The joint Standing and Select Committees on Appropriations heard a wide range of views from three organisations -- the Organisation Undoing Tax Abuse (OUTA), the Congress of South African Trade Unions (COSATU) and the Alternative Information Development Centre (AIDC) -- on the impending promulgation of the Special Appropriations Bill, which would allocate R59bn to Eskom over the next two years.
OUTA recommended that the bailout should be used to reduce the current high levels of debt, for operational and capital objectives and to improve liquidity and the balance sheet risk, which should address the going concern status. It wanted clarity on how Eskom would be operationally sustainable as a result of the R59 billion bailout. It recommended that its turnaround strategy be developed and implemented without delay; that Parliament play a rigorous oversight role without fear or favour; the bailout conditions being drafted by National Treasury (NT) should be published for public comments; Eskom must be statutorily obligated to provide a breakdown of how the funds would be utilised; and NT had to provide clarity on how long it envisaged its financial assistance to Eskom was likely to continue, and the expected outcome or effect of this assistance.
Members asked how different OUTA’s proposed conditions were compared to those that had been put to the Department and Eskom by NT previously, and whether it had had the time to make an impact assessment of the conditions. Regarding the assertion that Parliament had to strengthen its oversight, how did OUTA see the various committees working together to strengthen their oversight?
COSATU said the impact of a potential collapse of Eskom would have an impact on 45 000 employees, the Public Investment Corporation’s (PIC’s) R90 billion invested in Eskom, the R450 billion debt exposure to the state and other state-owned entity (SOE) debts, the risk to a fragile economy recently emerged from a recession; and the risk to millions of workers’ jobs.
COSATU and the National Union of Mineworkers (NUM) wholeheartedly supported the Bill. It
welcomed intervention by the state to save Eskom and protect workers and the economy.
Parliament urgently needed to pass the Bill. However, its support was conditional on Eskom having a clear turnaround plan to stabilise and save the utility that had to include key principles and components. COSATU’s non-negotiable demands were that no worker must be retrenched by Eskom, and that it must remain an SOE and not be privatised. It provided a detailed list of recommendations for incorporation in the turnaround plan, dealing with internal and internal finances, human resources, a just transition, and the economic path forward. A collective South African solution had to be devised, including a social compact to which all parties contributed.
Members suggested COSATU should be more adamant and aggressive on its proposal that labour had to be represented on the Eskom board. They also recommended that organised labour, at the bargaining council level, should draft formal proposals regarding the turnaround strategy as well as the future strategic direction and corporate structure of Eskom, to be tabled at the National Economic Development and Labour Council (NEDLAC).
The Alternative Information Development Centre’s (AIDC’s) basic proposition was that the national budget should not be used to capitalise Eskom or rescue other SOEs. Use should rather be made of the excess funds of state organs such as the Government Employee Pension Fund (GEPF), the Unemployment Insurance Fund (UIF) and the Public Investment Corporation (PIC), which manages assets of over R2 trillion.
It went into detail regarding the financial consequences to South Africa of providing continued support to Eskom and other indebted SOEs from the budget at a time when the economy was under severe stress, and said it would not support a bill which proposed appropriating funds from the National Revenue Fund (NRF). Other available resources had to be utilised.
Members expressed scepticism, based on past experience, over allowing the government to follow the route proposed by the AIDC, although the Centre argued strongly that the current policies were outdated and not appropriate for the country’s urgent needs. They asked whether something could be done regarding intergovernmental lending, because 27% of Eskom debt was owed to other government departments. Members also wanted to know how the AIDC’s proposals could benefit the GEPF, and whether they had been successful in other parts of the world.
Organisation Undoing Tax Abuse (OUTA)
Mr Ronald Chauke, Senior Energy Analyst: OUTA, said OUTA was a South African non-profit civil action organisation, formed to hold those in public office accountable. It was funded and supported by ordinary people who were passionate about improving the prosperity of South Africa. It supported as values, accountability, transparency, the promotion and protection of the public interest, constructive engagement, strategic partnerships, zero tolerance for corruption and maladministration, and an active citizenry.
OUTA envisioned South Africa as a prosperous country, with an organised, engaged and empowered civil society that ensured the responsible use of tax revenues throughout all levels of government. It was active in the energy sector and had participated in energy-related submissions -- for example, on the Integrated Resource Plan, the Carbon Tax Bill, and in the multi-year price determination (MYPD) process of the National Energy Regulator of SA (NERSA) on electricity prices.
This submission was made within the context of the Minister of Finance, Mr Tito Mboweni, announcing a support package of R23bn for 10 years in the 2019 February Budget Speech, and the impending promulgation of the Special Appropriations Bill, which would allocate R59bn to Eskom over the next two years -- R26bn in 201920/20, and R33bn in 2020/2021.
The reasons given for the intended Eskom financial assistance had been Eskom ’s high levels of debt, its inability to generate sufficient revenue to meet operational and capital obligations, its liquidity and balance sheet risks, and concerns over Eskom ’s status as a going concern.
In Parliament, Prof Daniel Plaatjies from the Financial and Fiscal Commission (FFC) had presented a sobering commentary on Eskom:
“Eskom, in its current form, poses substantial risks to the public finances and economy at large. Eskom is neither financially sustainable, nor capable of meeting the country’s electricity needs.”
