COSATU Submission on the Public Investment Corporation Draft Bill

Submitted to the Ad Hoc Committee of Finance

25 June 2004

CONTACT COSATU PARLIAMENTARY OFFICE

021- 461 3835

 

Table of Contents

1. Introduction and background *

1.1. A problematic process of engagement *

1.2 Context and history of PIC developments *

2. COSATU’s persistent call to release funds for social investment *

2.1 Concerns regarding Growth and Development Summit commitments *

3. A contestation of purpose – transformation to what end? *

3.1 Developments around the GEPF and representation by labour *

4. Critiquing the debates and assumptions in favour of corporatisation *

4.1 COSATU’s perspective on corporatisation *

5. Formation of Corporation part of ongoing ‘transformation’ is contestable

6. Unanswered questions remain *

7. Summary of recommendations and concluding comments *

 

COSATU would like to thank the Chairperson and Ad Hoc Committee on Finance of the National Assembly for accommodating us for this Submission on a bill with such serious implications.

Very recent interactions we have had with key stakeholders, among other, members of the GEPF Board, Public Service and leaders shaping Pension and Provident Fund developments in terms of the GDS Agreements, have shed new insights on the potential implications of this Bill, if it is to be enacted in its current form.

The implications of some aspects of the Bill, which we have only seen recently, require further consideration.

1. Introduction and background

1.1. A problematic process of engagement

At the outset, we would like to voice our strong objection to the manner in which this proposed Public Investment Corporation Draft Bill or Bill (hereafter referred to as the "Bill"), has been introduced to Parliament.

We note the rushed manner in which this process has happened. We remain unclear with regards to the status of these important proposals to be legislated. On the www.gov.za website for example, we note that the Bill is classified as a Draft Bill (Gazette no. 26383 of 20 May 2004), with comments due to the Secretary to Parliament, instead of the National Treasury, or the Public Investment Commission.

Yet this is listed as a Bill [B6 – 2004] and the turnaround time for submissions was effectively far less than a month (18 June 2004) from the time of tabling as a draft Bill to the start of hearings in Parliament, given the time it takes for the Gazette to reach subscribers.

This is again a manifestation of the ongoing and unacceptable practices regarding consultation by the National Treasury in particular.

Even more objectionable, is the fact that a Bill of such import, proposing to transfer public assets worth approximately 25% of the current GDP of South Africa, into a Corporation regulated under the Companies Act, is accorded such a short period of consultation. This is over and above our concerns that this Bill was not tabled at NEDLAC, nor considered by the Government Employees Pension Fund (GEPF) Board, or formally tabled for discussion in the Public Service Co-ordination Bargaining Council (PSCBC).

Perhaps this explains, among others, the fact that there was effectively only one other submission to the Ad Hoc Committee of Finance during the hearings on this Bill, despite its clear national importance.

1.2 Context and history of PIC developments

Since the late 1990’s, COSATU has watched developments around the Public Investment Commission (PIC) and Government Employee Pension Fund (GEPF) with great interest and concern. We welcome the opportunity to state our perspective on this Bill.

It is well-documented that the first democratically elected government of South Africa inherited a mountain of apartheid debt. This came about primarily as a result of initiatives undertaken by the previous government to shift government pension schemes from "Pay-As-You Go" (where the contributions by current employers/employees are used to pay the pensions of those who retired from the public service) to a ‘fully-funded’ system (which is able to pay its future obligations, independent of its income).

Established in 1911, the PIC was tasked to hold various public assets, a role it kept for almost 80 years. The Public Investment Commissioners (PIC) invested pension funds on behalf of the Public Sector Pension Funds.

Around the end of apartheid, all of this changed. A dramatic increase in PIC assets was linked to a corresponding increase in government debt, which rose sharply as from the mid 1980’s. Currently, government debt for 2004/5 stands at R 506 billion, with annual repayments amounting to R 50.4 billion, for this financial year. Compared to previous financial years, the debt costs as a percentage of GDP is significantly lower (around 3.9%), when this percentage once peaked at 5.7% in 1999/2000.

