Eskom Inquiry: Pension Fund hearing about Molefe R30 million payout

Public Enterprises

20 October 2017

Chairperson: Ms D Rantho (ANC)

Eskom Pension and Provident Fund 2
Eskom Pension and Provident Fund 1

Eskom Provident and Pension Fund (EPPF) submission on Retirement Payout: Brian Molefe
Transcript 20 October 2017
Public Protector State of Capture Report
Letter from Black First Land First: 19 October 2017
Letter from Black First Land First: 24 October 2017

Meeting Summary

The Eskom Pension and Provident Fund (EPPF) Chairperson and CEO appeared at the Eskom Inquiry to answer questions about the pension payout of the former Eskom CEO, Mr Brian Molefe.

The Chairperson said that the Committee needed to understand the circumstances under which the pension payment of Mr Brian Molefe were paid, and how the pension fund arrived at paying R30.1 million to a person who had only 16 months pensionable service.
Mr Sibusiso Luthuli said that in calculating the cost of the early retirement, actuarial factors which took into account, among other things were the CEO’s pensionable emoluments, length of service, early retirement penalties, age, gender and marital status. The associated costs amounted to R30.1m. The costs were invoiced to Eskom, and Eskom paid the costs to the Fund. Eskom bought 13 years of additional service for Mr Molefe since he was only 50 years old and they were retiring him at age 60. Penalties associated with early retirement were waived.
The calculation contemplated the following:
• Had Mr Molefe actually retired at the age of 63 years (with a start date of September 2015) he would have been entitled to pension calculated with reference to 172 months’ actual pensionable service;
• At the time of his retirement, Mr Molefe had approximately 16 months’ actual pensionable service;
• In order for the Fund to provide a benefit as if Mr Molefe had retired at the age of 63 years, Eskom had to purchase 156 months’ additional pensionable services; and 
• In order to fund Mr Molefe’s pension as if he had retired at the age of 63 years and had pensionable service of 172 months, it was necessary for Eskom to make payment to the Fund of an amount of R30.1m.

According to Mr Luthuli this was not the first time that Eskom had bought additional benefits for its employees. Members of the Committee raised a concern about the payout of executives who take early retirement and Eskom purchasing the years of service as a matter of common practice.

The Committee was of the view that the Fund should be privy to contracts of Eskom employees. If the Fund knew Mr Molefe was on a five-year fixed term contract, he would have not been a member of the Fund as his contract disqualified him to be a member. Only permanent employees of Eskom were eligible to join the Fund.

The Committee was of the view that the Fund’s ethical code of conduct required the Fund to raise concern and alarm bells in the purchasing of benefits if someone was being paid an amount of R30.1 million after serving less than two years at Eskom.

The Chairperson indicated that there was concern about the manner in which funds were being handled. The Fund was advised to re-look at the Rules and make necessary amendments.

Meeting report

Ms N Mazzone (DA) asked the Chairperson to deal with letter of intimidation that the Committee had received.

Members of the Committee supported the decision.

The Chairperson said that a letter was received from the Black First Land First (BLF) movement which asked the Committee to stop the inquiry as of 1pm on 19 October 2017 and if they did not, they would be taken to Court.

The Chairperson said that the letter was intimidating the Committee not to go forward with their inquiry and names of people were mentioned in the letter. The letter stated that the nature of the current inquiry was not clear.

Ms Mazzone said that she hated to give a letter of this ludicrous nature oxygen but she had to. There was lack of understanding of the Constitution and what the oversight role of Parliament was. BLF should take whatever action they wanted to. It was a poor attempt of intimidation.

Dr Z Luyenge (ANC) said that the Committee was an extension of Parliament and had an obligation to listen to anyone who wanted to share information to Parliament. If the author of the letter had broader information on state capture they should submit it to the Committee so as to feel included in the process. 
Mr S Swart (ACDP) said that the Committee would not allow anyone to intimidate them. The Committee had a constitutional obligation and this was an oversight inquiry. And that any death threat against a witness or the Committee was a threat against Parliament and they would take those threats very seriously.

Mr F Shivambu (EFF) said that he did not know why the Committee was entertaining the Gupta militia of BLF.

Mr Shivambu said that the same issues raised by Minister Brown were also raised by BLF, and that “those people were trying to stop the work of the Committee”. The Committee would be proceeding with their inquiry.

The Chairperson asked the Committee if she should respond to the letter or not.

Dr Luyenge said that it would be professional and human to acknowledge receipt of the letter and that the contents of the letter did not make her feel that she had to do what was instructed.

Mr Swart said that it was important to deal with the letter because it would form an annexure of the Committee.

Mr Shivambu said that the Chairperson should respond that “the Committee has seen the letter and would not stop the process!” He urged BLF to “bring it on!”

Eskom Pension and Provident Fund 
The Chairperson read the oath to Ms Manthuka Maisela, Chairperson: Eskom Pension and Provident Fund (EPPF). She raised her right hand took the oath that she would tell the truth before the Committee.

The Chairperson read the oath to Mr Sibusiso Luthuli, EPPF Chief Executive and Principal Officer, who also took the oath.

Adv Ntuthuzelo Vanara, Evidence Leader, said that EPPF was present before the Committee to help the Committee understand the circumstances that led to a pension payout of R30 million to Mr Brian Molefe.

Adv Vanara asked Mr Luthuli take the Committee through the governance structure and everything they knew about the process taken in paying Mr Molefe.

The Chairperson said that the presenters needed to take the Committee through the process taken in determining that a person who worked for less than 18 months would be paid R30 million.

Mr Luthuli said that EPPF was a defined benefit pension fund as contemplated in the Pensions Act and as such it was regulated by the Financial Services Board (FSB). The Board of Trustees comprised of seven board members appointed by the principal employer, Eskom SOC Holdings Limited, two board members elected by pensioners, two board members elected by non-unionised in-service members, and three board members elected by unionised in-service members belonging to trade unions: National Union of Mineworkers (NUM), National Union of Metalworkers of South Africa (NUMSA), and Solidarity.

The day-to-day management of the EPPF is delegated by the Board of Trustees to the Executive Management, which is led by the Chief Executive, who is also the Principal Officer of the EPPF. The Fund is restricted to eligible members only, and participation is also limited. Only Eskom employees and subsidiaries could participate in the EPPF. The EPPF employees are also eligible to join the Fund.

Eligibility criteria had to be applied which required that a member was not more than 65 years old and must be employed by one of the participating employers of Eskom, and must be a permanent employee. The Fund managed in excess of R133 billion worth of assets for its members. As of 30 June 2017, the Fund had 85 000 members of which 46 900 were active contributors, and the balance being made up of pensioners, deferred members, and beneficiaries. A hybrid model was applied in which some of the assets were managed by the Fund and others were allocated to external asset managers where they did not have requisite skills to manage the asset themselves.

The relationship between the employers and the Fund was one of good faith that had been established over a number of years. The Fund depended on the employer in many instances, given that the employer was the interface between the Fund and its members. The information that is required by the Fund for operation was in most instances held by the employer. The Fund is not able to independently ascertain whether an employee is on permanent or fixed term contract at Eskom. The Fund therefore relied on a relationship of trust from the employer.

On a monthly basis, the Fund received certain information from the employer (Eskom). There were three files received; a Leg file, a Pay file, and a Res file. The Leg file contained personal information of the new employee, the employment position of the employee whether executive or not, and salary information. The Fund would then use that information to determine who was permanently employed and who was not. The Pay file contained payment information for each member and how much was being paid. The Res file contained information of all members exiting the Fund that particular month. EPPF did not have the source document as they relied on Eskom as the employer. EPPF was checking for accuracy and if the information they expected to be there was indeed there.

As a fund, EPPF expected that Eskom would know the rules since they had regular engagements and defined rule amendments for the Fund. Eskom also requested information from the Fund relevant to various rules which made them aware that Eskom knew what the rules were.

Mr Luthuli said that when a member exited, they relied on Eskom to inform them that the reasons a member gave for leaving the Fund were accurate.

Mr Luthuli said that a member could exit through Rule 18, 22, 23, 24 and 28.

