Committee Report on allegation of irregularities in SAA sale

Public Enterprises

20 March 2024
Chairperson: Mr K Magaxa (ANC)
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Meeting Summary

The Portfolio Committee on Public Enterprises convened in Parliament to deliberate and finalise its report on the petition of the former Director-General of the Department of Public Enterprises (DPE) on allegations of irregularity involved in the cancelled South African Airways-Takatso strategic equity partnership.

The Chairperson highlighted the allegations the former Director-General (DG) brought forward against the Minister of Public Enterprises. These allegations included Rand Merchant Bank (RMB) being hand-picked by the Minister as the sole provider of transaction advisory services in the aviation sphere, Takatso Consortium not being included on the shortlist of potential strategic equity partners (SEP), the undervaluation of South African Airways (SAA), and the authenticity of the DG’s signature on the Molisane Memorandum.

The Committee had been concerned about SAA’s financial viability after the cancellation of the SAA-Takatso deal. The Minister had indicated that SAA would be able to sustain itself for 12-18 months after the deal's cancellation. However, it had previously been indicated that the deal was important for SAA’s viability, and that programmes were meant to be rolled out once the deal had been finalised. The Committee also noted that the deal would be three years old in June, and were concerned about the impact of the delay on SAA.

The Committee raised questions about the undervaluation of SAA, and said it was important for this to be further investigated. Members felt that understanding the process behind the undervaluation would shed valuable information on the dynamics behind the SAA-Takatso deal.

The Committee was in agreement that the matter had to be referred to the Special Investigating Unit (SIU) for further investigation. The SIU was equipped to conduct a thorough investigation, especially regarding the alleged forged signature of the former DG. The SIU investigation would allow the Committee to properly understand the irregularities that may have occurred in connection with the deal. All Members were in support of referring the matter to the SIU.

The Committee suggested that in future, Parliament should be a part of the decision-making process in terms of decisions such as the SAA-Takatso deal. The decision could not be left entirely to the Executive. This would ensure that due diligence was done and the necessary consultations took place.

The Committee was of the view that SAA and the DPE should make a formal briefing to the Committee on the cancellation of the SAA-Takatso deal and the plan for SAA moving forward.

Meeting report

The Chairperson said that the purpose of the meeting was to deliberate and conclude on the submission made by the former Director-General (DG) of the Department of Public Enterprises (DPE) against the Minister [of Public Enterprises] regarding alleged irregularities in the South African Airways (SAA)-Takatso transaction. The Committee was meant to conclude the matter. The Committee had received the necessary facts, and was meant to come to a resolution.

Committee briefing note

The Committee had afforded both the former DG and the Minister the opportunity to address the Committee regarding the allegations.

One of the allegations by the former DG was that Rand Merchant Bank (RMB) was hand-picked by the Minister as the sole provider of transaction advisory services in the aviation space. This was done despite the market not being tested by the DPE regarding this assertion by the Minister. The DPE provided no justification as to why the market had not been tested. The Committee had been advised that RMB was appointed because the DPE did not have the capacity to do the work required. The work had been outsourced to RMB.

When RMB requested to be released from the contract, the DPE replaced RMB with an internal technical team. When did the DPE gain the skills and capacity required for the work RMB had been appointed for? The Committee had not been provided with a response on this matter.

When RMB assessed and evaluated the expressions of interest of potential strategic equity partners (SEPs), Takatso Consortium was not on the shortlist. One of the major allegations made by the former DG was that Takatso Consortium had not been on the shortlist. Takatso Consortium’s interest in Mango had been noted in RMB’s report – there had been no expression in the SAA group. Takatso had been included at a later stage. The Minister had not provided a credible response to this allegation.

A further allegation made by the former DG revolved around the undervaluation of SAA. Based on what was in the media, it appeared that government had buckled under the pressure and walked away from the transaction because of the undervaluation. The figures agreed to by the DPE regarding the sale of SAA were worlds apart from the current valuation.

The absence of a framework on the disposal of shares for the SEP transaction was a cause for concern, as government had plans to engage in more of these transactions. The DPE confirmed that a plan had been developed, but the framework had not yet been shared with the Committee.

