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FINANCE PORTFOLIO COMMITTEE
1 September 2004
PUBLIC INVESTMENT CORPORATION BILL: VOTING
Chairperson: Dr R Davies (ANC)
Documents handed out
Public Investment Corporation Bill [B6-04]
The chairperson presented the Bill as tabled despite the fact that the Bill had already been considered by the Ad Hoc Committee on Finance. The Committee was not bound by amendments made or decisions taken by the Ad Hoc Committee on Finance. Hence it opened debates on all clauses of the Bill. The Committee agreed that there was no need to refer the Bill to the National Economic, Development and Labour Council (NEDLAC) or the Public Sector Co-ordinating Bargaining Council (PSCBC). The Democratic Alliance maintained that in the absence of a fully constituted board of the Government Employees Pension Fund, the Bill should have been referred to the PSCBC. The Minister was the sole trustee and this poses some conflict of interest.
The Committee effected amendments to some clauses of the Public Investment Corporation (PIC) Bill. The Bill was adopted with the Democratic Alliance abstaining.
The Chairperson acknowledged the presence of Mr B Molefe (CEO: PIC), Mr B Maasdorp (Legal Adviser: PIC), Ms S Matthews (Legal and Compliance Officer: PIC), Mr E Paulus: Cosatu: Research Co-ordinator) and Advocate O Kellner (State Law Adviser)..
The Chairperson said that the Committee had to decide whether or not to continue with the consideration of the content of the Bill despite the fact that it had not been referred to the National Economic, Development and Labour Council (Nedlac) or Public Sector Co-ordinating Bargaining Council (PSCBC) for consideration before it was submitted to Parliament.
Mr K Moloto (ANC) said that legal opinions received indicated that there was nothing to stop the Committee from continuing with the consideration of the Bill. He suggested that the Committee should continue with the Bill taking into consideration agreements that had already been reached on some clauses of the Bill.
Ms R Taljaard (DA) agreed that the Nedlac issue raised by Cosatu lacked substance. However, the same could not be said about referring the Bill to the PSCBC since the Bill raises matters of mutual interest. The fact that the Minister is the sole trustee of the Government Employees Pension Fund (GEPF) raises some conflict of interest.
Mr Moloto said that the scope of the PSCBC covers matters dealing with terms and conditions of employment. The question is whether the Bill changes those terms and conditions. The answer is clearly in the negative. It can be shown that it does alter the terms and conditions then there would be a need to refer it the Council. A question arises whether the PSCBC has any power to make a decision on matters that are not within its mandate.
The Chairperson noted that there seemed be agreement that there is no need to refer the matter to Nedlac. The Bill deals with a matter that is possibly of mutual interest to both employers and employees. On balance the legal opinion the Committee had received maintains that the Bill does not deal with matters of mutual interest.
Ms B Hogan (ANC) said that disagreements on matters of mutual interest have to be resolved by a third party. In this case it is difficult to see how this would be done. It is not as if there is a disagreement over wage agreements that would be subject to arbitration. There is a need to separate deliberations on pension funds from trade union deliberations. Pension funds must remain separate from negotiated agreements between employer and employees because they affect pensioners who are no longer members of the unions. There have been instances where matters pertaining to pension funds had been referred to the Council. Ideally one wants the Board to make decision concerning the pension fund. There are good reasons why the Bill should not be referred to the PSCBC. The potential board of trustees of the GEPF should have been consulted.
Ms Taljaard said the legal opinion the Committee had received did not cover certain issues such as the conflict of interest that the Minister of Finance would be exposed to by virtue of being the Minister and the sole trustee of the GEPF. The DA would in all probability abstain from the whole process should the Committee decide to continue with the consideration of the Bill. In the absence of a fully constituted GEPF board the argument for referral to the PSCBC becomes very much compelling and convincing.
The Chairperson noted that the majority of the Committee wanted to continue with the consideration of the content of the Bill as there were no overwhelming obstacles to prevent this.
Ms Taljaard asked that the Democratic Alliance reservations regarding referral to the PSCBC and the mutual interest argument be noted in the minutes of the Committee.
