ATC240403: Report of Portfolio Committee on Public Enterprises on alleged protected disclosure made by the former Director-General of the Department of Public Enterprises dated, 27 March 2024.

Public Enterprises

Report of Portfolio Committee on Public Enterprises on alleged protected disclosure made by the former Director-General of the Department of Public Enterprises dated, 27 March 2024.

1. Background

This report details the process that was followed by the Portfolio Committee on Public Enterprises (PCPE) after having received a referral from the Speaker, based on a request from Chief Whip of the Economic Freedom Fighters, Mr. NF Shivambu. The request was based on a submission by the former Director-General of the Department of Public Enterprises, which Mr Shivambu felt might be a violation of the Constitution and the oath of Office by the Minister of Public Enterprises, Mr. Pravin Gordhan. He was of the opinion that under the circumstances, Parliament must hold an inquiry into the conduct of the Minister. Based on the request, the Committee proceeded to investigate the request and inter alia received a legal opinion on it as well as allowing the former Director-General an opportunity to present his case to the Committee. This was followed by invitations to the Minister and the Department to respond to the issues raised by the former DG, as well as recommendations made by the former DG to the PCPE followed by responses by the Minister to these recommendations. In the process, the Committee was provided with various documents by the two parties as well as a report from the Auditor-General of South Africa. Based on these and the Committee’s interrogation of these issues, the Committee considered this Report at its meeting of 27 March 2024 and made a specific recommendation on the referral from the Speaker.

2. Introduction

On 31 October 2022, the Chief Whip of the Economic Freedom Fighters, Mr. NF Shivambu, Member of Parliament, wrote to the Speaker alleging that the protected disclosure of Mr Tlhakudi points to conduct that is in violation of the Constitution and the oath of office by the Minister of Public Enterprises; and that under the circumstances, Parliament must hold an inquiry into the conduct of the Minister. On 20 November 2022, the Speaker of the National Assembly addressed correspondence to the Committee Chairperson in which the Speaker makes mention that it would be appropriate for her to refer Mr. Tlhakudi’s disclosure and to also convey Mr. Shivambu’s letter to the Committee, as the structure to which the Minister accounts.

The Committee, having received the protected disclosure (petition) from the former Director-General of Department of Public Enterprises, Mr Kgathatso Tlhakudi, processed the petition in line with the powers vested in it by the National Assembly Rules. Rule 167 of the National Assembly Rules empowers the Committee to: (b) receive petitions, representations or submissions from interested persons or institutions; and (c) permit oral evidence on petitions, representations, submissions and any other matter before the committee.

3. Petition of former Director-General (Mr Tlhakudi)

On 27 October 2022, the former Director General (DG) of Department of Public Enterprises (DPE), Mr. Tlhakudi, made a protected disclosure statement to the President, Mr. Ramaphosa, and the Speaker of Parliament, in which he made allegations against the Minister of Public Enterprises, Mr. Pravin Gordhan. The disclosure was made in terms of the Protected Disclosure Act No. 26 of 2000 (PDA).

3.1 Allegations contained in the petition.

In this disclosure, Mr Tlhakudi made the following allegations against the Minister of Public Enterprises:

The sale of South African Airways (SAA) was orchestrated by Mr. Gordhan to benefit a few privileged individuals who were favoured by the Minister in an irregular manner.
The Minister brought the former Chief Executive Officer (CEO) of AngloGold Ashanti and Vendanta, Mr. Srinivisan Venkatakrishana, as an “unpaid advisor” who initiated the unpractical and costly route regarding the complete closure of SAA instead of recapitalisation.
Mr. Gordhan engaged in procurement processes and disposing of state assets and made a case for the appointment of Rand Merchant Bank (RMB) as transaction advisor, a company, which has disclosed that he owns shares in it. The RMB was appointed through a deviation from normal procurement processes because of Mr. Gordhan’s intervention.
Mr. Gordhan engaged Mr. Gidon Novick and Mr. Venkatakrishana to engineer an introduction of Mr. Novick to Harith to introduce Takatso as it was not shortlisted as a strategic equity partner based on the report developed by the DPE.

Supplementary submission of the former Director-General

On 29 October 2022, Mr Tlhakudi submitted a supplementary document to the Committee on his Protected Disclosure submission made on 27 October 2022. In this supplementary document, he made further allegations against the Minister of Public Enterprises, Mr. Pravin Gordhan.

The allegations included, but were not limited to the following:

The choice of Takatso (Harith General Partners and Global Aviation Consortium) was irregular and that no process as required by the Constitution, Public Finance Management Act, Preferential Procurement Framework Act and other prescripts, had been followed.
The valuation of SAA at fifty-one rands (R51) and the deal structure was problematic as it seems to devalue SAA, in which government had committed about R30 billion to extinguish guaranteed liabilities and to restructure the airline through business rescue.
The deal structure where preference shares would be issued to the State for the assets in SAA (valued by Takatso at R3 billion) with payment over time, was problematic as the payment would be reliant on declaration of dividends. The DG had no experience of any DPE State-Owned Company (SOC) paying dividends to the State.
Takatso had pledged to provide R3 billion in working capital to the restructured airline post transaction. The former DG had not seen a due diligence report that would suggest that Takatso had these funds.
The Share Sale and Purchase Agreement (SPA) that had been signed by Ms. Jacky Molisane in February 2022 in her capacity as Acting DG, led to a commitment that DPE provide R900 million in an escrow account controlled by Takatso. These funds were not available, and a default situation had been created. The former DG stated that this was in violation of the PFMA.

4. Response of the Minister of Public Enterprises to the allegations

In line with the principle of audi alteram partem rule, which states that no person should be judged without a fair hearing in which each party is given the opportunity to respond to the evidence against them; the Committee wrote to the Minister and attached all the supporting documents submitted by the former Director-General. On 27 March 2023, the Minister, submitted a written reply to the Speaker regarding the allegations made against him by the former Director-General, Mr. Tlhakudi.

4.1 Evidence submitted by the Minister of Public Enterprises

The following are some of the salient issues raised by the Minister in response to the petition submitted by Mr Tlhakudi:

Mr Tlhakudi’s suspension and disciplinary action are entirely unrelated to the SAA matter.
The catalyst to the disciplinary action is a complaint received by the Public Service Commission concerning alleged unethical conduct by Mr Tlhakudi in relation to a recruitment process for the position of Director: Security and Facilities. The complaint is that Mr Tlhakudi did not want the successful candidate to be appointed.
Mr Gordhan initiated an investigation arising from the complaint from the Public Service Commission and referred the matter to the Presidency.
Following the investigation, Mr Tlhakudi was subjected to a disciplinary process to test these allegations, and the Minister of Justice and Correctional Services, Mr Ronald Lamola, was appointed by the by the President to preside over the process.
Mr Gordhan stated that the matters raised by Mr Tlhakudi are intended to create an atmosphere that divert from the real issues.
Mr Gordhan then outlined the chronological order of events with regards to the complaint received by the Public Service Commission against Mr Tlhakudi.
Mr Gordhan also informed the Committee about the outcome of the disciplinary hearing chaired by Advocate Rathaga Ramawele SC, who ruled as follows:

(a) “I therefore find that the employer [employee] never made a disclosure during May 2022. Further, even if such a disclosure was made, it is still not in consonance with the provisions of section 1(xi)(e) read with section 9 of the Public Disclosure Act (PDA).