Rule 28 dealt with the retirement of a member that had not reached the age of 65. A member could be retired from service owing to a reduction of staff, or the abolition of his office or post, in order to facilitate improvements in his office or post, or in order to facilitate improvements in efficiency or organisation or to retrenchment generally. Rule 28(3) dealt with the member who attained the age of 50 or 45 and was not employed for more than 10 years pensionable service.

Adv Vanara: Take the Committee through the different ways of exiting the Fund.

Mr Luthuli: One could either resign from the employer, transfer to another fund, or take the pension as cash. One could also exit the Fund upon death where then the board calculates the benefit and distributes it to the persons beneficiaries including spouse and children. One could also retire and exit the Fund. There was also ill health benefit where if one was unfit for duty they would be medically boarded and entitling the person to exit the Fund.

Adv Vanara: Can you proceed with the Molefe issue?

Mr Luthuli: It is common knowledge that Mr Molefe worked at Transnet and then moved to Eskom and acted as CEO for a number of months. Mr Molefe joined the Fund on 14 September 2015. When Mr Molefe exited the Fund, he cited his employment start date as 25 September 2015, while his contract cited 1 October 2015. Mr Molefe was appointed at Eskom effective 1 October 2015, but the Fund did not have sight of Mr Molefe’s contract until 24 May 2017 through court papers received during the course of litigation. Eskom relayed to the Fund by way of Leg file that Mr Molefe’s effective date of employment was 14 September 2015, and this date was used by the Fund for purposes of his membership date, given that they had received money from that date onwards

One important thing on the Leg file was a code “PPX” which meant that the employee is a permanent Executive in the F-band. Subsequently, the Fund had no need to test Mr Molefe’s purported permanent employment given Eskom’s knowledge of the rules, the coding provided by Eskom, and established practice between the Fund and Eskom.

Given that Mr Molefe was employed at Transnet prior to joining Eskom, he wished to transfer his pension from the Transnet Pension Fund (TPF) to EPPF. Given that Mr Molefe was an Executive, a Client Manager, Mr Solly Ntsibande, was assigned to Mr Molefe membership.

A request was received from a Mr Anton Minnaar, who was the Executive Remuneration Manager at Eskom. A meeting was held on 29 September 2015 at Eskom’s Megawatt Park between Mr Minnaar, Mr Molefe, and Mr Ntsibande. The agenda of the meeting was to discuss if Mr Molefe’s TPF benefits of roughly R4.2 million could be transferred to EPPF. In addition, he sought to understand the benefits that would be available to him at the Fund.
On 10 November 2015, Minnaar requested calculations for Mr Molefe’s overall pension payments and early retirement costs in the event that he were to retire at age 54 and Eskom waived the penalties for such early retirement. In response, Mr Ntsibande informed Eskom that at age 54, Mr Molefe would only have had five years’ service and Eskom would then be required to purchase additional pensionable service of five years to make up the minimum 10 years’ service required for early retirement. The Fund provided this information on the basis that Rule 28(3) would apply subject to Mr Molefe having a minimum of 10 years pensionable service at Eskom. It was not unusual for Eskom to seek benefit information relevant to its employees. The Fund provided the calculation in line with Rule 28(3) as that is the only Rule which permits a member to retire from service prior to reaching age 55.

Calculations were based on the assumption that Mr Molefe’s wife would be five years younger than him. The actual age of the spouse would impact the calculation. A much younger spouse would result in an increased cost. The fund also advised that the figures were based on the salary as at the date of calculation and would change over time in the years to come.

On 18 November 2015, Eskom requested further calculations for an early retirement by Mr Molefe factoring in a 6.5% year on year salary increase based on a retirement age of 63 years. The early retirement calculations suggested that a cost of R15.3 million relevant to age 55, and R25.7 million for retirement at age 63. The Fund did not interrogate the need for the calculations as such information has no impact on the operations of the Fund as Eskom makes payment for any amounts required for the purchase of additional pensionable services.

In the period 8 December 2015 to 21 December 2015, Mr Minnaar requested various updates and clarifications in relation to the early retirement cost calculations made by the Fund on 10 December 2015 as shown in Annexure W. Mr Minnaar indicated that the information was required to finalise the “issue with the Minister”. No further communication was received relevant to calculation of benefits for Mr Molefe until closer to the date of his termination.

On 18 August 2016, Eskom requested calculations via email for the early retirement costs if Mr Molefe were to retire at age 50, with penalties waived and additional years of services bought up to age 63. The email also mentioned Mr Molefe’s member number and made enquiries into the costs of penalties, additional service costs, and monthly pension. The email indicated that Eskom intended to retire Mr Molefe under Rule 28 given his age, and to purchase additional service for Mr Molefe under Rule 21(4).

On 22 August 2016, the Fund responded with calculations and advised that the total cost to Eskom business unit would be an estimated R25.9 million. This calculation was again based on the assumption that Mr Molefe’s spouse was five years younger than him, which at the time he had married a spouse more than five years younger. The calculation was done using the following member variables; an exit date of 31 December 2016; Mr Molefe’s final average emoluments; Mr Molefe’s actual service as at the exit date would be a period of 15 months; and potential service till age 63 years being 156 months. At the time of exit, Mr Molefe was 5 years, meaning Eskom would be purchasing an additional 13 years of service to push him to age 63.

On 16 November 2016 a meeting was requested telephonically by Mr Minnaar to discuss the possible exit of Mr Molefe from Eskom, the effect of Mr Molefe’s divorce, along with the documentation and administration process that would need to be followed if an exit were to occur. Mr Joey Sankar, EPPF Retirement and Fund Operations Manager, notified Mr Luthuli that Eskom had made enquiries relevant to the cost of retiring Mr Molefe under Rule 28 with purchase of additional pensionable service under Rule 21(4). I was advised at this stage that the figure was in the region of R26 million. I had no further involvement in the matter until after Mr Molefe was retired and received his benefit from the Fund.

On 19 December 2015, a meeting was held with Ms Merinda Botha, Eskom Human Resource Officer, for the collection of documents needed for Mr Molefe’s early retirement. On 20 December 2015, the Fund received a letter dated 24 November 2015 and addressed to Mr Molefe. The letter accompanied the completed retirement exit form. The Chairman of the Eskom board, Dr Ben Ngubane in the letter said that “Mr Molefe’s application for early retirement has been approved in terms of Rule 28 and 21(4) of the Fund Rules”. The letter further stated that “penalties will be waivered and potential service to age 63 is granted to Mr Molefe”. This pushed the benefit package plus costs involved to R30.1 million. The letter is further evidence that Eskom had knowledge of the application of the relevant Rules.

Exit forms were processed through normal procedure. The form was allocated to a Fund Benefits Administrator. The Fund tested that the following exit criteria had been met in order for the claim to be processed: member exit date and age; signed application form along with approval from the employer; and all static information is as captured at the capturing stage.

Verification of Mr Molefe’s details and relevant calculations were done by the Fund Benefits Supervisor and checked against the exit criteria along with the documentation required. In the case of Mr Molefe, he had voluntary contributions that he transferred from TPF, and a manual tax directive was submitted. On receipt of the tax directive, the Fund activated the claim with the necessary tax deduction. Subsequent to being satisfied that the benefit could be paid, a number of further administration steps occurred, including but not limited to uploading Mr Molefe’s banking details and effecting deductions to the payments. In the course of the verification and administration process, the Fund identified that the start date recorded on the exit form, of 25 September 2015 differed from the date on the Fund’s data system, 14 September 2015. The Fund determined that this discrepancy was immaterial as the Fund had received a full contribution for September 2015.

In calculation the cost of the early retirement, actuarial factors which took into account, inter alia, the CEO's pensionable emoluments, length of service, early retirement penalties, age, gender, and marital status were considered. The associated costs amounted to R30.1 million, which costs were invoiced to Eskom and which costs Eskom paid to the Fund on 23 March 2017, and not to Mr Molefe as reported in the media.

Chairperson: Be specific about the amounts.

Mr Luthuli: The calculation contemplated the following:
• Had Mr Molefe actually retired at the age of 63 years (with a start date of September 2015) he would have been entitled to pension calculated with reference to 172 months’ actual pensionable service;
• At the time of his retirement, Mr Molefe had approximately 16 months’ actual pensionable service;
• In order for the Fund to provide a benefit as if Mr Molefe had retired at the age of 63 years, Eskom had to purchase 156 months’ additional pensionable services; and 
• In order to fund Mr Molefe’s pension as if he had retired at the age of 63 years and had pensionable service of 172 months, it was necessary for Eskom to make payment to the Fund of an amount of R30.1m.

