MP Lees PMB Public Finance Management A/B & MP Cachalia PMB Public Finance Management A/B

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Finance Standing Committee

17 May 2022
Chairperson: Mr J Maswanganyi (ANC)
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Meeting Summary

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In this virtual meeting, the Committee received a briefing on two Private Members’ Bills that seek to amend the Public Finance Management Act, namely the Public Finance Management Amendment Bill [B41 – 2018] and the Public Finance Management Amendment Bill [B13 – 2020].

The first bill was proposed by DA MP Lees. The bill dealt with adding a provision for Parliament to be involved in the process of issuing government guarantees, which form part of government’s contingent liabilities. The Bill proposed that there must be some form of oversight given to Parliament in the process of the Minister of Finance either agreeing or disagreeing with the issuing of government guarantees.

Members asked about a provision where Parliament would be able to reject a guarantee given, considering the amount of money that was misspent through that mechanism; if a provision would be added to the Bill that required the Minister of Finance to report on the reasons why a guarantee was approved in the midst of the financial year; and if the Minister would have to reverse his decision to grant such guarantees if Parliament felt such a guarantee was inappropriate.

The second was proposed by DA MP Cachalia. The bill dealt with holding government departments and public entities accountable for the non-provision of an annual report, financial statement and audit reports. The enabling Act states that such statements must be tabled one month after the accounting officer for the department, or the accounting authority for the public entity, has received the audit report. In the current scenario, if the executive authority failed to table these reports within six months after the end of the financial year, then the executive authority needed to table a written explanation to the legislature on the reasons why that had not happened. The Act did not provide for additional measures in instances where such reports and statements were not tabled, and the department or public entity was not required to table such reports.

Some Members felt that the Bill identified a significant problem relating to the non-submission of annual financial reports. A Member asked if any sanctions should be built into the Bill given that the problem of mismanagement was widespread. Companies of the size of SOEs, if they were listed on the Johannesburg Stock Exchange (JSE) and failed to table their financial statements, would then be delisted. The JSE would be required by law to report such companies’ directors as delinquent directors. The Member also asked if the Department of Public Enterprises should be compelled by law to declare directors appointed to SOEs who fail to disclose the financial status of SOEs as delinquent directors.

It was agreed that both bills will be published for public comment. Thereafter, the Committee will hold oral hearings and consider motions of desirability (whether to proceed) on both bills.

Meeting report

The Chairperson welcomed everyone.

The Committee would receive a briefing by Mr A Lees (DA) on a Private Member Bill, namely the Public Finance Management Amendment Bill [B41 – 2018]. It would also receive a briefing by Mr G Cachalia (DA) on a Private Member Bill, namely the Public Finance Management Amendment Bill [B13 – 2020].

There were no apologies sent to the Committee Secretary.

Briefing by Mr Alf Lees (DA) on the Public Finance Management Amendment Bill [B41 – 2018]

Mr Lees presented a motivation for the Bill, as detailed below.

Mr Lees thanked the Chairperson for the opportunity to present the Bill. The Bill had been a long time in the process. It was first gazetted on 25 October 2018. The Bill was simple and not extensive. It had an important role to play in ensuring the proper oversight of the fiscus. Whilst it was short, he believed that it was an important tool to assist Parliament to ensure that the kind of state capture (so widely published through the Zondo Commission) may in some way be prevented by the adoption of the Bill.

South Africa’s sovereign debt levels were increasing at an alarming pace. It would reach R5.3 trillion and 72.9% of the gross domestic product (GDP) in the 2024/2025 financial year. Added to that were the contingent liabilities, the extent of which was largely unknown. Those contingent liabilities included liabilities for all spheres of Government, such as: Current creditors; payments due to suppliers but not paid, e.g. municipal debt to Eskom; employee leave pay; capital projects where contractor claims for work done were due or overdue; and government guarantees, issued and used by the many state-owned enterprises (SOEs) and departments. Government guarantees constitute a significant part of contingent liabilities and are issued with approval by the Minister of Finance. The extent of the government guarantees was only made known by way of parliamentary questions, or annually in the main budget documentation. The data about government guarantees is declared in a very limited way in the medium-term budget statement (MTBS). This lack of transparency is high risk and needs to have parliamentary oversight of some kind. The latest data contained in the 2022 budget review reflects that government guarantees of R768.6 billion had been issued at that point, and of that, R593.8 billion of the guarantees issued had been used by the recipients of the guarantees.