(b) In the premises, it is my view that the charges preferred against the employee are not as a consequence of the alleged disclosure that the employee had made.

(c) In the premises, I make the following conclusion: The employee has not made a protected disclosure within the meaning of the PDA.”

Mr Gordhan also obtained independent legal advice which concurred with the finding of Adv. Ramawele SC.

5. Legal opinion and advice on the Petition

The Chairperson of the Committee wrote to the Parliamentary Legal Services to seek legal advice on how the Committee should proceed in relation to the following:

“If there are any acts by the executive authority that require an investigation by the Committee?
If the Committee is the correct body to deal with such a matter if it has something to do with the Executive Ethics Code?
If yes, then what process should the Committee follow in processing a complaint of this nature?”

Extracts from the legal advice received by the Committee included the following:

5.1 Regulatory framework

Accountability is one of the founding values of our Constitution. Section 1(d) adopts a multi-party system of democratic government “to ensure accountability, responsiveness and openness.” These are the key pieces of legislation that empowers the Committee to perform its functions:

5.1.1 Section 42(3) of the Constitution provides that the National Assembly is elected to represent the people and to ensure government by the people under the Constitution. It does this in various ways. One of them is “by scrutinising and overseeing executive action.”

5.1.2 Section 55(2) imposes a duty on the National Assembly to provide for mechanisms to hold the national executive to account:

“The National Assembly must provide for mechanisms –

(a) to ensure that all executive organs of state in the national sphere of government are accountable to it; and

(b) to maintain oversight of –

(i) the exercise of national executive authority, including

the implementation of legislation; and

(ii) any organ of state.”

5.1.3 Section 56(d) of the Constitution provides that the National Assembly or any of its committees may receive petitions, representations or submissions from any interested persons or institutions.

5.1.4 Section 92(2) of the Constitution provides that members of the Cabinet are accountable collectively and individually to Parliament for the exercise of their powers and the performance of their functions.

5.1.5 National Assembly Rule 167 provides for general powers of committees and provides that for the purposes of performing its functions a committee may, subject to the Constitution, legislation, the other provisions of these rules and resolutions of the Assembly —

(a) summon any person to appear before it to give evidence on oath or affirmation, or to produce documents.

(b) receive petitions, representations or submissions from interested persons or institutions.

5.1.6 The Protected Disclosure Act provides for the protection of persons who make disclosures. Section 3(B)(1), amongst others, states that any person or body to whom a protected disclosure has been made, must, as soon as reasonably possible, decide whether to investigate the matter or not; to refer the disclosure to another person or body, if appropriate, and inform the employee or worker of any action.

5.1.7 The Protected Disclosure Act also prescribes certain procedures, including time frames, to be followed by the person or body to which such a referral has been made.

- Section 3(B)(2-4) of the PDA provides that –

3(B)(2) “The person or body to whom a disclosure is referred as contemplated in subsection (1)(a)(ii) must, subject to subsection (3), as soon as reasonably possible, but in any event within 21 days after such referral –

(a) decide whether to investigate the matter or not; and

(b) in writing inform the employee or worker of the decision –

(i) to investigate the matter, and where possible, the timeframe within which the investigation will be completed; or

(ii) not to investigate the matter and the reasons for such decision.

5.1.8 The person or body, referred to in subsection (1) or (2), who is unable to decide within 21 days whether a matter should be investigated or not, must –

(a) in writing inform the employee or worker –

(b) that he, she or it is unable to take the decision within 21 days; and

(i) on a regular basis, at intervals of not more than two months at a time, that the decision is still pending; and

(c) as soon as reasonably possible, but in any event within six months after the protected disclosure has been made or after the referral has been made, as the case may be, in writing inform the employee or worker of the decision–

(i) to investigate the matter, and where possible, the timeframe within

which the investigation will be completed; or

(ii) not to investigate the matter and the reasons for such decision.

(d) The person or body, referred to in subsection (1) or (2), must, at the conclusion of an investigation, inform the employee or worker of the outcome.

5.2 Question 1: Are there are any acts by the Executive Authority that require an investigation by the Committee?

Whether an investigation is warranted or not, is a matter which the Committee will have to determine. However, no one can gainsay the fact that Mr Tlhakudi’s submission is very serious, in that, it is made by an Accounting Officer of a national department against the Minister, and it deals with the disposal of a national asset - SAA - in an allegedly irregular manner. This, the Committee cannot ignore. Undoubtedly, there is a constitutional obligation on the Committee to put these allegations to the Minister and it is only then that the Committee can make an informed determination as to whether what form or mechanism the Committee will adopt in enquiring into these allegations.

5.3 Question 2: Is the Committee the correct body to deal with such a matter if it has something to do with the Executive Ethics Code?

As previously advised, the Minister is accountable to Parliament for the exercise of his powers and the performance of his duties. The National Assembly and, by extension, the Committee has both the power and the duty to hold the Minister to account. Parliament and the Executive should, of course, always treat one another with respect. However, Parliament and the Executive are institutions of equal standing. Neither trumps the other. There is no rule that says that Parliament may not enquire into and report on a matter merely because it also happens to be before the Executive. Parliament and the Executive perform different functions and may do so in parallel in relation to the same subject -matter. Therefore, the fact that a matter is pending before the one does not sterilise the other. The Executive Members’ Ethics Act, No.82 of 1998, which is the legislation that gives effect to the Executive Ethics Code does not prevent or inhibit Parliament’s exercise of oversight over the executive arm of the state.

In fact, as indicated above, the Constitution requires the National Assembly to provide for mechanisms to maintain oversight of the exercise of national executive authority, including the implementation of legislation. The Committee is one such mechanism. The Committee is consequently not in any way restricted if it wishes to undertake an investigation into Mr Tlhakudi’s submission or disclosure.

5.4 Question 3: What process should the Committee follow in processing a

complaint of this nature?

The tools available to portfolio committees in the performance of their oversight function are not systematically described in any one place. They are scattered through various legal instruments, including the Constitution, the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act, No.4 of 2004 (“the PPIPPLA”) and the rules of the National Assembly.

5.5 Advice

In view of the foregoing, the Parliament’s Legal Advice was that Mr Tlhakudi’s submission deals with a matter of national importance and the Committee cannot merely ignore it. Moreover, it is no ordinary submission as it is a disclosure made in terms of the Protected Disclosure Act and, for that reason, it imposes legal obligations on the Committee to deal with it in terms of the prescribed time.

As previously advised, the legislation that gives effect to the Executive Ethics Code neither prevents nor inhibits Parliament’s exercise of oversight over the Executive. Finally, the Committee has the power and the duty, amongst other available tools at its disposal, to schedule a meeting with the Minister and to put the said allegations to him. There exists no impediment to the Committee pursuing an investigation into Mr Tlhakudi’s submission or disclosure, in the performance of its oversight functions.

6. The former Director-General’s presentation to the Committee

The former Director-General (DG) made a presentation to the Committee on 7 June 2023. The purpose of the presentation was to deal with the context within which he made the allegations against the Minister. In his presentation he outlined the merits of his case with the Department which led to the decision of him being dismissed. These were some of the key submissions made by the former Director-General:

6.1 Performance of the Department of Public Enterprises under his leadership

6.1.1 The performance of the Department during his tenure was remarkable with unqualified audit outcomes with 99.0% budget spent.