In effect, Mr Molefe’s benefit from the Fund constituted the sum of his benefit transferred from TPF; the actual contributions received up to 31 December 2016; and the amount paid by Eskom for the additional pensionable service. After the relevant deductions were applied to the total amount, Mr Molefe requested to be paid one third as a cash lump sum and the balance (two thirds) to remain in the Fund in order to provide for Mr Molefe’s monthly pension payments. A gross amount of R9.7 million was paid to Mr Molefe on 1 February 2017. With effect from 1 January 2017 until 1 May 2017, he was receiving a gross monthly pension of R111 866.17 in terms of the Rules.

Adv Vanara: Mr Molefe was not personally involved in the transaction, and that this discussion was between Eskom and the Fund?

Mr Luthuli: The process was initiated by the employer, Eskom. The Fund did not know what decisions or what informed the decision. We followed the instruction of the letter, which instructed us to apply Rule 21(4) and Rule 28. Rule 21(4) bought Mr Molefe 13 year’s pensionable service, which applied him to Rule 28.

Adv Vanara: Was Mr Molefe the one writing to the Fund that he was buying himself 156 months?

Mr Luthuli: No. The letter came from Dr Ngubane.

Mr Luthuli: When Mr Molefe retired, Eskom paid the Fund R30.1 million, and not Mr Molefe as was purported by media reports.

The Fund invoiced Eskom R30.1 million after calculations were done and costs recovered. On 16 April the Sunday Times published that R30.1 million was paid to Mr Molefe. After reading this I phone Mr Sankar to confirm that the Fund had never paid R30.1 million which he then confirmed had never been paid. The R30.1 million was money paid to the Fund, and not Mr Molefe. The money Mr Molefe had accumulated was around R25 million and roughly R5 million were fees payable to the Fund.

Mr Molefe’s additional benefits from TPF and accumulated interest amounted to R5.2 million, of which one third or R1.7 million was paid as cash to Mr Molefe. A tax directive was applied on the R1.7m. Mr Molefe received a combination amount of R9.7 million. With tax, the amount Mr Molefe received was R7.9 million. The two thirds Mr Molefe left in the Fund bought him his monthly pension. He had a statutory amount of R95 000 and also had additional pension from his transferred TPF money of R15 700. The gross pension Mr Molefe would be receiving every month was R111 866.17

Subsequent to Mr Molefe becoming a pensioner, the Fund became aware of potential issues with Mr Molefe’s pension payments on 16 April 2017 when a Sunday Times article was published stating that Eskom paid Mr Molefe R30.1 million. I was under the impression that the cost of the additional pensionable service was in the region of R26 million. I then made inquiries with Mr Sankar, Fund Operations Manager, since he would have had the final sign off on Mr Molefe’s retirement, and as such had relevant knowledge. Mr Sankar confirmed that the R30 million was a correct reference and that the process was handled in terms of the Rules. Mr Sankar advised that the difference in figures had resulted because Mr Molefe's wife was much younger than the initial assumption of her being only five years younger than Mr Molefe. Mr Sankar further confirmed that Mr Molefe was only paid out a third of his benefit as a cash lump sum according to the Rules and legislation. I then phoned the EPPF Board Chairperson and alerted her to the contents of the article.

Mr Molefe’s retirement including the purchase of the additional pensionable service was a permitted transaction under the Rules. The board followed the media reports which indicated that Mr Molefe’s retirement had not been approved by the Minister of Public Enterprises; and Mr Molefe resumed his position as CEO of Eskom with effect from 15 May 2017 and was subsequently terminated from the Fund.

On 20 April 2017, a meeting was requested by Mr Minnaar with the Fund. Mr Ntsibande attended the meeting, and upon arrival he found that the meeting was attended by Mr Minnaar, as well as Eskom legal representative, Mr Adil Patel of Cliffe Dekker Hofmeyr, and Ms Veneta Klein, Eskom Chairperson of People and Governance. Mr Ntsibande was uncomfortable with being in a meeting with Eskom legal representatives without a Fund executive member present. Subsequent to that meeting the Fund took the decision that all future correspondence relevant to the Molefe matter would be handled through the Office of Fund Chief Executive.

On 2 May 2017 a meeting was requested by Ms Theresa Michaels from the Eskom Office of the CFO between the Fund and the SizweNtsalubaGobodo (SNG) auditors to provide an overview of the early retirement cost calculation. Mr Sankar, Mr Diego Vitale, Mr Ntsibande, and Mr Nkanyiso Ngobese from SNG were present. No further correspondence or inquiries were received from SNG after that meeting and the Fund took this to mean that SNG was satisfied with the explanation of the cost calculation.

On 3 May 2017, Ms Suzanne Daniels, Eskom Group Company Secretary, requested details on the amounts that had been paid to Mr Molefe and process to be followed in the event that the transactions were reversed. The Fund responded on 5 May 2017 after consulting legal advice and advised that the Fund did not reverse claims as the member would have elected his exit type and this would be ratified by the employer; and a high level process could be considered by the Fund in the event of a refund being considered.

On 10 May 2017, Ms Michaels sent a further letter to me requesting access to information for review by Ernst & Young (EY). The letter was signed by Eskom CFO, Mr Anoj Singh. EY was satisfied that the Fund had nothing to do with leaking information to the media.

On 10 May 2017, Ms Daniels sent an email instructing the Fund to desist from paying Mr Molefe his monthly pension until further notice. On 12 May 2017 I responded that Mr Molefe was a pensioner and requested reasons why Mr Molefe’s pension should be stopped, and that the Fund had acted in accordance with the confirmation provided by the Eskom Board Chairman, Dr Ngubane, in which confirmation referenced the applicablerRules. The letter I sent also advised that the Fund did not and was not a participant in Eskom’s decision making processes and negotiations with employees.

Subsequently Mr Molefe was reinstated on 15 May 2017, and the Fund received a letter that he was re-employed at Eskom and indicated that the period that he had left up until re-employment would be taken as unpaid leave and that they should stop paying the pension. We then confirmed that we had stopped paying the pension but asked Eskom to clarify what the position of Mr Molefe was so that they could look at the Fund Rules and determine how to treat this.

From a governance point of view, at the Benefits Committee meeting, the Board Committee asked the Fund’s management to explain what had happened, and the team explained the circumstances, what transpired and presented all the facts. Similar questions were asked in the Investment Board Committee, and again management explained. On 16 May 2017 the Legal and Governance Board Committee held a meeting and management presented on boarding Mr Molefe as well as all the correspondence, and how they arrived at paying the benefit. As far as management was concerned, they followed all the Rules and there were delegations in place. The Legal and Governance Board Committee requested that the Fund seek independent legal advice from the Fund's point of view to make sure that they followed all the correct processes, rules, and delegations that were in place. Immediately after the meeting, our legal advisors, Norton Rose, looked through what the Fund had done and whether Rule 28 was applicable or not. The EPPF Board of Trustees then held a special board meeting where the attorneys of the Fund could present their opinion of whether the correct rules had been applicable or not. The legal opinion received was that Rule 28(1) read with Rule 28(3) qualified Mr Molefe to be retired from the Fund. And Rule 21(4) was properly followed in permitting the employer to buy additional service.

What was then raised by Norton Rose was that Rule 28(3) does indicate “this should be done at the discretion of the board” and stated that this should have been presented to the EPPF Board of Trustees to apply its discretion. By virtue of it not being presented to the board it meant that this retirement was actually “ultra vires”. Subsequent to this opinion, we presented the delegation in place to the attorneys in light of what had happened. There was a specific delegation that was long standing where the board had delegated even issues of discretion to management. Legal advisors responded that it was well and good that when the board effected that transaction you rightfully believed that this was delegated to management because there was proper delegation from the board. The board in the first should never have delegated discretion to management. Discretion should have been exercised by the board. The next question was whether the transaction could be undone. The advice was that it could not be undone. A court order would be required to undo the transaction. The board immediately corrected the decision that all issues involving discretion in the rules delegated to management must from that point on be presented to the board.

