Special Appropriation Bill: public hearings

Standing Committee on Appropriations

28 May 2021
Chairperson: Mr S Buthelezi (ANC)
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Meeting Summary

Video: Standing Committee on Appropriations, 28 May 2021

In a virtual meeting, the Standing Committee heard concerns from the University of Johannesburg (UJ) College of Business and Economics, OUTA and COSATU. National Treasury and the Parliamentary Legal Advisor were asked to respond to these concerns.

The University of Johannesburg said that the Appropriations Bill will have a significant impact on the South African Airways (SAA) rescue plan if its subsidiaries such as Mango get R2.7bn of the allocated R10.5bn to pay its creditors as will SAA will be unable to pay its creditors. OUTA’s submission spoke to the Companies Act requirement about the sanctity of a business rescue plan and appropriation of funds from the National Revenue Fund. It said the Special Appropriation Bill is acting contrary to Section 152(4) of the Companies Act and that the business rescue plan is binding on shareholders, creditors and those who hold securities. COSATU’s submission requested that the Social Relief Grant be extended and that Treasury allocate more funding to the Commission for Conciliation Mediation and Arbitration (CCMA) as it had to retrench a number of its staff yet it provided such a valued public service.

Committee members raised concerns that if Mango was to close the airline industry and its routes will be monopolised. They asked for solutions to stop corruption and wasteful expenditure. Members indicated that business rescuers just want to make money and asked OUTA why the business rescue plan did not identify that South African Airways (SAA) subsidiaries would require financial help. Members said the rolling out of vaccinations is very slow and asked what COSATU is going to do about it. The Committee indicated that it wanted Mango to maximise operations and contribute to the economy. Members spoke about the importance of the workers of SAA and its subsidiaries who must not be affected negatively by the business plan. Members asked if COSATU had engaged with Treasury and Department of Employment and Labour (DEL) on the CCMA. Members indicated that government will regret not funding Mango and asked if SAA Technical is still in operation and if SAA has a pilot programme.

National Treasury explained that the SAA business rescue plan, which is binding on stakeholders in terms of the Companies Act, would not be undermined by the Special Appropriation Bill that will divert R2.7bn of SAA’s R10.5bn allocation to its subsidiaries. The Bill amends the Department of Public Enterprise’s 2020/21 budget vote by authorising the use of R2.7bn of the R10.5bn for SAA subsidiaries. Treasury stated that it was always intended that R2.7bn would be used to support its subsidiarie. The business rescue plan did state that SAA subsidiaries would require financial support for the viability of the SAA group. No money is being taken from the business rescue plan which requires R14bn. The funding will be provided but it is not limited to appropriations from the fiscus. There are other sources of funding and there is a strategic equity partner process underway.

The R10.5bn was appropriated in the 2020 Second Adjustments Appropriation Act but as the subsidiaries are separate entities; the funds for these should have been appropriated separately, which was why it is being amended in this Special Appropriation Bill. Government plans to use the R2.7bn to fund Mango with R819 million; its maintenance arm, SAA Technical, with R1.7bn; and Air Chefs with R218 million. While government as the shareholder was bound by the business rescue plan, Parliament was not and could pass the law.

Parliament’s legal advisor agreed that Parliament is not bound by business rescue plan because it does not hold securities and is not a creditor of SAA. The business rescue plan cannot override Parliament’s constitutional legislation.

Meeting report

University of Johannesburg, submission
Dr Joachim Vermooten, UJ College of Business and Economics Research Associate (acting in his personal capacity), said that the Appropriations Bill will impact the SAA business plan as follows:
• Taking away R2.7bn from SAA creditors in the SAA business rescue plan in favour of its subsidiaries, implies that such amount would have to be provided to the affected creditors somewhere in the future.
• SAA ordinary concurrent creditors will lose out (including prepaid tickets and Frequent Flyer credit liabilities).
• Mango’s creditors would be paid whilst SAA creditors will not be paid.
• This implies that further money would have to be appropriated for SAA at a later stage to pay off existing SAA creditors.