“The Eskom bailout has the potential to crowd out other infrastructure investments. It is unproductive government spending. The bailout monies will come from somewhere. Obviously there will be reprioritisation or cuts on other expenditure items, which will likely result in service delivery in other areas being negatively affected.”
In various submissions, OUTA had previously recommended that Government urgently intervene at Eskom by reviewing its outdated business and operating model, by instituting electricity supply industry (ESI) reforms without delay, by revisiting the electricity distribution industry (EDI) restructuring, by ensuring that technical and strategic working groups should be established to address Eskom ’s sustainability, and by exercising rigour by ensuring that there was policy and regulatory certainty to attract investments in the ESI, amongst others.
OUTA had a list of concerns, among which were Eskom ’s growing R440bn debt, no consolidated ESI and EDI reforms, and no strategic direction. Its business model was not fit for purpose and unsustainable, and the Auditor General (AG) had found non-compliance with the Public Finance Management Act (PFMA).
What would the future Eskom look like? Would it be a generating company, a distributing company or a transmission company? What were going to be the outcomes of the Zondo Commission? Were the Hawks ready to prosecute culprits? Did the upcoming Eskom Paper have a holistic or piecemeal approach? (See presentation)
Eskom ’s financial position was that it was R440.61 billion in debt while it owned current assets to the value of R63.994 billion, had current liabilities to the value of R108.051 billion and thus had an immediate liquidity shortfall of R44.057 billion. This indicated the immediate funding requirement and included the current borrowing of R53.402 billion.
OUTA recommended that the bailout should be used to reduce the current high levels of debt, for operational objectives, for capital objectives and to improve liquidity and the balance sheet risk, which should address the going concern status. OUTA would like clarity on how Eskom would be operationally sustainable as a result of the R59 billion bailout.
OUTA’s recommendation concerned Section 1(2)(b) of the draft Bill, which stipulates that, for the purpose of promoting transparency and the effective management of the funds, the Minister of Finance, in writing: “may impose conditions to be met by Eskom before any part of the amount was transferred.”
Given the history of Eskom bailouts, it would seem prudent to institute certain conditions before any monies were transferred. OUTA recommended that “may” be changed to “must”, and that such a condition had to be the appointment of a restructuring team at the very least.
OUTA queried whether, if Eskom failed to meet such conditions, National Treasury would institute corrective measures.
OUTA further recommended that:
- Eskom ’s turnaround strategy be developed and implemented without delay under the auspices of specific, measurable, achievable, realistic and time-bound (SMART) principles;
- A new performance management framework and culture be introduced at Eskom that linked the turnaround plan deliverables to Eskom executive and non-executive pay and performance contracts;
- The role of the Chief Restructuring Officer (CRO), and how he complemented and interfaced with Eskom ’s board and executive committee (EXCO) and reported back to National Treasury (NT), be outlined;
- Parliament play a rigorous oversight role over Eskom without fear or favour;
- The Department of Mineral Resources and Energy (DMRE) develop comprehensive legislative and regulatory frameworks, with timelines and responsibilities for a transition towards cheaper, renewable power generation and associated technologies;
- The bailout conditions being drafted by NT should be published for public comment;
- Eskom be statutorily obligated to provide a breakdown of how funds would be utilised, including its payment plans to its creditors, interest payments, etc. as a non-negotiable condition before monies were transferred;
- NT provides clarity on how long it envisages its financial assistance to Eskom islikely to endure and the expected outcome or effect of this assistance.
It was a fact that Eskom had failed to abide by compliance obligations imposed by the PFMA. Auditors had disclosed their findings as reflected in both the 2017/18 and 2018/19 annual financial statements. What measures was NT putting in place to do its oversight differently this time around? Cost overruns had been incurred without NT approval. There were deficiencies in the shareholder oversight roles over Eskom by Parliament, the Department of Public Enterprises (DPE), the DMRE, NT, NERSA, etc.
Mr Z Mlenzana (ANC) did not want OUTA to have the perception that the two Committees would discuss their ideas with it. The Standing and Select Committees would find time to decipher the ideas on their own. Questions were just for the sake of seeking clarity. Did its presentation suggest that OUTA supported the President’s injunction on the restructuring of Eskom ?
Mr Chauke replied that OUTA supported the President’s suggestion to unbundle Eskom. There was no talk of privatisation as it was still 100% state-owned. SA would not lose anything and Eskom would be better. There had to be clarity about what kind of Eskom was needed. As consumers, SA citizens needed Eskom to be reliable and affordable.
Mr Mlenzana asked how different OUTA’s proposed conditions were to conditions put to the Department and Eskom by NT previously? Did OUTA have the time to make an impact assessment of its conditions?
Mr D Joseph (DA) said he liked the comment that Parliament had to strengthen its oversight. He needed clarity on how OUTA saw the various committees working together to strengthen their oversight.
Mr Chauke replied that in the past, NT had given entities bailouts and stipulated conditions, and had endeavoured to monitor and insist on report-backs, but that oversight role had not been stringent. In the 2017/18 financial year (FY), the AG had found that Eskom was not compliant with the PFMA. In the 2018/19 FY Eskom was still not compliant, and the question had come up as to whether Eskom was reluctant to comply with the PFMA, yet NT had not followed up.
