Public Investment Corporation Bill: deliberation

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Finance Standing Committee

24 August 2004
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Meeting report

FINANCE PORTFOLIO AND SELECT COMMITTEES: JOINT MEETING
25 August 2004
PUBLIC INVESTMENT CORPORATION BILL: DELIBERATION

Chairpersons:
Dr R Davies (ANC)[NA] and Mr T Ralane (ANC) [NCOP]

Documents handed out
Opinion on referral to PSCBC: Sonnenberg Hoffmann Galombik
Opinion for COSATU by Cheadle Thompson and Haysom
Written Opinion: Norman Arendse SC
PIC Bill - Objections by Cosatu: Opinion by Hofmeyr Herbstein and Gihwala
Opinion on PIC Bill: Office of the Chief State Law Adviser
Opinion on PIC Bill: Sonnenberg Hoffmann Galombik
Public Investment Corporation Bill [B6-04]

SUMMARY
The Committees heard legal opinions on whether the Bill should have been referred to the National Economic, Development and Labour Council or the Public Service Co-ordinating Bargaining Council before it was introduced in Parliament. There was general agreement that the Bill would bring about socio-economic policy changes but the changes would not be significant to warrant the consideration of the Bill in NEDLAC. A decision on whether the Bill should be referred to NEDLAC would be made soon.

MINUTES
Dr Davies highlighted that consultation was one of the most contentious issues in the Bill. Cosatu felt that the Bill should have been taken to the National Economic, Development and Labour Council (NEDLAC) for discussion and also to the Public Service Co-ordinating Bargaining Council (PSCBC) since it raises issues of mutual concern. The Portfolio Committee on Finance sought legal advice on whether the Bill should have gone through NEDLAC and PSCBC processes before it was submitted to Parliament.

On a previous occasion, Mr B Maasdorp (Hofmeyr, Herbstein & Gihwala) had submitted on behalf of the Public Investment Commissioners that the Bill does not deal with social and economic policy issues, but only relates to the administrative functions of government.

Dr Davies handed over to Mr O Kellner (State Law Adviser) to give the views of the Office of the Chief State Law Adviser.

Mr Kellner said that the question is whether section 5 of the NEDLAC Act places an obligation on NEDLAC to consider the Bill before its introduction in Parliament. Section 5(1)(c) provides that NEDLAC shall "consider all proposed labour legislation relating to labour market policy before it is introduced in Parliament". The section of the Act does not apply to the Bill since the Bill does not relate to "labour legislation relating to labour market policy".

Section 5(1)(d) requires NEDLAC to "consider all significant changes to social and economic policy before it is implemented or introduced in Parliament". Social and economic policy is in turn defined as including "financial, fiscal and monetary policy, socio-economic programmes, trade and industrial policy, reconstruction and development programmes and all aspects of labour market policy, including training and human resource development". The establishment of a company to handle certain investments on behalf of the government does not fall under any of those policies.

MR Kellner said that the opinion given to Cosatu by Cheadle Thompson and Haysom Attorneys seeks to equate the concept of "social and economic policy" with the phrase "socio-economic interest" referred to in Section 77 of the Labour Relations Act. There is a vast difference between what constitutes an interest of a particular group and what constitutes a policy of government tasked with the protection of all citizens of the country. If a wide interpretation was upheld it would be difficult to conceive of any Bill which would not have to be considered by NEDLAC before its introduction in Parliament since most Bills touch on the socio-economic interests of one or other group. If the subject matter of the Bill is brought within the ambit of the definition of social and economic policy the question still remains whether the Bill represents a "significant change" to social and economic policy.

Since NEDLAC is an advisory forum created by an ordinary Act of Parliament it can be argued that Parliament is not bound by the Act and need not follow the procedure of allowing NEDLAC to consider the Bill before passing it. The NEDLAC Act contains no sanction for the failure of the forum to consider policy in terms of the section and therefore it is difficult to conceive a Court declaring the PIC Act invalid should Parliament choose to pass it without its having been considered by NEDLAC.

Mr Kellner concluded by saying that it looks like there is nothing to prevent the Committees to suspend further consideration of the Bill until such time that NEDLAC has considered it.

Advocate Norman Arendse, Counsel for the Public Investment Commissioners (PIC), presented his opinion on whether the Bill should have been considered by NEDLAC. There are two misconceptions on the Bill. The first is that Cosatu is under the impression that the PIC would be free to invest funds as it deems fit. The second rest on the distinction between legislation and policy.

If one has regard to the objects, powers and functions of NEDLAC, it is apparent that it is concerned primarily with "policy" issues relating to social and economic matters. There is a clear distinction between policy and a legislative instrument. The most basic distinction is that policy determinations cannot override, amend or be in conflict with laws (including subordinate legislation), otherwise the separation between Legislature and Executive would disappear. The Bill is not a statement of intent but framework legislation. It was not the intention of the legislature that all legislation dealing with socio-economic matters should be considered by NEDLAC. The Public Finance Management Act, for instance, was not considered in the forum.

There is no doubt that the Bill would have an impact on the socio-economic conditions of workers in terms of the PIC's investment policy in the future and the fact that the PIC would be investing mainly the monies of the Government Employees Pension Fund (GEPF). It is arguable that the Bill should have been presented to NEDLAC for its consideration.

