Broadband Infraco Bill: deliberations

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
31 August 2007
BROADBAND INFRACO BILL: DELIBERATIONS

Chairpersons: Mr Y Carrim (ANC), Mr C Wang (ANC), Mr S Kholwane (ANC)

Documents handed out:
Broadband Infraco Bill [B26-2007]

Audio recording of meeting

SUMMARY
Subsequent to the meeting held on 29 August 2007, the remaining clauses and definitions in the Broadband Infraco Bill were discussed. The main object of Infraco as described in Clause 4 was extensively debated and referred back to the Department of Public Enterprises for rephrasing. Members were particularly concerned by the provisions of Clause 4(4) that allowed for the privatisation of Infraco without ensuring that the objectives of Infraco were met. Clause 5 was adopted. Clause 6 was deleted from the Bill. The provisions in respect of Servitudes contained in Clause 7 were discussed in detail. Clause 7(2) was referred back to the Department for rephrasing and the remaining sub-clauses were adopted. Clause 8 dealt with expropriation and was discussed in detail before it was adopted. Clause 9 dealt with the conversion of Infraco to a public company and elicited much discussion. In addition to the concerns raised in the discussion on Clause 4(4), Members were concerned about the issue of accountability to Parliament when State-owned assets were disposed of. Members were not apposed to the conversion of Infraco and adopted the clause. Clause 10 was adopted. Clause 11 was adopted. The adoption of Clause 12 was postponed until the matters of policy were finalised. Clause 13 was adopted. In all cases, the adoption of the clauses was subject to confirmation by the Parliamentary lawyers that the cross-references to other Acts were correct in the Bill. With the exception of the definition of “wholesale”, the definitions were agreed by the Committee. It was decided not to include a definition of “land” in the Bill.

MINUTES
The Chairperson advised that he had been requested to chair the Portfolio Committee on Justice, but was negotiating to remain with this Committee until the Broadband Infraco Bill was finalised.

Broadband Infraco Bill: Deliberations
The Chairperson suggested that deliberations be concluded by 14 September 2007, that the Committee vote on the Bill by 17 September 2007 and that it be presented to the Minister on 20 September 2007. To avoid confusion, he suggested that each version of the Bill was dated.

Clause 4: Main object and powers of Infraco
Mr M Makobe, Director: Legal Counsel, Department of Public Enterprises (DPE), took the Committee through the provisions of Clause 4. Clause 4(1) dealt with the core focus of Infraco. Clause 4(2) located the role of Infraco within the Companies Act. Clause 4(3) placed Infraco as a Schedule 2 entity within the Companies Act. Clause 4(4) dealt with the issue of concurrence between the Ministers of Communications and Finance when dealing with changes to the shareholding, assets, rights and obligations of Infraco.

Clause 4(1)
Mr P Hendrickse (ANC) suggested that clause 4(1) be rephrased to provide better clarity on what was meant by the services offered by Infraco. He said that “the lower than commercial costs” and “a utility rate of return” were two different concepts.

Mr Litha Mcwabeni, Deputy Director-General, DPE, said that the Department considered rewording the clause and the new wording was included in the latest version of the Bill.

Ms Mashila Matlala, Senior Manager: Telecommunications, Department of Communications (DOC), pointed out that the current version of the Bill being considered differed from the version discussed at the meeting on 29 August 2007.

Mr Wang said that after the previous discussions on policy, the latest version of the Bill replaced the phrase “at the lower than commercial costs at a utility rate of return” with “wholesale”.

The Chairperson said that many submissions were received from other service providers on the objects and powers of Infraco. Infraco was intended to provide a wholesale service and excluded services to end users. The wording of the clause made it clear that Infraco was not in competition with the other service providers. He proposed that Members consulted their notes before the clause was agreed.

Mr Paris Mashile, Chairperson, The Independent Communications Authority of South Africa (ICASA), said that it was clear that the wholesale service offered meant that Infraco was selling to re-sellers and was not retailing or selling to end users.

The Chairperson said that Sentech, in their submission, were concerned by what kinds of broadband services were provided by Infraco and to whom these was offered. This was addressed by describing the type of services as “wholesale” and by excluding services to end users. The issue of geographic areas was not addressed.