OUTA was not there to cast aspersions on anyone. It only flagged issues of concern. Even the appropriations committees, when they engaged with NT, should ask NT about the effectiveness of its oversight processes and its weaknesses, and what NT was doing about the weaknesses. These were some of the inputs civil society wanted to contribute to make oversight work more effective. Civil society wanted oversight to be rigorous, robust, and so facilitate improvement, FY after FY. OUTA supported that process and was willing to work with the committees on it.
Mr A Sarupen (DA) said the presentation stated that OUTA supported the Financial and Fiscal Commission’s (FFC’s) conditions. Did OUTA believe that it would be better for accountability if the FFC’s conditions could be included in the body of the bill?
Mr Chauke replied that OUTA did not find it necessary for all the recommendations to be included in the Bill. However, matters of principle had to be included in the Bill so that it capacitated the oversight bodies, including Parliament and NT, to play that role. All the specifics should be catered for in the Committees’ oversight role when it looked at the annual performance plans of these entities and Departments, to see whether they were compliant and if not, what was being done to correct the situation. OUTA supported the fact that Parliament had that flexibility.
Mr Joseph said the presentation stated that OUTA had asked government to intervene. He asked how long OUTA had been monitoring government. During which year had OUTA asked government to intervene? Was it done officially? Did OUTA get a response from government at the time?
Mr Chauke replied that OUTA engaged and met with national Departments from time to time. In those engagements it gave its inputs and made recommendations. It recommended policy reviews in cases where policies were becoming outdated. It recommended that policies be reviewed in line with developments in the sector. OUTA wanted to contribute towards creating an enabling environment for community development in SA.
Mr Joseph said OUTA had asked Eskom to review court proceedings, stating that it would cost more in the long run. Where would it cost more -- on the consumer’s side? For the man in the street? For government? Where would the higher cost be felt?
Mr Chauke replied that in terms of pricing, the needs had to be balanced. Eskom had to recover its costs, but the public also had to be protected from an affordability point of view. From a regulatory point of view, a balance could be struck if all stake holders operated as a team. It was achievable . OUTA supported that approach.
Mr Y Carrim (ANC) said there were quite a few written submissions, but only three appeared before the Committees. The job of the Committees was to listen to the people making submissions, to engage vigorously and robustly where necessary, but not to take decisions. He was no technical expert, but he agreed with what the submissions were saying. Nobody wanted to waste money, but Eskom had to be rescued. He liked the idea of a holistic approach, not a piecemeal approach. Under the current Treasury dispensation, the Minister and the Department of Public Enterprises (DPE), this was what was being attempted. To what extent Eskom appreciated that, was debatable. Presumably Eskom was present in the meeting to monitor what the public and the committees were saying about its situation. The conditions suggested by the presentation were consistent with what these two Committees felt.
The Committees needed to know when the Eskom paper was coming, and needed to be briefed on it. The public enterprises needed to be briefed on it. Regarding the restructuring of Eskom, he wanted to know where the process was. While he could not speak for the unions, he had a feeling that the unions agreed that some kind of restructuring was necessary. If Eskom went down, all would go down -- not just organised labour, but all labour.
Presumably the Committees would be briefed on what the role of the restructuring officer (RO) would play, and something needed to be said about the wrongdoing at Eskom. What was being done to take civil and criminal action against those who had done wrong? What was being done to take back the money that was owed to the state through wrong transactions? It was read about in the newspapers, but Parliament also had to put pressure on them.
There was a suggestion to set up a new ad hoc committee. It was true that Parliament had to exercise rigorous and stringent oversight, but given the number of committees already operating in Parliament and the difficulty in bringing many of them together, he was not sure whether creating yet another committee was the correct plan of action. He was more in favour of a joint sitting of the four committees once every quarter, or more often. Ideally, the DPE and the DMRE portfolio committees should have been present as well. The DMRE and the DPE were responsible for oversight and they had to understand that the bailout would not just be given willy-nilly, that there were stringent conditions and that they had to participate in this process.
He thought that the four committees had to exercise joint oversight over the DPE and the DMRE. They had to get this report and be briefed on the outcome of this meeting. A common programme of action, monitoring and the implementation of the terms of the Bill, should be decided upon.
Mr Carrim said Mr Chauke was right. Yes, the Zondo Commission (ZC) was sitting and doing its work, but that was going to carry on for a long time. This matter could not wait for the ZC to come to its conclusions. There was already a legitimate report with a lot of credibility. What prevented Parliament from implementing it? There was no law that prevented Parliament from implementing its own decisions. Decisions could be implemented, and when the ZC came with its report, amendments could be made to the recommendations. Parliament was sovereign. It had rights. It spent hours and hours and lots of money on commissions and endless hearings, and should implement its own decisions.
Co-chairperson Buthelezi said an unintended consequence of the Eskom issue was that it was one issue that united SA. All seemed to agree that with Eskom it could not be business as usual, and working in silos could not continue. The Minister of Mineral Resources and Energy, Gwede Mantashe, had to come to the Committee to ensure synergies among the plans of action of the different committees. He had a sense that there was a unity of purpose among South Africans to resolve the challenges at Eskom. The matters which had been raised also had to be implemented.
Co-chairperson Mahlangu said Mr Buthelezi appreciated the spirit in which the matter was being approached. Eskom was uniting SA’s responsible citizens. Working together would get the country to a good end result. All parties were in agreement that they wanted to be responsible citizens. The OUTA had given the Members homework. As oversight bodies and legislators, Members should have an idea of what kind of Eskom it would want in the future. Would the decision taken provide only short-term solutions, or would it provide a long-term solution too? The Committees had to take these alternatives into consideration, as OUTA had raised them. Help was going to be needed in processing the issue raised about tariffs -- the issue of NERSA vs Eskom.