With the current legislation, there is no provision for Parliament to be in any way involved in the process of issuing government guarantees. The relevant minister makes a request to the Minister of Finance, who then agrees or disagrees. The guarantee may then be issued by the requesting department. An example of the complete absence of a role for Parliament was the government guarantee of R3.43 billion, issued to Denel, a bankrupt state-owned company (SOC), in September 2018. From the information received for 31 March 2018, a further R1 billion guarantee, to bring the total to R4.43 billion, was under consideration. The Committee knew where Denel currently stood. There must be some form of oversight given to Parliament in the process of the Minister of Finance either agreeing or disagreeing with the issuing of government guarantees. This view was shared by Mr Nhlanhla Nene, the former Minister of Finance. In testimony to the Zondo Commission, he stated that: “The way that guarantees work cuts out parliamentary scrutiny”. Mr Nene worked very hard to stop and prevent state capture. The DA believes that there must be complete transparency in the issuing of government guarantees, and that Parliament must be given the opportunity to be aware of the mounting risks, and if it wishes, to put brakes on the issuing of government guarantees. It is for this reason that the Public Finance Management Amendment Bill [B41 – 2018] has been tabled. It is hereby proposed that section 70 of the Public Finance Management Act (PFMA) be amended in order for the Minister of Finance to table a report in Parliament that sets out his or her decision to issue such guarantee, indemnity, or security no less than 30 days after such guarantee, indemnity, or security has been issued in terms of the Act. The Bill will require that this report include the name of the national public entity concerned; the date on which such guarantee, indemnity, or security was made; the terms and conditions attached to the issuing of the guarantee, indemnity, or security; and the Minister’s reason for his or her concurrence in this matter. The Bill will also seek to require the Minister to table a report in instances where he rejects a Cabinet member’s request for the issuance of a guarantee, indemnity, or security in terms of the Act. This report will also need to contain the particulars of such rejection.

This Bill can only be considered a positive move. The Committee is urged to support this Bill in its report to the National Assembly (NA).

The Bill was one paragraph being inserted into section 70 of the PFMA. There was very little of a contentious nature in the Bill.

Discussion

The Chairperson asked if the bills were to be taken together. Mr Allan Wicomb, Committee Secretary, confirmed that there were two separate bills.

Dr D George (DA) said that Mr Lees had identified a significant gap in the legislation that enabled state capture, and permitted billions of rands of hard-earned taxpayer money to get stolen at the expense of the most vulnerable members of South Africa’s society. The Bill would promote transparency that is needed and strengthens parliamentary oversight.

Mr Lees mentioned that the Minister would need to table a report within 30 days of the guarantees that he had approved, and also table reports on those he did not approve. That was a significant step in the right direction. Had he considered a provision where Parliament would be able to reject a guarantee given, considering the amount of money that was squandered through that mechanism?

Mr A Sarupen (DA) thought that the Bill was timely considering what was revealed at the Zondo Commission. What one sees with government guarantees is that they became contingent liabilities that actually in effect pushed the debt-to-GDP ratio far higher than what it actually was should some of those liabilities be recalled. Had Mr Lees considered adding a provision in the Bill that required the Minister of Finance to not just report on what was approved and denied, but also to be required to present the reasons why a guarantee was approved in the midst of the financial year?

Mr Lees replied to the questions. On the ability for Parliament to reject a guarantee: That was considered at the time, but he and his colleagues did not want to put in place stumbling blocks when there was a need for a guarantee in ensuring that an entity such as Eskom was able to operate swiftly and efficiently. Members had recently seen the difficulty Eskom was having in getting approval, and enabling it to be light-footed in getting the lights back on. South Africa was now facing load-shedding. It was decided that perhaps colleagues should try to see what kind of oversight would come out of a rapid reporting structure and whether that would be sufficient. The Bill would enable Parliament, once the report came in, to consider whether or not any further such guarantees could be justified, and resolve that such guarantees should not be issued by the Minister of Finance. It was not explicit in his Bill, and the point was taken.