COSATU has for a long time been aware of the implications of the developments around the GEPF, on the impact on government debt. This we noted in a submission to Parliament, as far back as late October 1998 to this Committee. We then stated that:

" In recent years government debt has been on the rise. It increased from R80bn in 1989 to R300bn in 1996. An important driver of this increase in 'debt' has been the increased allocation of resources to the GEPF, the assets of which have grown from R31bn in 1989 to R136bn in 1996. The reason for this increase has been the policy decision taken in 1989 to move the GEPF towards a pre-funded system. As a result, more assets are paid into the GEPF each year than is the Fund’s annual obligation to its beneficiaries.

In COSATU's view the decision to prioritise the move to a pre-funded public sector pension fund, instead of prioritising expenditure on housing, education, welfare, etc, constitutes a misallocation of the scarce resources of the state and runs counter to the stated policy of reprioritising expenditure in favour of basic needs. We, therefore, continue to rally support for the restructuring of the GEPF’s financing mechanisms with the objective of expanding the resources available for RDP delivery in a manner which does not undermine the sustainability of the public sector pension system."

Clearly the size of this debt has increased phenomenally since then.

 

The Growth of Public Debt and PIC assets

Source: The Economics of South Africa’s Public Pensions Revisited, Gavan Duffy, AIDC

Cape Town May/June 2003

Today, the PIC has over R300 billion in assets under management, up from R30 billion in 1989. Various media sources report this amount to be between R306 billion and R370 billion. Specifically it manages the Government Employees' Pension Fund (91.29% of assets), the Compensation Commissioner Pension Fund and Compensation Fund (3.2%), the Association Institution Pension Fund (2.6%), the Unemployment Insurance Fund (1.65%), Guardian Funds (0.65%) and the Political Office Bearers' Pension Fund (0.13%).

It is the largest investment management operation in South Africa. It is within this context that the Bill needs to be considered.

2. COSATU’s persistent call to release funds for social investment

A key concern of COSATU has always been the ‘crowding-out’ effect of growing government debt, high interest rates in the context of the need to mobilise resources for addressing apartheid backlogs and addressing inequalities within South Africa. In was in this vein that we called for the restructuring of the Government Employees Pension Fund (GEPF) from the "fully-funded" pension system in the direction of a "pay-as-you-go" system. This would have reduced the deficit significantly and help establish the best combination of investment and budgetary funding for public servants’ pensions.

Developments around the Government Employees Pension Fund (GEPF) acquired new impetus recently when government, labour, business and community signed the Growth and Development Summit Agreement in June 2003.

2.1 Concerns regarding Growth and Development Summit commitments

At the Growth and Development Summit (GDS), in June 2003, it was agreed by all constituencies (including labour – and therefore COSATU), that we all support the need for capacity building of "employee representatives on Boards of Trustees, in order to enhance decision-making with regard to the proposed extension of investment instruments."

Furthermore, constituencies also agreed that NEDLAC "should host a conference of the trustees of pension and provident funds before the end of 2004 to discuss the various challenges facing the funds, …. devise training and capacity building programmes for trustees, and develop guidelines on corporate governance, fiduciary responsibility, investment sustainability and social responsibility" (emphasis ours).

These commitments should in principle include the GEPF which has not been excluded from the concerns outlined/stated in the GDS.

In light of the above, the timing of the tabling of this Bill is therefore problematic – it occurs at a time when consensus is being reached at NEDLAC, and when several of the commitments regarding the above, are already in progress.

It appears that government wants to embark on a radical restructuring of the most valuable public asset related to this process, through the process of corporatisation. This raises critical concerns.

3. A contestation of purpose – transformation to what end?

The statutory obligation of the PIC to manage the investment of public and pension funds, mainly those belonging to the GEPF, took on a new slant in the late 1990’s. A PIC restructuring process was initiated that transformed it significantly. The PIC also changed the composition of the board, legislation, staff structures and policies, some of which are ongoing. Initiatives were also made to ensure that these funds move towards greater conformity and eventual full compliance to, Generally Agreed Accounting Practices (GAAP) – so as to improve auditing and accounting controls.

Claims that this restructuring was motivated by the need to have "more freedom to spread investments and more responsibility to clients and government to ensure competitive rates of return on investments and investment in greenfield and developmental initiatives" on the face of it appear justifiable and logical – as it would be with any pension fund management.

However, closer examination and the track record of these initiatives are questionable.