The former DG disputed the authenticity of his signature on the Molisane Memorandum. The Chairperson had received correspondence from the former DG stating that he had not signed any documents that the legal advice had referred to. This serious dispute could only be resolved by an entity with the capacity for forensic investigations. The Committee should seriously consider referring the matter to the Special Investigating Unit (SIU) for further investigation. The Committee did not have the capacity to prove whether the signature had been forged or not.

While the Committee was privy to the news of the cancellation via the media, the Minister had not to date briefed the Committee on the cancellation, despite the Committee being the constitutional structure to which the Minister must account. The Minister had called the Chairperson ten minutes before the media briefing to inform him that the Cabinet had made the decision to terminate the SAA-Takatso transaction.

The Committee could not say that the SAA-Takatso transaction was above board. It would recommend that law enforcement agencies had to do the necessary work to unveil the truth about the transaction, particularly regarding the alleged forgery of the former DG’s signature.

Discussion

The Chairperson said that the Committee had had the opportunity to view the documents. The purpose of viewing the documents was to uncover whether Takatso had been on the shortlist. The Committee had noted that Takatso had not been shortlisted but was included on the list after RMB had left. In the DPE’s finalisation of the process, Takatso had been included. The manner in which this process had been completed was questionable. The DPE did not have the capacity and had decided to outsource the work. The work had been outsourced to RMB, and the former DG alleged that the contract had been given to RMB without following the correct process. This required a proper investigation above the Committee’s capacity as Members of Parliament. The investigation had to be done by a credible and empowered structure. This could be done by the Special Investigating Unit (SIU), but would be determined by the Committee.

The Chairperson invited Members to provide input on the briefing note.

Mr S Gumede (ANC) said the briefing highlighted some of the Committee’s concerns. There were many questions, but the current situation did not allow for these questions, and no one was in a position to respond to them. He suggested that any other requests or disputes communicated to the Chairperson should follow a process as the briefing note.

The Committee had been very vocal about cancelling the SAA-Takatso deal. He was concerned about the status of SAA. Did SAA really need a SEP? He felt that the role of a SEP for SAA was no longer needed. SAA had operated without any assistance or contribution from the SEP. No funds had been paid yet.

Mr Gumede agreed that the Committee did not have the expertise to perform the necessary investigation. If it was not necessary to do the analysis of the signature, the Committee could have potentially performed the investigation. It was difficult to determine the authenticity of the signature. If this was disputed, it had to follow the investigation process. All parties would be interested in determining the authenticity of the signature.

Mr Gumede said that the matter should be referred to the Speaker so that she can pursue the investigation.

Dr M Gondwe (DA) expressed her support for the proposal to refer the matter to the SIU, which was better placed to conduct a thorough investigation into the deal.

She said it was important to confirm whether the DPE had done due diligence on the valuation of SAA, especially on SAA’s future projected earnings and the viability of Takatso Consortium as a potential SEP, and Takatso’s ability to raise the required capital to meet the purchase agreement.

The Committee would be failing its duty if it did not ask the Minister and SAA to explain how SAA would be able to sustain itself after 18 months. When the Minister announced the cancellation of the deal, he indicated that SAA would be able to sustain itself for 12-18 months, irrespective of the cancellation of the deal. The Minister had said that at this time, SAA would be able to recover its operating costs. SAA had appeared before the Committee a few weeks ago to table the entity’s missing financial statements, and she had asked a question around the importance of the deal and what the impact of delaying the deal would be. In June, the SAA-Takatso deal would be three years old. The response received was that the deal was important because many programmes had to be rolled out on the basis of the completion of the deal. How would SAA survive for 12-18 months after the cancellation of the deal? When would SAA get a SEP? The Minister had indicated SAA would not get a bailout. How would SAA continue to be a financially viable entity? It was important to establish the implications of the cancellation of the deal on SAA’s audit outcomes. It was also important to get the full picture of SAA’s financial viability in light of the cancellation of the deal.