Two issues arose in the media. The one questioned the eligibility of Mr Molefe to join the Fund since he was on a five year fixed term contract, and according to the Rules of the Fund, he should not have been a member in the first instance. When we discovered this, we sought legal advice. The second issue was on tax directives given by SARS. Given the fact that there were eligibility rules which stated that “you must be permanently employed” if Mr Molefe was on a five year fixed term contract he should never have been a member in the first place. The Fund relied on information it received from Eskom. In the past all the other CEOs were permanent employees, and Eskom had indicated that Mr Molefe was permanently employed. The Fund had no reason not to trust the information from Eskom. We followed up on the issue of tax, and when we had completed the application for tax from Mr Molefe there was a box to tick and insert the amount of additional contributions that the member has made. The amount was R4.2 million from TPF. This amount was categorised as additional voluntary contribution. The information was submitted to SARS for verification whether the additional voluntary contribution had been taxed. It turned out that the amount had not been taxed prior to being transferred to the Fund. The advice went on further to say that…

Ms G Nobanda (ANC): Can you rewind a bit on the amount he got from Transnet and the tax calculation?

Mr Luthuli: When the amount came to the Fund, it was categorised as an additional voluntary contribution. When you submit for tax directive from SARS, you have to do a manual submission and indicate that there was voluntary contribution categorised as an additional voluntary contribution. When SARS did the directive, they did not deduct tax from that amount. The Fund sought legal advice and again was in the process of engaging with SARS so that going forward we can have clarity on how to disclose those amounts so that they are properly categorised.

Parallel to these happenings, there is a court case ongoing instituted by Solidarity. The Fund was cited as one of the respondents. Solidarity was saying that this whole reinstatement must be reversed. Based on legal advice, the Fund filed an answering affidavit. At the time, we had not dealt with the issue of eligibility. We were still under the view that Mr Molefe was eligible. The affidavit requested the Court to decide on the matter, and if it decided that the transaction must be reversed, then the Court would need to give an order that Mr Molefe must pay back to the Fund all the amounts he had received. The Fund also asked the Court to give an order because Eskom had requested that the Fund must pay back the R30.1 million which was paid to them. The Fund indicated that in terms of the Rules, there was no Rule which allowed the Fund to pay back the money to Eskom. The Fund the requested the Court to also give an order that if the transaction is reversed, then the Fund could pay back the R30.1 million after recovering what had been paid to Mr Molefe.

Subsequent to that, the issue of eligibility arose and the Fund was advised that Mr Molefe should not have been a member in the first instance. The Fund filed subsequent answering affidavits where it indicated its position that Mr Molefe should not have been a member and thus this transaction should be null and void. We have proactively engaged with the FSB and updated them on what had transpired. The FSB requested documents and evidence which was then presented to them, and we have kept them up to date and informed about developments.

Questions by Evidence Leader
Adv Vanara: Did the EPPF receive any correspondence from the Eskom board or any officials subsequent to the initiation of these proceedings here in Parliament regarding an offer of legal representation?

Mr Luthuli: Eskom did write to the Fund when the process of the Inquiry came up, indicating that the Fund had been cited as a witness, and Eskom would be willing to pay legal fees if there were any legal fees incurred by the Fund in preparing its legal evidence.

Adv Vanara: Was there any condition attached to that provision of legal assistance?

Mr Luthuli: It said that it should be reasonable legal fees, and the Board of Trustees chairperson responded that “EPPF would not be taking up the offer from Eskom because it was concerned about issues of conflict”.

Chairperson: Is it lawful, Adv Vanara, for Members of Parliament to get that letter?

Adv Vanara: Yes, it is lawful. I am not sure if the EPPF has submitted the letter.

Mr Luthuli: Yes, the letter is included as part of the bundle of evidence submitted. I will reference it.

Adv Vanara: Read the letter for the record please.

Mr Luthuli: The letter is dated 12 September 2017 and is addressed to myself. It is from the interim Acting Chairperson of Eskom, Ms Suzanne Daniels. The Heading says “Follow-up letter – Parliamentary Inquiry”. In the letter Eskom mentioned that they did not receive response to letter they sent to the Portfolio Committee on Public Enterprises requesting clarity on the inquiry and that on 7 July 2017, the Committee requested that Eskom submit certain documents for the inquiry and we duly complied. The letter also stated that “You are reminded that you have a right to your own legal counsel during this process. Eskom is agreeable to paying your reasonable legal fees connected with the inquiry. However this is subject to Eskom obtaining the necessary written consent from its insurers in this regard. You should also note that in terms of Eskom management and liability insurance policy, the insurer who will be paying your legal fees connected with the parliamentary inquiry is entitled to recover those fees from you in the event that it is finally established in due course by judicial or arbitral tribunal that you have either gained a profit or advantage to which you were not legally entitled to and or that you committed a deliberately dishonest or fraudulent act. We note correspondence from certain witnesses, and we will be addressing your request with urgency.
Adv Vanara: What was your response to the letter?

Ms Maisela: The response reads, “We refer to your letter dated 25 July in which you make the following offer to the Fund; “You are reminded that you have a right to your own legal counsel during this process. Eskom is agreeable to paying your reasonable legal fees connected with the inquiry. However this is subject to Eskom obtaining the necessary written consent from its insurers in this regard.” I responded that “We appreciate your consideration regarding the payment of the Funds legal fees especially in the light of the Fund being in a difficult position of incurring such fees in an instance which is not of its making. At the current time, the Fund is not in a position to accept the offer as it does not wish to be placed in position of a potential conflict of interest”.

Adv Vanara: Your response seems to suggest that you saw a potential conflict of interest if you chose to accept the offer from Eskom. Correct?

Ms Maisela: Yes.

Adv Vanara: Eligibility. This morning we got a two hour presentation of everything that happened. Are we agreeable that all that was said in that two hours would not have happened if the issue of eligibility was sorted out correctly? In other words, If the Fund knew from day one that Mr Molefe was on a contract disqualifying him from being a member of the Fund, none of the painful exercise you went through would have happened?

Mr Luthuli: As indicated, we do place reliance on the information provided to us. It is our understanding that Eskom is well aware of the Rules. We have had various interactions with Eskom indicating what should be in the information they provide to us, and I also indicated that we do not have access to information pertaining to the contract itself. Had this issue been brought to the attention of the Fund at inception, we would have avoided this entire process.

Adv Vanara: Do I understand your entire presentation to be saying that if Eskom did not give you a form with “PPX” in the Leg file which suggested to you that Mr Molefe was a permanent executive at Eskom.

Mr Luthuli: That is correct.

Adv Vanara: In other words, you acted in good faith after an impression was created to you by Eskom that Mr Molefe was a permanent employee, is that correct?

Mr Luthuli: That is correct.

Adv Vanara: We know now today that such representations were not correct.

Mr Luthuli: The Fund had subsequently received legal opinion to the issue, and the legal opinion suggested that Mr Molefe should not have been member of the Fund in the first instance. There is a court process that I mentioned earlier that the Fund has submitted an answering affidavit to present their position. We can only wait for the outcome of that court process to then confirm the legal view presented to the Fund and that it is 100% correct.

Adv Vanara: No Mr Luthuli, I am asking a very simple question. Someone came to the pension fund and said Mr Molefe is a permanent employee. That is your testimony before this Committee. You have said that the facts have revealed that he had a five year contract of employment and you came to the conclusion that had you known that before, he would never have been a member of your Fund.

Mr Luthuli: Yes, that is correct.

Adv Vanara: In other words, Eskom misrepresented the facts to your pension fund.

Mr Luthuli: I am not sure about misrepresenting, but they provided us information that indicated that he was a permanent employee and we acted on that information.

Adv Vanara: And because of that transaction, somebody stood to benefit R30.1 million?

Mr Luthuli: By categorising him as a member and applying for the particular Rule invoking the particular Rules, there was a cost of R30.1 million that was payable for the cost of Mr Molefe.

Adv Vanara: I accept that your rules do allow that an employer could purchase additional service for its members; but that you would be concerned that your pension fund does not become a conduit of paying moneys to individuals that has been stolen. Is that a correct assessment?

Mr Luthuli: We work on facts. We received an application from the employer and Mr Molefe, and in that application it indicated which Rules needed to be applied, that he was going to be retired. It was attached with an official letter from Dr Ngubane. And Eskom had applied these Rules before, so from the Fund's point of view at that point in time, there was no reason for us to question the bona fides of the employer. We acted on factual information, checked the Rules, made sure that the rules are applicable and followed them. Had any of this not been in line with the Rules, we would not have processed the transaction.

