Treasury capture is something to fear

Pravin Gordhan’s axing as finance minister just more than six months ago was met with consternation, which was made worse by the man who replaced him.

Here was Malusi Gigaba – the man who had used his position as minister of public enterprises to lay the ground for the Gupta family to plunder Transnet, Eskom, Denel and other state-owned companies – being entrusted with running Treasury, the state’s most important ministry.

Many cried foul, arguing that the move was akin to entrusting a ravenous wolf with care of the sheep.

At the time, Economic Freedom Fighters (EFF) leader Julius Malema told reporters in Johannesburg that “[President Jacob] Zuma has captured Treasury, which means the Guptas have captured Treasury. He has achieved what he always wanted to achieve.”

At Gigaba’s swearing-in ceremony at the presidential guest house in Pretoria on March 31, local and foreign journalists mobbed him, demanded answers about everything from his suitability for the job to the impact his appointment would have on credit ratings.

He stunned the media with well choreographed responses. He appeared to be a man who had his job figured out.

A few days later, referring to a Save SA protest outside his office, Gigaba told his staff: “Forget all the noise outside. Do your jobs. What you see and hear will pass. Change brings with it such anxieties.”

Shortly after his appointment, rumours began swirling that Gigaba, who harbours presidential ambitions, was ready to disentangle himself from the intricate state capture network.

Many hoped he would hold off-the-record briefings with senior journalists and editors to inform them about how he would free himself from the web of Zuma’s friends, the Guptas.

One senior news executive told me this week that Gigaba’s people had arranged a meeting with him. It never took place.

Just what the doctor ordered

It is near impossible to completely capture the South African state without placing National Treasury on a leash.

This is not only because Treasury allocates each department its annual budget, but because through its public finance unit, it monitors government expenditure and reins in wayward ministers, directors-general and chief executives of state-owned entities.

Through the office of the chief procurement officer (CPO), Treasury monitors compliance with tender regulations and is able to refuse government departments permission to break the rules.

Having axed Nhlanhla Nene, Gordhan and Mcebisi Jonas for their refusal to sign off on the nuclear deal (among other reasons), Zuma needed someone whose conscience had been dulled.

What better man than Gigaba?

A trusted lieutenant, and a man whose footprints – a damning report by prominent academics found – will feature prominently in the story of how the Gupta highwaymen pulled off their great South African robbery.

A desktop review of Gigaba’s six months in the Treasury reveals a terrifying picture. Cabinet’s decision to move the budget allocation process from Treasury to the presidency has nothing to do with Gigaba.

But is it just a coincidence that something which has been coming since 2015 was implemented as soon as he arrived?

When all the make believe explanations are stripped away, only one reason remains for why Zuma’s Cabinet arrived at this decision.

The reason, as one senior government executive put it, is “for anyone who wants resources for projects that cannot be motivated for in the open to use nefarious means to achieve the directing of the budget one way or the other”.

This becomes increasingly clear when we take into account the fact that the budget allocation process is handled by an interministerial committee. All ministers have an opportunity to motivate for priority projects.

If the committee influences budget allocation, why would Cabinet want it handed to a presidency with neither the technical skill nor the research capacity to do the job?

The battle for the soul of Treasury

Two weeks ago, City Press reported that Gigaba had established a parallel administration, effectively undermining Treasury director-general Dondo Mogajane.

Gigaba’s spokesperson Mayihlome Tshwete denied the allegations.

But as fate would have it, minutes of a meeting City Press obtained revealed that acting CPO Willie Mathebula was undertaking a sweeping restructuring of his office without Mogajane’s knowledge.

The minutes revealed that, while Mogajane was in the dark about the proposed changes, Mathebula had already met Gigaba and his deputy Sfiso Buthelezi to discuss the restructuring.

The proposed changes reveal something sinister underway at Treasury: that Mathebula, Gigaba and Buthelezi were concerned that the office of the CPO “was a dictator and not an enabler” and believed the office “did not consult” their counterparts in other departments.

More alarmingly, they discussed withdrawing the office’s governance, monitoring and compliance (GMC) unit’s powers to decide if departments’ requests for tender deviations and extensions were justified.

The refrain that Treasury is a dictator, a de facto government, or a stumbling block to development is not new. It is a common refrain we hear from Zumarite ministers such as Nomvula Mokonyane.

In February, the Sunday Times reported that Zuma himself had expressed frustration about Treasury’s processes.

Zuma and Mokonyane’s unhappiness stems from their repeated failure to get Treasury to approve the nuclear deal, estimated at R1 trillion, the R56bn Moloto rail development; and the R14bn Mzimvubu water projects.

Cabinet wants to appoint Chinese companies, without any bidding process, to finance and build the last two.

A Treasury report City Press reported on in April showed how the ministry put a stop to a government-to-government procurement agreement between Zuma’s administration and the Kremlin for a Russian company to finance and build nuclear power stations.