GEPF Assets (largely indicative of the PIC Asset status)

 

1 MAY 1996

31 MARCH 2001

%

Rand
MILLION

%

Rand
MILLION

EQUITIES

10 

10 344

34 

83 213

FIXED INTEREST

70 

76 206

52 

125 410

MONEY MARKET

11 

11 636

13 306

PROPERTY

1 162

<1 

1 046

OTHER*

9 083

19 479

TOTAL

100

108 431

100

242 454

Source: GEPF (as at 2004)

As far back as 1998, the acceleration of the shift in the direction of funds to acquire equities on the Johannesburg stock market led to disastrous consequences. Around this time, there was a collapse in world stock markets, which resulted in shares on the Johannesburg Stock Exchange falling by 48%. The effect of this on the Government Employees Pensions Fund was a devaluation by R7.25 billion at the time. Similar market falls took place over 2002-3.

In June 2003, further losses were confirmed by the then Deputy Minister of Finance, Minister Mandisi Mpahlwa, who admitted to government having "burnt fingers". Losses amounting to around R300-million in about five years
were largely due to losses made on the Isibaya Fund, investments in PQ Africa, and the Carewell Group. This was attributed to the early period "of a major drive towards empowerment."

Of concern to COSATU, are the assertions made that government will ‘continue to engage to refine an approach broadly in line with the emerging framework for BEE’. We remain opposed to any initiative using these pension funds for a narrowly-defined BEE, on the basis of the past losses incurred and because of the belief that worker and government pension funds are deferred wages, and that its use should fall outside the scope of empowerment and enrichment of a few individuals.

We would rather see these funds being mediated through a NEDLAC process, as per GDS agreements. COSATU has always called for the role of the State to be developmental. We were keenly aware of the developmental potential of the PIC, insofar as it may be able to expand job opportunities, and labour intensive projects, such as expanded public works.

 

Recent speculation by asset managers on the Bill points to the lack of clarity and understanding with regards to the way forward, and the underlying reasons for the tabling of the Bill.

The equity portfolio is estimated at around R 80 billion, which has been outsourced to the corporate sector. These are particularly important considerations given the poor performance and volatility of equities in the market.

In this regard, COSATU is intrigued by speculation that the "portion of the GEPF assets currently outsourced revert back to the PIC". Very recent indications are that the PIC is likely to significantly increase its investments in property, confirming the retraction from equities.

COSATU remains cautiously optimistic about the reported trend of bringing investment back under PIC control, and reducing exposure to equities, although it seeks further clarity in this regard.

It appears as if the preoccupation and strong focus that the private retirement funds place on investing in shares, is being challenged by the PIC and government. Brian Molefe, the chief executive of the Public Investment Commissioners (PIC), claims that this may not be best corporate practice. Instead he promotes a "proper balance between assets and liabilities (the payment of benefits to fund members)". The PIC holds that this could be accomplished by making greater use of bonds (loans to large institutions

such as the government).

The developments described above could broadly be considered as outcomes of the ‘transformation process’ of the PIC. Where COSATU strongly differed with this ‘transformation’ process, was that government increasingly turned the PIC into an organisation comparable to a private asset management company. As stated before, we are principally opposed to the privatisation and corporatisation of State assets, particularly when these resources are able to be mobilised for the benefit of South Africans.

Attempts to engage government, but particularly the National Treasury on issues pertaining to the PIC through various structures, has largely been met with stoic silence.

3.1 Developments around the GEPF and representation by labour

Many issues around the funding of the GEPF and management of the PIC were discussed a long time ago in the PSCBC. COSATU and its affiliates engaged in debates around moving to a pay-as-you-go funding system, with no favourable consideration.

The noted absence of organised labour on the GEPF Board was around the very issue of corporatisation. Essentially the various unions do not have a common position on this issue, with COSATU strongly opposed to corporatisation and FEDUSA not opposed to it.

Until very recently, after negotiations in the PSCBC to, among other, increase the size of the GEPF Board to 16 members (8 employer and 8 employee), COSATU can report that it has 4 union representatives from the public sector union affiliates serving on this Board. Of note however, is that the Board has never met this year, largely due to elections. The tabling and consideration of this Bill on the agenda of the Board, has thus not taken place.

