NDOT on NPA Bill, section 30"). He said it has been made clear that the Regulator will be driven by appeals and complaints. It has an oversight function corporately and a role in overseeing tariffs but will not become a second Authority.

Mr Penfold expressed general support for the changes. He suggested that the Regulator hear complaints and appeals in terms of the relevant sections. It also does not deal with who can bring a complaint.

Mr Ntuli said, judging by the content of section 46, it seems unnecessary to say much more in this regard.

Mr Penfold said a large chunk of this chapter is taken from the Company Act. The latter defines a prohibited practice, but in the NPA draft there is a general reference without an indication of the grounds on which one can appeal a decision or lodge a complaint. This will create a situation in which too many decisions and actions will be complained about.

The Chair said it is important to peg the Regulator in order to prevent just anybody coming forward with any type of grievance. It must not become too detailed.

Mr Ainslie (ANC) said that if the NPA wants to define those rights, it could run into several clauses.

Mr Penfold said there are two issues at stake: Who can bring complaints/appeals and their subject matter? It should at least be that it pertains to a person whose rights have been adversely affected.

The Chair wanted to know what someone can do if they were excluded from being a port user, if they were not getting a licence.

Mr Penfold replied that the wording should then also cover an aspirant port user.

The Chair said it could take very long to specify the content. It was agreed that there would be a cross-reference between 31(a) and related sections, and some tightening up around the issue of who can bring complaints (including "aspirant port users").

Mr Penfold then looked at 30.1(b), regarding the monitoring of the relationship between Transnet and the Authority/NPA. He said it is unclear how the Regulator is going to fulfil this function. He also had doubts about the phrase "not unfair advantage". He suggested that such things could be dealt with in terms of complaints and appeals rather than with a broad monitoring division.

Mr Ainslie (ANC) said the White Paper indicates a fairly wide oversight role. Retaining 31.1(b) would give affect to the White Paper's indication.

Mr Frik Nolte of the NPA said in terms of the White Paper the function of the interim port Regulator is to deal with the relationship between Transnet and the NPA.

The Chair mentioned that the private sector is very uncomfortable with the two entities, seeing them as hand in glove.

Mr Ntuli said the White Paper is explicit that the Regulator must rule on issues such as impartiality and monopolies.

Mr Penfold said the monitoring role is generally acceptable, but the Regulator should be more focussed on the Authority's actions to ensure it acts in a fair manner. The monitoring aspect in 30.1(b) must be phrased in terms of "activities" rather than "business relationship" and "port users" instead of "transport companies". It will then read: "monitor activities of the Authority to ensure that the Authority does not unfairly prefer Transnet over other port users." If someone's rights have been severely affected, they will fall within the complaints/appeals provision.

Mr Ntuli said the discussion has been about ensuring impartiality and equity in port access. How will the Regulator do this?

Mr Orrie reminded the meeting that it still has to see the redrafting on many other discussed issues, especially the three phases of transfer. Once these phases are understood, it will be possible to do a 'sanity check'.

The Chair said the deliberation would continue the following week. The meeting was adjourned.