Ms Sandra Coetzee, Deputy Director-General: Legal Governance and Risk, DPE, said that the Department felt it was inappropriate and limiting to specify geographic areas of operation in the Bill.

Mr Dingane Dube, Executive: Regulations and Government Affairs, Sentech, said that the license granted by ICASA could not include limitations and that it was therefore appropriate that the limitations were included in the Bill.

Ms Coetzee agreed that ICASA issued the usual network and services licences and that was the reason why the Department attempted to narrow down the footprint by including the provision in regard to the object of Infraco.

The Chairperson said that it was previously agreed that the shareholder mandate allowed for the Minister to refuse extensions to Infraco’s scope of operations and it was therefore not necessary to include restrictions in the Bill.

Mr Dube requested that the main objectives of Infraco as set out in accordance with the Companies Act be contained in the Bill, as ICASA could not place restrictions on the terms of a licence and would issue an open license. This would provide Infraco with an implementation mechanism and gave the policy maker the right to deal with the issue of the main objectives.

The Chairperson undertook to include Sentech’s concern in the Committee’s report to Parliament. He stated that the detailed objectives of Infraco would be included in the mandate as determined by the shareholders and would not be included in the Bill. This would allow for future changes to be made without the need to amend the Act.

Ms Coetzee explained that the wording of Clause 4(1) was amended from the previous version of the Bill after discussions were held with ICASA. ICASA also regulated pricing and it was decided not to include provisions relating to pricing in the Bill. It was clear from the submissions received that the other service providers were concerned whether Infraco would provide wholesale services or if it would be a provider of last mile services. She felt that the proposed wording of the clause addressed these issues.

Mr Hendrickse suggested that the provision of wholesale services and the promotion of access and affordability were described in two sentences.

Ms Matlala said that “electronic communications services” are also “services to end users” but the wording of the clause was not clear.

Mr Hendrickse asked whether “wholesale electronic communications network services” and “electronic communications services” were two different types of services.

Ms Matlala said that it was not clear which services to end users were excluded.

Ms Coetzee explained that the definition of “electronic communication services” included services to end users. By this definition, the State was also an end-user. The Department was concerned that Infraco would be unable to deliver the required services of national importance to the State.

Mr Edmund Baloyi, Advisor to the Chairman, ICASA, explained that the terms and conditions of the network and the electronic communications service licenses issued to Infraco were the same as those issued to other network and service providers. ICASA was not able to exclude the provision of services to end users from the licences issued to Infraco. Subscribers to network services included the State. He said that there were alternative ways of dealing with the issue of end users and agreed that the phrasing of the clause was confusing.

Mr Hendrickse again suggested that the sentence was broken up and that the different services provided should be described in separate sentences.

Ms Coetzee said that the Department did not wish to be prescriptive and anticipated the types of wholesale electronic communications services to be provided by Infraco. End users were not targeted and there was no intention to compete with other service providers in the provision of last mile services.

Mr Hendrickse remarked that the intentions were understood but the wording of the clause was not clear in this regard.

Ms Matlala commented that ICASA issued licenses in accordance with the Electronic Communications Act (ECA) and could not change the terms and conditions of the licences to exclude or re-define end users. The issue of end users needed to be addressed without having to amend the ECA.

Ms Coetzee said that the Department was willing to consider suggestions for alternative wording for the clause, provided there were no restrictions to provide only network services, and that the provision of services of national importance was not prevented.

The Chairperson said that the issues were understood and the policy was clear to everybody. It was understood that ICASA issued generic, technology-neutral licenses and it was not wise to be too restrictive in the terms and conditions of a license. He said that the restrictions placed on Infraco were as a result of the submissions made by the other service providers and it was a matter of phrasing the relevant clauses in a manner that addressed the concerns that were raised.

Ms Coetzee suggested that “end user” was replaced by “public”. Mr Wang suggested “retail user”

Mr Mashile said that the meanings of “end user”, “retail user” and “subscriber” were interchangeable. For example, the Square Kilometre Array (SKA) Project was one of the intended subscribers, but it was not the public, being an end user, and had no intention of being a retailer of the services obtained from Infraco.

