Eskom Amendment Bill: Briefing

This premium content has been made freely available

Public Enterprises

30 March 2001
Share this page:

Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
30 March 2001
THE ESKOM AMENDMENT BILL: BRIEFING

Chairperson: Mr S Belot

Documents handed out
Eskom Conversion Bill [B16-2001]

SUMMARY
The Committee was assured by the Department and Eskom that the conversion of Eskom to a public company would not have a negative impact on the consumer. They dealt with COSATU's criticisms by saying that COSATU was focusing on implementation and other policy issues that were not quite relevant to the Bill.

The Department officials disagreed with the State Law Advisor in regard to certain amendments raised by him. The Chair suggested that these differences should be ironed out by the Department, the State Law Advisor and Eskom before the Committee was briefed again.

MINUTES
Briefing by the Department
Mr A Nkhulu, the Chief Director of the State Owned Enterprises Restructuring division of the Department of Public Enterprises, said that the Committee had been given a broad overview of the purpose of the amendments in September last year. Initially Eskom had been established as a Commission and there had been no clarity regarding its ownership. To address this, Parliament had passed the Eskom Amendment Act, which provided that Eskom was to be 100% state owned. The Act also mandated the Minister to initiate converting Eskom to a public company. Eskom would also be a taxpaying entity.

The Bill deals with the formation of Eskom as a company. It therefore clarifies which form Eskom would take. The following myths have to be dispelled:
-That the Bill calls for the privatisation of Eskom. Instead, it merely states that Eskom is a company and a public entity in terms of the Corporate Governance Framework.
-That the introduction of the Bill would affect electricity prices. This step would not put the consumer at risk. Prices are to be dealt with in the normal course of business.

Mr D Matjila, the legal advisor said that the public comments had resulted in major changes to the original draft.
Clause 3
Dealt with the conversion and how it will occur. It converts Eskom to a public company in terms of the Companies Act and therefore deals with the way in which the shareholding is constituted. Clause 3(2) deals with the instances in which Eskom would be exempted from the Companies Act (Act 61 of 1973) by virtue of the fact that it only has one shareholder.
Clause 4
Contracts, transactions and litigation with Eskom, would not be affected by its conversion to a public entity.
Clause 5

This heading has been introduced by the State Law Advisor.
Clause 6

This refers to the relationship between shareholders and the company in the case of an incorporated company.
Clause 7

This refers to Eskom's creditors. Their investments in Eskom are unaffected by the introduction of the Bill.
Clause 8

In effect, this means that Eskom is not exempted from paying tax.
Clause 11

Whatever had been done or could have been done in terms of the 1987 Eskom Act, continues to be valid and of force and effect.

Discussions were held with COSATU and the Chamber of Mines. The Chamber of Mines proposed that the composition of the Board is dealt with in terms of Regulations, instead of in the memorandum or the articles as it would usually be done.

COSATU expressed concern regarding the previous S29 (Clause 2 of the Bill). They had problems with the term 'on the date of conversion', saying that it paved the way for the introduction of another shareholder at a later stage. This concern was addressed in the Eskom Conversion Bill with the introduction of the phrase 'with effect from such date of conversion '.

Secondly, COSATU wanted a clause that stated that there would be no job losses as a result of the introduction of the Bill. The legal advisor said that he was unaware of such a provision in any legislation. He suggested that COSATU had not applied their minds to this suggestion, as it was evident from the Bill that all duties and obligations would be transferred to the new company. He pointed out that a company's obligations included its dealings with its employees. In addition, there is other legislation dealing with workers' rights such as the Labour Relations Act.

Thirdly, COSATU had a problem with the fact that the Minister determines the contents of the memorandum and articles. They believed that they should be given the opportunity to give input. The legal advisor noted that it is important to look at the purpose of the memorandum as a requirement for incorporation. He pointed out that it is not a part of the legislation itself. In addition, no other relationships would be affected by the memorandum and articles and it is therefore unnecessary for input from anyone else.

