Development Bank of South Africa Annual Report; Petroleum Pipelines Levies Bill, Securities Services Bill, RSA/Ethiopia & RSA/Bu

NCOP Finance

21 October 2004
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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
22 October 2004
DEVELOPMENT BANK OF SOUTH AFRICA ANNUAL REPORT; PETROLEUM PIPELINES LEVIES BILL, SECURITIES SERVICES BILL, RSA/ETHIOPIA & RSA/BULGARIA AGREEMENTS ON AVOIDANCE OF DOUBLE TAXATION: ADOPTION


Chairperson: Mr T Ralane (ANC) [Free State]

Documents handed out
Finance Bill [B3-2004]
Petroleum Pipelines Levies Bill [B18-2004]
Presentation by SARS on Double Taxation Agreements
Presentation by DBSA on Annual Report 2003/2004
DBSA Annual Report 2003/2004 [not yet available electronically]
RSA/Ethiopia Double Taxation Agreement
RSA/Bulgaria Double Taxation Agreement

SUMMARY
The Development Bank of South Africa (DBSA) presented its Annual Report for 2003/04. The presentation looked at its impact on development, its sustainable development partnerships and capacity-building projects and its plans to reduce backlogs. Also outlined were its key business results and highlights for 2003/04, its financial performance and the quality of its earnings, assets and capital as well as its financial sustainability. The following issues were raised during the discussion:
- did DBSA
have sufficient monitoring and evaluation mechanisms in place;
- its plans to assist municipalities who have no credit capacity;
- why Zimbabwe was not included in the list of agreements concluded by DBSA within the South African Development Community;
- its contribution to agriculture and emerging farmers and projects that ensured access to water;
- its borrowing rate and how it differed from the private sector in financing risk;
- the fact that DBSA did not deal with the man in the street but rather supported organised bodies since it was important for DBSA to know that the projects it funded would be sustainable.

- whether the Development Bank of South Africa had sufficient monitoring and evaluation mechanisms in place;
- whether the it serviced the debts owed by the poorest municipalities and its plans to remedy these poorest municipalities who had no credit capacity;
- whether it had the personnel capacity to cater for South Africa and South African Development Countries;
- whether the Development Bank of South Africa only dealt with municipalities or whether it also dealt directly with individuals who needed employment and assistance;
- whether it contributed to agriculture and emerging farmers;
- whether it had projects that ensured access to water and
- whether it had devised a policy on the employment of disabled persons within its ranks
Before adopting the Finance Bill, the Committee was informed that it contained the recommendations of Parliament's Standing Committee on Public Accounts regarding the approval of the over-expenditure of some government departments.

The briefing on the Petroleum Pipelines Levies Bill indicated that the Bill allowed the Minister of Minerals and Energy and the Minister of Finance to concurrently approve or disapprove the imposition or variation of levies or the determination of interest on overdue levies. They can also recommend alternative levy approaches and allow for the assessment of the financial performance of the regulatory authority. During the discussion Members sought clarity as to whether the petroleum authority was not now called the national energy regulator, and the exact structure of the regulatory system now put in place.

Before adopting the RSA/Bulgaria and RSA/Ethiopia Double Taxation Agreements, the Committee was briefed on the purpose of the agreements and the relevant articles that removed the tax barriers to cross-border trade and investment. Members asked whether it was not possible to have a standard format for agreements between all countries, rather than a host of differently-worded agreements.

MINUTES
Introductory remarks by Development Bank of South Africa Chairperson
Mr Jay Naidoo, DBSA Chairperson, commented that he was surrounded by a very strong team. The Development Bank of South Africa (DBSA) has over the last five years in particular tried to transform the DBSA into a pro-active institution that goes out into the community and regions to work pro-actively with both national and provincial governments. This has been the DBSA's biggest achievement, and it was now populated by development activists and people were being incentivised to become development activists. The DBSA was now actively involved in building capacity, risk-management skills, project management and financial management skills. The focus thus shifted from the amount of funding invested in projects to the extent of the capacity built, the number of small medium and micro enterprises (SMMEs) developed, the number of young people and women in the local community that have been empowered.