The Chairperson presented the Bill as originally tabled clause by clause.
Clause 1: Definitions
The Chairperson indicated that there is a proposed insertion of the definition of a "depositor". A depositor means "any person or body who pays a deposit to the Corporation for investment on behalf of the person or body and is for the purposes of the Financial Advisory and Intermediary Services (FAIS) Act deemed to be a client defined in terms of section 1(1) of the FAIS Act".
Mr K Durr on behalf of Mr M Stephens (UDM) proposed that the definition of a depositor should mean "any person, body, council, fund or account which pays a deposit or an amount of money in terms of section 11 to the Corporation and the term depositor shall, for the purposes of the FAIS Act, be deemed to be equivalent to the term client as defined in section 1 (1) of that Act".
The Chairperson felt that the difference is the addition of the words "fund or account" and that this is covered by the word "person".
Ms Taljaard said that the inclusion "person" in the definition of a "depositor" broadens the mandate of the Public Investment Corporation quite considerably. She asked how the definition relates to clause 11 of the Bill.
Ms Hogan replied that the inclusion of the word "person" is necessary to cover instances wherein, for instance, a King George gives money to the Republic.
Mr B Maasdorp (Legal Adviser to the PIC) said that the words "person or body" are sufficiently wide to cover any legal or natural person.
Advocate O Kellner (State Law Adviser) felt that the definition of the word "depositor" does not take the matter any further. It is not necessary to put this definition in the Bill. Should the Committee decide to include the definition it should take out the word "body" wherever it appears next to "person" in the Bill.
Mr Maasdorp agreed that the first part of the definition does not take the matter any further. It states what is already contained in the definition of a "deposit". The second part of the definition, which provides that a depositor would be deemed to be a client, is important following the discussion on what the relationship between the PIC and its client would be.
Advocate Kellner said that the second part of the definition that Mr Maasdorp referred to should be in the substantive provisions of the Bill and not in the definition section.
The Chairperson flagged the definition of a 'depositor' for further discussion.
"FAIS Act ": the words "and includes any measure or decision referred to in the definition of this Act in section 1(1) of the FAIS Act".
Ms Taljaard asked why it is necessary to broaden the definition beyond the Financial Advisory and Intermediary Services Act.
Ms Hogan replied that the Committee did not effect the amendment and that the Financial Services Board (FSB) is also opposed to the expansion of the definition.
Mr Maasdorp said that the amendment was suggested by the FSB. The words inserted come directly from the FAIS Act but do not take the matter any further.
The Chairperson ruled that the proposed insertion should be removed.
Establishment of Corporation
The words "as long as the State is the sole or majority shareholder of the Corporation" were removed from clause 2(7).
Share capital of Corporation
The Chairperson said that clause 3(3) was deleted.
Ms Taljaard asked why clause 3(3) was deleted.
Ms Hogan replied that the clause would have allowed for the privatisation of the Corporation. The feeling was that if there is a need to privatise the Corporation, such should be done through an Act of Parliament and not through an incidental clause in this Bill.
Board of directors
Mr B Molefe (CEO: PIC) proposed the insertion of a new clause 6(2) which states "the Minister may, when appointing the board, have due regard to such nominations submitted to him or her by depositors or other persons".
Ms Taljaard said that the clause should say "must" instead of "may".
Mr E Paulus (Cosatu: Research Co-ordinator) said that Cosatu was unhappy with the decision by the Committee to continue with the substance of the Bill. Cosatu reserved the right to seek legal recourse on any aspect of the Bill. It was critically important to have representatives of organised labour on the board. There must be stronger wording in the Bill that would ensure representation of organised labour on the board.
Ms Hogan wondered if it was proper in terms of procedure to allow Cosatu to participate in a meeting scheduled for members of the Committee only. She said that the GEPF is for public servants and not necessarily for organised labour. It is a defined benefit fund and the government has an interest in who gets appointed to the board. The board would manage the funds and if anything went wrong, the government would have to pay. Organised labour should not have a pre-eminent role to the exclusion of government.