6.1.2 The APP performance ranged from 71-91% with gradual increase over the years.

6.1.3 There was a high rate of vacancies in the Department which led to the detriment of his health. In 2022 the vacancy rate was 41.1% (43/73) at Senior Management Service (SMS) and 13.1% (121/139) at non-SMS level. The situation persisted for four years during his tenure. The former Director-General further stated that instead of assisting the situation the Minister placed a moratorium on hiring in quarter one of the financial year 2022.

6.1.4 The former DG also shared the extracts of the letter he wrote to the Minister explaining that the vacancy rate was higher than expected and the Portfolio Committee on Public Enterprises has raised concerns about the compensation of employees (COE) budget being lost. The goods and services (G&S) budget were also affected by the vacancy rate.

6.1.5 The Department has failed to maintain good audit outcomes for the financial year 2022. In dealing with the APP 2023/24 findings by the Auditor General of South Africa (AGSA), the former DG suggests that 2024 financial year DPE annual performance plan shows a picture of a dysfunctional, rudderless and leaderless department.

6.1.6 The 2023 financial year audit outcome should not be any different. He further alleged that a climate of fear has been established in the Department and the result is paralysis in decision-making. Unquestioning and absolute loyalty is demanded and rewarded, unfortunately elevating incapable officials into positions that cause great harm to the capability of the State. Capable officials have been intimidated, marginalised and bullied to leave the Department. In the process the ‘spine’ of the Department has been lost. The scourge has seen:

Unwarranted disciplinary actions against officials.
Resignations.
One official had her house ransacked.
Planting of listening devices and denial of service on private and departmental electronic devices.

6.2 Privatisation of state-owned companies

The former DG explained the issue of standard technique of privatisation. He stated that the conditioning of the South African population is succeeding, and people are not asking the critical questions, i.e.:

Why are other countries managing their SOEs better?
Would appointment of the best amongst us and reduction in political interference not make these SOEs perform better?
Why is the rot in SOEs deeper at DPE than at policy departments’ SOEs?

6.3 SAA transaction

In relation to the transaction of South African Airways, the former DG explained that the decision was made on the 05 December 2019. The business needed to realise R1.6 billion in savings to make the end of 2020 financial year when funding was expected from National Treasury to enable restructuring. The business was able to realise R900 million in savings by November 2019. According to the former DG the decision seemed unnecessary and ill-conceived. Some of the Board Members who were proponents of the decision resigned on achieving this decision. The SAA Legal Advisor, ENS Africa ended up as the legal advisor to the Business Rescue Practitioners, Les Matuson and Siviwe Dongwana.

The former DG explained the amounts that were paid to service providers. According to him these amounts added up to R207,5 million. However, the SCOPA minutes indicated a further R35.5 million of payments were expected to be made to finalise the business rescue process. This means that the final business rescue costs would tally up to R243 million. The former DG contended that restructuring of SAA cost the state an amount of R34.7 billion. The Minister of Finance in the 2022/23 MTBPS allocated an additional R1 billion to SAA to pay for the outstanding liabilities, which on 1 April 2022 when SAA Airline emerged from business rescue, stood at R3.5 billion. This is a significant outlay by the South African citizen towards the revival of the state-owned airlines.

6.3.1 The appointment of Rand Merchant Bank

Rand Merchant Bank (RMB) was appointed through a deviation after a special request by the Minister to the Director General. The Minister claimed that RMB is the only financial institution with aviation capability, and this was confirmed by DDG Financial Analysis and Investment Services. The DPE has claimed that RMB was contracted as a Transaction Advisor to perform Phase 1 of the search for SAA transaction advisor, but the Service Agreement indicated otherwise. RMB was appointed to perform the whole function. RMB performed the work until January 2022 when they requested to be released from the contract and did not accept payment for services provided.

The RMB outcome included the expression of interests (EOIs) evaluation of the SAA group. The strategic equity partners (SEPs) interested in the whole. Several parties (or represented offering from brokers) expressed interest in SAA, however after interrogation or assessment of the EOIs, it became clear that their interest with DPE/Government’s objectives and / or scored poorly against the criteria identified by the DPE. At the end of phase 1 the most promising of the EOIs identified were ASL/Bluesky Consortium and Fairfax Consortium. The RMB states that it is aware that the DPE is having direct discussion with parties not included in its such as Ethiopian Airlines, Kenya Airways and Air-A/Lufthansa Consulting (the advisory of Lufthansa). These were excluded from the scope of its assessment.

6.3.2 Appointment of the SAA Board

An Interim Board was appointed at SAA on 09 December 2020 to take over from the business rescue practitioners, whose term was expected to end in early 2021. In January 2021 the results of the RMB process were presented to the SAA Interim Board with the aim of the Board taking over. The Minister was present in the meeting. The Board was requested to assess the shortlisted bidders and advise the Minister on the preferred Strategic Equity Partner (SEP). The Board requested that the net be casted wider and that additions should be made to the list, a request that the Department acceded to.

In January 2021 the former DG was inundated with calls from the Minister of Public Enterprises and Gidon Novick seeking to request and provide, respectively, interim management services to SAA. The former DG resisted these requests as he would not have been able to justify the arrangement if questions were posed to him as the Accounting Officer.

6.3.3 The appointment of Takatso as preferred strategic equity partner

The DPE's explanation for the appointment of Takatso Consortium (Harith General Partners, Global Aviation and Syrinx) has become a “moving target,” according to the former DG. Some of his explanations in this regard included:

There were no suitable strategic equity partners from the RMB process.
There was a technical committee established in the Department that considered Takatso and four (4) other bidders.

The former DG further stated that Takatso consortium were not on the short list by drafted by RMB. He also presented some of the WhatsApp messages with Mr Novick where he provided feedback that Mr Novick had missed the Board shortlisting process.

6.3.4 The share sale purchase agreement

The Share Sale and Purchase Agreement (SPA) was signed on 14 February 2022 by Acting DG Molisane in Mr Tlhakudi’s absence due to him being on medical leave. There was a clause that required the DPE to provide R900 million by March 2022 to mitigate any future risks for Takatso that may arise due to the restructuring. The funds were to be placed into escrow account controlled by Takatso. The DPE did not have the funds, which raised risks of default and violation of the Public Finance Management Act. The former DG requested and had a meeting with the Takatso Team, which the Minister and the DPE negotiation team attended. It was agreed that Takatso will not activate the default, that the clause will be amended, and the liability be limited to R50 million, supported by documentation.

6.3.5 Valuation of SAA assets

According to the formers DG, the valuation was done by Broll Consulting (assets=R3 billion) and Letsema Consulting (business operations =R0). The following were the basis of the former DG’s misgivings with the valuation:

One of the major groups in South Africa had made an unsolicited proposal to SAA to develop its head office, Airways Park, into a multipurpose facility including a conference facility and valued the opportunity at R4 billion;
SAA has aircraft spares to the value of R3 billion which were factored in the valuation; and
There was R1 billion of cash that was stranded in the regional markets.

The former DG stated that SAA local properties have been valued at +R6 billion against the R1.2 billion valuation by Takatso. The SAA Board Chairperson, Mr Hanekom, conceded on this point and said the assets will be re-evaluated. Further, foreign bank accounts and properties were still to be accounted for. It was also indicated that the London Heathrow slots with Rand depreciation, should be worth more than the R400 million attributed to them. The former DG stated that it was his assessment that the undervaluation of SAA is in the region of R7 billion to R15 billion.