Dr Vermooten indicated the following considerations about Mango:
• It was a sole SAA project for which no justification was ever made to Parliament that it would ever require government funding.
• There is no Mango Act, by means of which the state should establish and maintain a low-cost carrier (LCC) airline.
• No government guarantees have been provided for Mango.
• On what basis should this appropriation now be provided to fund all Mango creditors (100% of debt owing), which was not even done for SA Express and SAA creditors. SAA concurrent creditors were offered only 7.5 cents in the Rand.
• Where scheduled air services are lacking, this will require state intervention and funding.
• Government is not empowered to dish out money just for any purpose. It must comply with the PFMA prescripts on investments.
• This appropriation will represent the key to further funding, which does not seem will be available.
• There does not appear to be a legal obligation to provide funding for Mango. Therefore, funding to Mango should require suitable motivation.
• Mango’s current status should be clearly disclosed and a realistic projection of future results and funding requirements as well as how this would fit in with overall government priorities.
• The domestic air transport market is overtraded with low level of market demand.
• Government should motivate funding a LCC airline in direct competition to SAA Domestic.
• Will Mango be allowed to continue to lose money as no restructuring plan announced.
• What funding does Mango require for the next three years?
• Should it not be sold instead?

(See Presentation)

Organisation Undoing Tax Abuse (OUTA) submission
Adv Stefanie Fick stated that Section 152(4) of the Companies Act sets out the legal nature of the Business Rescue Plan once adopted by providing that a business rescue plan that has been adopted is binding on the company, and on each of the creditors of the company and every holder of the company’s securities. If government wants to allocate funding to the subsidiaries, the business rescue plan should have made express reference to the reallocation of the R2.7bn. OUTA suggested that Clause 3 of the Special Appropriation Bill be removed, to enable the successful implementation of the Business Rescue Plan. The Ministers of Finance and of Public Enterprises must then determine the need for funding for the subsidiaries and the extent to which they should be liquidated. This process must be open to the public and transparent.

(See Presentation)

Congress of South African Trade Unions (COSATU) submission
Mr Matthew Parks, COSATU Parliamentary Liaison Officer, noted these proposals:
• Parliament should reject the April 2021 cut-off for the Covid-19 Grant and extend it until the end of 2021/22 and beyond.
• Government needs to open all vaccination sites by 31 May and ensure at least 200 000 people are vaccinated daily to ensure 67% plus population immunity level is reached by December 2021.
• COSATU is deeply angered Treasury failed to include the CCMA in Special Appropriations Bill.
• Government slashed over R600 million from CCMA over Medium-Term Expenditure Framework;
• This has literally brought the CCMA to its knees and has forced it to retrench Commissioners, close doors, cancel conciliation services and so on.
• This has been a painful blow for thousands of workers who depend on the CCMA to save jobs.
• The jobless have increased as the economy was shut down and plunged into its deepest recession in a century.
• This has resulted in workers protesting at CCMA offices and instead of increasing funding to the CCMA to help reduce its queues, Treasury has slashed it.
• COSATU submitted a memorandum to Cabinet and raised this matter with the President and Ministers of Finance and Employment and Labour.
• Other Federations and Organised Business have supported COSATU’s memorandum to Cabinet.
• The plea for workers has warranted no response from Treasury.
• Parliament should reject the CCMA budget cuts and reinstate its funds in the Special Appropriations Bill.
• Treasury should engage with the Departments of Employment and Labour and of Higher Education and Training with COSATU and Organised Business on additional funding sources for the CCMA such as the under-utilised Sector Education and Training Authority (SETA) funds.

(See Presentation)

Mr O Mathafa (ANC) said that Mango must continue its business because it targets the lower class. Dr Vermooten indicated that there is a price war between Mango and South African Airways (SAA). The airline industry will become monopolised because there are only three companies who cater for the lower class. A review of Mango's operations will ensure that it remains profitable. Mango needs to be transparent about its financial situation because it will assist the Committee in making a decision. He asked if Mango's operations compared to other companies in the industry in relation to its financial viability.