OUTA had referred to the matter of Soweto not paying for electricity. How were citizens going to be encouraged to play their part in participating in the economy of this country? The OUTA presentation had emphasised the need for conditions. The Committees were on the same page.
Congress of South African Trade Unions (COSATU)
Mr Matthew Parks, COSATU’s Parliamentary Coordinator, said Eskom was facing a financial crisis, and its potential collapse would have an impact on 45 000 employees, the Public Investment Corporation’s (PIC’s) R90 billion invested in Eskom, the R450 billion debt exposure to the state and other state-owned entity (SOE) debts, the risk to a fragile economy recently emerged from a recession; and the risk to millions of workers’ jobs.
COSATU and the National Union of Mineworkers (NUM) wholeheartedly supported the Bill. It
welcomed intervention by the state to save Eskom and protect workers and the economy.
Parliament urgently needed to pass the Bill. However, its support was conditional on Eskom having a clear turnaround plan to stabilise and save the utility that had to include key principles and components. COSATU non-negotiable demands were that no worker must be retrenched by Eskom, and that it must remain an SOE and not be privatised.
The turnaround plan must focus on its internal finances, and should include:
- A comprehensive forensic audit of all Eskom expenditure and contracts;
- A diagnosis of where Eskom was losing money;
- A list of what was looted from Eskom, and by whom;
- A plan involving the National Prosecuting Authority (NPA), Hawks, the South African Police Service (SAPS) and the State Security Agency (SSA) to recover stolen funds and arrest and prosecute guilty parties;
- Honour the President’s and ANC’s commitment that Eskom would not be privatised, including rejecting Treasury’s proposals to do so.
From a personnel point of view, the turnaround plan should include:
- The urgent appointment of a competent and experienced chief executive officer (CEO);
- A reduction in the bloated senior management structure;
- A freeze and reduction in excessive packages paid to senior management;
- The appointment of worker representatives to the Eskom board;
- Honouring the President’s and ANC’s commitment that no worker would be retrenched;
- Where there is a need to reskill and redeploy workers from one section of Eskom to another, or even municipal electricity departments, that there be engagement on this issue with unions through the established collective bargaining structures.
COSATU’s view on Eskom’s external finances was that the turnaround plan had to deal with, and ensure that
Looking ahead, COSATU believed that Eskom ’s licence should be expanded to allow it to produce and own its own renewable energy plants. Its contracts with independent power producers (IPPs) should be amended so that either their tariff rates were reduced to make them affordable, or if not, they were cancelled. The life span of feasible power stations should be extended.
The turnaround plan should aim to reskill and redeploy workers employed at ageing power stations and mines reaching the end of their life span. This could be achieved, for instance, by building solar panel factories in the towns with ageing power stations and mines so their workers could be transitioned to new jobs.
Water conservation, recycling and harvesting should include ensuring all buildings have the necessary infrastructure, alien vegetation being cleared and water wise indigenous vegetation being planted. Land rehabilitation could involve programmes to reforest land, combat desertification, and rehabilitate agricultural and urban land.
COSATU stressed that action was needed urgently. SA had to avoid the International Monetary Fund (IMF) route. There had to be no retrenchments or privatisation. There had to be a clear turnaround plan. There had to be high level engagements at the National Economic Development and Labour Council (Nedlac). A collective South African solution had to be devised, including a social compact to which all parties contributed.
Mr Sarupen asked whether there really could be no retrenchments, including senior and middle management, because as the Committee had learnt from the Minister of Public Enterprises, part of the state capture project strategy had been to create bloated middle management structures that confused reporting lines. He asked whether COSATU supported retrenchments at the middle and senior management level.
Mr Buthelezi felt that COSATU was not vigorous enough in their protection of jobs. Creativity was needed to protect jobs which contributed to the growth of the company. One of things government was trying to do was to re-ignite economic growth. One of the reasons why jobs needed to be protected was consumption spending. If people lost jobs, they stopped consuming, leading to a shrinking economy and causing people to have to go on grants. It was a vicious cycle. The Minister and Eskom agreed that the jobs had to be protected.
Mr Joseph heard point about COSATU and privatisation. It was its job, and it was right to make that call. He wanted to remind COSATU that when he returned to SA in 1982, he had become a shop steward in the South African Municipal Workers Union (SAMWU) under the leadership of Johnny Erntzen and Salie Manie. Mr Carrim had talked about the restructuring of the electricity industry. During that time there were 1 000 municipalities. It was then reduced to 800, and now there were 257. The point he wanted to make was that there would be changes, whether one liked it or not.
Mr Joseph said COSATU was right in protecting workers. He need clarity regarding the unbundling and restructuring within the context of not losing jobs. He supported the idea of a just transition.
The lifespans of current power stations were coming to an end. Some were already non-operational. He supported the development of new plans for people to work and support the industry, and government’s mandate to provide electricity.
He wanted COSATU to come to the table and support the plan for the future income of municipalities. Government had to prepare municipalities for the possibility that in 10 years’ time, they may not be able to depend on income from electricity due to alternative energies. There had to be common ground and common solutions.