But without the GMC’s approval for projects to bypass legal tender processes, these megacontracts will never see the light of day.

It is for this reason that Mathebula, Gigaba and Buthelezi’s mission to hobble the GMC should set off alarms.

In the 18 months to June, the GMC halted more than 200 tenders amounting to more than R4 billion from being awarded through “deviations” – which include false emergencies and other excuses about single suppliers and continuity of service.

Treasury’s deviation reports do not attach values to numerous other requests for deviation which the GMC blocked during the same period.

They could easily amount to hundreds of millions of rands.

South Africans should not allow Gigaba and co to curtail the GMC’s powers.

One reason is that Eskom’s R1.6bn in questionable contracts with management consulting firm McKinsey and Gupta-front Trillian were awarded through deviations before the GMC was established.

Should Gigaba manage to neutralise it, it would be open season on tenders across government. This would be the final step in the capture of the state.

By Sipho Masondo for City Press. Published on News24

Cabinet reshuffle #12 for Zuma

Desperation to push through the R1-trillion nuclear deal and “gatvolness” with SACP leader Blade Nzimande’s criticism of his leadership ahead of the ANC’s elective conference are probably the main reasons behind President Jacob Zuma’s most recent Cabinet reshuffle.

The reshuffle, that saw Nzimande chopped from the Cabinet, four ministers changing portfolios and the introduction of loudmouth ANC MP Bongani Bongo as minister of intelligence, is part of Zuma’s fightback campaign to reclaim authority over a deeply fractured governing party.

The axing brings an end to a decade-long bromance between Zuma and the communists, who were at the forefront of lobbying for the corruption charges against Zuma to be dropped and for president Thabo Mbeki to be recalled.

The relationship soured when it became clear that Zuma was never really interested in changing the economic policies of the country to benefit the poor, but rather to enrich himself and his besties, the Guptas.

In recent months, Nzimande has been one of Zuma’s most vocal critics with the SACP, calling for his removal as ANC president.

The SACP-ANC relationship is at an all-time low, with threats by the reds to go it alone in the 2019 election.

Firing Nzimande opened up the opportunity for Zuma to play musical chairs.

His close ally David Mahlobo becomes energy minister; Bongo takes over state security; Ayanda Dlodlo moves to home affairs and Mmamoloko Kubayi takes over the communications portfolio.

Hlengiwe Mkhize moves from home affairs to higher education and the young rising star MP and former Young Communist League leader, Buti Manamela, replaces the controversial Mduduzi Manana as Mkhize’s deputy.

So why did Zuma move his powerful intelligence minister to the energy portfolio?

It does not require rocket science to connect the dots: Zuma needs to push through the nuclear deal with Russia’s Rosatom before his term ends. If a candidate other than Nkosazana Dlamini-Zuma wins the ANC’s presidential election, Zuma could be out as state president as early as January.

Mahlobo has accompanied Zuma on at least one state visit to Russia, to meet President Vladimir Putin. It was always a mystery why Mahlobo, and not the energy minister, had travelled with Zuma, but that question has now been answered.

The Sunday Times reported last month that Mahlobo accompanied convicts Gayton McKenzie and Kenny Kunene – supposedly Zuma’s New Best Friends – to Russia to present themselves as BEE partners to Russian oil and gas company Rosgeo for a R5bn deal. Connect the dots.

The Western Cape High Court’s ruling earlier this year that the tender process for nuclear should start from scratch was a massive setback for Zuma and Putin. Mahlobo has now been trusted with pushing the deal through – and fast.

Remember that Zuma’s favourite son, Duduzane, and the Guptas own Shiva Uranium, who will be one of the chief beneficiaries of a nuclear deal. That is the Zuma pension plan.

Kubayi was supposed to fast-track the deal after Tina Joemat-Pettersson got the boot in March for failing to do so, but she probably moved too slowly in Zuma’s view.

The reshuffle is a sign that Zuma is panicking. South Africa should be on high alert.

By Adriaan Basson for News24

Who has our petrol?

Cash-strapped consumers face another hefty petrol hike as The Department of Energy announced on Monday that a litre of 95 octane petrol will cost R14.01 inland and R13.52 at the coast from Wednesday.

And if that is not enough, the Central Energy Fund board chairperson has said that the fund is still busy calculating how much SA lost when 10.3 million barrels from its strategic fuel reserve were sold off in 2015.

The Central Energy Fund (CEF) can not yet say what price SA paid for the controversial sale of 10.3 million barrels of the country’s strategic oil reserves, or who now owns the stock, according to the chairperson of its board Luvo Makasi.

The secret sale by the Strategic Fuel Fund (SFF) – which is a subsidiary of the CEF – took place in December 2015, at a time when oil prices were at a historical low point.

Speaking to Power98.7 radio host Onkgopotse JJ Tabane on Monday evening, Makasi said that the CEF was still investigating the sale.

Bloomberg reported last month that law firm Allen & Overy led an investigation into the sale, which included a recommendation that a financial analysis of the sale be conducted.