Over the last 3 years the DBSA's surplus funds were put into the Development Fund. It worked with municipalities to assess development impact at local level. A total of R450m has been invested in the Development Fund over the last 4 years, and the bulk of the funds goes to rural areas. The greatest backlogs to effecting the delivery promised in 1994 were in the rural areas. The DBSA was convinced that it needed to take even more risk now than it has been taking. It was very highly rated by international credit rating agencies, which meant that it could borrow money cheaply and then pass it on to the DBSA's clients.

The DBSA still faced the challenge of delivering to those who have nothing, where there was no viable source of income in the local authority in which they lived. This meant that the criteria used would have to be changed somewhat so that the DBSA could begin to take more risks. This was being done by the Development Fund because it did not require a return from the community, very much like the World Bank was structured. The aim was to take this approach into the main operations of the DBSA. This meant that DBSA would have to work more creatively with the private sector and both provincial and national government departments to attempt to remove risk and increase the appetite for investment by the private sector. This resulted in the forumation of Vision 2014 which coincided with the vision of the DBSA's shareholder, and which sought practical means to implement that vision.

Presentation by DBSA
Mr Mandla Gantsho, DBSA Chief Executive Officer and Managing-Director, conducted the portion of the presentation (document attached) that outlined the DBSA's plans to reduce the backlogs, its impact on development, partnerships for sustainable development, the DBSA's capacity building projects and its financial sustainability.

Ms Joyce Matlala, Chief Financial Officer, presented the financial statements which outlined the key business results for 2003/2004, the highlights for 2004, the DBSA financial performance and the quality of its earnings, assets and capital.

Discussion
Mr E Sogoni (ANC) [Gauteng] stated that another form of support given by the DBSA was to the Eastern Cape government to assist with financial management via Fort Hare University. Yet the province did not appear to offer much support to the graduates who had completed that financial management training, even though such skills were desperately needed. He asked the DBSA to indicate the kind of monitoring systems it had in place to ensure those people are taken up.

Mr Gantsho replied that the DBSA's quarterly publication called the Lessons Learnt Report (LLR) allowed the public to gain information on the DBSA's projects and progress, as well as its Local Government Resource Network (LGRC). These resources also indicated the best practices to be followed in development. The DBSA did have a monitoring and evaluation unit which compiled the LLR. The DBSA took many precautionary steps up front when it received loan applications which included baseline development indicators to ensure that the projects and institutions that sought to borrow from the DBSA had the necessary internal capacity. The DBSA then monitored and evaluated the projects going forward.

He stated that once DBSA equipped people with skills they should at least go out and find work. They were empowered and could search for employment elsewhere if there were no job opportunities in their localities. It was important for DBSA to put some thought into how they could apply what they had learnt, and to devise a comprehensive and integrated strategy with all of its development players.

Ms Jeanette Nhlapo, DBSA: COO of the Development Fund, stated that the challenges she would be addressing were challenges highlighted by a number of the DBSA's development partners, particularly the Department of Provincial and Local Government. It must be remembered that the system of local government was still in its infancy, many lessons have been learnt and all involved were constantly learning. One of greatest challenges facing the DBSA was the retention of adequate skills, particularly in the market 3 municipalities. It was discovered that it was no longer sufficiently attractive to retain even the people from those rural areas who were trained in the local institutions of higher learning, and people with those skills were critical in taking local government forward.

The Development Fund was looking at putting together a retention plan with the Department of Provincial and Local Government. This would focus on financial management skills, and the DBSA would work very closely with the Fort Hare Foundation to look at placing those graduates. The model used in Kwazulu-Natal's ICT graduate programme would be followed in the Eastern Cape.

Mr Sogoni asked whether the DBSA has already joined the BankSETA [Sectoral Education and Training Authority] and, if so, what was the level of co-operation between the DBSA and the BankSETA in terms of training people.

Ms Matlala responded that the DBSA was in the process of establishing the Vulindlela training academy which would focus on providing skills and capacity building both within the DBSA and with external clients. The DBSA currently had provisional accreditation with Local Government, Water and Related Services SETA (LGWSETA). This was a more relevant SETA because local government was being targeted.