The representation and structure of the Public Investment Commissioners, is also a source of concern to COSATU. Of the six Commissioners, the Director-General of Finance also occupies one of these positions. This is potentially a source of conflict insofar as a senior public official of a government department is able to critically influence investment trends and priorities of a structure that should have the interest of its members at heart, without due influence by the employer, namely government.

It remains unacceptable that the largest pension fund in the country (GEPF), owned by workers and the government, and mainly paid for with public funds, is least receptive to inputs by civil society in general, around how to best use these funds for the benefit of the majority of its citizens.

4. Critiquing the debates and assumptions in favour of corporatisation

Key shortcomings of the Bill include the absence of a detailed explanatory memorandum, draft policy and strategy documents, and more importantly a consultative and negotiating process where clarification could be sought, and the rationale of this Bill would have been better understood. It has therefore raised even more questions than answers. One of the central issues is to unpack the meaning and intention of proposing the establishment of a Corporation.

By definition, the Bill favours corporatisation since it calls for the establishment of a Public Investment Corporation and aims to abolish the roles, function and powers of the Public Investment Commissioners by repealing the Public Investment Commissioners Act of 1984, in section 18 of the Bill.

Arguments in favour of corporatisation of state assets by many governments have often included claims of a plethora of benefits, yet remained short on its disadvantages.

COSATU agrees with the concern expressed by the author of the only other submission made on this Bill, when he states that the "private sector has a false sense of belief that it is a torch-bearer of corporate governance" and goes on to quote the dangers of insider-trading, the corruption scandals that rocked WorldCom, Enron and Parmalat, to mention a few recent examples.

It has often been the case that by the time that these problems arise, or assumptions are questioned, little or nothing can be done to resolve the status quo, which has by then, almost always developed in favour of big business/ private stakeholders.

Furthermore, arguments touted in favour of corporatisation include claims of lower prices for commodities or services that are/were previously owned by government, or, in the case of the pension funds under the control of the PIC, the best return on the investment.

Other pro-corporatisation reasons include the maximisation of customer or client choice; the provision of a more efficient and investor-friendly industry or product, and even the long-term security of service or supply. All these claims and assumptions implicitly suggest that the private sector is better than the state in all or most aspects of management, maintenance and operation.

Another controversial perspective presented by those in favour of corporatisation, is that this process will address and ensure that complacency and inefficiencies within the public sector will be shed.

As with any state asset, problems and challenges exist and creative solutions and remedies need to be sought. Yet, it is often presented as if there are no alternative options available to address existing challenges and problems. With this Bill, there has certainly not been the opportunity or the scope to do so.

Pro-corporatisation proposals are often cast in a favourable light insofar as it claims to be able to enhance services and an efficient link in an integral logistical or value-added chain. Measures to better productivity are also seen as an inherent component of corporatisation, which often should be read as bad news for labour, since it generally advocates for retrenchments, casualisation, and a general attrition in working conditions and rights.

Often government and policy makers are blinded by the carrot dangled by the private sector, namely much needed capital for investment in infrastructure. It has more often than not, proven to be the necessary bait to hook the bigger fish, namely the management and eventual ownership and control of a state asset or public entity/fund.

Plans for corporatisation invariably calls for a comprehensive business plan in order to, among other, take into account the issues that need to be addressed for corporatisation, requirements for meeting accounting system demands, and conforming to the legislation governing companies.

Finally, activities such as organisational re-alignment, entrustment and delegation of financial power, funding of planned ventures or expansions, and lastly, but most importantly to COSATU, the status and advantages for employees' retirement benefits, are initiated or proposed.

The Public Investment Corporation Bill appears to align strongly with these contested perspectives and assumptions, yet it falls short of providing a detailed and adequate rationale for this policy device.

4.1 COSATU’s perspective on corporatisation

COSATU’s perspective for opposing corporatisation has been expressed in many nuances in submissions, documents and debates at a Parliamentary and NEDLAC level, as well as in the public domain.

Our understanding of corporatisation, is inextricably linked to the broader processes of privatisation and commercialisation of State assets. COSATU is not opposed to restructuring, but when this process forms part and parcel of the broader privatisation programme, we would certainly oppose it.