But the fact that the analysis was completed by embattled auditor KPMG SA has caused delays in making the report public.

READ: Energy Minister wants assurance on KPMG analysis of oil sale
Minister of Finance Malusi Gigaba last month advised all government departments and entities to review all work done by KPMG to ensure their audit processes had not been compromised.

First rotation, then sale

In March 2016, three months after the sale took place, then-energy minister Tina Joemat-Pettersson claimed in her annual budget vote speech that the fuel had not been sold, but rotated.

“In 2015, we issued a ministerial directive for the rotation of strategic stocks by the Strategic Fuel Fund and this has resulted in the increased revenue base for SFF, whilst at the same time maintaining stocks within our storage tanks for security of supply,” she said at the time.

READ: AG to probe R5bn ‘secret’ oil deal
But earlier this year new Minister of Energy Mmamoloko Kubayi admitted the strategic fuel stock had in fact been sold off.

During Monday’s interview, Makasi also acknowledged the stock had been sold and not rotated.

But he said the CEF board was only involved in the transaction “at the end”, adding the board only got wind of the sale when a “a good amount landed in our (bank) account”.

A loss

Makasi acknowledged the fuel had been sold in a “depressed market” at a time when international fuel prices were low.

“If you look at where the market was at the time the product was sold, you would then have to make an assumption that there would have been a loss.

“But what we are busy with now, is we are trying to quantify what was the actual loss to the state,” he said.

He promised the CEF would “come back to the public” with the full details of what the loss amounted to.

Asked if anyone would be held responsible for the secret sale – which took place without the knowledge of National Treasury – Makasi reiterated that the scale of the losses first had to be established.

READ: MPs demand answers on ‘illegal’ fuel stock sale
“Where there is a loss, the Public Finance Management Act puts a positive implication on the board of CEF and all its subsidiaries to investigate those instances,” he said.

“So there will be consequences. And when those losses are established, there will be consequences on all those involved in the process.”

Makasi appeared to imply that the CEF was also still investigating who bought the oil.

“The stock never left our tanks,” he said. “But the question of ownership therefore, that is what we are busy now debating.

“There was an element of sensation around. (But) was there cause for concern? Yes there was.”

By Jan Cronje for Fin24

Questions surround the CEO SleepOut Initiative

Profitability almost rhymes with philanthropy. It’s close, but not quite.

The for-profit CEO SleepOut Initiative took the South African philanthropy industry by storm in 2015, and now appears to have raised more than R50 million over three years for various charities.

It seemed a new fund-raising model had been born.

However, over the last three years, a few cracks appeared in the CEO SleepOut’s public edifice. A significant beneficiary abandoned a potentially lucrative three-year relationship after just one year, and the initiative interdicted the beneficiary from infringing its alleged copyright in a list of donors, claiming the beneficiary was using its intellectual property to compete with the initiative to raise money for charitable causes.

Some questions also emerged regarding financial transparency and how much money reached the destined beneficiaries.

Before this story continues any further, a few points need to be made.

Firstly, it is extremely difficult to write an article about fund-raising initiatives for charities, as it may harm future potential beneficiaries of such events. Even more so when the subject matter is a seemingly successful initiative.

Secondly, we make no allegations of financial impropriety. The information in this article comes from numerous interviews with key stakeholders and former employees, most of whom were not willing to speak on record.

Thirdly, it is concerning that the CEO SleepOut Trust has not been forthcoming with information or transparent about its finances.

The first interaction was in May this year, and despite many e-mail exchanges with the founder of the initiative, Alison Gregg, a number of questions remain unanswered.

Within this context, readers should draw their own conclusions. But first, some background.

Australian concept meets American business model

The CEO SleepOut initiative started a few years ago when Gregg brought the brainchild of Australian philanthropist Bernard Fehon to South Africa. The aim was to get C-suite executives out of their warm, luxury homes to spend a cold winter night on a pavement to reflect on those less fortunate than them and to raise funds for charity.

Gregg married this noble concept with the for-profit business model mooted by the international philanthropist Dan Pallotta who is seen as a pioneer of the for-profit philanthropy industry in the US.

Pallotta’s theory is that a business run on sound business principles with well-paid executives would do a better job at raising money than NPOs could do themselves, and his achievements are impressive.

His venture, Pallotta TeamWorks (PTW), raised a staggering $556 million in donor contributions between 1994 and 2002 through various multi-day, mass-participation events. After all expenses, a total of 55% or $305 million was paid to selected charities.

PTW, as a for-profit entity, charged 4.01% or approximately $22.8 million for its professional services. (PTW also publishes detailed information about every event showing significant transparency into how donor funds were used.)

Inaugural event a spectacular success

The first rendition of Gregg’s CEO SleepOut was in 2015, where the 58-year-old charity, Girls and Boys Town (GBT), was the sole beneficiary. It was a spectacular success.