Ms D Robinson (DA) [Western Cape] commented that the two DBSA projects which struck her enormously was the Nguni cattle project and the brick-making project in Stutterheim. These successful projects must be extended as much as possible. She noted that the presentation had indicated solar power as a potential source of electricity, and this was welcomed. She stated that water-borne sewerage was a huge problem in areas with very little water, and the problem of diminishing water resources necessitated a project which encouraged people to store water in water tanks when rain did fall.

Mr Gantsho replied that this was a problem particularly in the Northern Cape where water resources were limited. The DBSA faced the challenge of finding innovative ways to address and remove the bucket system in that area.

Ms S Mshudulu (ANC) [National Assembly] requested the contact number should a municipality or public representative wish to contact the DBSA on any of its projects, because the municipalities themselves do not share this information. The public representatives would then be able to follow up with the municipalities concerned.

Mr Gantsho responded that this related to the DBSA's business model. It was not a 'retailer of development' and did not approach the man in the street and offer funding. Instead it supported organised bodies because it was important for DBSA to know that the projects it funded would be sustainable.

Mr D Botha (ANC) [Limpopo] stated that the DBSA's credit rating must be applauded. He asked if any agreements have been signed with Zimbabwe, as it appeared to have been omitted from the list. If that country were not developed then South Africa would have to bear the burden.

Mr Gantsho replied that the DBSA has never withdrawn from Zimbabwe and was constantly looking for development projects in Zimbabwe. The problem was that the risks were just too great at the moment. These risks were mainly political and had a definite effect on economic risk.

Mr Botha stated that one of the pressing challenges facing municipalities was bridging the gap between skills shortages, service delivery, poor governance and financial management. The presentation indicated that 70% of all South African municipalities were clients of the DBSA, and he sought clarity on the status of the remaining 30% of municipalities. He asked the DBSA to explain its plans to remedy the problems of the poorest municipalities who had no credit capacity, as these were the people that were suffering the most.

Mr Sogoni stated that the DBSA was operating in a very difficult area because the majority of municipalities did not have a good income-generating base, and there would thus be problems in servicing debts owed by the municipalities. He asked how many municipalities were thus affected and were there plans in place to handle such situations.

Mr Gantsho responded to these two questions by stating that the 30% did represent risky municipalities, and would be targeted by the Development Fund. The DBSA would be redefining its pricing methodologies because the DBSA was a developmental institution. The poor municipalities cannot be subjected to higher interests rates because they were regarded as 'risky', as this was not a developmental approach. The DBSA Board would be approached with new ideas to address this.

Ms Nhlapo added that this was due to a number of issues which included critical institutional issues such as the fact that people were unable to put together a business plan. This resulted in the DBSA 'handholding' its clientele and helping them to draw up proposals and put together financial statements, yet this was not the task of the DBSA alone.

The DBSA would be piloting a concept in the Limpopo province this weekend, and stakeholders from the community were invited to a development dialogue series. It was aimed at highlighting the kind of support that was given to their province by DBSA over the last 10 years. Other strategic partners such as the Eskom Foundation and ABSA Foundation were also invited, to consolidate as development partners and to devise a plan to complement the work done by each in order to achieve the desired impact on the ground.

A workout unit was established about 4 years ago specifically to deal with municipalities that were experiencing problems in servicing their debt. The unit went the extra mile and rehabilitated the client, an assessment was conducted to identify the problem and grants were then allocated to address the institutional and financial constraints. This was not the approach followed by other creditors, as they simply closed the book on such municipalities and 'took them to the cleaners'.

She stated that the Department of Provincial and Local Government has come on board via Project Consolidate and targeted the 50 municipalities that were highlighted by the Auditor-General's report as being in financial distress. The DBSA has partnered the Department of Provincial and Local Government in addressing the top 3 rural municipalities identified as needing a turnaround immediately. The process was however in the formative stages.

Rev P Moatshe (ANC) [North West] asked if DBSA had the personnel capacity to cater for South Africa and South African Development Community (SADC) countries. Did DBSA only deal with municipalities, or directly with individuals who needed employment and assistance.