In the key resolutions of COSATU’s 8th National Congress, we noted the promotion of privatisation of state assets as a way to promote black enterprise (p.18). In this regard, we resolved to strengthen the role of the state in addressing the historic marginalisation of the majority and to reverse the privatisation of state assets, which is being justified in the name of black economic empowerment.

COSATU understands privatisation as the transfer from public control or ownership to private control or ownership. This may be manifested in a range of nuanced initiatives. This transfer of public control can be of a direct or indirect nature. It appears very likely that with this Bill, government will continue to outsource the management functions, yet maintaining legal ownership with the controversial option of selling its ownership in the future, as outlined in section 3(3) of the Bill.

In this regard, we remain of the view, that the State has embarked upon the strategy of commercialisation and corporatisation, which is potentially a precursor to privatisation.

We understand commercialisation to refer to a state controlled or owned entity, service or undertaking operating for profit or on a cost recovery basis. COSATU views corporatisation as both the commercialisation and registration of the state controlled or owned entity in terms of the Companies Act, as is evidenced in this Bill.

The Bill remains unclear about the medium- to long-term plans of the Corporation. On the basis of previous developments, it is reasonable to assume that this could be an initial step which could later lead to privatisation.

If this is indeed the case, it could be argued that The National Framework Agreement (NFA) on the restructuring of State assets is applicable, since the funds under the management of the PIC are owned by the State.

The NFA requires that there "shall be a bilateral agreement between the government and Labour that, in the interests of transparency, shall be tabled for information at the Executive Council of NEDLAC". Insofar as consultation and transparency of the process in which this occurs are concerned, "all key stakeholders should be full participants in the policy formulation process, Boards of Directors and other appropriate decision-making structures at an agreed level. The policy formulation process should be transparent in all respects. Agreement shall be reached on the procedures for the conveying and protection of commercially sensitive information and operations."

In the NFA, corporatisation is specifically defined as "commercialisation and registration in terms of the Companies Act", and as a component of state asset restructuring.

In the absence of the above processes being undertaken, the validity of the Bill and its proposals are questionable, and should first be considered through this route. COSATU’s experience has been that privatisation of State assets, or its cousins – commercialisation and corporatisation, has and will continue to detrimentally affect the socio-economic interests of the poor, workers and the working class in general.

Formation of Corporation part of ongoing ‘transformation’ is contestable

The memorandum on the objects of the Public Investment Corporation Bill 2004 sheds some light on the rationale for a Corporation.

Whilst the Public Investment Commissioners Act (no.35 of 1984) does not provide for the creation of this kind of juristic body (such as the envisaged Corporation), the inferred claim that the absence of a Corporation of this nature curtails the activities of the Public Investment Commissioners, are not substantiated.

Certainly the precedent of the transfer of certain assets, liabilities, rights and obligations from a previous fund into a corporation is clearly outlined in the Public Investment Commissioners (PIC) Act 45 of 1984.

However, the corporation referred to in the PIC Act of 1984, is distinctly different to the Public Investment Corporation Limited, as described in this Bill.

The PIC Act of 1984 defined ‘corporation’ as ‘the Corporation for Public Deposits established by section 2 of the Corporation for Public Deposits Act, 1984’.

The Bill however describes the Public Investment Corporation Limited to be established as a juristic person, an institution outside the public Service. It also provides for the above Corporation to register in terms of the Companies Act.

Clearly our analysis regarding corporatisation outlined earlier in this submission raises the concern that assets controlled by the PIC will increasingly be managed and eventually owned in the private domain.

COSATU holds that the introduction of new legislation, or the reworking of the current PIC Act, would enable the Public Investment Commissioners better control over the assets. A few of these recommendations are outlined later. The current challenges and obstacles being experienced are not solved solely by corporatisation.

The Bill describes the main object of the proposed Corporation is to be a "financial services provider in terms of the Financial Advisory and Intermediary Services Act of 2002 (FAIS Act)". Other mechanisms and investment instruments have already been used.

In particular, the track record of equities investment under active mandate by private companies has been less than satisfactory (see pages 6 and 7 of Submission).

Section 18 of the Bill intends to repeal the Act in its entirety. A more detailed motivation and rationale need to be provided for this radical proposal.