A total of 246 CEOs of some of South Africa’s top companies camped out on the pavement next to the JSE in Sandton and raised a whopping R26 million for GBT – the single largest fund-raising event ever for a charity in South Africa.

The 2016 event was also successful. A total of 167 CEOs faced the cold tarmac of the Nelson Mandela Bridge and raised R20 million for the ASHA Trust, Columba Leadership and the Steve Biko Foundation.

The 2017 event, the SheEO SleepOut, was hosted in August at Constitution Hill where about 57 female CEOs spent a night in the cold, raising roughly R4.8 million between them for the Door of Hope. (These numbers have not been audited and confirmed.)

Overall, the three events are said to have raised more than R50 million for various charities, suggesting that a new era of charitable fund-raising has arrived.

Hairline cracks

But shortly after the 2015 event a few hairline cracks appeared.

GBT, the sole beneficiary of the 2015 event, severed ties with the initiative, despite an initial three-year understanding being in place. The break-up was less than amicable, with Gregg later taking GBT to court in 2017 for copyright infringement.

(The gist of the case was that GBT contacted several donors of the 2015 event from contact details captured during their financial administration process. The court found that this was in breach of copyright and ordered GBT to stop using the list and to delete it, and slapped the charity with a cost order. GBT strongly deny they did anything wrong, but have put an application for leave to appeal on hold due to concerns of mounting legal fees).

The relationship with media partner Primedia, which was seen as a pivotal contributor and name sponsor of the 2015 event’s success, also came to an end after the first event.

Sun International terminated its sponsorship following the 2016 event, despite previously committing to a three-year involvement, citing a strategic direction change as reason for the termination.

Several former employees of Gregg’s businesses Moneyweb spoke to, also expressed their discontent with their working environment.

One staffer, who was dismissed earlier this year, said staff turnover was close to 100% a year, and that virtually all the staff employed in 2016 had since left. Several of their replacement appointees have also been terminated or resigned.

It is important to note that there were significant structural and operational differences between the 2015 and 2016 events. The CEO SleepOut Trust could not acquire NPO certification prior to the 2015 event and could therefore not issue 18A tax certificates to donors, enabling donations to be claimed for tax.

GBT had such certification, and in 2015 GBT was in total control of the financial administration, from receiving donations to issuing 18 A certificates.

In 2016 this structure changed.

The CEO SleepOut Trust had by then received NPO certification and the financial administration moved to the Trust. The Trust took over full control of the event, including the responsibility to determine the quantum of funds to be paid out to beneficiaries after the event, and to actually pay these amounts.

The Trust was to be administered by trustees who would consult a Working Group consisting of various other stakeholders of the initiative. The 2016 event also saw Gregg’s new business The Philanthropic Collection Proprietary Limited (TPC) becoming involved. This business came about after Gregg converted her previous business Alison Gregg PR from a CC to a company. TPC was a for-profit enterprise and owned and managed all the CEO SleepOut events and trademarks. It would charge the CEO Sleepout Trust for the professional services it rendered, as Gregg’s PR business had done the previous year.

Compensation

One of the first questions asked of any philanthropic venture is how much of the donated money reaches the actual beneficiaries. This is even more so in the case of a for-profit fund-raising effort.

GBT’s audited statements for 2015 confirm that the initiative raised R26 million and that this amount was received directly into its bank account. The statements also confirm that GBT paid an amount of R1.3 million (ex Vat) to Gregg after the event, via her business Alison Gregg PR, as compensation. This amount was calculated as 5% of the R26 million raised.

Unfortunately, no audited or unaudited amounts are yet available for the 2016 event, as BDO is still busy with the audit process – six-and-a-half months after the Trust’s year-end, and more than a year after the event.

But there are unaudited amounts disclosed in the public domain. From the CEO SleepOut website it is clear that R20.2 million was raised in 2016 and R46.2 million for both 2015 and 2016.

The website also states a total of 75% of the R46.2 million was paid to beneficiaries and that this distribution “exceeds international norms of events of this nature”.

Thus, around R11 million was retained from the funds raised in 2016 to cover operational expenses and to allow for a profit for TPC. It also suggests, through the manner in which the amounts are disclosed, that a portion of the funds raised from the 2016 event was used to cover expenses related to the 2015 event. This amount excludes the R1.3 million already paid to Gregg the previous year.

In response to a question, Gregg denied that this assumption is accurate, but did not provide an explanation. This is relevant as the CEO SleepOut Trust took full administrative control of the event in 2016, and could therefore decide how much of the raised funds could be used to cover expenses.

The retained amount of R11 million is significant as it represents around 55% of the R20.2 million raised in that particular year.

How does this chime with international benchmarks for charity running costs? Research by Giving Evidence and Givewell in the UK provides the first empirical data on charity admin costs. It looked at 265 charities between 2008 to 2011 and found that charities recommended by Givewell spent an average of 11.5% of their costs on administration.

