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FINANCE PORTFOLIO COMMITTEE
03 August 2004
PUBLIC INVESTMENT CORPORATION BILL: DELIBERATION
Chairperson: Dr Rob Davies
Documents handed out:
Legal Opinion on: Public Investment Corporation Bill
Public Investment Corporation Bill: response to submission by COSATU
Submission by the Financial Services Board
Public Investment Corporation Bill [B6-04]
The Public Investment Corporation said that government debt as a percentage of the Gross Domestic Product has been decreasing since 1995/96. South Africa's sovereign credit ratings have improved from Baa3 to Baa2 (Moody's) and BB to BBB (Standard and Poor's). There is no phenomenal increase in government debt and debt service costs pose no threat to the fiscus.
The transfer of assets and liabilities in terms of the Bill only refers to operational assets of the PIC. There would be no transfer of assets managed on behalf of clients.
Responding to COSATU's key recommendations, the Public Investment Corporation said that the Bill is intended to increase efficiency with which pension funds are managed. All Rules of Parliament were adhered to in introducing the Bill. The Bill is no longer a draft and would no longer provide for the State to dispose of any shares in the corporation.
The Public Investment Corporation said that the Bill, in its current form, is not required to be submitted to Nedlac for its consideration before it is introduced into Parliament. This was in response to COSATU's submission that the Bill should have been considered in Nedlac before it was introduced in Parliament. This was on the basis that the Bill does not pertain to or effect changes to social and economic policy as defined in the Nedlac Act. Since the Bill is already under consideration by the Portfolio Committee, it cannot at this stage be referred to Nedlac. Parliament is the only institution that is vested with legislative authority.
Mr B Molefe (CEO: PIC) and Mr B Maasdorp (PIC Legal Advisor) made the presentation (see presentation document). The Director-General: National Treasury, Mr L Kganyago also attended the meeting.
Ms R Taljaard (DA) felt that the PIC's justification of not committing the Bill to Nedlac processes on the basis that the Bill does not pertain to socio-economic policy was weak. It is arguable that the Bill has some socio-economic aspects attached to it. She agreed that the fact that the Bill is already under consideration by the Committee is a stronger justification for not referring the Bill to Nedlac.
Ms B Hogan (ANC) felt that if the Bill dealt with purely administrative issues Cosatu would not be insisting on referring the Bill to Nedlac. She asked if Cosatu's views had since changed following the response given by the PIC. She also asked if Cosatu was opposed to the Government Employees Pension Fund (GEPF) being managed by the proposed Corporation.
Mr E Paulus (COSATU: Research Co-ordinator) replied that most of Cosatu's concerns were cleared by the PIC presentation. If proper consultation processes had been followed most of the issues currently under discussion would have been cleared in the process. The Bill deals with issues such as how the funds would be invested. There are certainly some socio-economic policy issues attached to the manner in which the funds should be invested. Consequently, the Bill meets the test for referral to Nedlac. Cosatu is seeking legal opinion on how this issue of consultation should be addressed.
He continued that it is not easy to say if one is opposed to the proposed Corporation managing the funds since one is not clear on what the entity would look like. However, having an institution regulated by the Companies Act managing the funds seems inappropriate.
Mr Moloto (ANC) asked how the Bill changes the view that pensions are deferred wages. The PIC manages funds in terms of mandates given by the clients. He asked if the Bill changes this arrangement.
He also asked Cosatu to indicate the key issues that would possibly change if the Bill was presented before Nedlac.
Ms Taljaard said that it is arguable that the Bill effects changes on labour market policy and should therefore be discussed under Nedlac. The problem is that the new entity would be subjected to the Financial Advisory and Intermediary Services Act and the Companies Act. The fact that the Companies Act is under review makes the situation more problematic. Cosatu raises some legitimate concern especially given the fact that one does not know how the entity would look like following the review of the companies Act.
Ms Hogan said that at some stages Cosatu had proposed the dissolution of the GEPF and that the government should take over the Funds' assets. The government would then have to make payments to pensioners out of its own budget. She asked if Cosatu still holds this view.
Ms Paulus replied that Cosatu is not advocating for a complete pay as you go pension system.
Ms J Fubbs (ANC) said that referring the Bill to Nedlac did not alter the fact that the Committee could still come to a decision different to one taken at Nedlac. There is no clause in the Constitution that says that the Committee has to apply its mind to the views of Nedlac. The restructuring of the Companies Act did not provide adequate justification for delaying the Bill.
Mr L Kganyago (Director-General: National Treasury) said that the discussion on "pay as you go" versus a "fully or partially funded" pension system had taken place and was settled a long time ago. The discussion raised some very important fiscal issues. He lamented the fact that Cosatu seemed to focus only on literature that supported their view and ignored divergent views. It was very essential to be prudent on how to manage various funds. He was surprised that Cosatu's sought to reverse some of the gains that the workforce had achieved with regards to pension issues. If one adopts a "pay as you go" system, workers would have to compete with other government priorities during the budget process before any amount is allocated for pensions. The "pay as you go" system is risky, financially imprudent and contrary to the best interest of workers. It is important to understand that governments do go bankrupt and the result might be far reaching as Argentina has shown.
The Director-General was surprised to learn that trustees who will represent employees had already been selected but their names not yet submitted to the Minister. There was no question of the funds being invested in derivatives given the implications this might have on the fiscus. Government did not have to consult anyone before it could establish an entity like the PIC.
A representative from Fedusa lamented the fact that the trustees of the GEPF have not yet been appointed. The Minister was still the sole trustee and this raises issues of potential conflict of interests. There should be a service level agreement between the GEPF and the PIC. Fedusa was totally opposed to a "pay as you go system".
The Committee agreed to seek legal opinion regarding referring the matter to Nedlac before continuing with deliberations on the Bill.
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