He agreed with Adv Fick and Mr Parks that more needed to be done to stop wasteful expenditure and corruption. Parliament amended the Public Audit Act to expand the mandate of the Auditor-General so when maladministration is detected the money can be recovered. He asked as legislators what more can be done to stop maladministration and corruption.

Ms N Hlonyana (EFF) asked Dr Vermooten if South Africa will not regret selling Mango because it is a South African company and a low-cost airline. There are a concerns with the way Mango operates because there a number of areas that it does not fly to. The business plan of Mango needs to change and it needs to fly to other areas and be competitive with companies like Airlink. She asked Dr Vermooten why the policy choice for Mango was incorrect.

She that business rescuers take long to fix problems so that they can make more money. Adv Fick indicated that the rescue plan is binding on the SA government and the R2.7bn allocated to subsidiaries will cause law suits. She asked OUTA why it did not identify problem at the beginning because the R10.5bn allocated to SAA will leave Mango isolated if it does not receive the R2.7bn. She blamed the business rescuers for the situation that Mango is in because it did not identify that problem in its business strategy.

She commended COSATU for adding a human element to its submission because workers have lost their jobs. She agreed with its comments and added that the vaccine roll out is very slow. Government is doing it deliberately as there may be deals that are not finalised yet. She asked what COSATU planned to do about the slow roll out of vaccinations as government is allowing people to die which is a serious offence. She agreed about the CCMA which must be supported at all costs to allow it to do its work as the country can find itself in a situation worse than the pandemic.

Mr X Qayiso (ANC) agreed that Mango is not operating correctly and it should maximise its operations and cover more routes. He asked OUTA how Mango can address this. Government should not take a bureaucratic approach to rescuing Mango and overlook the economic issues the country is facing. He wanted SAA and Mango to contribute a lot to SA’s economy. The business plan to rescue Mango must not affect its workers as a lot of families are dependent on the jobs it created. Business rescuers must ensure that there is a smooth transition in the company when the business plan is implemented.

He agreed with Mr Park’s comments about the vaccine roll out and said that the process is very slow. Government thought that it alleviated poverty with the Social Relief Grant however scientists indicated that there will be a third wave of Covid-19 infections. The Committee needs to support COSATU in amending the Bill, so that future challenges can be prevented. He supported the importance of supporting the CCMA and engaging with DEL. The absence of the CCMA will invite a number of problems between workers and businesses.

Ms D Peters (ANC) commended all three submissions and said it is good that they took the time to brief the Committee. She asked all three presenters what needed to be done about the current economic circumstances. She agreed with COSATU that corruption, litigation and incompetence cannot be budgeted for. However, it must acknowledge the attempt made by government to stop corruption and engage with the Department of Public Service and Administration (DPSA) on this.

She agreed that the roll out of vaccinations is very slow. There must be a challenge with the vaccine registration system. When she visited a vaccination site the workers were very professional and helpful. She cannot understand that there are only 87 vaccination sites across the country as there are many more sites where children normally get vaccinated. The Committee needed to look at ways to address this. She asked if COSATU had engaged with DEL and Treasury on the CCMA. He asked why UJ raised concerns about the Department of Transport and the Single Transport Economic Regulator (STER).

The Chairperson appreciated the submissions. Mango has been in competition with other airlines for years and asked UJ why it is an issue now. The Bill allowed for the recapitalisation of SAA and he asked who it is competing with. When government decided to recapitalise SAA the money should not be regarded as being wasted as that money benefits other sectors of the economy. Many failed to mention that SAA ran a pilot training programme that assists disadvantaged people. He did not agree with the notion that if government decides to recapitalise, that money is being wasted and asked UJ to comment on this notion.