On Mr Sarupen’s question, the stated that the Bill included a requirement for the reasons to be given. It was important that reasons for approval were given. If that was not in the Bill already, it might be an amendment that the Committee would like to make, or that he could make. He was not sure what that process was and asked Adv Frank Jenkins, Senior Parliamentary Legal Advisor, to give the Committee advice on that matter. He then noted that the reasons for the decision were included under (a)(v) in paragraph one of the Bill.

Mr I Morolong (ANC) was concerned about never running the risk of making Parliament an operational component. Parliament dealt with the budget and special appropriation bills. Therefore, one should not venture into Parliament becoming too administrative in its own functions. For example, should a Minister be required to issue bank guarantees on the basis of an emergency arising in a Government entity, what became of his actions should Parliament later feel that such an approval was inappropriate? Did it mean that the Minister would have to reverse his decision to grant such guarantees?

Ms M Mabiletsa (ANC) did not understand where Mr Lees was taking the Bill to or from, because the reasons were not clearly articulated. She did not think it was up to the Members to start giving the reasons. Mr Lees needed to present a Bill with reasons that were clearly articulated. As Mr Morolong said, let the Committee leave such things to the administrators. She proposed rejecting the Bill.

Ms P Abraham (ANC) had wanted to ask whether the Committee should be discussing Mr Lees’ Bill together with Mr Cachalia’s Bill. That was what the Committee was supposed to do according to the agenda, as far as she understood it. The Bill referred to the Minister. It also touched on other areas outside of the Minister of Finance. Which ministries was the Bill addressing? Perhaps the Committee needed to bring Mr Cachalia in so that it could discuss both bills at the same time. As much as there were two separate bills, it was two amendments to the same Bill.

Mr Lees said that Mr Morolong’s point was well-made. In response to Dr George, he had touched on the question of the authority of Parliament to reject a guarantee. That was not contained in the Bill. It was an oversight reporting function. He agreed that Parliament should not get involved in the operational issues. The government guarantees were not tabled in the annual budget and approved by Parliament in advance. There was no parliamentary approval process for government guarantees at present. The Bill made the issuing of government guarantees transparent and available to Parliament in close to real-time; in other words, 30 days. Parliament could then look at these guarantees and do oversight of the application for those guarantees. There was no provision in the Bill to obtain parliamentary approval prior to the issuing of the government guarantees, nor was there provision for Parliament to withdraw guarantees already issued unless they had not been used. For example, in the case of South African Airways (SAA), there was some R17 billion worth of government guarantees issued to it. Some R2.7 billion of that R17 billion were being used, and the rest of the guarantees were not used. Under those circumstances, the Minister of Finance should withdraw those guarantees. Parliament should be able to make an input into that, to say that the guarantees should be withdrawn. The guarantees were sitting with SAA, who could use them if it so chose.

He was disappointed that Ms Mabiletsa had taken the view that she did because he did not believe that the Bill was a partisan Bill. To reject the Bill out of hand was unfortunate. He appealed to Ms Mabiletsa to consider the Bill carefully; there was nothing complicated about the Bill. He believed that the Bill had been presented in an open and transparent way.

In response to Ms Abraham, he noted that the Bill did not deal with any other ministries, departments or ministers. It dealt only with the Minister of Finance, reporting on something which was already contained in the PFMA. He had omitted the view that the proposed Bill should be dealt with as a section 76 bill. The Bill did not have an impact on other departments or ministries. It had significant implications to ensure that the possibility of continued state capture may be reduced, and assist with state capture’s elimination.

Adv Jenkins clarified what the process would be for the Bill. The Bill must be published for public comment. The National Treasury’s (the Treasury) rules stated that the Government department affected by the Bill needed to comment. After that, there was a motion of desirability. If that was the end of the matter, then there would be a report to the House to say whether the Bill was accepted or not accepted. If the Bill was accepted, the Committee would go through it clause by clause, and then report a Bill to the House.

