Eskom Conversion Bill: deliberations

Chairperson: Mr ST Belot

Documents handed out:

Proposed changes to the Bill in attempting to meet all stakeholders' concerns (see Appendix)

Officials of the Department of Public Enterprise and Eskom updated the committee members on how they have been trying to accommodate concerns of stakeholders raised during the hearings on Eskom Conversion Bill. Most of the drafted amendments were referred back to the State Law Advisers for further scrutiny while a couple were accepted as amendments.

Mr A Nkuhlu (Deputy Director General - Department of Public Enterprise) summarised the process to date and what they would be presenting in view of how to accommodate issues and concerns raised by stakeholders such as organized labour, Eskom and the Chamber of Mines. He also said he had asked Eskom to join them as part of the Department's delegation and not as separate stakeholders in order to support them.

Mr D Matsila (Director: Legal Services - DPE) said his presentation was within the context of the concerns raised by stakeholders. The first concern deals with the ownership of Eskom found in Section 2: Object of Act. He said there was concern with the last part of the paragraph that the State would be the shareholder " with effect from the date of such conversion."

He said the Department has seen it fit to concede to the proposal that was made to the effect that section 2 would read: "The object of this Act is to convert Eskom into a public company having share capital as contemplated in section 19 (1) (e) of the Companies Act with its entire share capital held by the state." He said from the government side they found this in order.

Mr Nkuhlu added that the concerns raised was that if they used the words "with effect from the date …" that would create an impression that there was intention not to keep that shareholding in the state hands in some possible future and this was to clarify the intention of the state.

Mr Msomi (IFP) said that was acceptable and hoped it clarifies the fact that this does not bind government for the future sustainability of Eskom and that Eskom may consider strategic partnership and that parliamentarians are not legislating for contingencies. He also hoped that it does not shut the doors to the financial imperatives of Eskom.

Mr Heine (DP) made a point of correction saying it was not 19 (1) (e) but 19 (1) (a)

Mr Matsila said the second aspect was with regard to the protection of workers' rights. The concerns was that the act as it stands does not give protection to employees and that things could happen to employees when Eskom is incorporated.

Mr Matsila said even though the Department had indicated that section 4 adequately covers concerns raised around workers' rights because as indicated it says "The conversion of Eskom does not affect any of the rights, liabilities or obligations" which goes on to include workers.

To give comfort to whoever is concerned around that issue the Department has decided to do another combination. In that regard they are proposing that section 4 (3) should read as follows:

"The conversion of Eskom does not -

1. Hurt the continued corporate existence of Eskom as from the date of its first establishment
2. Affect any of the rights, liabilities or obligations acquired or incurred by Eskom or on Eskom's behalf, at any time before its conversion
3. Affect any of the rights, liabilities or obligations of employees including their terms and conditions of service
4. Render defective any legal proceedings by or against Eskom.

Mr Nkuhlu added that to give comfort that there was no ulterior motive expressed in the bill they have added this section. It does not detract from the issue of 3 (b). To include employees' obligation would not be affected by this conversion.

Mr Msomi said he accepts that and thought it "declares the peace." However, he said he was concerned about the possibility of ambiguity that would be created in reading the act because there is a problem when people interpret the act the inclusion of this may either undermine the real intension of the act or bring up more questions. He wished the law advisers could advise on this.

Advocate T Mbangeni (State Law Adviser) said they couldn't comment at the moment because they are seeing these amendments for the first time. They still have to think about them thoroughly and see how they can accommodate them in the Bill.

The chairperson said the purpose of the meeting was to make sure that committee members look at this and send it back to legal advisers so that when they meet next week they take the matter further for finalisation.

Mr Matsila said the third aspect was in regard to Section 5 Powers and duties of Eskom. He said Eskom and the Department itself share the concerns expressed by stakeholders. He said if the section was left as it was it would create confusion to whoever might be reading that section. He/she might conclude these are the only powers and duties that Eskom has whereas Eskom has many powers in terms of the Act of 1987.

To address this anomaly they have suggested they leave the heading as it is and have the following clause as section 5 (1): "Subject to the Articles and Memorandum of Associations and the shareholders' compact, Eskom's powers and duties shall include the generation or supply of electricity within the Republic of South Africa subject to the rights of local authorities and holders of licences under the provision of the Electricity Act, 1987.