He noted UJ comments that rescuing Mango is causing competition for SAA as there is a free market system in the airline industry. He asked UJ to comment on the notion of the free market system. He agreed with Members that airline routes are being monopolised because it is cheaper to travel to Durban than to Pietermaritzburg. He asked OUTA if the business plan for SAA exclude subsidiary companies. He asked if SAA Technical (SAAT) is still operating.

The Chairperson said the Social Relief Grant had a positive impact on food security. COSATU noted it will cost government R2bn per month to extend the Social Relief Grant. Once Parliament has established the budget, it cannot be changed. He asked if COSATU suggested that the country uses its savings to extend the grant because the Money Bill Act does not allow Parliament to change the budget. COSATU said the money allocated to CCMA is not enough. He asked COSATU to comment on how government must resolve this. He referred to the temporary employer/employee relief scheme (TERS) and said that there were many cases where employers applied on the behalf of their workers but kept the money. One company received R60 million and its employees did not receive anything. The company said that it will pay back the money but in instalments. That is fraud and the union does not say anything about it and the companies remain nameless. TERS was abused and he asked what DEL’s role was in this.

Dr Vermooten replied that with the challenges the market is facing, it is difficult to operate a full service aircraft with fewer seats because the revenue level is based on low cost. SAA has five competitors with different tariffs on the main routes. One would not want to waste taxpayers' money by subsidising competition because the money goes to subsidised air fares. There are many priorities for government on basic needs. If government does not fund Mango it does not mean its business will end because it could have been sold for billions a number of months ago. Mango expanded its operations from four to 14 aircraft. The expansion was too much because in airline restructuring one needs to cut back on an airline's operations to reduce losses. Mango operates a larger size aircraft – this is a major decision when you are an airline because the airline parts and licences are different and it becomes a problem to operate services efficiently.

Mango was established in 2006 by SAA to compete in the market and offer cheaper fares to try and fill up aircraft despite having larger costs. This is the first time that government is involved in financing Mango. SAA decided to close down its domestic operations and allow Mango to operate at a low cost with a few business class seats as it was more profitable. The Bill and the business plan would mean that SAA operates domestically again and retains Mango’s business. It will be difficult because the fares will be cheaper and the taxpayer will have to cover the remaining costs of the airline. There are alternatives for government to allow SAA to adapt to the current market as many low cost airlines in other countries operate independently.

On Mango’s viability, if the operations expansion is too much to pay for aircraft parts and passengers do not support its services then Mango will experience losses. Mango should have restructured a long time ago. It is unreasonable not to pay its staff and ask government for funding.

He replied that government will not regret not funding Mango because SAA will remain in business if it adapts to low cost structures. Mango must operate smaller size aircraft because it will experience significant losses if it cannot fill up all its seats when it operates. Mango and SAA only operated on the main routes and did not make any development in operating on the smaller routes. Will this be a strategic move for government if the airline runs at a loss? SAA was not profitable in 2007 and he was part of the team which implemented a turn-around strategy but SAA has since accumulated up to R6bn in losses. There are other options to help Mango to either sell or restructure because it will be better to do this than to allow the company to run out of money and not pay its employees or creditors. Mango did not adapt to the market and maintained its lease costs while its aircraft were not in operation.

He replied to Mr Qayiso on SAA contributing to the economy saying that SAA is currently contributing nothing to the economy. People are still able to fly domestically however the international market is closed. On the business plan affecting the workers, he replied that the workers are important but the Bill only deals with providing the company with money which will be allocated to its creditors. The business plan must be implemented correctly and it is unacceptable that the company stops paying its workers. If the Committee has a concern about this then government must revisit the Bill to include the workers.

He replied to the Chairperson’s question on Mango’s development that SAA is not clear on its strategy. SAA wanted to stop the Mango business and then it wanted to close its domestic operations. Government currently wants both airlines to operate in competition and in his opinion this strategy should not be taken.