Mr Hendrickse suggested that the Department’s legal drafters rephrased the clause. Mr Mcwabeni supported Mr Hendrickse’s suggestion of breaking up the sentence into more than one sentence.

The Chairperson said that it was agreed that both sets of licenses must be applied for by Infraco and that, as far as the service license was concerned, Infraco must ensure that it was not competing with the other service providers. He suggested that the clause be rephrased and closed the matter for further discussion.

The Chairperson said that requests to include definitions of “accessible” and “affordable” were made in the submissions received by the Committee.

Ms Coetzee replied that the Department attempted to find definitions but concluded that it was unnecessarily restrictive and potentially limiting to include those definitions in the Bill. The issue was better addressed by narrowing down the network and communications services provided by Infraco. The provision of wholesale services already imposed a degree of limitation on access to services and Infraco intended to provide services at a cost below the rate decided on by the Regulator, which made the price more affordable.

The Chairperson asked why the delivery of services to under-developed and under-serviced areas was mentioned in the Preamble but was not included in clause 4.

Ms Coetzee explained that the Preamble had a different enforceable implication in law. The Department attempted to align Clause 4 with the wording in the ECA and did not wish to complicate the regulatory process of ICASA.

The Chairperson said that the wording of the Preamble was agreed to during the discussion held on 29 August 2007. Clause 4 dealt with matters of policy. The provision of services to under-developed and under-serviced areas in particular should be included in the main objects.

Mr Hendrickse suggested that provision was made for the shareholders to determine from time to time what were regarded as under-serviced and under-developed areas.

Ms Coetzee noted the Chairperson’s comments with regard to the alignment of the Preamble and the provisions in Clause 4 and undertook to submit the revised text for discussion at the next meeting.

Mr Kholwane said that the issue of affordability must be taken into account as well.

The Chairperson remarked that the question of affordability was extensively debated. It was agreed that a minimum level of service should be specified but it was impossible to define “basic services” and no legal precedent of such a definition was found. The definition of broadband access was an ECA issue.

Mr Enver Daniels, Chief State Law Adviser: Office of the Chief State Law Adviser (SLA), said that the Systems Act attempted to define uniform norms and standards that could be applied in all provinces to ensure a uniform spread of services.

Ms Coetzee commented that although the network and services licenses granted to Infraco were technologically neutral and not limiting, the Bill restricted Infraco to providing wholesale services. Should definitions of “access” and “affordability” be included in the Bill, Infraco’s role would be narrowed down even further. The concept of affordability could be tested against the price level set by ICASA and the concept of access needed to be tested. It was necessary to provide comfort to the industry as well as ensuring that the public interest objective was met in the wording of the clause.

Mr Wang remarked that ICASA did not regulate the price of services.

Mr Mashile said that the role of ICASA was to promote competition. Companies competed against each other to provide the best services at the lowest possible price. Providers of wholesale services would determine the price to retailers on the basis of the cost of the service plus a percentage mark-up. Retailers competed against each other in the market as well. Therefore the price of services was determined by the market. He did not think that it was necessary to include a definition of “affordability” in the Bill.

Mr Hendrickse disagreed and said that Telkom set prices at the maximum that the market could tolerate rather than on a cost plus basis. He said that the purpose of Infraco was to provide wholesale services at the lowest possible price and felt that this definition should be included in the Bill.

Mr Mcwabeni agreed with Mr Hendrickse and said that it was necessary that prices were included in the Bill because the prices for communications services were unregulated. Affordability was relative and depended on the disposable income of the people living in a certain area. It was necessary to allow for prices to be updated on a regular basis.

Mr Hendrickse suggested that prices be determined on the basis of cost plus a profit margin.

The Chairperson said that the Bill had to be broadly consistent with the laws on telecommunications as a whole. Although he did not rule out the concerns raised by the Members, he resisted including the definitions of “access” and “affordability” in the Bill. He said that the issue need not be resolved at this stage but could be addressed at a later date. He suggested that the possibility of adding meaning to the concept of accessibility and affordability without necessarily defining it was explored.

Ms Coetzee said that with regard to pricing, shareholders expected a return on equity and it was necessary to consider an appropriate mechanism whereby the Minister could communicate to Infraco what the return on equity margin should be in order to ensure affordability. The Department would put forward suggestions at the next meeting.

Mr Wang confirmed that acceptance of Clause 4(1) was postponed to the next meeting.

Clause 4(2)
The Chairperson requested that the cross-reference to Section 33(1) of the Companies Act was checked to ensure that it was correct.

Acceptance of the clause was postponed, pending confirmation of the cross-reference.

Clause 4(3)
Ms Coetzee explained that Schedule 2 to the Companies Act referred to the founding documents and the common powers conferred on the board of directors of a company.

Acceptance of the clause was postponed, pending confirmation of the cross-reference.

Clause 4(4)
The Chairperson asked whether this clause made provision for the State to sell Infraco to the private sector.

Ms Coetzee replied in the affirmative.

The Chairperson stated that the clause made provision for the transfer of the license issued by ICASA and suggested that the clause specified that such transfer was in accordance with the ECA.

Ms Coetzee said that Infraco was subject to all the laws of South Africa and the ECA included a section that specifically dealt with the application for and transfer or cession of licences. The point was discussed with the State Law Adviser and it was not considered necessary to include it in the Bill.

Mr Kholwane asked if an assessment would be made on whether Infraco achieved its objects before it was sold.

Mr Hendrickse said that the objects remained the same even if the company was sold. It would still have to provide the services as specified in the Bill.

Mr Mashile said that if sold, the company would have to compete in the market and the buyer needed to decide whether it was worthwhile.

Ms Coetzee said that in the event of a complete sale, Infraco would no longer be a statutory entity. The State may decide to sell a part of its interest for strategic reasons. The clause was intended to allow for flexibility in the transfer of the shareholding if and when an equity partner was necessary.

Mr Daniels asked if Clause 4(4) would apply to any future subsidiaries of Infraco.

The Chairperson agreed that it was not necessary to include a provision that the transfer of the licenses was subject to the ECA.

Mr Kholwane pointed out that the Bill included reference to other Acts, such as the Companies Act and the Public Finance Management Act (PFMA).

The Chairperson said that the clause could include the words “and its subsidiaries” to make it clear that it also applied to any future subsidiaries of Infraco.

Ms Coetzee said that Infraco (Pty) Ltd was defined in the Bill and was not drafted as a group or holding company. Her understanding was that any subsidiaries were included. In terms of the PFMA, none of the assets in Infraco or in Infraco subsidiaries could be alienated without the concurrence of the Minister of Finance. However, the PFMA did not require consultation or concurrence with the Minister of Communications. Subsidiaries were therefore partially covered by the PFMA but were not covered as far as consultation with the Minister of Communications was concerned.

Dr Van Dyk asked why it was necessary to include consultation with the Minister of Communications when the clause was subject to the PFMA.

Ms Coetzee replied that the Department considered it to be appropriate that the Minister of Communications was consulted in the event that Infraco was sold completely.

Mr Hendrickse remarked that Infraco was set up for a specific purpose and provided with public funds. The sale of assets could have a negative impact on achieving the objects of Infraco.

Ms Coetzee requested the opportunity to reconsider the wording of the clause in the light of the comments made by the Members.

Mr Wang said that it was agreed that Infraco was a strategic asset and although it was not envisaged that it would be privatised in the near future, a degree of protection was necessary.

Ms Coetzee said that the complete alienation or winding-up of a State-owned entity required a full Cabinet decision and was not the sole mandate of one Minister.

The Chairperson agreed with Messrs Hendrickse and Wang that the objects of Infraco had to be taken into consideration when selling off any assets. It was not advisable to be too prescriptive or to leave it too open. It was difficult to predict future requirements but the Minister could not be expected to make amendments to the Act every year. He suggested that Members gave the issue further thought.

Dr Van Dyk was not convinced that the Minister of Communications should be involved and suggested later on in the meeting that the input of the Portfolio Committee on Communications be sought.

Acceptance of Clause 4(4) was postponed until the next meeting.

Clause 5: Borrowing powers of Infraco
Ms Coetzee explained that this clause provided for borrowing powers (akin to the borrowing powers of all State-owned enterprises) subject to Section 66 of the PFMA.

Dr Van Dyk asked if Infraco was included in Schedule 2 or Schedule 3(b) of the PFMA.

Mr Wang replied that it was not yet decided.

Mr Hendrickse pointed out that the amendment of the PFMA was addressed in Clause 12. The Chairperson said that Clauses 5 and 12 were linked.

Ms Coetzee explained that a company cannot function if it cannot borrow money. Whether its Board of Directors can borrow money without the approval of the Minister of Finance was one of the distinctive differences between Schedules 2 and 3(b) and that was addressed in the classification. The adoption of this clause would not affect the Committee’s decision on clause 12.

Clause 5 was adopted by the Committee.

Clause 6: Infraco license
Ms Coetzee informed the Committee that the Department had consulted with ICASA and the DOC and recommended that Clause 6 was deleted from the Bill. The Department decided to request an amendment to the ECA , instead of dealing with the licensing of Infraco in this Bill. The amendment to the ECA would be processed by the Portfolio Committee on Communications under the auspices of the Department of Communications.

Mr Hendrickse suggested that the clause be set aside until the Committee had considered all the other amendments to the Bill.

Mr Wang agreed that the clause be set aside.

Clause 7: Servitudes
Ms Coetzee explained that the transfer of servitudes and rights of access to servitudes used by Transnet and Telkom in the rolling out of the full services network (FSN) were included in the commercial agreements reached with Transnet and Telkom. The clause was the statutory confirmation that allowed Infraco rights of access to and use of the servitudes integral to the FSN.

Clause 7(1) dealt with rights of lease and use of servitudes.

Dr Van Dyk asked why the provision of electricity, pipelines, railways, transport and electrical substations was included as it was not relevant to Infraco.

Ms Coetzee explained that the FSN network was rolled out on servitudes that included structures for the provision of those services. The right of access to those servitudes was extended to Infraco as well.

Dr Van Dyk asked if there were any empty servitudes as a definition of “land” was not included in the Bill.

Ms Coetzee explained that the clause referred to servitudes that were acquired for specific purposes prior to the effective date of this Act, regardless of whether they were utilised or not. Once the Act was passed, Infraco had its own powers to acquire servitudes and rights of access in terms of its expropriation powers.

Dr Van Dyk asked if this was made clear in the Bill.

Ms Coetzee confirmed that two independent Senior Councils had given an opinion that both Clause 7 and the clause on expropriation were sufficient and comprehensive enough.

Mr Hendrickse asked if Clause 7(2) applied to both existing and future communication facilities.

Ms Coetzee confirmed that provision was made to use existing servitudes for future roll-out of services.

Mr Kholwane asked why the South African Rail Commuter Corporation (SARCC) was not mentioned as certain assets belonging to them were affected.

Ms Coetzee said that the Infraco team did not identify any servitudes belonging to the SARCC and no compensation agreement was reached with them in this regard. She undertook to check and report back to the Committee.

Mr Pharang Nkhereanye, Senior Manager: Regulatory Affairs, Neotel, said that Clause 7(2)(a)(ii) was not practical from an operational point of view as Transnet and Eskom did not allow third parties to enter their land and work on their equipment.

Ms Coetzee said that agreements had already been concluded with Transnet and Eskom. The agreements were however subject to the safety controls and technical requirements set by both Eskom and Transnet.

Mr Nkhereanye asked whether the Infraco employees responsible for maintenance would have the same level of training and expertise as the Eskom and Transnet employees in order for them to be allowed to maintain equipment.

Mr Hendrickse said that this issue was not relevant. Mr Wang agreed that the matter should be dealt with in the commercial service level agreements reached with Eskom and Transnet.

Mr Wang said that in the submissions, the Committee was requested to include Section 12(5) of the Expropriation Act.

Ms Coetzee said that Section 12 of the Expropriation Act dealt with compensation and this matter was dealt with in the commercial agreements that were reached.

Mr Wang referred to the submission made by Neotel that compensation did not cover the extent to which the value of the property was diminished.

Ms Coetzee said that compensation paid in cases where there was a willing buyer/willing seller scenario differed from cases where compensation was paid for property that was expropriated. The provisions of the Expropriation Act were applicable when property was expropriated. This matter was addressed in Clause 8 of the Bill.

Mr Wang remarked that compensation was included in the agreements concluded between Infraco and Eskom and Transnet. Any future agreements were subject to the Expropriation Act. Ms Coetzee agreed that this was the case.

Clause 7(1) was adopted by the Committee.

Dr Van Dyk queried whether Clause 7(2)(a)(ii) was not an unnecessary duplication of Clause 7(2)(a)(i).

Ms Coetzee explained that there was a difference in the extent to which the land was used when putting in new infrastructure and when carrying out maintenance on existing infrastructure. There were also differences in the rights and obligations of Transnet and Eskom when their land was used for different purposes. In general, Clause 7 provided for Eskom and Transnet to transfer rights of access to Infraco to those assets that were integral to the FSN. In addition, Infraco was also granted the right to develop new infrastructure on assets that were not transferred to Infraco. In both cases, compensation was payable and was already agreed.

Mr Kholwane said that Clause 7(2)(a)(i) covered the current arrangements and Clause 7(2)(a)(ii) made provision for future developments.

Ms Matlala commented that when a network license was granted by ICASA, in terms of Section 20 of the ECA, the Minister issued guidelines on where and how infrastructure was to be rolled out.

The Chairperson referred to the submission received from ICASA that Clauses 6 and 7 of the Bill were aligned with Chapter 4 of the ECA. He said that if the Bill provided more rights than the ECA, clarity would be needed on the meaning and implications. He said that the policy was clear and it was not necessary to debate issues of policy any further.

Ms Coetzee said that the issue was addressed in the ECA and included in the commercial agreements. She mentioned recent problems experienced by Telkom in enforcing this provision and said that Infraco would not be exposed if the clause was omitted from the Bill.

The Chairperson felt the clause should remain and urged caution when decisions were made to omit clauses from the Bill.

Mr Kholwane suggested that the Department should check to what extent the provisions of Clause 7 were covered by provisions in the ECA.

Ms Coetzee said the wording of the clause was included in the commercial agreements. She agreed to check the provisions in the ECA as suggested.

Mr Hendrickse understood that Clause 7 covered agreements between three State-owned entities on the rights of use of land owned by them.

Regarding Ms Matlala’s earlier comment, Mr Daniels said that she meant Chapter 4 rather than Section 20 of the ECA. In his opinion, Chapter 4 of the ECA did not apply but it could be useful when settling disputes. He agreed with Dr Van Dyk that clauses 7(2)(a)(i) and (ii) were slightly ambiguous and suggested that the SLA, DPE and DOC consult to improve the wording of the clauses.

Mr Daniels said that Clause 7(2) became effective on the transfer date but Clause 7(2)(b) required agreements to be finalised. He warned that agreements could be dragged out indefinitely and the transfer date would become meaningless.

Ms Coetzee agreed to consult with the SLA to improve the wording of the clause. She explained that Clause 7(2)(a)(i) assumed existing infrastructure and (ii) allowed for new infrastructure to be constructed. These were two different concepts. She said that as the commercial agreements referred to in Clause 7(2)(b) were already concluded, the only matter outstanding was the passing of this Bill to effect the transfer date.

Adoption of Clause 7(2)(a) was postponed, pending consideration of the revised text by the Committee.

With regard to Clause 7(2)(b), Ms Coetzee confirmed that the agreements were already concluded, as discussed earlier.

Mr Daniels suggested that the clause be amended to ensure that any future disputes were adequately covered so that it would not be necessary to amend the Act.

Ms Coetzee agreed to assess the provisions of the clause against any exposure Infraco may have.

Dr Van Dyk asked why Eskom was not mentioned in Clause 7(2)(c).

Ms Coetzee explained that Transnet sold to Eskom, Eskom was consolidated and Infraco was currently a subsidiary of Eskom.

Dr Van Dyk asked for confirmation that the provisions in Section 25(3) of the Constitution were in line with the provisions in Clause 7(3)(a), which included reference to both “compensation” and “to the extent”.

Ms Coetzee explained that existing rights were paid for, but Clause 7(3)(a) covered the eventuality of payment for additional rights granted to Infraco. Compensation was limited to the additional portion. She agreed to check the provisions in the Constitution and provide feedback to the Committee.

Ms Coetzee explained that Clause 7(3)(b) was a procedural provision covering the notice given by Infraco to the registered land owner prior to exercising additional rights.

Clause 7(3)(b) was adopted by the Committee.

Ms Coetzee explained that Clause 7(3)(c) and Clause 7(3) (d) dealt with the application of the principles contained in the Expropriation Act.

Adoption of Clauses 7(3)(c) and (d) was postponed, pending confirmation that the cross-references to the Expropriation Act were accurate.

Ms Coetzee explained that Clause 7(3)(e) was a procedural formality. The Department had consulted with the Department of Public Works on servitudes and it was also responsible for the Deeds Office.

Clause 7(3)(e) was adopted by the Committee.

Ms Coetzee undertook to report back to the Committee on the South African Rail Commuter Corporation, the revised text of Clause 7(2)(a)(i) and (ii) and whether there was any risk of exposure or prejudice if Clauses 7(1) and 7(2) were not included in the Act.

Mr Kholwane summarised the proceedings with regard to Clause 7(2) and Clause 7(3):
Clause 7(2)(a) - pending
Clause 7(2)(b) - pending
Clause 7(2)(c) - adopted partially (i.e. accepted by the Committee until later adoption of the complete clause)
Clause 7(3)(a) - the cross-reference to Section 25(3) of the Constitution to be checked
Clause 7(3)(b) - adopted partially
Clause 7(3)(c) - the cross-reference to the Expropriation Act to be checked
Clause 7(3)(d) - the cross-reference to the Expropriation Act to be checked
Clause 7(3)(e) - adopted partially

Clause 8: Expropriation of land or right in land by Minister on behalf of Infraco
Ms Coetzee explained the rationale behind the clause and took the Committee through Clauses 8(1) to 8(8).

The Chairperson asked what was meant by “unregistered” right referred to in Clause 8(6).

Ms Coetzee explained that this dealt with instances where a right of use was established over time but it was not registered with the Deeds Office.

The Chairperson asked what was meant by “majority” referred to in Clause 8(8). In certain cases shareholders with less than a 51% ownership had a majority in terms of the powers conferred on them (so-called “golden shares”).

Ms Coetzee explained that a majority shareholder held 51% of the shares. The term “ownership control” as included in the PFMA was not used. She said that the PFMA did not distinguish between the terms “majority” and “ownership control”.

The Chairperson summarised the proceedings with regard to Clause 8:
Clause 8(1) - adopted partially
Clause 8(2) - the cross-reference to the Expropriation Act to be checked
Clause 8(3) - adopted partially
Clause 8(4) - adopted partially
Clause 8(5) - the cross-reference to the Constitution to be checked
Clause 8(6) - the cross-reference to the Expropriation Act to be checked
Clause 8(7) - the cross-reference to the Expropriation Act to be checked
Clause 8(8) - adopted partially

Clause 9: Conversion of Infraco into public company
Ms Coetzee explained that Clause 9 allowed the Minister of Public Enterprises to convert Infraco from a Proprietary Limited company to a public company and was subject to the requirements of the Companies Act. She took the Committee through Clauses 9(1) to 9(7).

Members debated the roles of Parliament, the Minister, the Executive and the Portfolio Committee when State assets were disposed of. The general consensus was that Parliament must approve the sale (in whole or in part) of State-owned entities. It was agreed that this was a policy issue that may be discussed further at the appropriate study group. The Chairperson said that the intention was to address the issue in the Shareholder Management Bill.

Ms Coetzee pointed out that, in terms of the PFMA, a company was not a public entity if Government was not the major shareholder and it would have to be delisted. In the case of Infraco, the Broadband Infraco Act would have to be repealed if the whole company was sold. In both cases, the changes to the Acts had to be ratified by Parliament.

Mr Hendrickse said that Clause 9(7) required the State to hold 75% of the shares in Infraco while in Clause 8(8) the requirement was for the State to be the majority shareholder.

The Chairperson said that Clause 4(4) allowed for the privatisation of Infraco, which was the issue Mr Hendrickse was concerned about.

Ms Coetzee confirmed that Clause 4(4) dealt with the whole or partial disposal of the State’s shareholding. If a significant portion or the whole shareholding was sold off, the status of Infraco would change and it would no longer be a State-owned enterprise. Such a change must be approved by Parliament.

Mr Daniels referred the Committee to the Preamble and the Long Title of the Bill. Changes were made to the main object of Infraco (Clause 4) but the Preamble was not amended accordingly. Clause 9 allowed for the conversion of Infraco from a State-owned entity to a public company. Such a conversion may be in conflict with the objectives of the Bill and jeopardise the projects of national interest referred to in the Preamble. From a constitutional perspective, he suggested that the Preamble, Long Title and main object were revisited to ensure that there were no conflicting provisions in the Bill. He undertook to discuss the matter with the DPE and the DOC.

Ms Coetzee agreed to further discussions with the SLA and the DOC. She pointed out that the Companies Act required specific steps to be taken before an initial public offering (IPO) could be done. It was not the DPE’s intention to do an IPO but the provision to allow for the possible investment in Infraco by entities other than the State was given a much broader meaning than that intended by the Department. The key rationale for the clause was the additional corporate governance required of a public company as opposed to a private company. Many of the entities under the DPE were public companies, for example Eskom and Transnet. She did not agree that the conversion of a private company to a public company was automatically conflicting. There were no indications in the Bill that an IPO was intended, that some shareholding would be alienated and that the objectives would not be achieved by getting a strategic equity partner for five or ten percent of the shareholding. She said that the issue whether the objectives of Infraco could be achieved, if the company was disposed of, was raised in the discussions on Clause 4(4) and the Department had agreed to consider the concerns raised by the Members.

Mr Baloyi pointed out that there might be instances where it was necessary to sell assets for operational reasons. Subsidiaries may also be sold off without necessarily affecting the core operation. He did not agree that the intention was to privatise Infraco but it was necessary to make provision for future developments. He asked what mechanism could be put in place in the absence of the Shareholder Management Bill.

Mr Daniels suggested that the Bill be tidied up and the wording refined to ensure that the DPE and DOC were able to meet their objectives.

The Chairperson said that the provision allowed for opportunities to raise capital. The Committee was not opposed to the provision for the conversion of the company but wanted to see some accountability to Parliament should this occur. In the event that the company was converted, the objects of Infraco should be considered. The privatisation of Infraco was not an objective and he did not think that the conversion of the company should be included in the preamble. A change in ownership of the company must not be confused with conversion, and it was better if the State remained in control.

Ms Coetzee pointed out that the State could sell its shares without converting the company. The issue was more relevant to Clause 4(4) than to Clause 9. She noted the comments made in the meeting.

The Chairperson summarised the proceedings with regard to Clause 9:
Clause 9(1) - adopted partially
Clause 9(2) - adopted partially
Clause 9(3) - adopted partially
Clause 9(4) - adopted partially
Clause 9(5) - the cross-reference to the Companies Act to be checked
Clause 9(6) - adopted partially
Clause 9(7) - the cross-reference to the Companies Act to be checked

Mr Wang asked why the State was required to hold 75% of the shares and suggested that “per cent” should be “percent”

Ms Coetzee explained that it was a standard provision applicable to all State-owned enterprises.

Clause 10: Effect of conversion
Ms Coetzee explained the provisions of the clause to the Committee.

The Chairperson asked why Clause 10(c) was included as the provision was covered by the labour legislation.

Ms Coetzee explained that if the company was converted, there was no change in the ownership of the company. The clause did not conflict with the existing labour legislation.

Clause 10 was adopted by the Committee.

Clause 11: Regulations
Ms Coetzee explained the provisions of the clause to the Committee.

Clause 11 was adopted by the Committee.

Clause 12: Amendment of laws
Ms Coetzee understood that the policy will be discussed at a later stage. She explained the provisions of the clause to the Committee.

Mr Wang confirmed that the adoption of Clause 12 was postponed until after the policy was agreed.

Clause 13: Short title and commencement

Clause 13 was adopted by the Committee.

Definitions
Ms Coetzee requested that the definition of “wholesale” was not discussed at this stage as Clause 4(1) was to be revised. She suggested that a definition of “land” was not included.

Members accepted the remaining definitions, subject to technical corrections to references to section numbers resulting from any re-numbering of the clauses.

The Chairperson concluded the meeting by listing the outstanding issues that needed to be finalised before the Bill could be adopted.

The meeting was adjourned.