6.3.6 Due diligence

The former DG reported that by May 2022, DPE had not yet performed due diligence on Takatso Consortium. He ordered the negotiation team to extend the scope of the contract with Norton Rose Fullbright, to enable this critical task to be undertaken. There was no evidence that Takatso had the financial and technical capacity to consummate the transaction. The regulatory process to enable the transaction had not much attention paid to them. He felt that the proposed compensation to government for SAA assets (R3 billion) through a preferential share scheme, was unlikely to result in the payment being realised.

6.3.7 State capture on state-owned companies

The former DG stated that the era of State Capture and its by-product of corruption and looting of state , did not end with the conclusion of the Judicial Commission into State Capture and the presentation of its report in June 2022. He felt that the Department remained at the centre of State Capture primarily due to the concentration of power over state-owned companies. He outlined that the process of State Capture is very much active, and proposed the following:

Change the Minister.
Minister appoints an amiable board.
The Board appoints a co-operative executive team.
SOE business and contracts are repurposed to benefit identified private sector players.

He warned that the privatisation of SAA is a case in point but much worse was happening in the other SOCs under DPE. The former DG further raised concerns that the Fourth Estate has been asleep and did not deal with the allegations of wrongdoing in state-owned enterprises with objectivity. According to the former DG, there remains pockets of excellence and thirst to ensure unprejudiced and dispassionate information to the South African public; and that these media houses and journalists should be commended. However, Parliament should be more concerned with the repurposing of government’s good governance oversight and criminal justice authorities. The PCPE should look closely at what is happening in the Department of Public Enterprises.

6.3.8 Recommendations to the Portfolio Committee

Mr Tlhakudi further made recommendations to the Portfolio Committee on Public Enterprises. He recommended that an independent investigation into Takatso transaction be initiated. He further made the following recommendations:

There is irrefutable evidence of corruption through State Capture. The Special Investigations Unit’s (SIU) proclamation on SAA should be extended to cover the Takatso transaction, DPE Minister and the role of Officials.
Depending on the findings of the SIU, and if allegations of criminal behaviour are proven, these matters should be handed over to the National Prosecuting Authority (NPA).
The Public Protector should be directed to investigate the conduct of the Minister of Public Enterprises.
The Competition Commission’s handling of the Takatso transaction should be looked and should include the process that informed a positive recommendation of the Tribunal.
The Takatso transaction should at least be halted to ensure fair compensation to the national fiscus. The Board Chairperson, Mr Hanekom, has conceded to the undervaluation of the property portfolio.
The Public Service Commission should be deployed to the DPE to assess the working environment and intervene where necessary.

7. The Minister of Public Enterprises’ response to the former Director-General’s presentation to the Committee

The Minister made a presentation to the Committee on 12 September 2023. The Minister thanked the Committee for allowing him to place some facts which are also contained in a written submission made on the 27 March 2023 which was accompanied by documentation to the Speaker to substantiate each of the points made. He stated that any assertion of corrupt behaviour on the Minister’s part and the Department’s part is rejected outrightly. The Minister further stressed that the allegations are more of a political campaign than a genuine set of concerns.

The Minister covered and responded to sixteen (16) of the allegations raised by the former Director General:

7.1 The Minister made a distinction between the role of the Minister and the role of the Director General in the Department. The Minister’s role is to set the political direction and provide a mandate and clarity on what needs to be done. The Director-General is to execute the mandate and make sure that the administration is aligned with the political mandate.

7.2 The Department of Public Enterprises since 2010 was at the heart of State Capture. Many of the transgressions, transactions and appointments that were made in order to execute various activities that the State Capture involved were undertaken through the Department and the Ministry. Notwithstanding that, after 2018 difficult choices had to be made about the reconstruction process of these many entities and the department’s tasks had to overcome the effects of State Capture and corruption that have sieved through these SOEs. Some of these have worked and some of it is still work in progress.

7.3 This also applies to SAA which was run to the ground by previous boards and management. The choice by the end of 2019, early 2020 was to allow SAA to be liquidated or to be saved through some form of intervention. An instruction from government through Cabinet was to attempt to restructure the aviation assets of the State and to try to the best of their abilities to save the entity. The pandemic had an impact on aviation in South Africa and globally. As of end of March 2020 flights were limited and eventually stopped, and the SAA was already in business rescue.

7.4 The Minister dealt with what Mr. Tlhakudi did wrong. It started with a complaint received from the Public Service Commission. The complaint was communicated to the Minister in a letter on 8 March 2022 in which the Minister was directed by the Public Service Commission to investigate the matter. The Minister asked the department’s legal section to obtain services of a forensic firm that went into the matter. According to the Minister, Mr. Tlhakudi interfered in the process of the appointment of the individual by replacing the name suggested by a panel which had interviewed the people for the position with his own preferred name.

7.5 The Minister said the so-called protected disclosure and regrettably even Parliament’s legal advice in this matter to the Committee, is wrong according to him. The letter from the Public Service Commission put into motion a set of events which, in government, when the Director General is confronted with challenges the matter is referred to the Presidency. After some basic investigation the Presidency nominated another Minister to manage the matter in this instance, Minister Lamola (Minister of Justice and Correctional Services). The Minister determines based on evidence on how to proceed with the matter. In this instance, the suspension finally was undertaken and directed by Minister Lamola. The initiation of the disciplinary action was set into motion and the report of the disciplinary inquiry was presented to Minister Lamola. The eventual dismissal of Mr. Tlhakudi was undertaken by Minister Lamola because according to the Minister this is the way these matters are dealt with in government. What is interesting to note is that long before this process was brought to Mr Tlhakudi’s attention when the Minister eventually met him to inform him that there was a letter from the Public Service Commission, Mr. Tlhakudi said he was aware of the letter because the letter arrived through the Department’s registry. The Minister had to approach Mr. Tlhakudi and explained to him that he should take special leave while government decides how to deal with matter. He was informed that he was not the first Director General to be involved in such a set of events and each of them are dealt in the same way by the Presidency.

7.6 The second major point is that there were fundamental differences by the DPE with the legal opinion to the PCPE in terms of the Protected Disclosure Act 26 of 2000. The provision of the protected disclosure is to protect an employee from occupational hazards or detriment arising from the disclosure of certain wrongdoing by fellow employee or by the employer. In this instance the so-called disclosure occurred long after the process which led to the disciplinary inquiry, had already been put in motion.

7.7 The first allegation is that the disciplinary charges are “trumped-up” charges. This was obviously not true according to the Minister. The Minister has elaborated that the matter has come through the Public Service Commission, and this required the Minister to act in accordance with the requirements of the letter by investigating the matter. The matter was referred to the Presidency, the Presidency then nominated Minister Lamola to manage the rest of the processes. In the letter from the Public Service Commission, in the last paragraph it is stated that “The complaint is referred to the Minister to for investigation as it implicates the Director General. The Minister is kindly requested to provide PSC feedback on the progress made in respect of the investigation within forty (40) days from the date of the letter”. In summary any assertions that these were trumped-up charges or designed to victimise or in some way to be unfair to Mr. Tlhakudi is absolute nonsense. The facts speak for themselves, according to Minister Gordhan. On 2 June 2023, Minister Lamola, after many delays in the disciplinary process, dismissed Mr. Tlhakudi.