Mr Gantsho replied that the size of the DBSA's balance sheet determined the parameters of its operations. The DBSA has a capital base of approximately R10b, and it still had room to accelerate its capacity. It had 500 personnel and was based in Johannesburg and thus did not have regional offices. This decision was taken after a thorough analysis of what would be cost effective in delivering on development. Two-thirds of the DBSA's operations were conducted inside South Africa, as it was statutorily limited to conducting one third of its operations outside South Africa.

Rev Moatshe asked the DBSA to explain what it meant by 'taking risks' and by 'borrowing money cheaply'.

Mr Gantsho responded that the DBSA's current rate was 0.75%, and risk was then added. The initial thinking was not to distort capital markets by not pricing for it, because then the private sector would argue that the DBSA was using itself as a government-supported resource to exclude the private sector from development. The DBSA was however different from the private sector in that it developed models for assessing risk as it related to development, and it thus understood development risks better than the public sector. Only developmental risks were taken, and the private sector was approached to finance commercial risks.

Rev Moatshe asked the DBSA to indicate the reasons why the it was not currently being used to the maximum.

Secondly, Rev Moatshe asked the DBSA to indicate the extent of its contribution to agriculture and emerging farmers.

Mr Gantsho responded to these two questions by stating that institutions have been established to support these key pillars of development in South Africa by dealing with this specifically, such as the Land Bank. There was however recognition that these institutions must complement each other and identify synergies relating to funding of farm infrastructure. "On farm" issues were the exclusive jurisdiction of the Land Bank. The DBSA has however made exceptions to this by declaring the Eastern Cape and Limpopo provinces as hotspots of development. In the Eastern Cape especially the DBSA has conducted much work that has gone beyond the parameters of its mandate, such as the provision of tractors to an Umtata community. Applications for funding in areas that fell outside the DBSA's mandate were forwarded to its sister development institutions.

Rev Moatshe asked the DBSA to explain its efforts to ensure access to water.

Mr Gantsho replied that the DBSA's mandate was to contribute to the building of infrastructure for the provision of water. An example was the building of a dam in Lesotho in order to provide water to the Gauteng province, as well as the water purification plants in Dolphin Beach in Gauteng. The DBSA also funded the provision of water services to new settlements. The DBSA's involvement was thus limited and its area of manageable interest did not extend to creating new sources of water.

The DBSA has made a conscious effort to resuscitate irrigation schemes, and it relied on organised institutions who dealt directly with such matters to sponsor these projects because the DBSA cannot run the projects from its offices in Johannesburg.

Mr Naidoo stated that these were very legitimate questions raised by Members, and they were the question which the DBSA itself raised at its Board meetings. Over the last 5 years the DBSA has been 'stretching the envelope' by trying to achieve its objectives in a sustainable way. The reality was that DBSA did not receive any funding from government and it thus had to pay its own way. For this reason it was important that the DBSA have a very strong credit rating so that it could borrow funding more cheaply. It was the DBSA's international partners that primarily allowed it to access capital markets which included other development agencies in other countries around the world, primarily in the industrialised world. They extended lines of credit to the DBSA but it then had to pay them back with interest.

The DBSA's customers were largely institutions be it local, provincial or national governments locally or in the region. It was thus difficult for the DBSA to work with individuals because it did not have the capacity to do this, yet it was very important for the DBSA's customers to convince it that they were working with those communities. These criteria were spelt out before financial assistance was allocated.

The area of monitoring was very important to the DBSA. Sustainability and continued productivity was very important, because white elephants were not desirable. It was for this reason that the DBSA was working closely with local authorities to teach them development planning and financial planning. The Development Fund will focus on those local authorities which did not have a sustainable income, and the aim was to eventually build the necessary capacity that would allow them to generate income.

A balance must be struck between income and expenditure, and the DBSA was pushing quite hard at a Board level to begin taking more risks. This will have an impact on the DBSA's credit rating, but if it did not take more risks then the 30% of municipalities not reached by the DBSA would never be addressed. Much contradictory pressure was thus being placed on the DBSA so strike a balance between taking more risks but also improving the DBSA's credit rating, and the Chief Financial Officer would have to think very creatively.

It was very important that the DBSA devise mechanisms to get feedback from ordinary people on its projects. A project was being piloted in the Limpopo Province.