Ms Taljaard said that the board of the Corporation would have a client relationship with GEPF. She asked if there is no a blurring of lines in respect of having a client on the board of the Corporation.
Mr Durr asked if it would not be better to have the board appointed by the President possibly on the advice of or in consultation with the Minister of Finance. This would ensure the independence of the board and also give confidence to the stakeholders.
Ms Hogan said that the Collective Investment Schemes Control Act of 2002 prohibits clients from sitting on the boards of investment companies because this poses a conflict of interest. There would be no accountability should members of the GEPF be allowed to sit on the board of the PIC.
The Chairperson said that someone from government should appoint the board.
Mr Maasdorp said that he was not convinced that the Minister would have any conflict of interest. He felt that there would be a confluence rather than a conflict of interest. The Minister would represent the State and the State is the only shareholder of the Corporation. The object of the Corporation is to manage public funds. The Minister would be interested in prudent management of the funds. A conflict of interest cannot arise where a person is under a legal duty to do something as the Minister would be in such a position. He has to guarantee the benefits of the GEPF and this is not in conflict with the management of the funds by the PIC.
Ms S Matthews added that the confluence of interests means that the Minister has to balance different interests and in a sense act as an impartial arbiter.
Ms Hogan said that the GEPF Act says that the Minister is a trustee of the GEPF as long as there is no board appointed. There would be a conflict of interest if the Minister continues to be the sole trustee. A board is shortly to be constituted and this means that the conflict would fall away. The Minister has far more responsibilities in terms of the fund than the board of trustees has because he has the responsibility to ensure pensions are paid out in terms of agreement with the pensioners. The Minster should be empowered to appoint the board and there should be consultation with organised labour in the process. Ministers have the power to appoint the boards of State owned enterprises (SOEs) falling under them.
Ms Taljaard disagreed with the view that the conflict of interest would disappear once the board is fully constituted. Depending on the mandate given in relation to the investment strategy and the directives that would flow into the mandate, the fiduciary responsibilities of the Minister would come into play. Then there would be a conflict and not necessarily a confluence of interests.
Mr Y Bhamjee (ANC) noted that Cosatu wanted organised labour to be represented on the board. He said that there are a number of depositors who may also claim representation. The Committee should be careful not to create a precedent through which any depositor would be able to go to court and ask that they be represented on the board.
Mr Vezi said that the Committee could not afford to leave the Minister out because if anything goes wrong the government would have to pay.
Ms Taljaard said that the DA has a problem with proceeding with the Bill because Parliament is in an invidious position. While the Minister has fiduciary responsibilities in respect of SOEs, the common law in relation to fiduciary duties in the realm of pensions is different from the appointment of board and fiduciary responsibilities in relation to the PIC.
Dr Davies said that the PIC is an investment institutions and has to fall under National Treasury. Clause 6(1) provides that the Minister must appoint the board in consultation with Cabinet. It makes no difference even if one says that the President must appoint the board. The President or Cabinet could always veto the Minister.
Mr Paulus said that Cosatu would be prepared to limit the scope of "organised labour" to the public service. Members of the GEPF who are members of Cosatu do not see themselves as clients but as owners of the GEPF.
Ms Taljaard said that technically it could be argued that the Minister is part of the definition of a depositor by virtue of being one of the representatives on the board.
Clause 6(3) would become a new clause 6(4). It was amended to read: "The Minister may issue directives to the board regarding the management of the Corporation
(a) if it is in the public interest; or
- if it is reasonably necessary to do so".
Ms Taljaard said that this sub-clause in not in the interest of sound and good corporate governance. She suggested that the clause should be deleted.
The Chairperson noted the Ad Hoc Committee had agreed to have this clause.
Ms Fubbs said that the Ad Hoc Committee had already taken a position on this clause. It is unfortunate that some members might not have attended the meeting in which this clause was discussed. Government remains the majority shareholder and in terms of good company business, major shareholders must have an interest in the governance of the Corporation.
Ms Taljaard said it would be preferable to leave out "if it is in the public interest".
Ms Hogan said that there is a number of court decisions on the reasonableness of a decision. The Minister would ultimately be accountable to the courts for every directive he issues. There is no need to entertain further amendments on the clause.
The Chairperson noted that the majority of members supported the amendment. The whole clause 6 was flagged for further discussion.
Registration as financial services provider
The title of the clause would now read "authorisation as financial provider".
The Chairperson asked why the title had been amended.
Mr Molefe said that the FAIS Act does not talk about 'registration' but 'authorisation' as a financial service provider.
Clause 9(1) would read "the Corporation must, in terms of the FAIS Act, obtain authorisation from the Registrar as a financial services provider".
The Chairperson said that this amendment is consequential to the amendment of the title of the clause.
Clause 9(2) was deleted. The deletion means that the PIC would have to pay registration fees as contemplated in section 41 of the FAIS Act.
Clause 9(3) becomes 9(2) and the word 'registration' as it appears is substituted with 'authorisation'.
Investment of deposits
Advocate Kellner proposed the addition of a sub-clause (3), which provides that "any person who makes a deposit to the Corporation must be regarded as a client as defined in section 1(1) of the FAIS Act".
Mr Molefe said that if the proposed clause 10(3) were accepted there would be no need for a definition of a depositor in clause 1 of the Bill.
Mr Paulus reminded the Committee of the loss incurred by the Isibaya Fund. With regard to clause 10(2) he suggested that Parliament should exercise oversight on the adoption of an investment strategy with guidelines to regulate the investment of deposits and other money referred to clause 11.
Ms Taljaard proposed an addition of a sub-cause, which provides that "the investment strategy contemplated in sub-clause (2) must have due regard to the fiduciary interest of depositors". Another sub-clause should provide that " the investment strategy contemplated in sub-clause (2) must be tabled in Parliament".
Ms Hogan said that it is undesirable to have Parliament interfering with the investment strategy of the PIC. The debate on the strategy should take place in the GEPF. Every State enterprise is accountable to Parliament and therefore there is no need to legislate for this.
Mr Molefe said that the Corporation must be registered as a State owned enterprise in terms of the Public Finance Management Act. All SOEs report to Parliament. He was opposed to tabling the investment strategy in Parliament.
Mr Durr, on behalf of Mr Stephens proposed the substitution of clause 10 with the following:
10(1) "The Minister must give the Corporation a written mandate substantially conforming to the requirements of such mandates as published by the FSB in terms of provisions of section 15(1)(a) of the FAIS Act, subject to the following:
The mandate shall be of application generally to the investment of deposits
The provisions of (a) above shall not preclude from giving the board written mandates applying only to the various and specified deposits or portions thereof.
None of the above provisions shall preclude any depositor from giving the board a written mandate applying only to its various and specified deposits or portions thereof.
The Minister or a depositor may at any time and from time to time amend, replace or otherwise change any mandate previously given in terms of (a), (b) and (c) above.
(2) The Corporation shall invest every deposit or portions of the deposit regard being had to the period, if any, after the expiration of which such a deposit or portions of the deposit may again become necessarily for use on behalf of the depositor concerned in accordance with the written mandate of the Minister or the written mandate, if any, of the depositor.
(3) The board must adopt an investment strategy with guidelines to regulate the investment of deposits".
The Chairperson flagged the clause for further discussion.
Reporting and accountability
This clause was deleted.
Ms Taljaard asked why the clause was deleted.
Ms Hogan replied that the clause was superfluous because the State would always be the only shareholder.
Ms Taljaard asked if the part of the clause that referred to the Public Finance Management Act (PFMA) was captured elsewhere.
Mr Maasdorp replied that the Corporation would always be subject to the PFMA by virtue of being wholly owned by the State.
Use of the name of Corporation
Mr Maasdorp proposed an amendment to the clause. It should now read: "No person, association, Corporation or other statutory body or company shall carry on business or be registered under an Act of Parliament, with a name identical to that of the Corporation, or resembling the name of the Corporation, or any shortened form of the name of the Corporation, to such an extent that it is deceptive".
The shortened form of a name is ordinarily provided for in the Companies Act. The Public Investment Commissioners/Corporation is commonly know as the "PIC" and this constitutes its shortened name. The PIC would also enjoy the protection afforded by the Companies Act.
Mr Molefe added that there is currently a company that calls itself the "PIC" and has a website called www.pic.co.za . They are misleading members of the public and there is a need to put a stop to this.
Dr Davies asked if this meant that any organisation with the initials "PIC" would no longer be able to use them.
Mr Molefe replied that the Registrar of Companies had already instructed them to change their name. This means that they cannot trade under this name. However, the company refuses to stop using the website www.pic.co.za unless they are paid about R3 million.
Ms Taljaard said that the last thing that the government would want to get involved in is trademark lawsuits.
Mr Maasdorp said that the PIC is not concerned with any trademarks. The amendment seeks to prohibit the use of the name PIC to such an extent that it is deceptive.
The Chairperson wondered if it was necessary to have the amendment. It is an offence for anyone to purport to be what one is not. It makes no difference if the long or shortened form of the name was used.
Mr Y Wang (ID) said that if the website was registered with a South African domain, there would be no problems overriding it.
Definition of "depositor"
The Chairperson said that the question is whether the definition was necessary in the light of the proposed clause 10(3).
Advocate Kellner proposed an amendment to the proposed definition of a depositor. A depositor would then mean "any person or body who pays a deposit to the Corporation, in this Act referred to as a depositor, for investment on behalf of the person or body and is for the purposes of the FAIS Act deemed to be a client defined in terms of section 1(1) of the FAIS Act". This would take care of all instances in which the word depositor is used in the Bill.
Mr Maasdorp said that the word depositor appears in clause 10(1) and in the proposed clause 6(2). He wondered if the definition was still necessary despite the proposed clause 10(3).
Ms Taljaard was worried that one would encounter reference to a "depositor" in clause 9(2) and only get the definition in clause 10(3). She wondered if this was sound in terms of interpretation of statutes.
Advocate Kellner said that the proposed definition does not alter the dictionary meaning of a depositor.
The Chairperson disagreed with the view. The Committee agreed to remove the definition of a "depositor" from clause 1. He disagreed with the addition of "council, fund or account" in the definition.
Board of directors
Ms Hogan said that it was agreed that the Minister must, when appointing the board, have due regard for nominations submitted to him by depositors or other persons.
Ms Taljaard proposed the deletion of clause 6(4)(a): "if it is in the public interest".
Ms Hogan said that there could be instances where something goes wrong and it would be in the public interest for the Minister to intervene.
Ms Taljaard felt that the Minister could justify his actions by saying that it was it was reasonable to so act. She moved that the minutes of the meeting should reflect that the DA proposed the deletion of 6(4)(a).
They agreed that there should be no further amendments to the clause.
Mr Paulus informed the Committee that the Skills Development and Unemployment Fund legislation provide for the representation of organised labour on boards.
Investment of deposits
The proposed clause 10(3) was not accepted since the definition of a depositor would be included in clause 1. The words "regard being had to the period" as found in clause 10(1) were replaced by "having regard to the period" as per Ms Fubbs' proposal.
Ms Taljaard had proposed the addition of a sub-clause, which provides that "the investment strategy contemplated in sub-clause (2) must have due regard to the fiduciary interest of depositors". Another sub-clause should provide that " the investment strategy contemplated in sub-clause (2) must be tabled in Parliament". She requested that this proposal should be noted in the minutes of the meeting.
This amendment was not accepted.
Voting on PIC Bill
The Chairperson read the motion of desirability of the Bill. The Committee agreed to the motion with the DA abstaining.
Mr L Gabela (ANC) expressed concern that the Committee kept entertaining amendments from a political party that had indicated from the beginning that it would not support the Bill.
Ms Fubbs felt that it would be preferable to be notified right at the beginning why a party would be abstaining from the process.
The Chairperson said that good practice dictates the inclusion of everyone in the process. in some cases the decision whether or not to abstain is shaped by the direction taken by discussion on a particular matter.
The Chairperson read the report on the Bill and the Committee adopted the report with the DA abstaining.
The meeting was adjourned.