Mr Parks replied that the COSATU mandate stated that it had to focus on worker’s jobs. COSATU was not worried about senior management who had created the mess Eskom was in, putting 46 000 workers at risk, creating a national crisis and paying themselves huge salaries, like R4-5 million per year. It concerned itself with the interests of ordinary workers. With the state of the economy currently, it took two years to find another job, so a serious plan was needed.
He said Eskom should give COSATU a proper breakdown of its costs, the wage bill, etc, to see how the money was distributed and if there was a surplus of staff. That was why Pravin Gordhan’s commitment was mentioned deliberately. He agreed that staff had to go to transmission or distribution. There were other state departments with too little capacity. No ordinary worker should be retrenched. It was not only about the worker that had a job. The average worker supported seven unemployed relatives.
COSATU would have a high level discussion within the following 10 days at NEDLAC with the President and the Ministers, and all high level stakeholders. There were funds available for workers to be re-skilled and re-deployed. It was part of the jobs summit agreement, funded by either the Department of Labour or the Unemployment Insurance Fund (UIF). It was a question of planning, because currently Eskom was on autopilot at the best of times. That was why the concept of the just transition had been created. Everybody could not work for Eskom or the state. New economic sectors had to be activated, like recycling, water conservation or the manufacture of electric vehicles.
Mr S du Toit (FF+, North West) agreed that non-payment by municipalities and Soweto’s outstanding electricity bill had to be tackled. What concerned him was that COSATU wanted to place more strain on high consuming entities and factories. This would cause higher production costs, and also cause fewer workers to be employed.
Mr Parks responded that municipalities could not get away with murder. Some municipalities -- mostly in the Free State and North West -- collected their rates but did not pay Eskom. Soweto had to pay, and political parties had to bite the bullet. The price for electricity units was currently the same for everyone, but a more progressive regime was needed.
Mr Z Mkiva (ANC) described the COSATU the presentation as impressive and spot-on in a number of areas. Was COSATU engaging with municipals directly or through its affiliates that were located in different municipalities? Municipalities had to pay what was due.
Ms M Dikgale (ANC) said if poor municipalities in Limpopo province could pay for electricity, all other municipalities could pay.
Mr Parks agreed that if Limpopo could pay, Gauteng had to pay for electricity.
Mr Du Toit was concerned about COSATU wanting to charge the wealthy, but wanted more people to get free electricity. It did not add up.
Mr Parks replied that the DA in the Western Cape had a progressive water regime. Indigent households and consumers who used less, paid lower rates. Companies who could afford to pay more in terms of their profit margins, had to pay more. A plan was needed for the mining and agriculture industries to see how there could be a flexible and progressive regime. It could not be that residents of Constantia and Delft paid the same amount per unit for electricity.
Mr Carrim welcomed COSATU’s direct, focused input. Most of it looked reasonable. These Committees would be supporting a just transition. The term “just transition” should be internalised by committees. Exactly what a just transition would mean in practice had to be decided between government, labour and other stakeholders. Obviously there would not be agreement, because each party had different interests and priorities. The committees would have to say something about it in their report to Parliament, because all parties were concerned about job losses, although he could not see that there would be no job losses.
Co-chairperson Buthelezi asked how the just transition would be executed. Jobs could not be expended.
Mr Parks replied that, as Mr Carrim had said, Parliament could play a role in the just transition, as all communities and all departments had a role to play. Industries were rapidly changing. There were negative aspects to deal with, but also opportunities and positive aspects, like recycling, water conservation, renewable energy etc.
Mr Carrim said the idea of one national account for Eskom puzzled him. Municipalities desperately needed funds, and they generated revenue by re-selling electricity. When government tried to restructure the electricity industry, the Western Cape government had wanted to take the national government to court over this issue. He was not sure whether it could be done, but if it could, did government have the capacity to make sure that municipalities received their profits back?
Mr Parks replied that this was a proposal from business and the banks. It could be one single national account, or nine provincial accounts. 27 municipalities were sitting on that money and not handing it over. Some municipal charges were simply municipalities making a profit at the expense of the poor. A proper discussion was needed with Treasury and the Department of Cooperative Governance and Traditional Affairs (CoGTA) on sustainable financial regimes for municipalities. In some cases, the rates bases were too small. One could not have a situation where Eskom and the poor paid for municipal under-funding.
Mr Carrim agreed in principle with the manufacturing of electrical cars, but asked whether it was practicable considering where SA was as a state and its capacity. Was it doable?
Mr Parks replied that electrical vehicles were going to increase dramatically in the next few years. Volkswagen was going to build 15 million electric vehicles in the next few years. Look at what China was doing, producing 700 000 electrical vehicles per year. The South African Communist Party (SACP) would admit that what China was doing was the future. If SA fell asleep, the consequences to the local car manufacturing industry would be devastating. The Department of Trade and Industry (DTI) had to start investing in auto manufacturing. The DTI had spent billions in building it up. It had collapsed in Australia, and SA did not want to go that route. It had to be nurtured and grown. It could be win-win. Change was inevitable. SA had a crisis. SA could engage with the crisis smartly and new jobs could be created.
Mr Mlenzana asked whether COSATU’s slide 11 indicated that it was ready to discuss the Finance Minister’s document? He was drawing COSATU into this matter deliberately, because it was deliberately smart. Did NERSA have consumers’ interests at heart when it talked about tariff hikes?