He pointed out that it was SA Express that ran the pilot cadet programme but the programme is discontinued because SA Express is under liquidation. It is unfortunate because many countries train their pilots through the military and SA does not have this type of system. Mango’s role did not include a cadet programme because it employs pilots that have a lot of flying time.

On the free market, Dr Vermooten replied that SA does not have a free market and competition. SAA closed the market by concluding agreements with travel agents and was found guilty of monopolising the market. The case took 14 years to adjudicate and in the interim period Kulula was started. The aviation business differs from the big construction companies because in aviation there are many small buyers who conclude individual voluntary contracts. If companies develop more profit then more competitors will enter the market. There is not a lot of profit in the local airlines and the trick is to balance the supply of flights to the real demand required.

On SAA Technical, there is local competition but it operates on a worldwide basis and thus can operate better if it is a separate entity. It can either be a separate state owned enterprise (SOE) or listed as a company with the state as a shareholder because it will not operate efficiently under SAA if it does not receive its allocated funding. SAAT can have a different mission and not be restricted under SAA. SAAT can operate efficiently but it needs a business case because government cannot fund it without a strategy.

Adv Fick replied that business rescue is a legal process but it provides for efficient rescue for financially distressed companies in a manner that balances the interests of all stakeholders involved. OUTA takes the interests of the workers seriously because SAA did not have enough money to pay its workers. SAA board of directors realised that it had financial challenges and had a duty to staff and creditors to indicate that it cannot pay its bills and if it continued then there would be no funds to rescue it. On why Mango was not included in the business plan, she said that it was not part of the business rescuer’s mandate. Subsidiary companies are independent and have their own board of directors. The Bill wants to financially support Mango and the question that arises is: Is Mango in financial distress? If the answer is ‘yes’ then one should ask ‘why is Mango not in the business rescue plan’ because the board of directors needs to consider all the parties' interests. The seriousness of the financial distress needs to be determined and then find the best plan for that situation.

The business rescue plan is binding and you cannot change it and go against the Companies Act and use the Bill to financially support Mango. SAA had financial difficulty and government decided to bail it out and a business rescue plan was established. The mandate was to rescue SAA. If Mango needed to be rescued, it needed a business rescue plan. Government cannot take R2.7bn and give it to its subsidiaries because it is illegal and in this sense the Special Appropriation Bill is illegal. The main objective is to save SAA. If Mango is in financial difficulty, it needed to follow a legal process and either be liquidated or have a business rescue plan. Government cannot apply the same business rescue plan to SAA and Mango. If there are funds left from the business rescue plan, those savings must be given to its creditors or its employees as they made the sacrifices. The savings cannot fund Mango because it will result in more companies having financial difficulties. Clause 3 of the Special Appropriation Bill must be scrapped to allow SAA to be bailed. OUTA was against the bailout of SAA because it is a waste of taxpayers' money and government should focus on doing the business of government. If government has the money to bail out Mango, it must be treated as a separate procedure from SAA.

She replied about the plan affecting workers saying that the savings must not go to Mango but must be given to the SAA employees. She commended Members of Parliament that go out of their way to make things happen in South Africa and there is always room for improvement. Government needs to look carefully at how SOEs are managed before bailing them out. Government needs to use the funding on other needs because there are people who do not have access to water. She commended the work that the Committee does. What is missing in Clause 3 of the Bill is the reasoning for these entities needing funding and the legal system needs to be used to benefit everybody.

Mr Parks agreed that corruption cannot be budgeted for and must be stopped immediately. Government has to do more to stop corruption because a lot of money is being lost and painful budget cuts have to be made. The Public Audit Act has been amended and only one official has felt the brunt of the Auditor General. Government must hold its officials responsible and not hesitate to seize assets of offenders. If government does this, then slowly other offenders will start correcting their ways. There are positive signs of change when ESKOM took the civil route to reclaim capital from offenders. The media played a crucial role in exposing the corruption by reporting on it every week. The National Prosecuting Authority (NPA) and the South African Police Service (SAPS) have a role in taking corrupt officials to court. An official cannot be accused of corruption and not be taken to court. COSATU has said in its engagements with Parliament that corruption cases need to be prioritised. Everyone has a role to play. COSATU has said that if department officials are aware of corruption they need to blow the whistle. Yet a number of shop stewards have lost their lives for whistleblowing and municipal workers have been fired by councillors for exposing corruption. We have made the Luthuli House aware of this. It will be difficult to motivate officials to expose corruption if they cannot be protected. COSATU commends the ANC for starting to clean house internally at both national and provincial level.