According to the legal advisor, the State Law Advisor proposed the following changes:
-That the definition of 'registrar' be removed from Clause 5(4)(b). He had pointed it out as being unnecessary as it is captured in the context.
-The word 'deemed' should be replaced by 'regarded'. Mr Matjila argued that the advisability of this change was debatable.
-The words 'generate' and 'supply' were added by the State Law Advisor in Clause 5(1). The legal advisor remarked that this excluded 'distribution' and 'transmission', which are also vital functions of Eskom. Mr Nkhulu added that the State Law Advisor had added the word 'may' in this clause and this is inaccurate, as these functions are imperative. He observed that it was necessary for the State Law Advisor to make presentations to the Committee, as it was becoming evident that some of the changes were altering the core functions of Eskom.
-In Clause 2 he changed the word 'object' to 'purpose'.
-The word 'Eskom' replaced the words 'Eskom, the Company'.

Mr Matjila said that the paragraph dealing with 'powers and duties' created problems as it limited these powers and duties in terms of the Bill. He remarked that Eskom had had many more powers and duties in terms of the previous Act.

Presentation by Eskom
Mr Mohamed, a member of Eskom's legal department, pointed out that problems were arising as policy issues were being confused with implementation issues. He said that the decision to change Eskom to a company was the only policy issue. The role-players are now trying to implement this policy without affecting the functioning of Eskom. However, in the process, many other irrelevant policy issues are being brought in.

With regard to the use of the word 'deemed' he commented that it referred to a judicial opinion which had been decided. This was preferable to 'regarded', as it is better to be certain as to the court's interpretation of a word. The courts have not decided on the term 'regarded' and it is therefore unclear what the courts would decide if litigation ever arose on this matter.

With regard to the issue of powers and duties, he noted that according to the existing framework, Eskom has many powers. In terms of the Bill however, these have been limited and this creates the possibility of ultra vires.

He referred to Clause 7, which deals with Eskom's creditors. This clause was reproduced verbatim from the Act. The reason is that the Clause deals with R24billion worth of agreements and they felt that it was better not to tamper with these in any way. When this is implemented, Eskom will have to deal with the anomalies during a process of consultation.

The taxation policy had already been introduced prior to the introduction of the Bill. This just has to be implemented in a systematic way.

Extensive discussions have been held in order to determine the best possible way to implement the taxation of Eskom so as not to affect the consumer negatively.

Discussion
Mr Heyns (DP) stated that his party would support the Bill subject to a caucus decision. However, he remarked that he had just seen the COSATU document that morning. COSATU states that meaningful engagement would take place with the government in order to resolve certain issues. He asked whether this had already taken place.

Mr Nkhulu answered that there had been a decision at a recent meeting to proceed despite a lack of consensus. He pointed out that public comment would be allowed in one month's time. In addition, he remarked that COSATU often raises policy issues adjacent to the Bill.

Mr Heyns asked whether the taxation recommendations and problems raised by COSATU had been resolved.

Mr Nkhulu replied that they had. He said that the issue of Eskom being taxed had already been passed by parliament and was therefore already law. He said that COSATU was at this stage just dealing with the implementation issues.

The Chair requested more information on the taxation of Eskom and its implications.

Mr Mohamed said that the taxation of Eskom had already taken place since March 1999. In May 1999 the South African Revenue Services (SARS) had indicated that it had required the determination of a fixed rate of taxation. The Minister of Finance set up a Technical Committee, which had worked on an ongoing basis until mid-2000. Government and SARS gave their approval to the fixed values that had been determined by the Technical Committee. Eskom experienced a tax loss for 2000. He assured the Committee that if any effects were to be felt by Eskom as a result of taxation, these have been dealt with and catered for. Eskom is expected to experience a tax loss until 2004/05. Mr Nkhulu reiterated that the tax loss has been taken into account in order to alleviate possible negative effects. The tax loss will therefore not result in electricity price increases.

The Chair requested that the full team of the Department and Eskom be present when Public Hearings are held on 8 and 9 May. He said that these should include the State Law Advisor. He however asked that the Department and Eskom sort their differences out with each other and with the State Law Advisor.

The Chair said that the Budget briefing would be held on Tuesday, 3 April.
The meeting was adjourned.



Audio

No related

Documents

No related documents

Present

  • We don't have attendance info for this committee meeting

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: