Question NW1868 to the Minister of Finance

Reply:

a (i) FINDINGS

The findings made by the National Treasury cover transgressions in terms of the Public Finance Management Act (PFMA) of 1999 and the Central Energy Fund Act (CEF Act) of 1997. In addition, the National Treasury found a number of procedural discrepancies in how the transaction was executed. It should be noted that these findings were communicated to the previous Minister of Energy (MoE) as well as to the current Minister of Energy, Ms Mmamoloko Kubayi. The findings in relation to Section 54 (d) of the PFMA, the CEF Act and various procedural discrepancies noted in the information provided to the National Treasury are as follows:

Section 54 (d) of the PFMA:

Section 54 notification in terms of the PFMA was required. Specifically, Section 54 (d) of the PFMA which deals with the acquisition or disposal of a significant asset. In determining the significance of the asset sold, direction was taken from the CEF group’s significance and materiality framework (SMF) for the period 1 April 2015 to March 2016. In terms of the group SMF, the SFF would have to report to the CEF Board for any transaction in excess of 2% of its total assets (i.e. R135 million), furthermore the CEF Board would have had to obtain approval from the MoE and notify the National Treasury for all transactions in excess of 5% of profit after tax or R713 million. The proceeds realised, even on an individual contract basis exceed the specified threshold. The National Treasury was not informed of the transaction.

Central Energy Fund Act of 1977:

Additional approvals are required in terms of the CEF Act. Section 1A(3A) of the CEF Act states that “There shall be paid into the Equalisation Fund, in addition to the moneys raised by means of a levy” (c) “the moneys obtained by CEF Proprietary Limited or the SFF Association from the sale of crude oil, petroleum products and products determined by the Minister of Mineral and Energy Affairs with the concurrence of the Minister of Finance”

Deviations permitted in terms of the CEF Act are:

• Moneys paid into the equalisation fund that are not immediately required may be invested. In terms of Section 1A(4(b)) moneys can be invested “in such a manner as the Minister of Mineral and Energy Affairs with the concurrence of the Minister of Finance may determine”; and

• In terms of Section 1A(5), the Minister of Mineral and Energy Affairs with the concurrence of the Minister of Finance determines that an amount paid in terms of 1A(3A)(c) shall be paid into the State Revenue Fund.

The proceeds of the sale of the crude stocks was paid into the Customer Foreign Currency Account (CFCA), an investment account, and not into the equalisation fund held by the Central Energy Fund. This was done without the concurrence of the Minister of Finance, the CEF Act makes no provision to regularise this after the fact.

Procedural Discrepancies

There are a number of procedural discrepancies in how the transaction was undertaken. Inter alia, it appears that there were conditions set by the Board of the SFF and the former Minister of Energy which do not appear to have been met, based on the information. Moreover, the authority of the Acting Chief Executive Officer (ACEO) (Sibusiso Gumede) of the SFF to execute the transactions (which appear to have been retrospectively approved by the SFF Board) needs to be verified. The National Treasury was not able to make categorical findings on the procedural discrepancies as it did appear that not all the information related to the transaction was provided to the National Treasury.

a (ii) RECOMMENDATIONS

The former Minister of Finance wrote to the former Minister of Energy with the following recommendations:

The matters are of concern and should be investigated by the Executive Authority. Specifically, section 83 (1)(a) of the PFMA states that “The accounting authority for a public entity commits an act of financial misconduct if that accounting authority wilfully or negligently fails to comply with a requirement of Section 50, 51, 52, 53, 54 or 55”. Section 83 (2) states that “If the accounting authority is a board or other body consisting of members, every member is individually and severally liable for any financial misconduct of the accounting authority”. Section 83 (4) further states that “Financial misconduct is a ground for dismissal or suspension of, or other sanction against, a member or person referred to in subsection (2) or (3) despite any other legislation”. Regulation 33 of the Treasury Regulations deals with financial misconduct.

Furthermore, the former Minister of Finance proposed that the SFF be instructed to submit a PFMA Section 54 (d) notification to the National Treasury and provide reasons for the oversight in the first instance. In addition that the entity pay the proceeds of the disposal into the equalisation fund as is legislatively required by 30 September 2016.

In the event that the proceeds of the sale were not immediately and were to be invested then in line with Section 1A(4b) of the CEF Act, then supporting information was to have been submitted to the Minister of Finance for his consideration.

No response was received.

Subsequent to this correspondence, Minister Kubayi was appointed as the Minister of Energy and correspondence was sent from the Minister of Finance stating the following:

In addition to restating the findings of the National Treasury communicated to the former Minister of Energy, the following was requested:

• According to a press statement issued by the former Minister of Energy in July 2016, a review was to be conducted on all contracts and transactions entered into in terms of a Ministerial Directive issued to the SFF. The review would include the transaction involving the disposal of the strategic stock and the leasing agreements entered into by the SFF. The statement further advised that any identified lapse in governance processes or irregular actions would be further investigated. These actions appear to be in line with the requirements of Section 83 of the PFMA.

• The proceeds from the sale has not been paid into the Equalisation Fund as is legislatively required and as per the initial correspondence. The deadline set by the former Minister of Finance of 30 September 2016 was not adhered to. In addition, there has been no communication regarding a proposal for the investment of the proceeds of the funds from the disposal.

• The Minister of Finance further requested an update of the current status of the review that was referred to in a press statement issued in July 2016 by the former Minister of Energy and the status of the proceeds from the sale. No response has been received.

b. The National Treasury was never requested to table its findings in parliament, but is willing to do so if requested. However, it should be noted that the Department of Energy is currently investigating the matter and the National Treasury has afforded the department the opportunity to respond to the findings of the National Treasury pending the outcome of its investigations.