However, in response to an earlier question relating to the R11 million, Gregg said: “At the time (December 2016), we budgeted roughly R9 million in costs (over the 12-month period) and held back a further R3 million for the 2017 (and where relevant 2018) working capital requirements. This was on advice from our accountants. Depending on the reconciliation and final accounts, further payouts will be considered.”

Regarding the disclosure of the R1.3 million, Gregg stated: “It was disclosed to the 2015 Working Committee, in court papers, to Sars, to you, and would likely have been disclosed in GBT financials.”

What she will not divulge, however, is how much of the retained R11 million remains in the Trust and how much was paid to TPC, either as professional fees or to cover operational expenses or as licensing fees, and what profits were made by TPC.

Gregg wasn’t prepared to disclose unaudited amounts, but these will be confirmed once the audited statements of the Trust become available.

Trustees

The decision-making authority within the Trust is also concerning. The CEO SleepOut was registered in 2015 with four trustees. They were Gregg, Patricia Stewart, Dick Sher and Darren Olivier.

Moneyweb has been able to confirm that Stewart, Sher and Olivier have subsequently resigned as trustees, leaving Gregg as the only remaining trustee. Gregg failed to respond to several questions related to these resignations and whether any new trustees have been appointed.

It is not clear who decides on the allocation of funds to charity. In a published Q&A document on the website, it is stated that once the revenue was audited, “the allocation (net of costs and working capital requirements) is presented to the Trustees and the members of its Working Group who are comprised of Founding, Title, City, Media and Stakeholder Partner representatives and the Beneficiaries. After that process, the monies are paid out to the appointed Beneficiaries, with total transparency.”

From this, it is not clear how the decision-making process works and whether it is material that only one trustee, who is seemingly conflicted as she is also the owner of TPC, remains.

Many questions regarding the initiative are yet to be answered. Hopefully, more information will become available once BDO signs off the CEO SleepOut Trust’s financial statements. The philanthropy industry is built on a trust relationship and ultimate transparency entrenches this relationship.

By Ryk van Niekerk for MoneyWeb

 

Eskom extinguishes independent power producers

Energy minister Mmamoloko Kubayi shocked the private power industry by announcing that all previously-negotiated power tariffs must be lowered to 77c per kWh, and has left companies reeling, reported the City Press.

The minister acceded to Eskom’s decision to only accept contracts where the cost of energy was below 77c per kWh, affecting 27 energy projects representing over R60-billion.

Mark Pickering, managing director of solar industry lobby group Sapvia, told the City Press there is no legal basis for the decision and attempts to reach out to the minister have failed due to her schedule.

“The minister drops this massive bombshell, then promptly leaves for China. After that, we are told, she is on leave for two weeks,” Pickering told the City Press.

Pickering said Eskom is clearly attempting to squash the renewable energy Independent Power Producer programme and the minister has bought Eskom’s story “hook, line, and sinker”.

The announcement of the tariff requirement follows recent news that many municipalities owe Eskom up to R12-billion, which has resulted in the provider threatening power cuts – due to unmet payment agreements.

Eskom has also been plagued by multiple scandals, including its executives being accused of corruption and mismanagement.

Source: My Broadband

Counting the cost of corruption

Corruption costs the SA gross domestic product (GDP) at least R27 billion annually as well as the loss of 76 000 jobs that would otherwise have been created, according to Minister of Economic Development Ebrahim Patel.

This is according to a recent exercise by his department to quantify the cost of corruption in the public sector, based on just a 10% increase in price in infrastructure projects as a result of corruption.

Collusion increases the costs of doing business, stunts the dynamism and competitiveness that is needed and has a negative impact on growth and jobs, Patel said at the Competition Law, Economics and Policy Conference at the Gordon Institute of Business Science.

The culture of “rampant acquisition” is spreading so widely that the professional standards of integrity which are a hallmark of functioning institutions are under enormous pressure. There are some troubling matters to address in looking at corruption and the collusion therewith by professional firms, from auditors to lawyers and others.”

A World Bank study on competition in SA noted, for instance, that in the case of four cartels in maize, wheat, poultry and pharmaceuticals – products which make up 15.6% of the consumption basket of the poorest 10% – conservative estimates indicate that around 200 000 people stood to be lifted above the poverty line by tackling cartel overcharges.

“There are things we can do, practical things, while the wider battle to ensure integrity in the public and private sectors is pursued,” said Patel.

The construction industry, through the seven largest companies, for example, has embarked on a major transformation programme, with three prominent companies selling a large block of their shares to black South Africans. In all, the deal will place construction turnover of “billions of rand” in the hands of black South Africans over the next seven years.

Competition policy is going through something of a golden age, with enormous public interest in the work of the competition authorities and widespread public debate on what is done and what should be done.

Public interest

“The past seven years have seen a focus by government on the public interest consequences of mergers and acquisitions, specifically on employment, small business development, ownership by black South Africans and local industrial capability,” said Patel.