It is not clear whether there was any consideration for certain essential provisions in the PIC Act of 1984 to be retained or affirmed in this Bill. For example, the detailed roles, functions and powers of the executive committee of the PIC, the limitations and provisions of the commissioners insofar as investment of deposits are concerned, are not thoroughly defined or absent in this Bill.

COSATU can only conclude, in the absence of a detailed briefing by the Minister or National Treasury to all stakeholders, that the proposed establishment of a Corporation effectively removes this critical resource from the control of government and influence of civil society, and who would probably not be able to ensure that the funds are used to maximum benefit for the realisation of GDS commitments made by government. Local and international experience has shown that these funds are likely to be used mainly for profit maximisation and not in the long-term interest of public sector workers, and working people in general, such as sustainable development, the creation of quality jobs and the fulfilment of RDP objectives.

The composition and representivity of the Board is left entirely at the discretion of the Minister. No clear indication is given as to whether a participatory and negotiated process will precede the appointment of the Board of Directors, other than on the grounds of their ‘knowledge and experience, with due regard to the FAIS Act, which, when considered collectively, should enable the board to attain the objects of the corporation".

With regard to the oversight and management of public pension funds in general, COSATU is of the view that the basis and criteria for selection of members of any such structure, extends beyond the mere knowledge and experience of the FAIS Act. We would hold that most of the members of the Board should also have a detailed understanding of the GDS Agreements made in June 2003 and the extent to which resources under their oversight should be mobilised prudently and accountably towards these goals. The roles of the Board need to be representative of the main stakeholders.

There is also scant information as to how the investment policy of the Corporation will be determined or how it is linked to the commitments of the GDS.

Whilst the State is proposed as the sole holder of the shares in the Corporation, it is proposed that, "the Minister, in consultation with Cabinet, may at any time dispose of all or any part of the shares held by the State in the Corporation" [section 3(3)].

We believe that the disposal of shares held by the State should not be considered, since this is part of the continuum of privatisation, which we are in principle opposed to. If indeed this Bill is to be taken forward, we strongly urge that government should remain the sole holder of shares, through the powers vested in the Minister and described by law.

 

6. Unanswered questions remain

The questions levelled at the then Deputy Minister of Finance and senior officials of the PIC by the Joint Finance Committee in June 2003 are revealing.

At this PIC Briefing, the nature of the questions posed to the PIC revealed the extent to which this fund was managed without wider public scrutiny, least of all a thorough briefing of Parliament. Some of the fundamental questions were as follows:

whether the PIC Board and the Board of the PIC’s biggest client, the Government Employees Pension Fund (GEPF) had been established; plans for dealing with risk management and more detail on critical risk management issues and the internal controls in place to address them; and the possible merger between the GEPF and the PIC

(With reference to the last question, the Deputy Minister replied that the PIC had been given the go ahead to explore this option, although no decisions had been taken).

Further process questions arise, largely due to the absence of consultation. COSATU remains unclear as to:

Why this Bill was not raised in the PSCBC, with the GEPF Board, or at NEDLAC;

Why there has been no consideration with regards to the requirements of the National Framework Agreement;

The rationale underpinning the move back to bonds and away from equities by the PIC;

The linkage of the objectives of this Bill to the GDS commitments;

The inferred commitment to use part of these funds for BEE initiatives, despite the financial losses incurred and the principled objections thereto;

The absence of a cost benefit analysis and business plan preceding and underwriting the need for such a Bill, and

Why government has not undertaken a more rigorous analysis of the benefits and risks associated with corporatisation.

Further, what is ironic about this Bill is that the drafters are of the view that "there are no financial implications for the State" (in establishing the Corporation), given the provisions outlined in the Bill. In the memorandum, it further states that the State stands to gain from tax collections as well as dividend payments from the establishment of the Corporation.

Yet, it can be argued, the taxpayer and public servants stands to lose so much and that the assets, we contend, could begin to be removed from the control of the State. In the drafting of this Bill, only the PIC Commissioners and National Treasury were consulted.

It remains highly unacceptable that the future of a public Fund of this magnitude can be decided upon by so few.