Adv Vanara: Do you agree with me that you cannot allow your pension fund to be a conduit of siphoning money from somewhere and channelled through your pension fund to certain individuals?

Mr Luthuli: That is correct that we would never allow the Fund to be used as a conduit.

Adv Vanara: An individual gets to be employed for two months by one of your contributing employers, and you get a letter from that employer to purchase 156 months of years not worked, does that not send shock waves to your Fund?

Mr Luthuli: From the Fund's point of view we have to look at the Rules and compliance to the Rules. According to the Rules, the Rules do allow the employer to purchase additional service. And it was not the first time that Eskom had invoked such Rules. From the Fund's point of view, there was no reason to be concerned at that point in time because this complied with the rules.
Adv Vanara: Does your Rules have any cap on the amount of years of service to be purchased?

Mr Luthuli: The Rules do not have a cap. The employer can purchase additional service.

Adv Vanara: If I get a job tomorrow at Eskom and the board loves me and I work for three months, they can buy me 30 years of service.

Mr Luthuli: The Rules do allow for this. There is the issue of age 65, that you have to retire. If they do buy additional service for a member it would go up to age 65.

Adv Vanara: I am a 30 year old, recently employed by Eskom, I work for less than a year, in terms of your Rules, and Eskom loves me so much that I want to leave within a year, they buy me 30 years of additional service. In terms of your Rules, that is permissible and there is nothing wrong with that?

Mr Luthuli: It is permissible.

Adv Vanara: I understand that is what the Rules say, but do you see anything wrong with that?

Mr Luthuli: From the Fund's point of view, we would look at the costs of that. We do not know what informs the decision of the employer. We do not know the relationship that the employer and employee have formulated, so we would act on instructions and make sure that from a financial point of view, according to the Rules, calculate what those costs would be and then the employer would have to pay the cost of those benefits to make sure that the Fund is financially protected.

Adv Vanara: In hindsight, do you think that you perhaps need to amend your Rules to put a cap on this Rule that allows a free for all?

Mr Luthuli: In hindsight, probably there are certain learnings from this entire process. As soon as certain information became available to the board, they took corrective action. One of the things the board was looking at was also revisiting the rules because whilst they have been updated, the basis of the Rules were crafted some many years ago. That was a process that needed to be negotiated with all stakeholders. It is difficult to indicate what the outcome of that process is but we will definitely take the learnings from of this process and ensure that we look at all the Rules we have and see if there is any improvement that can be entered into the rules.

Adv Vanara: So sitting there today you do not see anything wrong with the Rule that allows for the unlimited purchase of additional service?

Mr Luthuli: The Rules are binding. As a Fund we can only act on what the Rules say. As indicated there are some learnings out of this process that we are going to look into as a Fund and engage with the relevant stakeholders.

Adv Vanara: The tax directive. Was it the first time that you ever dealt with a similar instance where you appear to have had confusion in determining whether money transferred from Transnet could have been taxed or not. It seems to have been a simple exercise. Why were there complications?

Mr Luthuli: This was not the first time that we were dealing with money transferred from another pension fund. The way that Mr Molefe’s tax annual form was completed is consistent with how we have completed all other additional voluntary contributions for retiring employees.

Adv Vanara: I am worried about this open ended Rule of yours and you do not seem to be committed as the Fund to fix the leaking hole. It is correct that you are acting in terms of the Rules, but those Rules can equally be amended. Is that not so?

Ms Maisela: I do recognise your concern. This situation is a unique situation. In the past, the Fund had applied the Rules were people were over 50 and there was at least 10 years pensionable service. It was straightforward. The delegation that we indicated earlier on delegated administration together with the discretion to management. Perhaps if that authority of delegation was not given to management, and the board had signed off on this particular instance which is unique and unusual, the board would have applied its mind in interrogating whether the Rules of uncapped additional service can be applied. As Mr Luthuli said, they worked in line the Rules, and they cannot violate the Rules because the Rules are approved and monitored by the FSB, and we are occasionally audited on whether we comply with the Rules. Going forward, no such transaction will be implemented unless the discretion of the board has been taken into consideration. As a board we have decided that we are going to revisit the Rules, and we are also going to ensure that discretion is not delegated. All decisions will come back to the board and we will make a ruling.

General questioning by Committee members 
Mr E Marais (DA): Is it correct to say that the employment information you receive from Eskom comes from the Human Resource department of Eskom, so it should be a very senior person that signs off information given to you as the Fund to declare the code that should be filled in?

Mr Luthuli: It would be difficult to speak on who signs off information from Eskom. The information is received electronically. We have engaged with Eskom around the code to ensure they understand what information should be contained in the file.

Mr Marais: Who is the person at Eskom sending information to the Fund?

Mr Luthuli: I do not have the specific name but we will go back and check, and do a further submission to identify the individual.

Mr Marais: Was Mr Minnaar the first person you engaged with when they were requesting calculations?

Mr Luthuli: Yes, Mr Anton Minnaar.

Mr Marais: And what is his position at Eskom?

Mr Luthuli: He is the Executive Remuneration Manager at Eskom.

Mr Marais: As an Executive, he should have known that the CEO was either a permanent employee or on a five year contract? He should have known. Am I correct?

Mr Luthuli: That is correct. He should have known whether the CEO was permanent or on a contract.

Mr Marais: When the negotiations first started with these calculations, it should have come to light that a person is not a permanent employee and the whole thing would have stopped there, I suppose?

Mr Luthuli: Had we been aware that he was not a permanent employee at that point, we would have indicated to them that he cannot be a member of the Fund.

Mr Marais: That is very disturbing for me that a board can make a decision to pay R30.1 million on behalf of a person. On what basis can the board make that call, and if they make that call, they can it on behalf of other Executives that call for early retirement. It is also strange that a letter came saying that Mr Molefe was in unpaid leave because I am sure I saw him here in Parliament and he was sworn in as a Member of Parliament. How could you be employed at two places simultaneously? I am just making a remark. It is not applicable to you sir.

Mr Marais: On the R4.2 million transferred to you from Transnet, there was no tax paid on that. You could have actually paid the full amount to the pension fund if you don’t take anything. Was it the implication when you filled in that form that there could have been tax already subtracted or not?

Mr Luthuli: When we received the R4.2 million, as a Fund we do not know whether tax has been paid or not. We get an ROT (Recognition of Transfer). The transferring fund being Transnet in this instance has the responsibility to submit to SARS and make sure they receive the tax clearance. When we receive the money we do not know whether there is money deducted as tax or whether these are additional voluntary contributions contributed after tax. Hence in our completing of the form we have to highlight this amount to SARS because SARS has more records than us. That is for SARS to assess whether there was any tax deducted or not on the amount.

Mr Marais: Do you know how many years of service Mr Molefe had at Transnet?

Mr Luthuli: I do not know.

Mr Marais: The point I want to make is that if R4.2 million was transferred and the years of service at Transnet was like 11, 8 or 7, then some doubt the reason when buying years of service. It is rather an expensive lesson that the Fund is learning in this case.

Dr Luyenge: When did you become CEO of EPPF?

Mr Luthuli: In April 2010.

Dr Luyenge: How long have you been managing the Eskom Fund?

Mr Luthuli: it is almost eight years.

Dr Luyenge: Does EPPF have any other companies whose pension fund they manage.

Mr Luthuli: No.

Dr Luyenge: Do you have any other big companies like Eskom whose funds are managed by you?

Mr Luthuli: No.

Dr Luyenge: Have you ever come across an incident of a similar nature where someone had a year or two of service like Mr Molefe?

Mr Luthuli: I am not aware of the particular rules of other Funds, but just because I am not aware does not mean that it has not happened.

Dr Luyenge: In your institution, do you have a unit that deals with quality assurance?

Mr Luthuli: We have a Risk and Compliance department. We also have an internal audit.

Dr Luyenge: Did they ever go through a similar application to leave on a severance package, temporary contract or some kind of “waya-waya” early retirement. Did you ever have such a situation like this one where the Fund took the decision and transferred money at this level? You are now experiencing a huge amount of money spent on something that you should have detected or discovered on its arrival in your offices?