7.8 The second allegation was that the former DG raised concerns about the transaction with the DPE Minister and the Presidency. At all material the former DG was involved in the various processes, from day zero to a point where he was dismissed given that he was involved at a technical level. There was at no point where he raised concerns about the transaction. There was a point where he had doubts about the preferential share structure but could not pinpoint it and the content of the golden shares; but beyond this, once those issues were explained he never had any material concerns despite what he has to say now.

7.9 As far as the SAA transactions was concerned, SAA was in a complete mess, it was financially unsustainable. In 2019 alone a total of about R10.5 billion was set aside by government and provided to SAA before November 2019 in order to assist the entity from a financial point of view. Notwithstanding all of that on 6 December 2019, the Board of SAA and lenders who supported SAA through loans and guarantees which were provided by the National Treasury; finally decided to place SAA under business rescue. Having gone into business rescue the world and South Africa was struck by the Covid-19 pandemic in early March 2020 and this impacted on aviation nationally and globally.

7.10 The third allegation is that the decision to put SAA under business rescue was ill conceived. In the 2017/18 financial year SAA faced significant financial challenges that eventually rendered it not to be a going concern prompting auditors to suspend their evaluation until financial viability issues have been resolved. The SAA Directors were continually vigilant during this period to prevent potential reckless trading in a situation which posed significant risk to the credibility of the directors themselves. The financial concerns coupled with the potential reckless trading has resulted in an audit backlog and that backlog is something that is now being attended to.

Since 2011 SAA did not make a profit and could not generate the cash required from its revenue to cover it various obligations. In the 2019/20 financial year its situation was worse, although in early 2019 the then CEO submitted an accelerated long term turnaround strategy. The aim of the strategy was to stabilise SAA and move it out of its dire situation. Notwithstanding the formulation and submission of the strategy, it did not work. By the first quarter of financial year 2020 the airline had already recorded a net loss of R1.9 billion exceeding the budgeted loss of R1.5 billion for the quarter. The cumulative losses for the financial year stood at a staggering R5.3 billion. Despite the recapitalisation of R5 billion in February 2019, followed by another R5.5 billion in August 2019, the airline by November needed more cash.

This led to Cabinet by November 2019 deciding that the airline should be restructured and, on the hand, should seek a strategic equity partnership to lighten the burden on government fiscus. SAA required R4.1 billion in bridging finance to support its working capital towards the end of 2019 financial year, to which they had difficulty to obtain. In a decision made by Cabinet it was clear that if SAA was to be a viable, agile and sustainable airline and for the restructured airline not to depend on the national fiscus; it must be a model public-private partnership and a catalyst for growth. It must also showcase South African skills, talent and diversity in all sections of the staff to create a foundation for the listing of the SAA.

7.11 On 3 December 2019, Government approved that SAA be repositioned and restructured with the introduction of a Strategic Equity Partner (SEP). On 5 December 2019, the Board of SAA decided to place the airline under business rescue and on 6 December 2019 the business rescue practitioners were registered with the CIPC.

The objective of business rescue as set out in section 128(1)(b)(iii) of the Companies Act, 2008, is to develop and implement a rescue plan that restructures the affairs, business, property, debt and other liabilities of a company, in a manner that maximises the likelihood of the company continuing in existence on a solvent basis. The Business Rescue Practitioners published the Business Rescue Plan (“Rescue Plan”) for SAA on 16 June 2020 and it was adopted by the Creditors on 14 July 2020.

The decisions to place SAA under business rescue and not allowing it to get into liquidation situation, were both correct decisions. It was also correct from the point of view of labour that 1 000 jobs were saved directly and many more indirectly. As SAA was set to continue to grow, more jobs would be created, and more professionals would be trained in every category of staff required by the airline to run the airline. Had the staff not been awarded the voluntary severance packages that government generously provide for, they would have walked away with R28 000 to R30 000 each, - even after 20 years of service according to the liquidation formula. Given these and taking other considerations into account, the business rescue decision by the Board at that time, was far sighted and gave DPE an opportunity to save SAA in its current form.

7.12 The fourth allegation is the Department did not follow due process in appointing Takatso. Having gone through the business recue state, the responsibility of restructuring the airline portfolio of government was the responsibility of DPE. Once the Covid-19 pandemic hit South African and impacted on the airline industry negative, there were expression of interests for SAA or SAA Group. It is important to clarify at the outset that the disposal of shares transaction is not a procurement process as envisaged in section 217 of the Constitution. Section 217 of the Constitution applies when an organ of state contracts for goods and services. The disposal of SAA shares is a merger and acquisition transaction.

It is a transaction conducted by the shareholder. Notwithstanding the distinction between procurement and this type of transaction, the Department undertook a fair, equitable, transparent and competitive process. The overall objective was to obtain the best outcome for the airline and the country and for the staff. When SAA was placed under business rescue, the Department started receiving Expression of Interests (“EOI”) for the acquisition of SAA and/or parts thereof. In order to ensure an accountable, competitive and fair process, the Department appointed Rand Merchant Bank (RMB) as a transaction advisor. The transaction advisor was privy to all the expression of interests, was given all the documentation from the Department. The transaction advisor undertook to evaluate of all the expressions of interest.

Through this entire process in early 2021 a key issue that emerged was whether those who were interested in the SAA had the cash to put to operate the airline. What was clear from government’s point of view, was that there will be no additional funding from the fiscus to support the airline into the future. Similarly, from those who expressed interest, it was certainly clear that they stipulated a set of needs:

They want the past to be cleared out.
That they will take operational control.
They didn’t want political interference in the process.

7.13 Toward the end of 2020 and beginning of 2021, it became clear that the pandemic had impacted the aviation industry very badly and that there was dearth of potential SEPs in the market. When it came to putting in cash none of the players said they had cash to survive the whole pandemic period. The major impediment for many players was the issue of availability of cash and putting R3 billion as operating capital. Government was not able to impose its initial conditions and had to accede to the requirements of potential SEPs.

At this stage the mandate of the transaction advisor ended and DPE took over the process. A proposal by Harith General Partners, which had been engaged in the RMB process, and Global Aviation which later became the Takatso Consortium (“Takatso”) was made to the department. This offer satisfied the Department’s requirements including the ability to provide the funding needed to restart operations. Takatso was then appointed as the preferred SEP. Takatso had the requisite combination of financial and operational capabilities required for the successful relaunch of SAA. Their composition would advance the transformation agenda.

7.14 The fifth allegation, was that the Board of SAA was requested to assess the shortlisted bidders. The sale of shares is a shareholder reserved matter. The shareholder may delegate to the Board of Directors or any party to run the process on behalf of the shareholder. However, the shareholder can also choose to conduct the process itself. In the process of selling 51% of SAA, the shareholder chose to run the process as it is entitled to do so.

7.15 The sixth allegation, escrow account is in violation of the PFMA. The escrow account has not been created. It’s a technical provision that would have kick-in or can still kick-in if there were creditors that needed to be resolved and money was set aside for that process, for example, the payment of unflown tickets whilst the rest of the transaction could still proceed. The purpose of the share sale agreement was to outline the terms of the agreement between the parties. This standard account was established to safeguard government and Takatso against any unforeseen liabilities. The primary objective of the escrow account is to ensure that all funds related to the business rescue period are funded through this mechanism rather than directly from SAA.