Mr Parks replied that NERSA had given Eskom a blank cheque for 10 years to rob the country with above inflation rate hikes. For the last two to three years it had been a bit more sympathetic towards consumers, but it could have reined in Eskom more.
Mr Mkiva said the idea that Eskom should build solar and wind power stations was a good one.
Mr Parks replied that COSATU was engaging municipalities and the National Council of Provinces (NCOP) select committees as well. It was also putting pressure on municipalities. There were huge opportunities to create community ownership over renewable energy. This was part of the original plan, which Eskom had not delivered on. Communities and worker cooperatives could own solar panel and wind farms. SA could follow China’s example in moving from coal to renewables without throwing workers under the bus. They had re-skilled them and redeployed them. The country had to move away from coal.
Mr Mkiva felt the idea that workers had to be represented on the Eskom board had been under-communicated and was long overdue. Was COSATU engaging the executive to effect this? The reason why he said this was that many or COSATU’s proposal were very good, and if labour did not have representation on this decision-making body and push for its proposals, they would not carry in the long run. COSATU had raised this in 2018. Was there any feedback on this issue?
Mr Parks said COSATU had approached Eskom and government to have representation on the Eskom board, but it was unfortunate that one almost had to bludgeon government to agree to COSATU’s demands. It was a constant fight. It was a demand that if Eskom wanted COSATU to assist with prescribed assets, there had to be a quid pro quo. One could not ask workers to contribute money, but not give them a voice. Pravin Gordhan had been open to engagement, and it had helped to build bridges.
Mr Mkiva said he agreed that the appointment of the CEO was a matter of urgency.
Mr Buthelezi wanted to hear COSATU’s position on the appointment of the CRO. It had talked about a financial guru coming in, but there were human resources (HR) and engineering problems as well. He was curious to hear its view on long-term contracts at Eskom. There had been mention of lots of overcharging and the generation of super profits of 50%, 70% and even 100% profitability. COSATU had members at Eskom, and this Bill was about bailing Eskom out with SA taxpayers’ money. What was COSATU’s take on this gluttonous behaviour?
Mr Parks replied that COSATU could not care less about a CRO. There had to be one person in charge, and no duplication of roles. The person had to be competent and experienced. The chairperson could not be the acting CEO. This was the most important company in the country.
Mr Buthelezi said some of the companies talking about the unsustainability of Eskom had been there for a long time, and had made super profits off Eskom to its detriment. What was COSATU’s take on this situation.
Mr Parks replied that COSATU wanted a forensic audit of Eskom’s finances. One had to determine where was it bleeding, and those who had stolen had to be dealt with, whether they were workers or not.
Mr Buthelezi said electricity should be paid for, but it should be at a fair price. The incompetence at Eskom should not be transferred to the consumers. The poor people in the villages in Limpopo were double subsidising the people who were not paying, and this was not fair.
Mr Parks replied that COSATU agreed about having a fair price for electricity.
Mr Buthelezi asked what COSATU’s view was on prescribed assets.
Mr Parks said that prescribed assets was a very sensitive debate and needed to be handled with the utmost care, because one did not want to “spook” workers into thinking their pensions were not safe. Prescribed assets already existed -- for example, 60% of prescribed assets were invested locally. There was space to have an engagement. Eskom and roads entities, for example, were not profit-making companies. They were producing social goods. If one could spread the exposure, one could minimise the amount that was required. However, it was not a blank cheque for looting, like one saw with the industrial scale of looting of the PIC across the board.
Chairperson Mahlangu said her comments had to be seen against the fact that she had been a provincial chairperson of COSATU. She would like to hear the views of all the organised labour formations in the sector, like NUM, the Association of Mineworkers and Construction Union (AMCU) and SAMWU.
She was impressed by COSATU saying that it supported the Bill, but knowing the organisation, she knew it would come with conditions. The Select and Standing Committees also said: “No blank cheques.” This pouring of money into a bottomless pit had to come to an end. It also spoke to the oversight role of the committees. If it had happened before, and the committees were involved, what had the committees done?
These committees had made a commitment as part of the 6th Parliament, that it would not be business as usual, and it had started with the Bill which had been passed recently. It had been made clear to the leadership of NT, that organised labour had a role to play. Restructuring came with casualties. The casualty rate would be determined by the role played by organised labour. The labour movement had a lot of muscle and could influence all other levels.
She thought that at bargaining council level, the unions had to formulate a resolution as a contribution towards determining the process of restructuring. The labour movement needed to be part of the solution. Organised labour needed to do its own oversight to make sure Eskom complied with the conditions of the bail-out. This would be done in the interests of ordinary South Africans. Workers representing unions were also ordinary community members with families.
Ms Mahlangu referred to reducing the bloated senior management structures, and asked whether COSATU had definite ideas about what the organogram for Eskom would ideally look like. She advised it to include this in the resolution that it had to formulate.
She said the idea of a turnaround strategy had been there for years. Eskom had to expect criticism, and had to be able to take it well. It had to convince the SA community that this turnaround strategy was a living document and all parties had to pull together to make sure that it did turn things around. It was also funded with the taxpayer’s money.
She was happy that no-one had said de-unionise or privatise, and that the matter was not being used as a political football to further narrow interests. This indicated an increase in maturity levels amongst the leadership to put SA first, before ideological differences.