Mr A Watson (DA) [Mpumalanga] stated that there were factories in industrialised areas that were empty shells, yet there were countless municipalities spanning from Gauteng to Limpopo that were struggling financially. He asked whether the DBSA could incentivise the re-establishment of large factories and consequently the development of cities next to such municipalities to stimulate growth and employment.

Mr K Sinclair (NNP) [Northern Cape] stated that his province has been suffering for years from lack of water services. The largest South African river runs through the Northern Cape yet its people benefit least from it.

Secondly, Mr Sinclair stated that the communities living on the Orange River should benefit from it, yet the argument was that the end users must pay for the water. The problem was that those communities were so poor that they were not even able to pay their current bills. A principled decision must be taken to provide such water services to the people of the Northern Cape.

Mr Sinclair stated that economic activity must be shifted from urban to rural areas, and this was not solely the task of the DBSA.

Secondly, Mr Sinclair sought clarity on the apparent trend in the Free State and North West provinces with non-performing loans.

Ms M Oliphant (ANC) [Kwazulu-Natal] expressed her hope that other government departments were as representative of gender as the DBSA.

Mr Sogoni asked the DBSA to explain the monitoring measures it has put in place to guard against the awarding of tenders for development projects to institutions or businesses that were merely a 'front' for actual Black Economic Empowerment (BEE).

Secondly, Mr Sogoni stated that the DBSA should engage in partnerships with the community itself, so that they could perform their own monitoring function and then feedback to people in the community on the progress made.

Thirdly, Mr Sogoni sought clarity on the DBSA's policy on the employment of disabled persons within its ranks.

Mr Gantsho responded to these questions by stating that the DBSA did have policies on gender and disabled representivity, and it had to report to the Department of Labour on this. The DBSA recently submitted its report on race and gender and it has made significant progress in this area. The representation of women and previously disadvantaged groups within DBSA grew from 21% in 1991 to 42% in the current year. The DBSA set itself a target of 40% and it has thus exceeded its target. The DBSA contained a fair representation of people from across the country, and it also had staff from countries within the region.

Ms Oliphant stated that it was discovered during the recent provincial week that a municipality that received funds from the DBSA was experiencing problems because it did not have the necessary capacity. She asked the DBSA to explain its monitoring mechanisms to guard against such an occurrence, and to ensure that funds were being used for the purpose for which they were intended.

Mr Gantsho replied that the monitoring and evaluation questions were all answered in the Annual Report, as well as the extent of the DBSA's partnerships with communities to ensure that they benefit from development projects.

Ms Oliphant asked whether the DBSA assisted the small communities that wished to start small businesses to be properly capacitated. She asked whether these communities would have to apply for grants through municipalities, or whether they could apply directly to the DBSA.

Mr Gantsho responded that the DBSA allowed people to approach it directly. A system was in place that fast-tracked these applications in order for the DBSA to respond quickly. If the matter fell outside the mandate of the DBSA, it responded accordingly. In most cases the DBSA assists in packaging those projects, if they were worth while developmentally.

Mr A Manyosi (ANC) [Eastern Cape] stated that a problem in the rural areas was a lack of human development, and asked whether the DBSA worked with municipalities to identify persons within the community could be sent for training in an area that would suit the specific needs of the community.

Mr Gantsho replied that this was noted and the DBSA would do more to ensure that the training it provided was relevant.

Mr Sogoni congratulated the DBSA on receiving an unqualified audit opinion from the Auditor-General.

Ms Matlala responded that this was a sign of DBSA's sound internal control and financial management policies.

The Chair stated that his were comments that did not need answers from the DBSA. He stated that some of the operations specific in the Annual Report needed to be quantified, so that the Committee could properly scrutinise them.

The Chair asked whether the recent changes in laws and regulations pertaining to municipalities has caused confusion or impediments in implementing the objectives of the DBSA.

Secondly, the Chair asked the DBSA to explain exactly which municipalities benefited from the assistance aimed at addressing the capacity building and planning needs of the smaller municipalities, so that Members could gauge the progress made.

Thirdly, the Chair asked whether the agreement entered by the DBSA with the Department of Education to render financial assistance has been costed.