Mr Luthuli: It is not the first time that Eskom has exercised these Rules where they have purchased additional service for other members or executives. What is important to note is that the calculation has different values which influence the cost.

Dr Luyenge: When did you establish that there was an illegitimate kind of reality in as far as Mr Molefe was concerned in the membership of your Fund?

Mr Luthuli: We discovered this in July/August 2017, and immediately when we were alerted, we sought legal advice.

Dr Luyenge: What now is your perception about Eskom in terms of honesty if such critical information on whether one is permanent or on contract is not given to you?

Mr Luthuli: It is difficult to assume that there was no honesty on Eskom’s part. They would be best to answer that question. From the Fund’s perspective, it would have been very helpful if the true facts were presented to the Fund because we could have avoided this whole situation.

Dr Luyenge: Do you realise that we are all in this quagmire as a direct result that Mr Molefe was paid this R30 million?

Mr Luthuli: The R30 million was an outcome of a process and calculation. Had the employer not purchased additional benefits, then we would not be in this situation.

Ms Mazzone: Someone approaches the Fund and says “We are going to purchase 13 years of service for Mr Molefe. He is just under 50 and he has to be 63”. At that point is that not when the first alarm bells go off?

Mr Luthuli: At that point, is when we check the Rules and if there is compliance to the Rules, and if it can be done, then as a Fund we cannot involve ourselves in the decision making and governance of the employer. Our responsibility is to maintain that there is compliance with the Rules.

Ms Mazzone: Do you have an ethical code of conduct at the Fund to which you subscribe?

Mr Luthuli: Yes we do.

Ms Mazzone: And you don’t think that your ethical code of conduct requires that you look at items such as buying 13 years service in the amount of R30 million, and require further investigation from yourself and to raise an alarm with the board since they have discretion?

Mr Luthuli: It is important to highlight that this was not the first time Eskom was exercising these Rules.

Ms Mazzone: How many times in the past has Eskom bought years of service for the Executive if this was not the first time because it now sounds like this is commonplace. Even more reason for your ethical code to sound the alarm.

Mr Luthuli: We can get the details of the exact numbers. There are a number of executives they bought additional service for, and other employees where they had operational issues and needed to retire certain employees and asked the Fund to calculate that information.

Chairperson: You should give us the number of years that those Executives worked at Eskom, because if everyone comes to Eskom and works for a year and then Eskom buys that person years of service then they were running some sort of ‘stokvel’, and you wee contributing to that despite your ethical code of conduct.

Ms Mazzone: Section 54 of the Conduct and Prevention of Corrupt Activities was specifically put in place when South Africa took the collective responsibility to stop corruption and prevent corruption at any possible point in which it became obvious. One of the things that Section 34 says is that the duty arises when the relevant individual knows or reasonably should have known or suspected a person has committed an offence of corruption involving R100 000 or more. Failure to report this is a criminal offence and carries a penalty of an imposition of a fine or imprisonment for up 10 years. One of the people that should have reasonably reported when they saw something corrupt are listed as a manager in a senior position in public service, a director, or principal officer, company secretary, executive manager, etc. I find it very difficult to believe that a group actuary who are known worldwide to have the highest IQs don’t reasonably foresee that a corrupt activity is possibly taking place when initial requests are sent asking for calculations. You saw Mr Molefe being sworn in at Parliament. It is not possible that someone at the Fund did not reasonably foresee that someone was trying to milk the system.

Mr Luthuli: The details of other members is the subject of Rule 35 in the court action that I highlighted. In terms of what we are able to submit, we would have to seek legal counsel on how it impacts on the ongoing case. We have to comply with the Rules, and follow what they say. The Rules are binding. And in this instance, if the employer comes and says we want to utilise these Rules, it is very difficult for us without any tangible reasoning to refuse the employer to say we cannot act on these Rules, because the Rules are binding on the Fund and we have to follow these Rules.

Ms Mazzone: Were you or any of your board members threatened in any way by other Eskom executives or political figures known in our country?

Ms Maisela: I have never been intimidated and I am not aware of intimidation of any of the board members.

Ms Mazzone: If you are so confident in your Rules and the fact that you operated within the Rule and you don’t question Eskom, why did you not accept Eskom’s offer to pay your legal fees?

Ms Maisela: My ethical beliefs do not allow me to take money from somebody else to pay for the actions that I am taking as a board chairperson. We are not Eskom, we do not work for Eskom. There is no reason why our legal fees should be paid by them. We are a Fund that looks after the interests of the Fund and the members and pensioners. Therefore why would they want to pay for us? From that point of view it was not ethically correct to accept money from Eskom without understanding the motive behind it because we have always paid our own legal fees.

Ms Mazzone: I am very happy to hear that you have such a strong ethical standing. My question then is: ethically, knowing that Eskom was a state owned enterprise, knowing that buying 13 years’ service for Mr Molefe was going to come from an SOE to enrich one individual as opposed to electrifying millions of South Africans across the country, do you still maintain that you did not see an ethical obligation that there must be something corrupt about this activity.

Ms Maisela: As a board, we did indicate that we never knew anything about this until it came out in the newspaper, and when it came out I informed the board and asked all the relevant questions why the board was not informed. That is when the delegation given to management was brought to the board. A delegation given to management about discretion did not make sense. That is when we took a decision to relook at the Rules on discretion. We asked for legal opinion if discretion could be delegated and we were told that it cannot be delegated. Hence we took action that in future, such discretion cannot be delegated to anyone because it is subject to misinterpretation or such things can happen without been questioned. If management had come to the board, the board would have interrogated and questioned why the calculation came to that amount, and how come.

Ms Mazzone: Has any disciplinary action been taken on this group of management who took it upon themselves knowing very well discretion lay with the board? They took the decision on their own and you as a board only found out about it in the media but clearly there was a massive failure in corporate governance.

Ms Maisela: Management did not deliberately make the decision. They made the decision based on the delegation of authority given to them. As a board we did not discipline anyone because they had delegation of authority given to them

Ms Mazzone: Who delegated the authority?

Ms Maisela: It was the board in 1999.

Mr Swart: Going forward, the Fund would have to check every detail of information and not just rely on what should be assumed. Contracts of employment should have been obtained as a pension fund.

Mr Swart: Discretion could not be delegated. Do you have an explanation for that?

Mr Luthuli: The board sought legal advice to understand if delegation of discretion was correct and they have learned that it was not correct and have therefore revoked that delegation of discretion. All discretion matters are run through the board.

Mr Luthuli: The Fund was not capacitated to interrogate each file as many employees leave Eskom on a monthly basis and therefore it relied on collaboration from Eskom, but going forward we will ensure that there is closer collaboration between us and Eskom.

Mr Swart: Is there no other way to know if other payouts were done correctly?

Mr Swart: If newspaper reports by Daily Maverick and Sunday Times had not disclosed this, would you have gone ahead?

Mr Luthuli: That is correct because we would not have had access to that information.

Mr Swart: Did the Minister at any time liaise with the Fund?

Mr Luthuli: No.

Mr Swart: At that time it was reported in the media that she was objecting to that payout as well.

Mr Luthuli: As a Fund, we do not have direct communication with the Minister. We only read what was cited in the media as well.

Mr Swart: Is it correct that around R9 million was paid to Mr Molefe, and he has to repay that back to the Fund or to Eskom? If so, what is the arrangement for that repayment?

Mr Luthuli: When Mr Molefe was reinstated at Eskom we received correspondence to stop paying the pension and were advised that he had been on unpaid leave. Attached to that was also a statement where they indicated that they had agreed with him that he would pay back the monies by end of November 2017. Due to the Court process that started everything has been halted pending the outcome of the court process. As we stand now, Mr Molefe has not paid back any money. The Fund has also not paid Eskom its money. The Fund received R30.1 million, the Fund paid out R9.7 million to Mr Molefe as lump sum, it also paid him a monthly pension. We are holding back in the region of R20 million pending the outcome of this court process.

Mr Shivambu: What is the actual rand value of the EPPF?

Mr Luthuli: In the region of R143 billion.

Mr Shivambu: Who manages some of the assets externally?

Mr Luthuli: The list is endless. We do disclose the list in our annual reports. The information will be provided on who are the external managers.