This arrangement serves to limit the Government's exposure in the event of any additional liabilities. The R900 million mentioned in relation to the Escrow account is specifically tied to the outstanding unflown tickets resulting from the Business Rescue obligations and the funds were subsequently made available. Government has already made a commitment to provide the necessary funding to fulfil these business rescue obligations. Conditions precedent outlined in the SPA can be extended by mutual consent and the required funds have been provided for.

7.16 Allegation seven, SAA was undervalued. Valuations done from the middle of the recovery period of the Covid-19 pandemic and valuations done today will give a different set of results. There are different types of valuations: there is what is called the going concern valuation, which is currently being done, which produce a set of results in the coming few weeks. This will determine the current value of the business. The difference between the past and the present, is that in the past SAA was flat on the ground and the present is that SAA is flying. The valuation will produce a different set of results. The Department has been meticulous in making sure that the going concern valuation is updated, the asset valuation is updated and the assets belonging to the State will be dealt appropriately by the State and the ones for Takatso will be paid for.

7.17 Allegation eight, due diligence of Takatso not undertaken. The disposal process of South African Airways was carried out with complete transparency and adherence to the required process. A comprehensive due diligence investigation was conducted by the Department of Public Enterprises (DPE) Legal Advisors. The report was delivered to the DPE on 31 May 2021, providing a thorough and impartial analysis of both organisations. The due diligence investigation did not reveal any significant 'red flags' or issues that could impede the transaction.

7.18 Allegation nine, the former DG was not involved in the process.

8 April 2021: DG Tlhakudi writes to Harith, saying: “After due consideration, we are pleased to inform you that the DPE have progressed with your expression of interest in SAA Group to the next round being the due diligence phase” CONTEXT: This letter counters another of Tlhakudi’s key claims, that after the RMB process “Takatso and Harith were nowhere in the process of identifying the SEP”. In his own words in this letter, there had been “due consideration” of Harith’s expression of interest in the SAA Group.

29 July 2021: A meeting is held between Takatso Consortium and DPE, with the DG in attendance and participating.

25 August 2021: Meeting with Takatso and DPE, at which DG was present and participating.

August 2021: DG Tlhakudi writes to the BBBEE Commission confirming that the BBBEE Act was considered in identifying Takatso to acquire the 51% stake in SAA.

September 2021: Meeting held between Takatso, DPE and one of the two independent valuation companies that would carry out the valuation of SAA. The aim of the meeting was to discuss the valuation principles. DG was present and was instrumental in defining the principles/approach to the valuation. He had insisted that this process flow from a DG led process.

19 October 2021 – Meeting to present valuation report. He was present at that meeting.

21 March 2022: A meeting between Takatso and DPE was held to discuss the status of the Transaction. The DG was in attendance in this meeting. It was also the meeting where the DG expressed his concerns on the pace of the Transaction and implored on Takatso to fast track the process so that Takatso can acquire SAA.

29 March 2022: Right at the onset of the Transaction, Takatso had excluded Mango from the SAA structure. However, on this day, Takatso receives a letter from DG Tlhakudi requesting us to express interest in acquiring Mango, which expression of interest was to be accompanied by a statement of the business case.

These are the dates where Mr. Tlhakudi was involved in the process until his dismissal.

7.19 Allegation 10, Vacancy Rate has been 20% over years. These are departmental issues that are of no relevance to him now. Mr. Tlhakudi had a habit of filling vacancies for the sake of filling it, spending money on junior positions and administrative positions when in fact the Department required high level skills. It required capabilities for example to engage on energy issues, logistics issues in relation to Transnet, or defence issues in relation to Denel. The focus on the Minister’s side was bringing in more expertise of this sort to enable the Department to build on the effects of state capture and reposition the SOEs. There is vacancy rate at the junior level and the acting DG is working on bringing in short term expertise in order to strengthen the Department.

7.20 Allegation 11, there is a climate of fear in the Department. The only people who have some apprehension in the Department are those who are leaking documents to him. After his suspension Mr. Tlhakudi continued to send WhatsApp messages to the people in the Department. The Department is more creative, professional and forward thinking than it has been in a long time.

7.21 Allegation 12, paralysis in decision making. There is no paralysis in whatever the Department is required to do, gets done whether from the administrative or policy sense. This is done not only in the Department but across government. The processes that the Department has been involved in includes for example, just energy transition, restructuring of Eskom, the challenges facing the logistics system, partnerships with business which has been outlined by the Presidency.

7.22 Allegation 13, toxic administration and political environment. The Department remains accountable to Parliament and the Republic and has over time built a culture of accountability and integrity within the Department often challenging at times, but nothing is compromised as far the Minister is concerned. Mr. Tlhakudi’s assertions are irrelevant and have nothing to do with the future of the Department.

7.23 Allegation 14, Departmental Spine and Alleged Bullying. The commentary is directed at the acting Director General which Mr. Tlhakudi chooses to make which is disrespectful, improper, unethical and he should now mind his own business. The Department states that there is zero tolerance for bullying anybody.

7.24 Allegation 15, Disciplinary action against official aligned to former DG. As far as the Department is concerned there is no victimisation of anybody but there are people who have crossed the line. And if you have crossed the line in respect of the law, administrative rules, not conducted themselves properly or don’t perform the job as they are required to, not meeting the targets that have been set by the acting Director General or Deputies Director Generals, then staff must face the consequences of whatever it is that they have done. Performance is a key issue within the public service more generally as well. The department reiterates its commitment to governance and integrity.

7.25 The last allegation is a commentary on unqualified audit reports only during DG’s tenure. The Department continues to obtain unqualified audit report as a result of the work of the acting DG and colleagues. Even during the suspension of Mr. Tlhakudi, the Department continued to obtain unqualified audit reports. The Auditor General can confirm this assertion. The systems that are within the Department have held firm and the attention given to the issues directed to the Department has alleviated some of the challenges that were there.

8. Evidence and information obtained

The process of gathering evidence was done through the Office of the Chairperson. The former Director-General has made allegations against the Minister. It was therefore necessary for the Committee to inquire about the allegations directly from the Minister. There have been several written exchanges between the Office of the Chairperson and the Minister regarding information relating to the allegations. The Minister has on several occasions cited the confidentiality clauses that he entered with other parties as a reason for not providing information.

8.1 List of Documents

For the purposes of this exercise the Minister provided this list of documents:

BBBEE Verification Certificate – Harith General Partners Pty (Ltd) 2021.
- The BBBEE verification certificate states that Harith General Partners (HGP) is a level four contributor.
Harith General Partners due diligence report.
- HGP due diligence report deals with issues of anti-bribery and corruption. This was done by Norton Rose Fullbright a global law firm. Some of the issues highlighted in the due diligence report are summarised below:
- HGP directors and management are:

Tshepo Daun Mahloele

Michael John Olivier

Jabulani Philip Moleketi

Sipho Daniel Makhubela

Dawid Johan Nieman Roshan Morar

Dolika Enelessi Banda

Patrick Sebenzile Mngconkola

Arthur Mabotha Moloto

Lungile Constance Cele

Shareholders are:

Harith Holdings (Pty) Ltd (70%)

Public Investment Corporation Ltd (30%)

Considerations, recommendations and red-flags
- The following risks are highlighted:

HGP is partially state owned, with 30% of the shareholding held by the Public Investment Corporation. A number of the board members are either active or inactive PEP’s. Note that Mr Mahloele, Mr Moleketi, Mr Mngconkola, Mr Morar and Mr Molete are all former senior executives of the PIC. Although state ownership is not in itself a risk, we note that establishment of the company, its operations and certain politically exposed persons (PEP’s) serving on its board and management have been the subject of scrutiny.