Dr Gondwe supported the Chairperson’s proposal to hand the matter over to SIU for further investigation. The SIU had the capacity to determine whether there had been due diligence, and other red flags and irregularities. There had been several red flags around the transaction, including secrecy and other aspects of the deal. For example, Treasury had been left out of the picture, despite Treasury holding the purse strings of the country and had bailed SAA out a number of times. She hoped the SIU investigation would shed some light on the Committee's questions.

Ms N Mhlongo (EFF) said that there was no crisis at SAA. The crisis was man-made, to pave the way for the Takatso deal. The only thing SAA needed was proper management, political guidance and direction, and an appetite from government to save SAA and ensure that SAA became a strategic entity.

She agreed that the matter had to be investigated further, and that the SIU was best suited to investigate the deal.

The Committee could not lightly accept the Minister’s announcement that the deal had been cancelled. SAA had almost sold 51% of its shares without due process being followed. The matter had to be investigated to determine whether everything had been done above board. The letter from the former DG indicated that he had not signed the documents that the DPE had submitted to suggest that the process of appointing Takatso was above board. The Committee did not have the expertise to authenticate the signature. A proper investigation body had to investigate the matter.

Ms Mhlongo said that there was no concrete evidence to support the utterances of the Minister. The Minister had said that an evaluation would be done, and that a new evaluation of SAA had been done. Based on the legal advice received, there was no evidence to support that there had been further evaluations of SAA. This meant that the evaluation had been done during COVID-19, when flights had been grounded and were not fully operational.

Ms Mhlongo referred to the Evaluation Committee meeting that had highlighted the four shortlisted potential SEPs. She was unsure whether there were minutes and an attendance register of the meeting.

She said that the Committee could not make a final conclusion on the matter. The Committee was able to browse through the documents, but had not been able to fully engage with the documents when the Minister had shared them. The Committee had been given a short period of time to look at the documents, but they were not able to read them fully. It was not always the case that a legal opinion was correct. For example, the previous Speaker of Parliament had received a legal opinion on the issue of “pay back the money” which had stated that it was correct, but the decision was later taken to the Constitutional Court and it was found that the legal advice was incorrect. The Committee could not conclude the report based entirely on the legal advice received. There were cases where the legal advice was incorrect.

Ms Mhlongo said that the Committee was not allowed to read the documents fully. Continuing in this manner suggested that the Committee had given in to the Minister. The documents of the SAA-Takatso deal remained confidential. How could the documents still be confidential when the deal had been cancelled?

She suggested that in future, deals of this magnitude should not be a decision made solely by the Executive. The decision should include Parliament. A minister alone could not decide to sell 51% of shares of a state-owned entity (SOE). Parliament should be involved in the decision-making process to ensure that there were proper consultations, and to ensure that due diligence was followed. This would prevent more situations like the SAA-Takatso deal, which had taken nearly three years. The Minister was still not providing full accountability for how the decision to cancel the deal came about.

Ms C Phiri (ANC) said that the Committee should not lose focus that the meeting had to come to a conclusion of the task given by the Speaker regarding the allegations of the former DG. She agreed that the Committee was not given sufficient time to review the documents, but felt that it was clear that Takatso had not been part of the shortlist and had not expressed an interest in becoming a SEP. The Committee had many questions about the deal, and it was unfortunate that it was towards the end of the sixth administration.

She agreed that the Committee should recommend that the SIU perform a further investigation back to the Speaker. The former DG had been correct that Takatso had not been shortlisted. Both the former DG and the Minister had had the opportunity to address the Committee. Accounting officers had the role of advising the Minister. The accounting officer had the opportunity to write a letter stating that he had received an unlawful instruction from a politician or Minister – this letter was on record, stating the unlawful request, and could protect the accounting officer at a later stage. The Minister had said that the former DG had signed, and the former DG was adamant that he had not signed the document. This was a case of the Minister’s word against the DG’s. A full investigation had to be done on this issue. It was possible that both parties were aware of the issue, but could not come to an agreement.