Mr Shivambu: I am interested in the external managers of the EPPF assets because we are dealing with a separate issue at Transnet and its external managers. The Principal Officer of the Transnet Pension Fund said that some of their assets were managed by Regiments Capital which then transferred assets to Trillian Capital and then to a company called Albatime. About R228 million in fees were transferred. They then realised that there was illegality in the money transfers which they are trying to reclaim.

Mr Shivambu: Were Regiments, Trillian or Albatime any of those companies in the EPPF?

Mr Luthuli: I can confirm none of those manage our assets externally.

Mr Shivambu: You will later give us the list of who are the external managers of the EPPF.

Mr Luthuli: Yes, we will submit a list

Mr Shivambu: You said you have been working at EPPF since 2010?

Mr Luthuli: That is correct.

Mr Shivambu: You said the documents pertaining to the employment of Mr Brian Molefe stated that he was either employed on 24 September 2015 or 1 October 2015?

Mr Luthuli: Yes that is correct. The information we received in the Leg file indicated 14 September as the start date. Further on when he submitted his forms, he indicated 25 September as the start date. Then later on when we got sight of court papers the start date was 1 October 2015.

Mr Shivambu: When did he receive the third of his pension?

Mr Luthuli: It was some time in February 2017.

Mr Shivambu: From October 2015 to February 2017, how many months is that?

Mr Luthuli: We need to count the months he worked. He had worked about 16 months. Which ended on 31 December 2016. After that when he submitted the application, there is an administrative process which requires applying for a tax directive. When he was paid in February, we had to back pay him from the first of January 2017. The delay was administrative.

Mr Shivambu: You said you were then requested to use Rule 28 to buy additional service until his retirement age. But Rule 28 was not applicable because he had not served more than 10 years. Is that correct?

Mr Luthuli: It is correct. Which is why they invoked Rule 21(4) to buy additional service.

Mr Shivambu: What does Rule 21(4) say?

Mr Luthuli: It allows the employer to buy additional service for a member.

Mr Shivambu: Has Rule 21(4) been used before?

Mr Luthuli: Yes, it has been used before.

Mr Shivambu: Under what circumstances? What were the years of service of the people to whom Rule 21(4) was applied?

Mr Luthuli: It is difficult to say, I will have to go and check the records in order to give an answer.

Mr Shivambu: As the Principal Officer, you would know if 16 months was lowest number of months served by a person to apply Rule 21(4). Was that the lowest amount of service utilised where you ended up paying a huge pension to a person because you had to buy them out through Rule 21(4)?

Mr Luthuli: I think it is difficult for me to speculate. We can definitely go and check the minimum number of months was, and submit that information.

Mr Shivambu: Does not Rule 28 apply to executives mostly, and where the Eskom board takes a resolution to say that we are not going to utilise Rule 28 because this person has not served 10 years. We are using Rule 21 as a special circumstance. I’m sure that could ring in your head when you ended up paying tens of millions of rands to an individual. Has that happened before Brian Molefe was an employee of Eskom?

Mr Luthuli: Rule 28 has not only been used for Executives. Eskom has invoked Rule 28 for other employees. Hence I am suggesting and proposing that we go and look at the records of all the employees and we can indicate what the minimum number other Mr Molefe’s number was.

Mr Shivambu: What was the letter from Ben Ngubane about, after Brian Molefe had left Parliament?

Mr Luthuli: We will look for the letter and read its contents.

Mr Shivambu: I am interested in that and also in your reaction to a letter that suggested that actually you must stop paying pension because he had taken a long unpaid leave. What was your reaction when you were informed that he took long unpaid leave?

Mr Luthuli: We wrote to them trying to establish what was the status of Mr Molefe because at that point we were very confused.

Mr Luthuli: The letter says reinstatement agreement between Eskom Holdings SOC and Brian Molefe. The letter says “Molefe shall resume his duties in terms of the principal agreement on 15 May 2017. Eskom shall take all administrative steps necessary to keep effect to this agreement”. Then it talks to the payment of monies from Molefe to the Fund. “Molefe agrees to pay to the Fund all due to the Fund which were paid to him pursuant to the retirement agreement no later than November 2017”. It then talks about the period from 1 January 2017 – 15 May 2017. It says “The period will be regarded as unpaid leave”.

Mr Shivambu: And what became your response?

The Chairperson told Mr Shivambu that his time was up but Mr Shivambu asked to pose one more question which could be answered after all the Members had their chance.

Mr Shivambu: What are the circumstances of Mr Anoj Singh becoming a member of the pension fund because he appears to be employed within the same time and conditions as Brian Molefe?

Ms G Nobanda (ANC): According to your presentation, Mr Molefe joined Eskom on 14 September 2015?

Mr Luthuli: Yes.

Ms Nobanda: And 25 September is the one cited as employment date?

Mr Luthuli: That was cited as the employment date on his exit form.

Ms Nobanda: And the 1 October date?

Mr Luthuli: This was indicated on his employment contract once we subsequently had sight of it at court proceedings.

Ms Nobanda: According to your scheme, he was supposed to have been 55 to be eligible for pension.

Mr Luthuli: There are various Rules applicable for exit. There is a Rule that allows a member to exit at age 55, but there is Rule 28 that allows the member to exit at age 50 subject to the employer agreeing to certain things. Which is the Rule that was used for Mr Molefe.

Ms Nobanda: So they used Rule 21(4)?

Mr Luthuli: They used a combination of Rule 28, and Rule 21(4).

Ms Nobanda: For 50 years, not for over 50?

Mr Luthuli: Rule 28(3) deals specifically with the age of 50 years, it further on deals with the issue that he must have a minimum of 10 years’ service. To overcome that, that is when Rule 21(4) was enforced to buy him additional service.

Ms Nobanda: I am very interested in this spousal “what-what” when your wife is younger, your money goes up, when she is older, your money goes down. Is that what you are saying?

Mr Luthuli: When we do the calculation, we make assumptions that you will have a spouse that is five years younger than yourself. So those calculations and the actuarial factors used, assume that. When we do the actual calculation, we then look at the specific spouse and the situation. In this case where the spouse is more than five years younger than the member that increases the cost because part of the benefit is that you will receive your pension when you pass away. The Rules allow the spouse to receive the pension. So if the spouse is much younger, it means that the Fund needs to reserve more money for more years as she will live much longer because she is younger.

Ms Nobanda: If I was to get married now to one of the Eskom executives who is older, does that mean that the cost goes up or down?

Mr Luthuli: If you are more than five years younger, the cost would be more.

Ms Nobanda: And if the spouse is older, does the same apply, and does the rule apply to males and females? If my potential husband at Eskom is an Executive and he is older than me, it is the same situation as Mr Molefe. But if it happens that he is younger than me, what does it mean for me?

Mr Luthuli: The actuarial factors that would be used would be different. It becomes a bit difficult to generalise, because it is not only the spouse. The spouse is just one component. There are a number of components that differ from each individual. It is very difficult for me to give a blanket answer. But I can say that if the age of the spouse is older, a different factor would be used and it would have a different outcome, but the cost will come down.

Ms Nobanda: According to your calculation, Mr Molefe came with R4 million from Transnet. If he did not have the R4 million and here was no calculation for the spouse, and it was only him. How would the pension look? What is your rough estimate?

Mr Luthuli: I do not know. We would have to calculate it. If you would like us...

Ms Nobanda: Can you speculate if it would have been less or more without the Transnet money and without the spouse.

Mr Luthuli: I think the Transnet money does not feature into that. It is a separate calculation.

Ms Nobanda: So when you calculated, it was only Eskom’s pension. You did not factor in Transnet?

Mr Luthuli: Yes. You will remember when I took you through the calculation, I split it twice. There was the cost of the R30.1 million and how we came to that, which is the cost of the benefit. Then, there was the calculation of the pension. I split the pension into two and said there was a statutory pension in which you use certain factors, and there was an amount that came out of that. We then did a secondary calculation which was an amount that came from Transnet. Those amounts came independently of the statutory pension.

Ms Nobanda: You paid him R9.7 million.

Mr Luthuli: Yes, that amount was paid to him before tax.

Ms Nobanda: Has he repaid anything after he was required to pay it back?

Mr Luthuli: There was an agreement that I read.

Ms Nobanda: Does that agreement refer to the R9.7 million?