“This is not surprising in a society with so many people who are unemployed, where poverty levels are deep, many citizens feel excluded from the economy and wider inequalities threaten the social stability of our still-young democracy. This is a fertile field for demagogues who offer simplistic solutions to the many who are desperate.”

He pointed out that some commentators, lawyers and economists – while acknowledging the extent of the problems of joblessness – have asked whether it is the proper remit of competition policy to deal directly with unemployment and with the strong focus on public interest issues.

“Two decades ago, economic goals in many countries were framed in the language only of rates of economic growth, with the widespread presumption that growth always, often automatically, results in wider benefits for society,” said Patel.

“Today we live in a wiser world where there is compelling evidence that strong growth has in many cases gone with deepening inequalities and social exclusion, for example of young people. Today there is a broad consensus on the need for inclusive growth.”

There is also a growing constituency of policy-makers across the world who see value in well thought-out and transparent public interest conditions being attached to mergers and acquisitions to bring out the inclusivity of the growth.

“In 1994, at the start of the democratic era, the new incoming government identified high levels of economic concentration as a critical challenge. Today, some 23 years later, the public discussion has returned to this issue,” said Patel.

Manufacturing

In research currently being done on concentration ratios in the manufacturing sector, preliminary results suggest that the top five firms in the sector as a whole accounted for 13.7% of total manufacturing sales in 2011. By 2014 this had risen to 16.2%.

In a three-year period, the data seem to show a growth of 2.5 percentage points in market share – or based on estimated rand value, it may be equivalent to as much as R54bn of additional sales that, had market share ratios remained the same, would have gone to smaller firms.

“Some of this may be due to efficiency gains or other reasons that could be enhancing overall welfare. But clearly, if increased concentration has the effect of displacing smaller companies, issues of social equity loom large. These levels of concentration may be economically unjustified and, if so, should be addressed,” he emphasised.

Racially skewed

In addition, many parts of the economy are still faced with stubbornly racially-skewed ownership profiles, according to Patel.

“The exclusion of most historically disadvantaged South Africans from the ability and opportunity to own productive assets must be remedied to unlock the competitive and development benefits of full participation by all in the economy,” he said.

“The effect of these two structural features of these markets is to stunt economic growth, prevent entry of new players, reduce consumer choice, limit the levels of innovation and dynamism in the economy and feed a growing resentment among black South Africans of the failure to realise the promises made by the Competition Act and the vision of the constitution.”

Source: Business Tech

The government has proposed new laws following the dismal failure of e-tolling revenue collection from Gauteng motorists, who owe more than R6-billion in unpaid tolls.
The purpose of the South African National Roads Agency Limited and National Roads Amendment Bill is to amend previous road acts to address the public outcry which arose as a result of the implementation of the Gauteng Freeway Improvement Project.

When e-tolls were introduced in 2013 as part of the project, motorists accused Sanral of not conducting proper consultation. To ensure this does not happen in other provinces, Sanral is amending the bill that governs e-tolling.

Disastrous consequences

The proposed amendments to the bill will give provincial and municipal governments more power in the implementation of e-tolls.The amendment bill acknowledges the disastrous consequences in Gauteng and aims to prevent them. The proposed bill further states that “the manner in which the public consultation process was conducted on this project was not to the satisfaction of the public, and there is a need to strengthen consultation”.

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They now want to give more power to premiers and municipal governments with regard to the roads that will be tolled. The premier will be given at least 30 days to hear out objections on a road that has been flagged for tolling. If objections are more than 55 percent the premier will have to call for a referendum within six weeks.

In the amendments, Sanral is also required to, before tolling the roads, identify “an alternative route of comparable distance, which must be a tar road, be maintained adequately and be suitable for increased usage”.

Review

In June transport minister Joe Maswanganyi said the South African government would once again review Gauteng’s e-toll policy, in the hope that a better one could be found.

“We want to come up with a tolling policy that our people will actually accept,” he said. “We are not closing our ears to what people are saying – we are working with the government of Gauteng and with Sanral, and at the end of the day, we believe we will come up with a policy on tolling that will be acceptable.”

Organisation Undoing Tax Abuse chairman Wayne Duvenage on Sunday welcomed the e-toll Plan B and believed the amendments would go a long way in protecting motorists.

“It will be better if the consultations are done by the National Council of Provinces and provinces which are affected,” he said. “This will mean the public is consulted meaningfully, unlike in the Gauteng Freeway Improvement Project – which is why it failed.”

Challenge to e-tolling

He said that if provinces were consulted, e-tolling would not be implemented – as in the case of Western Cape. Sanral wanted to toll the N1 and N2 Cape Winelands highways, but the City of Cape Town took Sanral to court in 2015, challenging the tolling of the roads.

The court set aside Sanral’s decision to toll the roads – and this, Duvenage thinks, is what will happen in most provinces.

“If they had made proper consultations in Gauteng, we don’t believe the roads would have been tolled,” he said. “It doesn’t mean that the freeway would not have been upgraded – it just would have been paid for differently. It is good that this legislation is coming through.”