Ms Phiri referred to the SAA undervaluation. She felt that this showed that there were issues with the whole deal. When something was sold at a lower value it was unlawful, as it was not the true value of the entity. The Committee needed clarity on what the issue was in terms of the undervaluation.

She asked if the deal was in process when the Minister announced the cancellation. Had Takatso injected funds into SAA? There had been a statement that SAA would be financially viable for 12-18 months -- did this mean that the entity would not survive after 18 months? Was the DPE assuming that after 18 months, SAA would not make a profit? Was there a plan to make SAA unsuccessful and unprofitable? Were there any cancellation fees connected to the deal?

Ms Phiri noted that the purpose of the meeting was not to get answers to these questions, but rather that the Committee had to come to a conclusion on the letter of complaint by the former DG. The Committee would recommend that the Speaker refer the matter to the SIU for further investigation.

She asked if the seventh administration would have a Portfolio Committee on Public Enterprises. Would the matter just disappear?

Mr N Kwankwa (UDM) agreed with the Chairperson’s proposals. He felt it was important to establish why RMB had wanted to be released as an advisor. This would answer how Takatso became part of the deal and help the Committee understand the dynamics of the deal and why the DPE made the decisions it made. The Chairperson was correct in saying that based on the DPE’s outsourcing to RMB; the DPE did not have the expertise and capacity to undertake the transaction. Following RMB’s request to be released from the contract, the DPE suddenly had the capacity to do the work themselves, which was very suspicious.

He said there were pitfalls in only the legal department having access to the documents. This meant that the Committee could rely only on the legal opinion regarding the findings. The Committee had not been able to exercise its independence and perform an independent evaluation regarding what was contained in the document and what was stated in the legal opinion. There was also the potential that the legal opinion was incorrect. In the event that there was an error in the legal opinion, the Committee had not been able to do an independent evaluation.

Mr Kwankwa suggested that Parliament and the Committee propose a way of addressing decisions of this nature in the future. Parliament should form an integral part of the decision-making process. The decision could not be left to the Executive alone. The Executive alone could not decide that the deal was cancelled and then casually via phone call to notify the Chairperson. The Committee had been given no time to perform its own independent assessment and determine why the deal had been cancelled. The Executive had no problem requesting money from the Committee when it was needed for the business rescue process or bailouts, but when it came to important decisions, such as the cancellation of the deal, the Committee was left out and not consulted. Like other South Africans, the Committee had to watch the situation unfold on television.

Mr Kwankwa felt that there was more than what met the eye regarding the undervaluation of SAA. When conducting a business evaluation, an assessment would be made of the total economic value of the business and its assets. When this was done, an income-based, market-based and assets-based approach had to be used. The letter from the former DG indicated the use of the assets-based approach. The assets-based approach would not have resulted in the valuation that led to the decision to sell 51% of SAA. If a comprehensive evaluation was done, critical questions could be answered. Parliament was obligated to determine how the valuation had been conducted and how SAA came to be undervalued. He noted that the evaluation had been done during COVID-19, but if proper due diligence had been done, a fair evaluation could have resulted. The corruption had started there. COVID-19 was being used as an excuse for the undervaluation.

The SIU investigation had to look into how SAA was undervalued and the process followed in the evaluation. The results of this investigation would likely show that someone was benefiting from the undervaluation of SAA. The sequence of events was not a coincidence – once the Committee had demanded documents from the Minister and the DPE, the deal had been faced with challenges. Yet when the Minister met with the Committee, it was indicated that the DPE could not share sensitive information and put the deal in jeopardy. The Minister’s press conference seemed to indicate that the Minister “knew” that the deal was going to fall apart, but this was not the impression the Committee was given when meeting with the Minister and DPE officials. He felt that the Minister and DPE officials did not respect the Committee.

Mr Kwankwa said that the Committee had established the veracity of the allegations made by the former DG against the Minister. Based on the existing evidence, it seemed as if most of the allegations were credible. If Parliament did not have the investigative capacity to deal with the matter, the matter should be referred to the SIU and other relevant law enforcement agencies. This would ensure that those at fault were brought to account.