Ms Mahlangu said that as a citizen from Mpumalanga, she did not expect the province to have a high unemployment rate as it was rich in agriculture and mining, yet it had a high unemployment rate. She was worried about potential workers. Unions also had a political and social responsibility towards wider society, not just their affiliated workers.
The Committees wanted a reassurance that there would be no job losses. There would be strategies about how to avoid job losses, and those needed to be discussed with the labour movement.
Mr Parks replied that a Jobs Summit Agreement had been signed by the President a year ago. Now there was a new NT document, and it appeared that even Cabinet had not been consulted on it. It was a recipe for chaos. It created policy uncertainty. The process created huge problems. For example, it said small companies had to be exempted from paying a minimum wage. There had never been a minimum wage in SA until January this year, yet there was a 40% unemployment rate. One could not blame workers for the economic crisis. This document also proposed to privatise all Eskom’s core assets. Again, it flew in the face of the President’s commitments and ANC policy. It also spoke about reviewing the fuel price regime without giving any concrete proposals. The previous Energy Minister, Mr Jeff Radebe, had invited comments from the public in September 2018, and nothing had been heard about it since, so government also needed to speak to itself. The biggest contribution that government could make was to deal with wasteful expenditure and corruption which was costing the country R150 billion per year, and causing unemployment. COSATU was engaging the ANC on it and it advised NT to bring it to NEDLAC, where it would be discussed within the following 10 days. COSATU was having monthly meetings with the President to help with the implementation of the job summit commitments, which should help to relieve pressure.
Mr Parks said no piecemeal interventions were needed. A comprehensive plan was needed which would give confidence to everybody -- workers, consumers, investors, and even rating agencies -- where everybody contributed and everybody sacrificed in a social compact which would take Eskom forward.
The National Union of Mineworkers (NUM) said it wanted to comment on two things. Firstly, change was inevitable and the unions knew that there would be casualties, and were prepared for it. What the unions asked from stakeholders was to engage in the process to understand it, so that it could benefit all parties.
Secondly, Co-chairperson Mahlangu had mentioned a proposed plan from the unions. The NUM would make sure that the team that was going to represent the Eskom shop stewards council at the NEDLAC meeting would prepare a shop stewards’ plan.
Alternate Information and Development Centre (AIDC)
Mr Dick Forslund, Senior Economist: AIDC, said the AIDC’s basic proposition in relation to the Special Appropriation Bill was that the national budget should not be used to capitalise Eskom or rescue other SOEs. Use should rather be made of the excess funds of state organs such as the Government Employee Pension Fund (GEPF), the Unemployment Insurance Fund (UIF) and the Public Investment Corporation (PIC), which manages assets of over R2 trillion.
It went into detail regarding the financial consequences to South Africa of providing continued support to Eskom and other indebted SOEs from the budget at a time when the economy was under severe stress, and said it would not support a bill which proposed appropriating funds from the National Revenue Fund (NRF). Other available resources had to be utilised.
Consideration had to be given to the UIF’s R170bn total surplus, of which R154bn was held in an investment portfolio in 2018.
The GEPF should be required to shift asset allocations from shares in corporations to government bonds, adopting the same investment policy as the UIF, and implement other measures such as a one-year contribution “holiday,” which would provide an R80bn stimulus to cramped domestic demand, and take a “haircut” on its R95bn plus interest claims on Eskom. A shift from equity to bonds would improve the GEPF’s payment ability even more. Such measures would pose no threat to pension payments.
Mr D Ryder (DA, Gauteng) said the AIDC wanted to give the keys of the safe to a proven kleptomaniac. He was talking about a R2 trillion fund. What safeguards was the AIDC going to propose to make sure this was not going to cause continued state looting going forward? He was not saying that the current people in charge would be doing it, but one had to look into the future as well, and if the policy was changed, where would the pilferage stop?
A Select Committee Member asked whether the AIDC agreed that Eskom had to undergo a turnaround and that it had to be funded, and that it disagreed only on the source of the funding and not on the principle that a turnaround was needed. He thought that all parties were sober in their approach as to how the problems needed to be solved.
Mr Forslund replied that he discussed it with Michael Sachs, Deputy Head of Budget, National Treasury, and he had said NT had started with a high bid which would be tempered. This was what NT was doing, and even if Moody’s said it would not downgrade the SA economy in the following 12 to 18 months, he wondered how it would react to a recession in 2020. He warned against saving Eskom from the revenue fund. If one cut government spending, and government spending was close to 30%, and one cut it by 3%, then one would be cutting gross domestic product (GDP) by 1%, and that was by definition a recession. That was why the AIDC said that Eskom should be saved, but not with money from the national budget. There were other sources of money in government.
Mr Sarupen asked whether these comments had been run by the board of the GEPF as well. He was curious to know how they would react to some of these assertions and criticisms. It was a group of intelligent people who had kept this fund sovereign to make sure that teachers, nurses and police officers retired with security. He wanted to know whether there had been any engagement there.
Mr Forslund had an animated debate with a representative of the GEPF, asking whether the GEPF was dependant on development in the capital markets.
She denied that it was, arguing that in reality it was influenced by what happened on the capital markets. The economy could face the risk of a financial crash, because even companies like Apple were in debt and generating profits by borrowing at low rate and lending at a high rate to make a profit. If there was a crash, and if the GEPF had more than 50% of its assets in shares, it would affect the actuarial factor and it would affect the pensions.