Fourthly, the Chair asked the DBSA to quantify the kinds of jobs that were created by the provision of R600m in debt financing to an empowerment group that allowed it to acquire the remaining 40% in trade from its foreign partner.

The Chair requested a breakdown of the 27 700 jobs created, according to the DBSA's balanced scorecard.

The Chair asked the DBSA to explain the measures it has put in place to track the implementation and monitoring of SADC projects, and this must be balanced with the kind of work the DBSA does within the Republic.

Finally, the Chair sought clarity on the role of the private sector in forging a development partnership with the DBSA, as the banks for example did not appear to plough resources back into the community. The contribution to date was less than satisfactory.

Mr Naidoo stated these were very substantial points raised by Members. The DBSA was quite interested in engaging in discussions as to the relationship between the DBSA and Parliamentary Committees. In this year the DBSA has contributed towards the Parliamentary Committees transformation programme, and this should be built on to explore other areas of co-operation to better understand the work done by the DBSA.

There was a system of development finance institutions in South Africa that were set up in 1994, with the DBSA concentrating largely on municipal infrastructure and the Independent Development Corporation (IDC) focusing on economic and industrial infrastructure and Kula Enterprises focusing on SMME development. There were discussions to review the development finance institutions as a whole because there were overlaps, and plans were being devised to act in a co-ordinated manner. The biggest challenge facing SA was creating jobs and putting disposable income in the pockets of South Africans so they can begin to control their own lives, and part of this challenge was to create entrepreneurs. The DBSA had to work with its partners to achieve optimal use of the limited resources to reduce unemployment and deliver services.

Mr Gantsho noted that the Chair's comments would be taken into account to improve its reporting.

The Chair sought clarity on the progress made in implementing the plan for the gas pipeline from Mozambique to South Africa, and the impact and quality of that expenditure.

Ms Matlala replied that the project has been completed and the first gas sample has been tested in Secunda. A number of jobs were created during the construction phase, and a significant number of permanent jobs have also been created. The value of the project was approximately R8b and the DBSA contributed about R650m.

Mr Naidoo stated that he looked forward to future interaction with the Committee.

Ms Robertson stated that it must also be ensured that any development projects must be environment friendly.

Finance Bill
Mr Du Plessis, Treasury Chief Director: PFMA Implementation, stated that the Bill (document attached) dealt with unauthorised expenditure with regard to two pieces of legislation. Schedule 1 covered unauthorised expenditure which resulted from the previous Exchequer Act which was repealed as of 1 April 2000 by the Public Finance Management Act (PFMA). The Exchequer Act defined 'unauthorised expenditure' as payments made without a provision by any law or a total amount appropriated by the vote when it was exceeded, as well as references to appropriate National Treasury approvals which could not be obtained. The definition also referred to any payments inconsistent with a provision of any law.

Most of the amounts in Schedule 1 of the Bill were as a result of government departments not complying with the very specific State Tender Board regulations relating to procurement of goods and services. These amounts were not linked to any kind of fraud or corruption, and dealt mainly with non-compliance with technical requirements. The PFMA defined 'unauthorised expenditure' as overspending of a vote or a main division within a vote, as well as expenditure which was not in accordance with the programme descriptions or main divisions of the vote. Thus the PFMA narrowed the definition.

When government departments reported unauthorised expenditure Treasury would advise Parliament's Standing Committee on Public Accounts (SCOPA) when it discussed the overspending with the relevant government department. Treasury would advise that Committee on the approval or non-approval of the over-expenditure, or on approval with allocation of additional funds. That Committee could then approve some of the unauthorised expenditure, which was reported in the Finance Bill and presented to Parliament for formal approval.

Discussion
Mr Sogoni stated that he expected Mr Du Plessis to indicate the specific reasons for the introduction of the Bill.

Mr Du Plessis replied that the objective of the Bill was to give effect to resolutions passed by SCOPA, which resulted from its discussions on unauthorised expenditure with government departments. Their resolutions were recommendations to Parliament on the approval or refusal of the unauthorised expenditure of government departments. In the case of this Bill SCOPA found reasons to recommend that Parliament approve the unauthorised expenditure. This was the objective and purpose of the Bill.

The Chair noted that the Bill was adopted by the Committee, as well as the Committee's report on the Bill.