7.Summary of recommendations and concluding comments

The PIC was always understood to be a vehicle for social investment. This was even stipulated in the 1984 Act, which stated that, in terms of the investment of deposits by Commissioners, the type of investment instrument included "any investment which promotes social responsibility and infrastructure development: Provided that the amounts of money so invested shall not exceed 3,5 per cent of the value of the assets as reflected from time to time in the audited financial statements of the commissioners" [section 6 (1) (h)].

The following are some of our key recommendations and comments:

1. COSATU remains principally opposed to any initiative that would compromise or put at risk the pension funds of pension fund members. Since the GEPF is by far the largest fund proposed to be managed and owned by the Corporation, our concerns would largely affect government employees.

Instead, we proposed that any amendment to the PIC should happen in a far more participatory and consultative manner. We therefore oppose the establishment of the Public Investment Corporation.

2. We lodge our strong objection to the rushed and flawed manner in which this Bill/ Draft Bill has been tabled in Parliament. It was not tabled at NEDLAC for discussion, nor within the PSCBC. This reflects our ongoing concern regarding the National Treasury’s lack of appreciating the need for rigorous debate of proposed legislation and inclusivity of stakeholders in the formulation of policy and legislation. These omissions are particularly

acute, given the size and importance of the funds and its potential to fulfil the commitments made at the GDS in 2003.

The status of the Bill is also unclear, as to whether it is a Bill or draft Bill – we urge that this be resolved as a matter of urgency, since it would enable a greater degree of participation by stakeholders and civil society in general.

4. The rationale for the establishment of the Public Investment Corporation Limited is lacking. Over and above the reasons supplied for the establishment of a corporation, namely the need for the funds to be subject to the FAIS of 2002 and be a financial service provider – there appears to be no clear motivation why this route has been chosen to address the challenges of managing the Pension Funds controlled by the PIC. Other options to address these concerns, if legitimate, need to be registered.

We recommend that a cost benefit analysis be undertaken to justify the recommendations of this Bill, and a detailed, consultative plan on how investments are to be made, in order to, among other, fulfil the 2003 GDS agreements.

5. We would like to challenge the validity of the manner in which the Bill assumes that the Minister, in consultation with Cabinet, is able to transfer assets and liabilities and other vested rights and interests, without consulting members of these funds.

6. Ample evidence exists to show that the exploratory initiatives in using these funds for BEE have been a failure. Furthermore, the outsourcing of portfolios under the management of several corporations has had a poor track record, and has cost the State hundreds of millions of rands.

7. It remains an enigma as to why this route has been chosen at the eve of securing GDS commitments, especially since the GEPF has not been excluded as a pension fund, subject to these agreements.

We remain unclear of the implications of the PIC merging with the GEPF. What remains unknown is the impact that this restructuring would have on the GEPF. A detailed analysis would therefore be necessary before any decision is taken in this regard.

If indeed this Bill is to be enacted, despite our detailed objections and motivations:

COSATU believes that the Bill should require that any decision to divest any of the shares owned by the State be done through a NEDLAC process and through an act of Parliament.

Representivity on the Board of the Corporation should negotiated, but should have as board members, members of the pension fund, 2 seats for Labour (assuming a Board of 6), who are also tasked to ensure the realisation of GDS agreements. The precedent on both the GEPF Board and PIC to have 50:50 representation of employees and employers should underscore the need for a similar arrangement.

When one compares the requirements in the 1984 PIC Act to have a proportion of assets invested in State bonds, this requirement is not stipulated in the current Bill. We therefore raise our serious concern that this could give open-ended powers to Directors/Board members in the Bill.

We remain concerned that if new board members, are selected from the business and investment sector, there would be a serious conflict of interest, insofar that these members, or their immediate colleagues or peers would want to procure business from the Corporation.

Since the Corporation would remain a major public asset, within the current provisions of the proposed Bill, COSATU would advocate that it be regulated by the State through a Charter of Investment and through public Instruments.

COSATU remains of the view however, that corporatisation should not be an option for these critical funds. It therefore opposes the initiative to establish the Public Investment Corporation Limited.

COSATU believes that the tabling and acceptance of this Bill, will undo a lot of progress made in matters pertaining to the PIC.

It therefore calls for the immediate withdrawal of this Bill, pending a further process of consultation, which should urgently be instituted through NEDLAC, the NFA and the PSCBC.