Mr Luthuli: Yes. What was problematic was that the agreement was between Eskom and Molefe. The Fund was not party to it.

Ms Nobanda: On 24 January there was an acceptance letter for the early retirement request. Was it to you, or was it to Eskom?

Mr Luthuli: I think the information was received in December. Somewhere in December when Mr Ntsibande went to collect documents.

Ms Nobanda: On 11 November 2016, that is when Mr Molefe resigned. Correct?

Mr Luthuli: I am not sure as to the date when he stepped down.

Ms Nobanda: According to my records, on 11 November, that is when he issued the statement of stepping down. But afterwards, there was a letter that said “effective first January 2017”. But you are saying between August 2016 and December you were receiving all these requests of calculations correct?

Mr Luthuli: That is correct.

Ms Nobanda: From all these dates, wasn’t there any red light going with all these requests to calculate pension and 11 November we are stepping down, and on 19 December we get access to documents. On first January 2017, we become pensioned and receive a pay-out, on 15 May we get reinstated, on 25 May 2017 you are to stop payment of the pension. It is the same day and month when Mr Molefe resigned as an MP. To me, I am sitting here looking at all these dates and I see there is something wrong. The dates tell a story.

Ms Nobanda: If someone is being paid pension and at the same time receiving a government salary, what are legal implications?

Mr Luthuli: I do not know.

Ms Nobanda: From the Fund’s point of view, if your member is supposedly getting a pension but at the same time being paid from somewhere else and then they tell you to stop paying the pension. What are the legal implications?

Mr Luthuli: There are various forms of exit from the Fund. In this instance there is nothing that prevents a Fund member that is being retired to earn other income as well. I do not know what implications there are wherever the member may be working and getting an income.

Ms Nobanda: As a Fund you only report to FSB? Is that where you only take your reports? Is there anything that says you must report monthly or quarterly to Eskom, the Minister, or whoever, apart from FSB?

Mr Luthuli: We are supervised by the FSB, and we do report to the FSB. We submit the regulated report in terms of the law. What we do as well is that Eskom has a financial interest in the Fund as a contributing employer. On a monthly basis we send out a report on the assets we have and the ones we do not have because that is important to Eskom as well. The information was limited to the investment. Annually, the financial statements were also shared with Eskom.

Ms Nobanda: Do these Rules of the Fund also apply to normal general workers?

Mr Luthuli: Yes.

Chairperson: Did you not see that the governance of Fund was collapsing? Wouldn’t you be held accountable for corporate governance within the Fund that has collapsed?

Mr Luthuli: I do not believe that the governance at the Fund has failed. I believe that the Fund has very strong corporate governance principles and policies that it follows. In this instance and every instance, the Fund cannot operate based on media reports. The Fund has to receive factual documents. There is a process to visit the Rules and update them such that the Rules can talk to the real issues of today.

Chairperson: Chair Maisela, was the first letter you received from Eskom saying, “Mr Molefe has retired or resigned, and that you have to do so and so”?

Ms Maisela: The letter that was received by the Fund indicated that they are retiring Mr Molefe in terms of Rule 28 and in conjunction with Rule 21(4). That was the letter sent by Dr Ngubane, and supported by the termination letter that was signed by Mr Molefe. It said that they were retiring him and buying the pension up to age 63 and are waiving the penalties that would have been due to him had he retired without them buying.

Chairperson: When the Minister heard of the stepping down of Mr Molefe, she publicly said that “We welcome the resignation of Mr Molefe” and then after that you received a letter from Eskom that said “Mr Molefe has retired”. Didn’t that alone raise a red flag if according to the Minister this person had resigned but according to what you received, he had retired. Didn’t that raise any questions?

Ms Maisela: The board has delegated the day to day functions to management. The letters go to management, and based on the delegation they were given, they process them. It only came to the attention of the Fund on 16 April when I received a call from Mr Luthuli that there was this issue in the media. After Mr Molefe had received his pension from January until April that is when it came to the attention of the board. We did not even know the terms of his termination. We only received the information after the fact and that is why we said, “Let us interrogate why the board did not know. That is when we realised that there was a delegation. That is when our lawyers told us that we cannot delegate discretion. We can only delegate activities to management.

Chairperson: When Mr Luthuli responded earlier, he said, “The Fund cannot rely on what it is seeing in the media”. Now you are responding to what you have heard in the media.

Chairperson: Is Mr Anoj Singh a member of the pension fund?

Ms Maisela: Yes, he is. We have written a letter to Eskom subsequent to us learning that Mr Molefe had a limited duration contract. We have written to Eskom to request a list of people who are members of the Fund but are not legitimate members. We have specifically asked about Mr Singh, to see if he is a permanent employee. The answer we got was not satisfactory to us. We subsequently have requested Eskom to give us his contract of employment.

Chairperson: Do you have strategy in your institution that would help you to be able to…. because I am worried about this institution. It looks to everyone that Eskom has misled you. Do you have a strategy in place to ensure the Fund makes the correct payment to the correct person?

Ms Maisela: Mr Luthuli indicated that prior to 2012, the Fund used to receive information from Eskom. That included information on who had limited duration contracts. The Fund then agreed with Eskom in 2013 on the relevant codes to try and eliminate the possibility of including people who are not eligible in the Fund. We operate on a level of trust with the employer.

Chairperson: Members, I am worried about Mr Luthuli saying their governance is up to scratch. I am worried about the EPPF. Mr Molefe was an Honourable Member of Parliament and he was receiving a salary from Parliament. I am really worried about the situation we find ourselves in. We have a Constitution that we need to respect, policies of government that need to be respected. Eskom is an SOE receiving money from government

Mr Swart: Are you aware of any criminal investigation against Eskom for the misrepresentation they gave you, and if so would you cooperate with such an investigation?

Mr Luthuli: We were contacted by the Hawks as they would like to investigate the circumstances under which Mr Molefe was paid and the Fund was willing to cooperate.

Ms Nobanda: All the information requested should be submitted to the Committee.

Mr Shivambu: The Fund was being used to either launder money or move money to corrupt individuals. Even if the laws permit, how do you allow giving someone R30 million? How do you willingly cooperate in the commissioning of crime? We should note as part of finalising this report that a red flag should have been raised immediately you were told to transfer R30 million as pension. Even if your Rules permit that, it was unreservedly wrong and it speaks to the ethical conduct and standing of the leadership of the Pension Fund of those who implemented that. The question which I want to ask is the person behind you, Adv Maenetje, the same person that was nominated by Matshela Koko to act as chairperson over the disciplinary hearing of Matshela Koko? Perhaps these conflict of interests are part of the problem we are dealing with.

Ms Maisela: Can we allow him to answer?

Adv Maenetje: I am a member of the Johannesburg Bar and practice in the legal courts. If I am called to serve and I am not conflicted and available, I accept. I was called to ask if I am available to act as a Chairperson of a disciplinary Inquiry at Eskom and I accepted, subject to availability. In the week the inquiry was set to start, I was told that it would start earlier, but it was not at a time that I was available so I notified them that I was not available to act as chairperson. I do not know how I was nominated. I was called by an attorney, who asked if I was available. I have no interest in Eskom, or EPPF. I am acting in this matter on the instruction of Norton Rose.

Dr Luyenge: What does your conscience tell you about the institution you are leading having committed such a glaring mistake which might be taken as deliberate if you do not declare you full emotion as it relates to this kind of mistake?

Mr Luthuli: I would have to differ with the fact that there was any deliberate mistake. We followed the Rules of the Fund. We did not make the decisions. The decisions were made by the employer rightfully so, and they approached the Fund saying that these are the decisions that we have made. Our responsibility is to ensure that the Fund is a financially sustainable viable entity and that members of the Fund are protected.

Ms Mazzone: Eskom acted in an unethical manner. Do you share this view or not?

Mr Luthuli: Where EPPF picked up discrepancies in information provided, we have taken it up with Eskom and will ensure that going forward, information provided to the Fund is accurate.

Chairperson: We might not have agreed with the information but it would assist the Committee when it probes Eskom.

The Chairperson thanked Members, the media, and officials for their role in the Inquiry. The following week, they would be looking at the Committee’s daily work and not the Inquiry.

No date was announced for when the Inquiry would resume.

The meeting was adjourned.