There has been substantial adverse media relating to HGP and certain of its board members since around 2017, with the focus being on the company’s position as the fund manager of the Pan African Infrastructure Development Fund and alleged misconduct between the company and the PIC (from within which it was established). The subject of the allegations was included in the terms of reference of the PIC Commission of Inquiry, in which HGP presented evidence against the allegations. The PIC Commission Report raised various concerns, particularly relating to loans, fees, structuring and establishment of HGP and recommended that the PIC conduct further investigations. HGP has denied the allegations, and generally welcomed a finding of “no corruption” – releasing press statements thereafter on the concerns of the PIC Commission.

Global Aviation Operations due diligence report.
- Global Aviation Operations (GAO) due diligence report deals with issues of anti-bribery and corruption. This was done by Norton Rose Fullbright a global law firm. Some of the issues highlighted in the due diligence report are summarised below:
- GAO directors and management are:

Kobote Johanna Molefe

Popo Simon Molefe

Jonathan Gideon Rosenzweig

Quentin Tomaselli, CEO

GOA shareholders:

Kobote Johanna Molefe

Popo Simon Molefe

Jonathan Gideon Rosenzweig

Quentin Tomaselli, CEO

Considerations, recommendations and red-flags
- Risks for the client to be mindful of include that:
- the board members and shareholders include Popo Simon Molefe, a politically exposed person as well as Ms Johanna Jobote Molefe, who may be his wife/other family member.
GAO has basic ABC compliance initiatives in place, but does not have a comprehensive ABC policy, does not appear to provide training to employees and does not regularly assess its exposure to bribery and corruption. In addition, it does not conduct independent integrity checks on third parties.
Adverse media on the company and its directors are limited. We note however that there may have (in around 2013) been links to a company/airline called PAK Airline with alleged ties to the controversial former South African ambassador to Iran, Yusuf Saloojee. These links no longer appear to be in place.
It is not clear whether the shareholding information provided refers to direct (level 1) shareholding or whether there are holding companies between GAO and the ultimate beneficial owners. This needed to be clarified.

Service Level Agreement (Mandate Letter), Rand Merchant Bank.
- The service level agreement involves the following:
  - Key assumptions relating to the mandate.
  - Transaction structure.
  - Mandated tasks.
  - Fees.
  - Duration.
Terms of Mandate, Rand Merchant Bank.
- Terms of mandate include the following:
  - Variation, suspension or cancellation of mandate
  - Fees
  - Recoverable costs and other expenses
  - Indemnity
  - Limitation of liability
  - Confirmation and undertakings
  - Confidentiality
  - Material Interests
  - Disputes
  - Governing law and jurisdiction

An affidavit, BBBEE Exempted Micro Enterprises-General, Takatso
- An affidavit was submitted by Takatso director, Ms Lizeka Valerie Matshekga in which she states that the consortium is a level is 100% Black owned and is level one BBBEE contributor.
SAA Valuation Report, 14 December 2021.
- The valuation report done by Letsema on 14 December 2021 considers three divisions SAA SOC Limited (Ltd), Air chefs SOC Ltd and SAA Technical SOC Limited.
- Sources of information in the valuation report include are:

8.2 SAA SOC Limited

The corporate plan for SAA for the period 2021/2022 to 2025/2026
Discussions with management during the month of September and October 2021
Group Results Summary March21

8.3 Air Chefs (SOC) Ltd

The Corporate Plan for Air Chefs for the period April 2021 – March 2027
Discussions with management during the month of September and October 2021
Air chefs SOC Limited Final Budget document (management accounts)

8.4 SAA Technical

The SAAT Restructured Business Plan 2020/21 – 2024/25
Discussions with management during the month of September and October 2021
Letsema for SAAT document (management accounts)
SAAT Financial Performance report (July 2021)

8.5 General

Historical financial data from Management accounts and financial statements (pre-2021)
Relevant information gained via a number of internet searches including salient information from the financial press and various data bases.

The valuation summary according to Letsema is as follows:

South African Airways (SAA) SOC Ltd. Attributable equity value RNIL, (negative R859 million).
Air Chefs SOC Limited. Attributable equity value RNIL, (negative R63.4 million).
SAA Technical SOC Limited. Attributable equity value RNIL, (negative R164.7 million).
SAA Group Valuation. Attributable equity value RNIL, (negative R1,087.1 million).

8.6 Evaluation of the submission of the Minister of Public Enterprises

The Minister in his submission to the Committee has outlined that a new valuation of SAA is underway. The values of SAA may change subject to the new valuation being completed. This implies that the valuation of the entity was did not consider other accounting factors.

The outstanding documents which were requested from the Minister were the following:

Shortlist of selected entities from which a final determination was made.
Service level agreement and evaluation report performed by the Rand Merchant Bank.
Share sale and purchase agreement.

On the 28 February 2024, the Minister submitted the outstanding documents to the Committee. These documents are critical in determining if there was no impropriety in the SAA transaction. The Minister requested that the documents be shared in-camera. The Minister also requested the Committee Members to sign Non-Disclosure Agreements. However, the Committee accepted the request for in-camera meeting, however, it did not subject itself to Non-Disclosure Agreements. The Minister was remined of the constitutional injunction that Members of Cabinet are accountable collectively and individually to Parliament for the exercise of their powers and performance of their functions. Members of the Committee take an oath when sworn-in as Members of Parliament, and the Constitutional Court has recognised that this oath supersedes the even their party allegiance.

The Committee decided that a copy of the documents be shared with the legal advisor who presented a briefing note to the Committee about the whether Takatso was part of the initial shortlist. The Committee Members never had a chance to go through the documentation that was provided by the Minister due to his request that the document must not be shared due to the nature of confidentiality of the SAA-Takatso transaction. Another reason that was given was that the transaction was still live and some contents to it such as the share sale and purchase agreement, remained confidential.

According to the documentation that has been furnished to the Committee, it is apparent that when RMB assessed and evaluated the Expressions of Interest (“EOIs”) of potential SEPs, Takatso Consortium i.e. Harith General Partners (“Harith”) and Global Aviation Operations (“Global”) were not on the shortlist. Reference to Harith in the RMB report was in relation to its interest in Mango and it did not express an interest in the SAA Group. At the end of Phase (EOI Evaluation), the most promising of the EOIs were identified to be from ASL/BlueSky Consortium and the Fairfax Consortium. However, the inability of both consortiums to provide proof of funding was found to be a handicap.

This meant that there were no suitable SEPs that could be identified as none of the potential SEPs had an offer that could be accepted by the DPE, as these entities were not showing evidence of immediate funding to restart operations.

At this stage, RMB requested to be released from the contract and the DPE took over the process. The DPE set up an Evaluation Committee of officials led by the former DG which evaluated four potential SEPs: namely ASL/Blue Sky, Air-A/Lufhansa Consulting, Global and Harith. The DPE’s Evaluation Committee made use of the following criteria: strategic fit, funding capacity, operating capacity, national interest, executability and certainty. The DPE’s Evaluation Committee was led by the former DG because in a memorandum dated 7 April 2021, addressed to the former DG by Ms Jacky Molisane, - who was the DDG for Financial Assessment and Investment Service (“FAIS”), and whose purpose was to request the former DG to note the progress in concluding the strategic equity partner process and to sign letters to the SEPs advising on the stage of the process, - it is evident that the former DG signed on the said memorandum on 8 April 2021.