Mr F Essack (DA) referred to the Committee’s meeting with the DG at the Taj Hotel in 2023. This meeting implied that there was more involved than what was being shared.

After reading the documents, he said that Section 227 stated that the Committee was to hold the Executive to account. To be told that the Committee had to sign a non-disclosure agreement (NDA) was offensive. He had never been asked to sign an NDA as part of a parliamentary committee in his entire political career.

He emphasised that the Committee had to be briefed urgently on the sustainability of SAA moving forward. This could not be neglected while the cancellation of the deal unfolded. It might result in a situation where there was an application for a bailout. He requested that the Chairperson facilitate a meeting on this matter.

Mr Essack noted the Minister’s media briefing with the SAA staff and the morale-boosting exercise. He expressed his concern for SAA employees.

He said that the SAA-Takatso transaction had been ongoing for three years, which was a long period of time. Why now was there suddenly a push to get the transaction concluded before the end of the sixth administration, or before the Minister’s retirement?

Mr N Dlamini (ANC) said that there were more questions than answers at this stage about the deal. When the Committee looked at the documents, one thing came to mind -- that when RMB was involved in the process, Harith and Global Aviation (Takatso) could not demonstrate their financial capacity and were disqualified. Suddenly, when the DPE was in charge of the process, Takatso emerged and qualified.

He highlighted an allegation made by the former DG, where Mr Gidon Novick was quoted stating that he had been approached to be a part of the deal.

Mr Dlamini said that when the Committee met with the new SAA board, the Committee had asked about the evaluations. When it was meant to do an oversight visit to SAA, the Committee would have had an idea of SAA’s assets. However, the oversight visit had been cancelled the day before the visit was meant to take place.

He referred to when the DPE had decided they had the capacity to do what RMB had been contracted to do. Were they breaking any rules? If not, why did the DPE outsource to RMB if they had capacity?

Mr Dlamini agreed that a further investigation was necessary. The former DG was now disputing the signature on the documents. If it was not the former DG’s signature, someone had forged the signature. This was a crime. Meeting with the former DG and Minister simultaneously would have been beneficial.

Ms J Mkhwanazi (ANC) agreed that the matter had to be referred to the SIU for further investigation.

She said that the involvement of RMB was a concern. The main issue was whether Takatso was on the shortlist and how they had been appointed. With regard to this, the Committee had achieved what was set out.

It was unfortunate that the process had to be dragged out. If the Ministry had been able to provide the information and address the Committee, this issue would have been resolved sooner. She noted that the framework had not been provided to the Committee, and the oversight visit had been cancelled. This could not be overlooked. She felt that cancelling the oversight visit was a deliberate attempt to prevent the Committee from doing oversight.

She reiterated that the matter had to be referred to SIU for further investigation, especially regarding the alleged forged signature of the former DG.

The Committee should suggest that it had to conduct oversight at SAA. This was an important aspect of the Committee’s duties. It should also request a report on the cancellation of the deal from SAA and the DPE, and the plan for SAA moving forward.

Closing Remarks

The Chairperson thanked the Members for their input. He noted that they were all in agreement on referring the matter to the SIU. They had highlighted various reasons, but ultimately, they were motivating for further investigation. This investigation would help the Minister and the former DG, and had the potential to absolve both of them. The Committee was not in the position to absolve anyone. The Committee did not have the capacity to carry out further investigations into the matter.

He thanked the Members for their patience, perseverance and consistency in dealing with the matter. It had been clear from the start that the SAA-Takatso deal would be problematic. He had thought that the Committee would be divided on the issue, based on party and political alliances, but the Members had acted as one. He emphasised that this was a very important issue. There had been no glaring conflicts amongst Committee Members or with the Ministry.

The Chairperson said that there would be a committee performing oversight over state-owned enterprises (SOEs). SAA would be brought to account. Following the SIU’s investigation, the committee linked to SAA would continue this work.

He apologised to the media and public, who had been excluded for confidentiality reasons at the previous meeting. He commented that it was meant to be a public session, but due to the confusion and legal issues, a part of the meeting had been confidential.

The meeting was adjourned.

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