He said the scheme would likely fail in other provinces.

“I don’t think other provinces will ever get e-tolls because they go beyond getting the public to buy in. It goes to the ability to administer the scheme.

Failed eNatis system

“We have a failed eNatis system and we have problems with the administration of traffic fines, and so we believe the context of the environment is one which e-tolling will fail in South Africa,” Duvenage said. He added that while e-tolling in other provinces would not take off, it would also fail further in Gauteng.

“We believe the e-tolls in Gauteng will not be around for much longer, and the reason is that the five-year collection tender comes up for renewal in just over a year,” he said. “We believe they won’t go out for tender because they are not even collecting the amount of money required.”

In February Gauteng premier David Makhura said the e-tolling system was a mistake and that no new tolled roads would be introduced in the province. It was revealed in Parliament by the Department of Transport in June that more than 70 percent of e-tolls issued were not paid by motorists.

Sanral spokesperson Vusi Mona was unavailable for comment.

By Tebogo Monama for IOL

‘Broke’ Eskom wants to hand out bonuses

Eskom has been given the green light to pursue up to R60bn in clawback tariffs.

On Tuesday, the Constitutional Court dismissed an application to set aside the power utility’s regulatory clearing account (RCA) adjustments, clearing the way for Eskom to recover a potential R60bn through tariffs in the next year.

RCA adjustments deal with funds that Eskom needs to recover due to a shortfall in electricity losses or a escalation in operating costs, through possible tariff hikes.

The National Energy Regulator of South Africa (Nersa) will now hold hearings as Eskom argues why it should be granted the delayed tariff hikes.

However, Eskom has also Eskom is considering paying its employees a R150-million “winter challenge” bonus for avoiding power cuts, The Sunday Times reports.

The submission comes a month after the power utility reportedly paid R4.2-billion in performance bonuses to staff, and two months after public enterprises minister Lynne Brown approved bonuses totaling R13-million for its executives, including former CEO Brian Molefe, former chief financial officer Anoj Singh and suspended acting CEO Matshela Koko.

“I cannot think of any reason to pay bonuses to Eskom employees for doing their job: keeping the lights on,” said Brown.

“And particularly not in the current economic environment. It is an operational matter and therefore not the shareholders’ call, but I would like to believe Eskom’s interim leadership will take prudent financial decisions.”

Added to the no load-shedding requirement is that there can be no fatalities and no environmental contraventions.

An Eskom HR executive has indicated that the bonuses would be spread across the company and not limited to generation staff. Should the proposal be approved, Eskom would then pay an amount of R149.8 million to be shared among 47,053 employees.

Last year the Pretoria high court ruled that Eskom’s RCA adjustments were “irrational, unfair and unlawful”. This came after a four year court battle which set aside aside Nersa’s R11.2bn RCA award for Eskom’s 2013/14 financial year.

The battle started back in 2013, when companies from the Eastern Cape, led by alloy manufacturers Borbet SA, lodged an application against the RCA.

The court case prevented Eskom from processing future RCA submissions, which meant that RCAs for the 2014/15, 2015/16 and 2016/17 financial years were put on ice until the court case ended. While the companies initially triumphed in the Pretoria high court, the Supreme Court of Appeal (SCA) reversed the ruling and ultimately the Constitutional Court dismissed the application by Borbet SA and others for leave to appeal the SCA decision.

The ruling on Tuesday means that the 2013/2014 RCA tariff adjustment remains applicable and that Nersa will now have to process the three period applications of Eskom’s RCA adjustments. The SCA judgment will stand as the final word on the matter.

Eskom has applied to Nersa for a R19bn clawback for 2014/15, and a R22bn for the 2015/2016. The 2016/2017 application is not yet public, but is reported to be R20bn. This all adds up to R61bn that Eskom will try to recover, possibly over one year, energy analyst Chris Yelland said.

He said Eskom sales only amounted to R180bn and the R60bn will try to cover the shortfall.

“In order to recover this money, it would need to increase tariffs by 33%,” Yelland explained. “That is what Eskom will ask for at Nersa, this is not to say that they will get it.”

In addition, Eskom’s leaked, latest Nersa application asks for a 20% hike, which is apart from the possible 33% they are likely to ask for in the RCA adjustment, which could potentially bring the overall tariff hike up to 53%, Yelland explained.

“Even if they get half of that, it will put immense pressure on consumers,” he said. “The ruling certainly has heralded interesting times.”

Eskom’s plummeting electricity sales and increasing tariffs mean that the power utility will be selling even less power in future, Yelland said. “Eskom is in a utility death spiral.”

Eskom said the court’s ruling affirmed Nersa’s decision to allow Eskom’s application for a tariff adjustment .

This means that Eskom is not barred from making future RCA applications for electricity price adjustments to Nersa, the state utility said.

“The ruling also clears the path for Nersa to process Eskom’s RCA submissions for the 2014/15, 2015/16 and 2016/17 financial years.”