In terms of the Government Employees Fund Law a Board of Trustees representing various stakeholders should be constituted. Workers are also represented in the board. The board, in consultation with the Minister of Finance determines the investment policy of the PIC. The PIC invests the funds in terms of mandates given by the client. As a client Cosatu only has to ensure that it gives directions on how the monies of its members should be invested. It can always withdraw the mandate if it feels that the money is not dealt with in a prudent manner.

Advocate Arendse concluded that the Bill does not have to be referred to NEDLAC before its introduction in Parliament. He also concluded that it is inappropriate to refer the PSCBC. It could only be referred to the PSCBC if it was first taken to NEDLAC.

Discussion
Ms R Taljaard (DA) said that Parliament was not obliged to consult with NEDLAC but whether this is politically wise is another matter. She had problems with the distinction drawn between policy and legislation. Some laws create platforms for future policy initiatives.

Advocate Arendse said that there is a fine line between policy and legislation. However, it is clear that the Bill under consideration is not a policy but legislation.

Ms B Hogan (ANC) said that the GEPF caters for specific interests of some workers. NEDLAC is not a proper forum to discuss such interests. The purpose of the Bill is to subject the PIC to more stringent rules and regulations. Cosatu is correct to say that there should have been proper and thorough consultation. The only problem is the forum in which consultation should have taken place.

Advocate Arendse commented that the NEDLAC process only requires that there should be consideration of the issues and this does not mean that there should be agreement on the issues. Given the current position of the State, referral of the Bill to NEDLAC would not make any difference.

Mr B Molefe (CEO: PIC) said that at least four meetings were held between the PIC and Cosatu. Cosatu even thanked the PIC for the consultation. He maintained that there was extensive consultation with the union.

Mr E Paulus (Cosatu: Research Co-ordinator) agreed that there were meetings between the two organisations. He was fully aware of what the corporation seeks to do. The problem that the union had on the transfer of assets to the corporation has since been solved. The problem, however, is that the Bill allows the Minister of Finance to take other "outside" investments and place them under the control of the PIC. This means that the PIC would be no different from other private asset managers. This poses the risk that the focus of the PIC regarding the management of public sector funds might be lost. This might be prejudicial to the public sector entities, as the PIC would be protecting the rights and interests of both private clients and public sector clients.

Ms Taljaard maintained that there are policy dimensions to the issue under consideration. She reminded Members of the Committees to take note of the fact that they would be setting a precedent with whichever decision they come up with on the distinction between policy and law.

Ms Hogan felt that even if there was a policy shift a question remains whether the shift is significant.

Ms J Fubbs (ANC) asked for clarity on the view that the PIC would also manage outside investments.

Ms Hogan replied that the definition of a deposit as contained in the Bill does not cover monies from the private sector. The PIC would investment monies received by government.

Mr M Stephens (UDM) said that there is no legal obligation to take the Bill to NEDLAC. Even Cosatu's legal opinion does not say that there is legal duty to consider the Bill in the forum. He submitted that the Committees should continue to deal with the substance of the Bill.

Dr Davies agreed that legal opinions received maintain that there is no legal obligation to refer the Bill to NEDLAC.

Mr E Sogoni (ANC) said that the real issue is whether consultation should necessarily have taken place in NEDLAC. In essence, he wanted to know if Cosatu would have the same problem even if there were thorough consultation at another level and not NEDLAC.

Mr Molefe urged members to take in mind that the PIC has 42 clients and not only the GPEF as the only client.

Advocate Arendse said that in formulating his opinion he did not ignore the impact that corporatisation would have on the functioning of the PIC. Should the PIC act contrary to public interest such a decision would be reviewable by the courts. It is inconceivable that the government would give authority for the investment of private funds.

Mr T Vezi (IFP) said that the Bill does not deprive Cosatu of the power to influence decisions on how the funds should be invested.

Dr Davies said that there is general agreement that the Bill would introduce some policy shift but the shift is not significant to warrant referral to NEDLAC. There would be a significant shift should the PIC also invest outside funds.

Mr Paulus said that NEDLAC has four chambers. The Council does not deal with labour market policies only. The Management Committee in NEDLAC felt that there were very good reasons to take the Bill to the forum for consideration.

Should the Bill be referred to the PSCBC?
Ms Hogan noted that the legal opinion received admit that this issue is not easy to resolve. Pensions are deferred wages and workers have in interest in them. However, it would be unwise to refer the Bill to the PSCBC. There are a number of grey areas on what gets referred to the PSCBC and it is therefore preferable that the Bill should not be referred to the Council. Workers should discuss the Bill with the board of trustees of the GEPF. The problem is that at present the Minister of Finance is the sole trustee of the fund. The Minister should have ensured that the board is constituted so that the views of workers could be taken on board. The investment policy of the PIC is a matter of mutual interest but workers should have nothing to worry about because the GEPF is a defined benefit fund. If the PIC invests the monies unwisely and incurs some losses, the government would have to make good the loss caused by the PIC.

Mr K Moloto wondered why the Bill has to be referred to the PSCBC. He failed to understand how the Bill affects the terms and conditions of service of employees to qualify it to be referred to the PSCBC.

The Chairperson closed the meeting by saying that the Committees should consider whether the Bill concerns issues of mutual concern between the employer and the employees. It is also important to determine if the Bill has to be referred to the PSCBC and what the consequences would be if it were not referred. A decision whether to refer the Bill to NEDLAC would soon be taken.

The meeting was adjourned.

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