On the tagging of the Bill, usually, a bill like the one proposed by Mr Lees, especially an amendment bill that did not deal with finances of the provinces, would be a section 75 bill. If it affected the norms and standards that provinces must deal with, that would be a section 76 bill. If one goes back to the history of the PFMA, it was done in two parts. The first part was a section 75 bill, then after that, there was an amendment to deal with provincial legislation, so it became a section 76 bill. One would look at it in more detail if the Bill was formally tagged by the Joint Tagging Mechanism. He would follow up with his colleagues who dealt with Private Members’ Bills drafting and see if it had been tagged already.

Adv Noluthando Mpikashe, Parliamentary Legal Advisor, clarified that the Bill was tagged as a section 76 bill, as it dealt with matters that were envisaged in chapter 13 of the Constitution. That was how the Bill was tagged currently.

The Chairperson noted that the two legal advisors were suggesting that the Committee move to the next step, where it would discuss the desirability of the Bill.

As Adv Jenkins understood it, the Bill still needed to be advertised for public input. Whether it was necessary to have a public hearing thereafter would come from that exercise. It was a parliamentary process, in terms of the Constitution, which required that there was the facilitation of public involvement before the stage of a motion of desirability was reached. He asked Adv Mpikashe (an expert on Private Members’ Bills) to clarify the process.

Adv Mpikashe explained that there was a process in terms of the rules of Parliament before the Committee got to a motion of desirability. That process involved public hearings, as well as input from the Treasury.

The Chairperson said that the Committee would get the Bill published for public comments, then it would discuss a motion of desirability. Mr Lees would be kept abreast of the process so that he could participate actively since he initiated the Private Member Bill.

Briefing by Mr Cachalia on the Public Finance Management Amendment Bill [B13 – 2020]

Mr G Cachalia (DA) presented a motivation, as detailed below.

The Bill is non-controversial and non-partisan. It was predicated on the need for financial performance management to be a pre-requisite for organisational performance, which determined (to a large extent) the Government's capacity to implement policy and manage public resources through its own institutions and systems. It provides the foundations on which to build effective, capable and accountable measures that enable people to fulfil their responsibilities and deliver basic services. The PFMA attempts to address this and give meaning to this on the occasion of the non-provision of audited annual financial statements. It does this in terms of section 65 of the PFMA of 1999, which provides that the executive authority responsible for a department or public entity must table annual reports, financial statements, and the audit report to the NA. Such statements must be tabled one month after the accounting officer for the department, or the accounting authority for the public entity, has received the audit report. In the current scenario, if the executive authority fails to table these reports within six months after the end of the financial year, then the executive authority must table a written explanation to the legislature on the reasons why this has not happened. The Act does not provide for additional measures in instances where such reports and statements are not tabled, and the department or public entity is not required to table such reports. This “flies in the face” of transparency, governance, and oversight. To remedy this, the Draft Bill, therefore, seeks to provide for additional measures in instances where the executive authority has failed to table an annual report and financial statements in the NA or the relevant legislature. The Bill then proposes that the annual report, financial statement and audit report, and such statements referred to in section 65 are tabled within 60 days after a written explanation has been tabled. The Bill requires a written explanation to be tabled categorically thereafter. This is in line with international financial reporting standards (IFRS) that are issued by the Board of Accounting Standards (IASB), with the objective of providing common accounting language etc. It is entirely in line with that.

Often when questioned as to why these statements are not forthcoming, the reason is given that these entities are not a going concern. The IFRS standards require that when an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it was prepared. It needed to provide a reason why the entity was not a going concern. The entity is required to disclose the fact that financial statements have not been prepared in that particular way, as well as how it is now being prepared and presented. That cannot be a reason or excuse for non-presentation. It is a binary decision whether or not to prepare a financial statement as a going concern, but the circumstances in which the entities prepare financial statements on a going concern basis will differ widely.

This Amendment Bill will address this issue and ensure that Parliament has this information both timeously and properly presented before it. If it is not timeous and properly presented, then Parliament would decide what it intends to do.

Discussion

Mr Morolong noted that with parliamentary procedural legislation, executive and private bills needed to give an indication that there had been an attempt to solicit public views. He suggested that in principle, the Committee agreed that that process needed to be subjected to public participation. Perhaps when it was done, there would be a clearer view of the issues that would have arisen from public comments. When the public participation process had ensued, the Committee would still have an opportunity to express itself on that Bill.