After losing the first round, Nersa and and Eskom approached the SCA to set aside the High Court ruling, and won the case. In July the companies then took their case to the Constitutional Court, which on Tuesday dismissed the case.

The Constitutional Court dismissed Borbet’s application on the basis that the application “bears no prospects of success”.

By Yolandi Groenewald for Fin24; BusinessTech

ANC to punish those who are anti-Zuma

The ANC says it intends to discipline three MPs who openly voiced their opposition to President Jacob Zuma ahead of last week’s motion of no confidence.

The three who did so are former finance minister Pravin Gordhan, former tourism minister Derek Hanekom and MP Makhosi Khoza.

This is according to ANC secretary-general Gwede Mantashe, who addressed journalists during a roundtable discussion on Tuesday.

Calls from Zuma and his backers grew at the weekend for those who voted against him to be punished.

Mantashe was speaking after a meeting of the party’s national working committee on Monday.

He said the ANC would not hunt down MPs who voted in favour of last week’s motion of no confidence against Zuma‚ but would discipline party members who had confirmed voting with the opposition.

Those who kept their vote a secret would not face any charges, he said.

Mantashe was speaking after a meeting of the party’s national working committee where the matter is said to have dominated discussions.

“There is not going to be a witch hunt. We are not going to do that. (But) where MPs go up and confirm‚ we’ll have to deal with that situation.”

Mantashe also revealed that the ANC would take action in the matter involving Deputy Higher Education and Training Minister Mduduzi Manana.

By Natasha Marrian and Sibongakonke Shoba for Business Day

Was Zuma behind the secret ballot?

Monday’s announcement by Baleka Mbete that the motion of no confidence would be decided by secret ballot took many, if not most, people by surprise.

Why did she decide on a secret ballot, when it clearly posed significant political risk to her if the ballot passed?

This question became even more intriguing when it emerged that she did not consult with the ANC NEC and that even they were caught by surprise.

Some analysts argued that the legal advice and opinions presented to her were so convincing that she did not have a choice. That might well be true, although it should be said that her political future would still have been more important to her than the possibility of losing in court again.

Some journalists went further and questioned whether she had gone “rogue” and whether this decision was not only her way of redeeming herself as a politician and thus securing her legacy, but also that the possibility of being interim president (should the motion have passed) might have been her way off kicking off her own presidential campaign.

I don’t think that this was convincing. First of all it posed an enormous risk for her in terms of her standing in the ANC should the vote have gone against President Zuma. We have to remember that a majority of NWC, NEC and arguably even branch members still support the Zuma faction. More importantly if Mbete was seen to have strengthened the hand of the opposition and so caused a victory to them, her standing in the ANC and in the Presidential race would have been fatally damaged. As much as there might be a growing discontent in the ANC about President Zuma, that does not translate into ANC members being comfortable with an opposition victory of any sort.

So what was going on?

I believe that President Zuma not only agreed to a secret ballot, but wanted it.

I find it implausible that Mbete (who is also Chairperson of the ANC) did not consult with Zuma before making her decision. Failure to do so would be strange in any political party, but given its culture of collective decision-making, much more so for the ANC. I also do not believe that Mbete would have gone directly against the president’s wishes unless it was agreed to by the NEC (which we know was not the case).

This leaves only one alternative and that is that President Zuma decided to take a calculated risk, i.e. that he argued “Bring it on”. This would be typical of him. He would have known that if he were to survive the motion through a secret ballot, it would be the ultimate victory for him, thus effectively silencing any opposition voices inside the ANC and also making any further votes of no-confidence highly unlikely in the next few months.

It would also explain why Mbete waited until the day before the debate to make the announcement. If indeed the president was in favour of a secret ballot, he would have requested or more likely instructed Baleka to only make it known the night before the vote in order to a) give the anti-Zuma faction as little time as possible to mobilise and b) to give the ANC the maximum time to “intimidate” or put pressure on their own members – as we have indeed seen happening in the last few weeks.

And of course the gamble paid off from Zuma’s perspective. Only 177 members voted against the motion. This does mean that 28 or 29 ANC members most likely voted with the opposition and 9 abstained. Although significantly more than most people anticipated, it is a long way from the 201 votes that would have been required to pass the motion.

I have always maintained that if Mbete ruled for a secret ballot it would signal that she and the ANC were sure that the motion would not pass. I was right. I also warned that as a country we could be worse off after a vote of no confidence and I think we are.

President Zuma got what he wanted, courtesy of the opposition parties. After this vote he is stronger than ever before, no matter how hard the opposition will try and spin the fact that many ANC MPs voted for the motion. The outcome of the vote has effectively silenced any opposition to Zuma in the ANC at least until December. And it might even have for now strengthened his hand in terms of the outcome of the Electoral Conference.

The motion of no confidence was without doubt spectacular political theatre. Sadly, however, now that the curtain has fallen, South Africa is probably worse off than before.

By Melanie Verwoerd for News24

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