Mr Joseph said the AIDC proposed that the NRF should not be used to bail out Eskom. Given the experience of the PIC, if the government wanted to use that money to recapitalise Eskom or to build infrastructure in the future, what would the return on that money be? He was not happy with the proposal, and would not support it.
Mr Forslund replied that what happened at the PIC was that money had been squandered in the project aimed at building a black bourgeoisie. Some of it had been squandered on patronage. When one invested in shares, one assumed that the annual reports were telling the truth, but sometimes they did not. In the case of Steinhoff, they had not. The surplus had been used for social purposes when the primary goal of paying pensions had been secured.
Ms Dikgale appreciated the sharp criticisms she had heard in the presentation, but she wanted to hear the solutions. In the AIDC’s suggested alternatives to harsher austerity, it had said that 27% of Eskom’s debt was owed to other state organs. What could be done to assist this entity? If other governments could implement austerity measures, South Africa could follow suite in order to assist Eskom .
Mr Forslund replied that he wanted to point out that 27% of the ‘black hole’ of Eskom’s debt was located in other parts of government. It was the UIF, the GEPF, and other state organs which were not defined. In the annual reports, all the loans from Eskom were listed, but not who gave the loan. However, the UIF and GEPF were very transparent in their annual reports about which entities they gave loans to. Both gave large loans to Eskom. Would they get a fair return?
COSATU should be specially clear about this, because many of their unions were public sector unions. When one looked at the budget review in the NT’s annual report, one could see that Treasury had always dipped into the GEPF. R16 billion was funding the reduction of public employees this year by 30 000 heads. If NT continued on this road, there would be further cuts in the public sector. This Special Appropriations Bill meant austerity, but not in the same sense as before. This was a different situation. This was austerity coming to the fore in the directives of the Department before the mid-term budget. It was austerity that was a real cut in government spending by over 3%. That was the opening bid.
Mr Buthelezi said he liked to think out of the box. How did the AIDC see the GEPF benefiting?
Mr Forslund replied that the main purpose of the GEPF was to pay pensions according to the pension law and the benefits. It was an empirical question as to how the GEPF should be able to pay the pension according to the law. In the GEPF law, there was a provision that the pension had to be increased by at least 75% of the consumer price index every year, but one understood that one could not go on like that for 10 to 15 years in a row, because then the pension would go lower and lower and there would be too much of a gulf between the pensioner and the employed. A counter argument to that was that there was another type of state pension which was run as a “pay-as-you-go,” because it was paid from taxes. That was the R1 800 per month that was paid to war veterans and other old people. There was criticism from civil society that social grants did not increase. The GEPF did not always follow the rule of 75%, which was a minimum. Sometimes it had increased it by more to catch up. There was a complication with this defined benefit. Some would remember that two public sector unions sued the GEPF in 2015 because the actuarial interest factor had decreased, which caused the pensions to decrease. The GEPF was not a benefit fund in the strict sense.
There was a specific formula which determined the benefit to the individual from a benefit fund. It was calculated according to the years of service and the last two years of the worker’s salary. However, if one looked at the formulas in the law, one would see that there was an actuarial factor which could be changed, subject to the changes that the board decided on with the actuaries, which was Alexander Forbes. If the fund was in danger, they would lower this actuarial factor and when things were going well, it would be increased.
Mr Forslund added that It was a matter of how much risk the GEPF was prepared to take. In his opinion, according to the audit, the GEPF was taking too much risk. In numbers, only a third of the solvency fund was filled. To bring the demand for the insolvency fund down, one had to change the investment policy. If one did that, one had to do it in the interest of saving, so that Eskom did not “go dark.”
Because the AIDC was affiliated with the labour movement, it had been more in favour of a pay-as-you-go pension fund, and NT had also started to report like that since 2017. He had been looking at the cash returns from shares as opposed to bonds, and he could see that the cash dividends from shares averaged about 3.4% on the whole, while from bonds the return had been well over 7%, so when it came to the investment income in cash, the return from bonds to the GEPF was much higher than the return on shares.
Pension schemes all over the world had always used the pay-as-you-go system, because all the liabilities did not have to be paid on one day, as the fully funded model assumed. Pension funds had the primary goal of paying pensions, and then it had to build up a surplus, because things could go bad. This surplus would then be invested in different kinds of social investments, in social liberal or social democratic countries. In Sweden, where he was from, it had been invested in a big housing programme in the 1960’s, for example.
Mr Buthelezi asked where else in the world had what the AIDC was proposing been done.
Mr Forslund replied that he did not know if any country had been in the situation which SA found itself in at this point in time, where a main player in the economy was threatening to go bust. For example, with the housing programme he was talking about, the government had regulated interest rates and did not use them to maximise profits. It had not outsourced the building programmes, but had built the houses itself. The state had not been a procurement provider in this case, but a service provider. Regulating the interest rate between intergovernmental lending had been done all over. In Germany, even the interest rates of banks were regulated and they were obliged to buy government bonds without profit margins.
Chairperson Buthelezi said the Committees appreciated it when civil society came to share their ideas with it. It had heard presentations from OUTA, COSATU and the AIDC. The Committees’ duty, in terms of the constitution, was to listen to the public, consider their ideas and see what was possible. These presentations were meant not to confirm the Committees’ preconceived ideas, but to widen their horizons, so that when they had to make decisions, they had more options.
The meeting was adjourned.