Mr Msomi said he was not sure whether he agrees with that because what was superior it seemed to be the articles and memorandum of association and therefore the Act is subservient to that.

Mr Nkuhlu responded that they did not want to burden the bill by listing Eskom's 26 powers. He said within the shareholder compact they do not define the role of Eskom as an entity, which is where the developmental role of Eskom namely affordable prices and RDP commitments are found. He said he agrees with the honourable member that this section might create that impression. To avoid fighting about language and phrases they have subjected this section to those articles. He said legal state advice was in order.

The chair said this section is one of the homework that has to be looked into so that when it comes back next week it could be looked at with the competency of the politicians.

Mr Matsila said under section 6 a third subsection has been added to read as follows: "In so determining such articles of association in terms of subsection (2), the Minister must gazette such articles of associations for public comment by stakeholders.

Mr Nkuhlu added they are not tying the hands of the Minister behind by adding this section. He would continue to determine the articles of association. "This is not a shared decision," he said, "it is a ministerial responsibility."

Mr Msomi felt that the Minister should declare his discretions publicly in order to be subjected to public scrutiny. He however said he had a problem with the usage of the word 'must', which in legal terms is hardly ever used. He said it is either 'we', 'shall', or 'may'. He said 'must' permeates the whole proposal all the way down.

Adv A Selokela (State Law Advisor) said they were moving away from the draconian languages to plain language. That is why they are using 'must', 'if'. Or 'I'.

Mr Msomi said this was meant with no offense. If there was new encroachment of English made easy then the politicians were behind.

Inkosi Nkonyane (ANC) said he was inclined to believe that it may create further legal problems to change the language and if they are doing that they must do that with care hence his view was that they stick to the old until an appropriate time comes though he too was attracted to innovation.

Mr Frolic (ACDP) added that they must be consistent in line with the constitution of the country

Adv Selokela said if the honourable member looks at the constitution it uses the word 'must' and the word 'shall' does not feature. And if they look at the bill they will see that the word 'must' is used and not the word 'shall'. He said it would mean changing the word 'must' to 'shall' wherever the word 'must' appears. He said they would look at the matter and report back to the next meeting the outcome.

Mr Matsila said the next concern was on the absence of a clause dealing with Eskom's developmental role and provision for electricity at affordable prices. He said it was difficult to put that in a clause, as it would open up a can of worms. They thought to avoid litigation it was best to capture it in the memorandum and articles of associations rather than in the legislation.

To that end they propose, "The Minister shall in the shareholder compact, as well as in the determination of the memorandum and articles of association, take into account amongst others:

Eskom's developmental role, provision of affordable electricity taking into account the cost of electricity and, financial sustainability of Eskom into the future."

Mr Nkuhlu warned they must be careful at this point because this area would change in that this regulation must be flexible and should not be cast in stone. However as a department they are committed to defining the developmental role of Eskom because they believe there is that developmental role in the economy. They are committed that Eskom must endeavor to deliver affordable prices to the consumer. In the shareholder compact with Eskom they would enter into a compact where Eskom would deliver a level of tariff to the consumer on sustainable basis.

On universal access, he said government has decided to finance electrification through the Department of Minerals and Energy because that is the role of the public sector and not an entity. Eskom would be an agent to deliver that. So they would be an agency agreement entered into between government and Eskom so that the creation of universal access would not lie with Eskom but with the state. Therefore, they are uncomfortable to put this in the bill because it would tie the hands of Eskom unduly.

Mr Msomi suggested that detail issues on legislation not be included, as it tends to water down everything that is intended. He suggested that the second and third paragraph read by Mr Matsila not be included because they are bad in legislative language.

Mr Adam (Eskom) said in Eskom's view they were in agreement with the honourable member and that their preference would have been that these issues be addressed in the shareholder compact. As suggested some of these obligations rest with government and it is with government to see which of the vehicles to use to achieve these objectives. He said the first prize would be to leave it out completely.

Adv Selokela said he was in agreement with both Mr Adam and the honourable member Mr Msomi. He said things of this nature are best put in the regulations because an Act is a skeleton and regulations put flesh into that particular act and in his view this was flesh than skeleton.

The chairperson said they would leave this to state law advisors to see how they handle it.