Petroleum Pipelines Levies Bill
Mr H Overmeyer, National Treasury's Director: Indirect Taxation, stated that a network of pipelines was used to transport crude oil and petroleum products between the ports of Durban and the Durban refineries, as well as the fuel refineries in Gauteng and Mpumalanga. The network was extremely important to the economy as a whole and also to the liquid fuels industry. To date the State has managed much of the network but it has become a possibility that parties other than the national government might become active in the ownership and operation of the petroleum pipelines. It has thus become incumbent on government to introduce regulatory measures to ensure the efficient operation of the pipelines network, and the orderly development of the network in future.

To this end government enacted the Petroleum Pipelines Act in 2003 which dealt with the regulation of the network. It allowed for funds to be mobilised for the regulatory activities, which included levies imposed by or under separate legislation. The Petroleum Pipelines Levies Bill (document attached) was thus introduced for the petroleum pipelines regulatory authority to impose levies on petroleum transporters in petroleum pipelines. The levies will be based on the amounts of petroleum transmitted, and was intended solely to pay for the costs incurred in the exercise of oversight in the petroleum pipelines industry by the regulatory authority.

The Bill allowed the Minister of Minerals and Energy and the Minister of Finance to concurrently approve or disapprove the imposition or variation of levies or the determination of interest on overdue levies, and to recommend alternative levy approaches. The Bill itself was a very standard levies Bill, and was similar to the money bills of other energy regulators. It provided for annual reviews of the levels of the levy, ensured that the levies were used in accordance with the PFMA, that the levy would have to be substantially reviewed every 5 years and allows for the assessment of the financial performance of the regulatory authority.

Discussion
Mr Watson stated that the National Energy Regulator Bill that was passed yesterday by Parliament referred to the establishment of the national energy regulator (NER), and also provides for levies to be imposed by the regulator. Yet the Bill referred to 'authority' as being established by the Petroleum Pipelines Act. he asked whether the authority was not now called the NER.

Mr Overmeyer responded that this was a question of timing. There were 3 key industries that were regulated in the energy industry: petroleum pipelines, electricity and the gas industry. The approach followed by the Department of Minerals and Energy was to have 3 separate money Bills and 3 separate regulators . The 3 separate regulators will now be assimilated into one NER. This Bill contains a cross reference to the NER, and thus the money will flow to the NER as will be this case with the electricity and gas levies.

Mr Sogoni asked whether the petroleum authority has been established.

Mr Overmeyer replied that the petroleum authority will not be established. While the process was underway to establish this authority the Department of Minerals and Energy decided to move ahead and form the single NER, which would then take over the regulation of the 3 energy industries listed above.

Mr Sogoni stated that this created a problem, because the Bill referred to the establishment of a petroleum authority. He continually pointed out this perceived contradiction.

Mr Overmeyer responded at pains that the principal act was the Petroleum Pipelines Act and establishes the regulatory authority, and the money bill merely created a levy financing framework for the authority to mobilise funding. The principal Act will be amended so that the authority will be absorbed into the single NER.

The Chair noted that the Bill was adopted by the Committee, as well as the Committee's report on the Bill.

RSA/Bulgaria and RSA/Ethiopia Double Taxation Agreements
Mr F Tomasek, SARS Assistant General Manager: Legislation, conducted the presentation on the two agreements (documents attached) which outlined the purpose of the agreements and the relevant articles that removed the tax barriers to cross-border trade and investment.

Discussion
Mr Watson asked whether it was not possible to have a standard format for agreements between all countries, rather than a host of all these different agreements.

Mr Tomasek responded that the closest the global community has come to a single format was the Organisation for Economic Co-operation and Development (OECD) and United Nations model, but even those do not completely agree. Although the United Nations model was based on the OECD model it was tweaked to cater for a developing country, and this then struck to the very reason why the agreements differed: countries had differing tax systems, and thus the agreements that sought to interface the different tax systems would have to be different. Only the Scandinavian countries have come close to multilateral tax agreements, precisely because they had a very similar philosophy and their tax systems were largely similar.

The Chair noted that the two agreements were adopted by the Committee, as well as the Committee's report on the agreements.

The meeting was adjourned.

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