Dr George said that in terms of the process, it sounded as though the Committee would have a public participation process, which would enrich deliberations. There were still a few processes to go. Mr Cachalia had identified a significant problem South Africa had. The late submission or non-submission of annual financial statements was very widespread. It was usually the case that something was very seriously wrong, and that there was gross mismanagement of the public finances. Mr Cachalia’s proposal would take Parliament further along in its journey to try to get the public finances to be better managed, with stronger transparency and oversight. Had Mr Cachalia considered whether any sanctions should be built into the Bill given that the problem is so widespread? Mr Cachalia mentioned that there would need to be an explanation and that it would need to be tabled. It would open up a lot of questions, and ensure greater transparency, which all wanted to achieve. Dr George asked if the Bill wanted to specifically sanction given that Members knew that so much had been stolen from the public finances for a long time, and that “absolutely nobody” was held to account. The latter was the biggest problem because the problem just carried on going.

Mr Saurpen said that Mr Cachalia’s Bill also arose out of the consequences of the state capture era where a lacuna in legislation around the tabling of the financial statements of SOEs led to “all sorts of shenanigans”. This also led to endless bailouts of SOEs that became “endless black holes that the public [were] really tired of”. Companies of the size that were SOEs, if they were listed on the Johannesburg Stock Exchange (JSE) and failed to table their financial statements, would then be delisted. The JSE would be required by law to report such companies’ directors as delinquent directors. Did Mr Cachalia believe that the Department of Public Enterprises (DPE) should, as a consequence of this as well, be compelled by law to declare directors appointed to SOEs who fail to disclose the financial status of SOEs as delinquent directors? Should the DPE rather not be given a choice in that matter to ensure good governance at South Africa’s SOEs?

Mr G Skosana (ANC) seconded Mr Morolong’s comments. He suggested, noting the presentation by Mr Cachalia, and as per the procedures of Parliament, to allow public comments. After that, the Committee would come back and look at both the presentation and the public comments that would have been forwarded to the Committee. At that stage, it would then be able to take an appropriate decision on whether it was desirable for the Committee to effect that amendment and then recommend accordingly to the NA the Committee’s view moving forward. At that stage, it was proper to subject the Bill to public comments, and then come back to deliberate. The public comments would be able to guide the Committee because people would be raising different arguments about the Bill.

Mr Cachalia responded to Mr Morolong and Mr Skosana and stated that the procedure related to the Bill would continue.

He stated that Dr George and Mr Sarupen’s questions were linked. The questions referred to whether he had considered sanctions for non-disclosure within the stipulated period. He was reliably advised that the sanctions sat at the discretion of the House. The proposed Bill did not empower Members of Parliament to police via sanctions, but it did require certain things to be done. When those things were not done, the House would determine the sanctions.

He addressed the question of the comparison between SOEs and companies of the same size in a private listing, and the procedures that were followed there, and the sanctions for non-disclosure after warnings on the disclosure of public accounts. It was a grey area as to how company law affected SOEs. That went back to how SOEs were set up, in what way, and by whom, all of which determined where the sanctions lay. That “dotted line” took one back again to the NA. The advice he received was that that was where sanctions should remain.

The Chairperson hoped the Bill [B13 – 2020] would go the same way as the one initiated by Mr Lees.

Adv Mpikashe confirmed that the Chairperson was correct.

Other Committee Business

Mr Wicomb said that on the re-drafted Committee programme, he had a tentative date for public participation on 7 June 2022. With the permission of the Chairperson and the Committee, he could start the process of procuring space in national newspapers for the advertisement of the bills. Both bills would be included in one advertisement, with the date of the hearings as 7 June 2022.

The Chairperson agreed, and instructed the Committee to organise public hearings, for both written and oral submissions.

He observed that Private Members’ Bills were treated like any other bill before Parliament. The Committee would do exactly the same thing, and make sure that all the procedures were followed in terms of processing these bills.

Mr Wicomb reminded Members that there would be a meeting the following day (Wednesday) at 09:00am, where the Committee would have both deliberations and clause-by-clause deliberations on the two bills that were presented to the Committee the previous week.

The meeting was adjourned.

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