On 13 March 2024 the former Director-General wrote a letter to the Speaker of Parliament refuting claims that he authored a memorandum which was purported to have been signed on 8 April 2021. He maintained that the memorandum is fraudulent. He stated that there was an evaluation committee tasked with the evaluation of the Takatso Consortium offer against the four bidders (ASL/Blue Sky, Air A/Lufhansa, Global and Harith). No minutes of this proceedings were furnished to the Committee by the Department of Public Enterprises. The former Director-General states that the Minister chose Takatso Consortium on his own and set up a negotiating team in the Ministry to negotiate the terms of the deal with his preferred SEP. The team was led by the Minister’s advisor, which is irregular in terms of the Ministerial Handbook.

The Minister announced on 13 March 2024 that the sale of 51% stake in South African Airways (SAA) to the Takatso Consortium has been cancelled. The Minister did not mention the terms of the cancellation or whether any payment was due to Takatso.

9. Submission by the Auditor-General of South Africa (AGSA)

The Auditor-General of South Africa (AGSA) on October 2022 highlighted the emerging risks related to the SAA transaction. The DPE embarked on a process to sell 51% of its shares to strategic equity partner. While the transaction was not yet finalised, the AGSA reviewed the process followed and the agreement signed with the SEP to determine the impact on the DPE financial statements and to identify risks facing government.

9.1.1 Overall observations

The purchase and sale agreement requires more than R3bn to be paid by DPE to complete implementation of the BR plan. Funds to cover this liability have not been appropriated in the budget.
The Department did not follow a formal process for the invitation, evaluation and adjudication of proposals from interested parties to identify the success/ preferred strategic equity partner.
1. No public invite for bids or expressions of interests.
2. No evidence that proposals were fairly evaluated based on a pre-determined criterion.
The Valuation Report that was used to determine the transaction value, was not timeously provided.

9.1.2 Impact

The sale is part of the Department’s strategic goal to resuscitate the SAA. Should the sale transaction not be properly processed, it may result into further losses to the State or delays in making the entity fully operational. It is important to ensure that the transaction is advantageous to the state.

9.1.3 Cause

There are no clear legislative provisions for the disposal of SOEs, SOE non- core assets or SEP transactions –to ensure that the process and terms are beneficial to the State.
The DPE does not have a policy that regulates the disposal of shares in SOEs.

9.1.4 Recommendations made by AGSA.

There is an urgent need to develop a clear regulatory framework for SEP transactions as government has plans to engage in more of these transactions.

10. Findings

The Committee made the following findings:

10.1 The Committee commended the former Director-General for entrusting the Committee with the responsibility to investigate the allegations of irregularity in the South African Airways transaction.

10.2 The Committee acknowledged the timeframe stipulated in the Protected Disclosure Act in terms of the processing of a protected disclosure. However, the Committee sought to exercise caution, diligence and patience with the affected parties to ensure a fair and credible process.

10.3 The Committee afforded all affected parties an opportunity to state their side of the story and to submit all material evidence to support and counter the allegations brought before the Committee.

10.4 The Committee noted with concern that, despite writing numerous requests to the Minister of Public Enterprises to submit the relevant documents to counter the allegations made by the former Director-General, the Minister has only submitted some crucial documents as requested. These were very late into the investigation and came with the condition for Non-Disclosure Agreements and for the meeting to be held in-camera. This led to the Committee having difficulty to go through the documents and to form their own opinions and analyses of the transaction.

10.5 The Committee raised concern that the documents that the Minister failed to submit, were critical for the Committee to be able to test the veracity of the allegations. Hence, the failure of the Minister to submit that evidence on time has not assisted the process. It also did not provide the Committee with any tangible evidence to persuade the Committee not to believe some of the allegations made by the former Director-General.

10.6 The lack of transparency on the South African Airways transaction and the lack of documentary evidence further cast aspersions and doubt on whether SAA transaction was indeed above board.

10.7 The Committee has acknowledged that the lack of a clear regulatory framework for SEP transactions from the Department of Public Enterprises, has put government at risk with respect to the SAA transaction. The Minister was mandated by AGSA to develop a framework which still needs to be submitted to the Committee.

10.8 The Committee could not determine the exact valuation of the SAA-Takatso transaction. The new valuation details were not submitted to the Committee. It is imperative that these valuation details are shared with the Committee.

10.9 The Committee acknowledges, that through media, the sale of 51% stake in South African Airways to Takatso Consortium has been cancelled. However, it would have put the Committee at ease had the Minister informed the Committee of the cancellation and terms and conditions to cancel the sale.

10.10 One of the allegations by the former DG was that RMB was handpicked by the Minister as the sole provider of transaction advisory services in the aviation space. This was done even though the market was never tested by the Department regarding this assertion by the Minister. The Department has not provided the Committee with a justification as to why the market was not tested in this regard. Furthermore, the Committee was advised that the reason for appointing RMB in the first place, was that there was no capacity within the DPE to do what was required given the magnitude of the transaction in question.

10.11 Curiously, when RMB requested to be released from the contract as the Transaction Adviser, the DPE saw fit to replace RMB with an internal Departmental Technical Team. The question begs: when did the DPE possess this scarce skill that had necessitated the DPE to appoint RMB via a deviation? Hitherto, the Committee has not been provided with a plausible response in this regard.

10.12 Furthermore, there is no denying that when RMB assessed and evaluated the Expressions of Interest of potential SEPs; Takatso Consortium i.e. Harith and Global Aviation were not on the shortlist. Reference to Harith in the RMB Report was in relation to its interest in Mango and it did not express an interest in the SAA Group. The former DG contends that even in the shortlisting process that ensued after RMB had requested to be released from the contract, Takatso was not on the shortlist, but was later included. The Minister has not provided a credible response to the said allegation.

10.13 The other allegation which the former DG levelled was regarding the manner in which this transaction was conducted which led to the undervaluation of SAA. From what was in the media, it appears that government “buckled” under pressure and walked away from the transaction because the exposure of this under-evaluation and the concomitant media exposure. The figures which the DPE had agreed to regarding the sale of SAA are worlds apart from the current valuations and this leaves much to be desired.

10.14 The absence of a framework on the disposal of shares for the SEP transactions is a cause for concern as the government has plans to engage in more of these transactions. The DPE has confirmed that such a plan has been developed but, to date, the framework has not been provided to the Committee.

10.15 As we now know, the former DG has emphatically disputed the authenticity of his signature on the memorandum signed on the 8 April 2021, and this presents a very serious dispute of facts which can only be resolved by an entity which has forensic capability.

10.16 The Committee cannot say that the SAA – Takatso transaction was above board and will, in this regard, be recommending that law enforcement agencies must do their work in unravelling the truth about this transaction, particularly the alleged forgery of the former DG’s signature in the SEP appointment process.

11. Committee Recommendations

The Committee recommends that the Minister of Police:

11.1 should consider referring this matter to the Special Investigating Unit, for further investigation.

12. Conclusion

Having considered the petition of the former Director-General, Mr Kgathatso Tlhakudi, the Committee wishes to thank the Minister of Public Enterprises for his co-operation, and Mr Tlhakudi for entrusting Parliament with the responsibility to investigate this matter.

Report to be considered.

Documents