Mr Matsila said section 7 (2) (b) (i), was not captured in the proposal because there was no formulation to be done however there was a concern raised by one of the stakeholders as to the fact that why a court of law be allowed to raise prices in case Eskom is in default and were proposing an amendment in that regard but after some lengthy deliberations it was impressed upon the stakeholder (with Eskom's input) that it would be prejudicial to take this clause out and going back to the lenders to look for other comfort. It was agreed that section 7 (2) (b) (i) that deals with hiking of prices of electricity by the court would remain as it is.

Mr Nkuhlu warned that any change on this clause would impact negatively on Eskom. He said this was a theoretical clause because there is no way that Eskom could ever be insolvent and price setting is determined by the NER and in view of this they decided to leave the clause as it is.

Mr Adam said in terms of the existing Eskom Act section 17 provides what you see in the existing bill and what they have done is to mirror what is provided in section 17 the reason for that being in terms of section 17 lenders have rights. Based on these terms they afford Eskom ratings and loan money on those terms.

If they do not continue with section 17 they would have unilaterally changed the conditions of the contract and lenders would be entitled to call up their loans. That is the problem the have. This is an existing contractual agreement between Eskom and lenders and need to provide that it continues until such time that they can negotiate out of it when appropriate time arises.

Mr Msomi said if there was an objection let it be heard so that both sides of the coin can be examined.

Mr Nkuhlu said this is a forum where the Department can engage stakeholders. He read out section 7 (2) (b) (i) and (ii) and in his summary said the court because of a deficit may make a ruling for price to be increased to enable those owed by Eskom to recover such debt.

He said the concerns raised by organized labour were because of Eskom's developmental role but said the possibility of such default is very remote. He said Cosatu wanted to introduce NER here, which they thought, would be dangerous and that at the moment it was decided to leave the clause as it was.

Mr L Montana (Director: Parliamentary Services - DPE) said the important thing is to assess whether this was encroaching on the NER domain, which is captured in another piece of legislation.

Mr Msomi said he thought there was enough checks and balances for organized labour to think "their perceived fears could visit us in our life time."

The chairperson said this part would also go back for review to be discussed in the next meeting.

Mr Matsila said section 9 would have to be divided into subsection (1) and subsection (2). The new subsection (2) would be to the effect that "Before any regulations are made in terms of subsection (1) the minister must gazette such regulations for public comments by stakeholders.

Inkosi Nkonyane requested advice from state law advisers because of concerns to the bad precedent being created for Minister to publicise everything at state expense for public comment. He asked whether there was no way of tabling that to parliament?

Adv Selokela said it was a matter of policy if the minister felt it must be gazette for public comment that was his policy. He said in practice the Minister was free and saw no reason why that clause cannot be put in.

Mr Msomi felt that this clause undermines what they are trying to protect and could not see the motivation for it.

Mr Nkuhlu said he also remains unconvinced about this subsection because they are creating obstacles for the Minister to act. He said they would have preferred to use the word 'may', which is not obligatory and takes the concerns of the stakeholders.

Mr Montana reminded members that both organized labour and Chamber of Mines raised this. While the former's concern was on Eskom's developmental role, the Chamber of Mines said their concerns were based on the fact that they had a multibillion rand business to protect. He said it was up to the members to see whether they agree with that or not. He felt it should be taken back for review.

The Chair concurred with that and suggested it be taken back for review.

Appendix:
Section 2 of the bill is amended to the following effect: -

1. Object of the Act

The object of this Act is to convert Eskom into a public company having a share capital as contemplated in section 19 (1) (e) of the Companies Act with its entire share capital held by the state.

2. Effect of Conversion

The current Section 4 (3) ( c) to become Section 4 (3) (d) and the new Section 4 (3) (c) to be: - Affect any of the rights, liabilities or obligations of employees including their terms and conditions of services.

3. In view of the problems that might arise if the heading "powers and duties of Eskom" as well as section 5 (1) were to remain as they are, the following is proposed to remedy the problem:

Addition: Subject to the Articles and Memorandum of Association and the shareholder's compact, Eskom powers and duties shall include...

4. Section 6 (3)

In so determining such articles of association in terms of subsection (2), the Minister must gazette such articles of association for public comments by stakeholders.

The Minister shall in the shareholder compact, as well as in the determination of the memorandum and articles of association, take into account amongst others:

Eskom's developmental role, provision of affordable electricity taking into account the cost of electricity and, financial sustainability of Eskom into the future

5. Section 9 (2)

Before any regulations are made In terms of subsection (1) the Minister must gazette such regulations for public comments by stakeholders.