He agreed with Ms Hlonyana. What the legislation states is different about the treatment of the workers. The business rescue plan ignored the mandate of government to save SAA. Business rescuers make a lot of money – this was evident in the mining industry, leaving the workers penniless. COSATU had raised the Insolvency Act with National Treasury because it has a ranking order for when the business assets are released but the workers are the last to receive anything. Treasury has made progress on the Insolvency Act to ensure that the rights of pensioners and workers are protected. Thousands of SAA workers have been left destitute and Minister Gordhan with COSATU made efforts to address the Unemployment Insurance Fund (UIF) issue.

The pandemic impacted the value chain of the tourism sector and even the Airport Company SA, the most profitable SOE, felt the effects of the pandemic and the challenges that SAA was facing. SAA and Mango were profitable and can be fixed with the correct turnaround strategy. The bailouts from government cannot be endless because it also has debt it needs to settle.

On the slow rollout of vaccines, Mr Parks replied that COSATU has engaged with the Ministry and Department of Health (DOH) when it felt government did not have a serious vaccine plan. COSATU cannot explain the slow rollout because the most vulnerable will ultimately pay the price. Government has said that it does not do vaccinations over the weekend because it does not have money for overtime pay. However, health officials work seven days a week and it has been budgeted for. DOH has not increased the number of health workers. There have been positive signs because more sites have been identified to do vaccinations. Zimbabwe with all the challenges it faces, has vaccinated more people than SA.

On Members' concerns about the CCMA, COSATU has raised the CCMA because it is such a valued public entity. Many workers cannot afford lawyers in labour courts and the CCMA offers its services for free – but it is busy collapsing. COSATU have engaged with the CCMA and raised this with the President, the Ministry and Treasury. The R300 million allocated to CCMA is not enough. Many MPs ask from where will the money come and COSATU suggests that money be made available from the SETAs. COSATU proposes that the CCMA budget cut be reversed in this Bill or allow government to reprioritise funds in a supplementary Bill or through the Medium Term Budget Policy Statement (MTBPS). Many departments are pleading with Treasury for more funding; however, the CCMA must be prioritised.

He suggested that government needs to open all vaccine sites and increase the number vaccinated from 20 000 to 200 000 a day. The Social Relief Grant needs to be extended and COSATU is aware that R24bn is a large amount but it is a worthy cause and Treasury can squeeze some funds from the departments. If government can spend R13bn on building head offices there should be enough money for the Social Relief Grant. Many departments have saved money by reducing travel and accommodation. COSATU wants to play an active role in finding solutions for government. Its proposals helped Eskom to reduce its debt burden and the UIF to invest in Edcon. COSATU has engaged with the UIF to pay out R70 million to assist companies.

COSATU does not agree with OUTA that it is illegal for government to allow SAA to empower its subsidiaries. This Bill does provide for the SAA to do this and it is not a legal issue. Government cannot tax its way out of this situation or print money and spend it because the consequences will be devastating. Government needs to address mismanaged SOEs and invest money into the economy and infrastructure.

He replied about TERS that the UIF had tried to avoid delays and make the money available to employees but there were individuals who took advantage of the funds. The UIF has recovered R3.5bn from employers and there were 70 cases where employers or workers were charged with fraud. COSATU is receiving weekly reports on the cases and there were leakages with TERS. If Members are aware of any companies involved in this fraud, it needs to let the UIF Commissioner know as the Commissioner is trying to resolve these. The UIF has said if the employers do not pay the workers, they will be taken to court. COSATU has been public about the challenges the UIF has faced and a number of stakeholders have tried to assist. Government Technical Advisory Centre (GTAC) has tried to assist with UIF information systems because they are ancient. COSATU is continuing to engage with the UIF which decided to extend the period of relief for employees who are vulnerable and waiting to be vaccinated. The UIF will continue to support companies in the tourism and sports industry as these are partially closed due to the pandemic.

The Chairperson appreciated the responses as this matter is of national interest. He asked Treasury for comments about the submissions.

National Treasury response
Dr Mampho Modise, Treasury Deputy Director-General: Public Finance, pointed out that the budget is an executive budget and not a Treasury budget. The notion that Treasury refuses to extend grants or funding is not accurate because Cabinet decides on the budget. Participation in formulating the budget must be improved and Treasury wants to continue using the National Economic Development and Labour Council (NEDLAC) for consultation. The relationship with NEDLAC already exists and consultation with other stakeholders will not be required because the information that Treasury deals with is sensitive. If any information is leaked it can impact the markets. Treasury wants a balanced approach to funding the best performing programmes to the non-performers. Funding cannot be removed from non-performing programmes because government needs to look for ways to improve these.

She replied to comments on cooperative governance that these issues were dealt with during the Division of Revenue process. The performance information can be accessed in the Annual Performance Plan (APP) of the departments such as the Department of Communications and Digital Technologies. A policy environment needs to be enabled or an institutional framework for the digital economy which is highlighted in that minister’s speech. In terms of water and sanitation, Treasury looked to change the budget structure from an activity-based structure to an objectives-based structure. This will allow for better costing of programmes and strengthening the link between budgeting and performance information. On the Road Accident Fund (RAF), the fuel levy is used and there is no allocation for the RAF in this Bill. Treasury has engaged with the Department to broaden the policy and financing for RAF victims. The Department of Transport will discuss with Parliament about broadening the RAF.

Every department have pleaded with Treasury to allocate more funding; however, Treasury has looked for ways how departments can reduce spending without affecting service delivery. Departments have allocated their savings on travel to other sections that are under financial strain.

Dr Modise commented on Basic Education that the Division of Revenue Bill compensates its employees. Treasury established savings from the Education Infrastructure Grant and School Infrastructure Backlogs Grant. Treasury did not want to affect the funding of the National School Nutrition Programme (NSNP) because it is important. From the R25bn allocated to the NSNP, this was reduced by R25 million. There were a number of reasons why education was not seen as a frontline entity; however Treasury did not make this decision and the NSFAS budget was reprioritised. There was a plea for capacitating the South African Revenue Service (SARS) and Treasury allocated it R3bn for the three years. Treasury evaluated the SARS programmes and determined that the amount allocated was sufficient. She was not sure how COSATU calculated the CCMA reduction as R600 million because it is R300 million for the three years. Treasury acknowledges that the budget reductions will impact departments however they will need to adapt their service delivery model to the funds that are available. Treasury did not intend for the CCMA to shut down or that the budget cuts must cause disruptions but every department has had to experience budget cuts.

The decision not to extend the Social Relief Grant was Cabinet’s decision. The request to extend the grant was made after the 2021/22 Budget was tabled. It is against the law to restructure the budget framework after it has been tabled. However, it would require reprioritisation to extend the grant and it would be useful to know exactly from where the funding will come.

She replied about the slow roll out of vaccines saying that Treasury has allocated funding both provincially and nationally to the Department of Health to prevent the third wave.

Treasury did not allocate funds to Agriculture's Perishable Products Export Control Board because the entity does have enough funding in its reserves to deal with its issues.

Ms Tshepiso Moahloli, Treasury Deputy-Director General: Asset and Liability Management, replied on what Treasury is doing to assist Denel saying that it does not only have financial problems. There is nothing Treasury can do for Denel unilaterally because a broader defence ecosystem needs to be considered to deal with Denel's challenges. Treasury, Department of Defence (DOD), Department of Public Enterprises (DPE) and Armscor will brief Cabinet on a strategy to assist Denel.

She replied that Land Bank did not conclude its liability negotiations with its lenders. Treasury is engaging with Land Bank and its advisors to find a solution very quickly because the longer the situation continues, Land Bank, its lenders and the farmers will be significantly impacted. On whether farmers were supported during the pandemic, Land Back did not stop lending to farmers but it had to spread its resources to its lenders and farmers but in small amounts because of budget constraints.

On funding SAA subsidiaries, DPE and the Department of Transport will be better placed to deal with that. The approved business rescue plan did not allocate for the capitalisation of subsidiaries however the plan alluded to the fact that subsidiaries would require financial support for the viability of the SAA group. She referred the Committee to pages 56-61 of the company’s business rescue plan. The business rescue plan envisaged the amount of R2.7bn that subsidiaries would require that was submitted and approved by Cabinet. No money was taken from the business rescue plan that it requested from government and no Companies Act contravention that government did not adhere to the business rescue plan. Business rescue practitioners would resist and indicate formally that government did not adhere to its obligation. DPE read the plan and assumed that the R2.7bn included in the total amount of R10.5bn can be funded to subsidiaries. The question remains must all the funding be clustered together – that is what the Special Appropriations Bill is trying to solve. DPE requested that Treasury implement a mechanism to allocate the funding to the different entities.

Adv Empie van Schoor, Treasury Chief Director of Legislation, said that the way the plan was classified in the Second Adjustments Appropriation Act 2020 meant that the allocated funds can only be used for the implementation of the business rescue plan for SAA. The subsidiaries are different entities and therefore it was not possible to allocate the R2.7bn to the subsidiaries. Treasury acknowledges that the plan binds SAA and government as the shareholder but it does not bind Parliament when dealing with Appropriation legislation. The letter of support provided by government said that the funding will be provided but it does not limit the funding to appropriations from the fiscus. There are other sources of funding and there is a strategic equity partner process underway managed by DPE. The remaining R7.8bn is not the total amount for the plan, it is R14bn.

Treasury advised DPE that the Second Adjustments Appropriation Act needed to be adjusted in this Bill. This deals with the question that must there a compliance with the Public Finance Management Act (PFMA) if the Second Adjustments Appropriation Act is amended. Clause 32 of the PFMA allows the shifting of funding in a vote and it must be done on a yearly basis. The money allocated to subsidiaries does not need only to be used for debt; the subsidiaries can also pay their workers. Clauses 3(2) of the Bill refers to when the Minister is advised that one subsidiary requires urgent funding and may take funding from another subsidiary. There is no contradiction between the Bill, the Constitution and the PFMA.

The Chairperson requested that Treasury submit its responses in writing to the Committee.

Parliamentary Legal Advisor comments
Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said that his role is to look if Parliament is acting within the Constitution when legislation is passed. He addressed whether Parliament passing this legislation is acting contrary to Section 152(4) of the Companies Act that states the business rescue plan is binding on the shareholders, creditors and those who hold securities. Parliament is not bound by it because Parliament does not hold securities nor is it a creditor of SAA. The reasoning for challenging legislation is either due to a procedural or a substantive matter in that legislation. In this regard, the business plan is something separate to passing the Bill.

The money from the Bill can be used for the business rescue plan if the plan remains intact and government complies with plan. There should be no concern about the Bill because Parliament is empowered by the Constitution under Section 44 to pass any legislation that are within the boundaries of the Constitution. The legislation can be passed if it does not negatively affect the business plan because if this were the case then Parliament needs to look at the rationality of the legislation. The business rescue plan cannot override Parliament’s constitutional legislation.

The Chairperson stated that in law there are many interpretations and Members in the meeting must be advised that Parliament considers all the angles on legislation.

He thanked everyone for being present and adjourned the meeting.


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