Picture: REUTERS
Picture: REUTERS

Yet another confrontation has befallen the beleaguered Public Investment Corp (PIC). This time it’s to explain the inner workings of its relationship with the Government Employees Pension Fund (GEPF), the PIC’s major client, specifically over the grant of a R5bn bridging loan from the PIC to Eskom.

The purpose of the loan was to allow Eskom time, through a short-term operational liquidity crunch, to arrange longer-term borrowings from financial institutions. Fundamentally at issue was whether:

  • The loan, granted in February 2018, was guaranteed by the government. If it wasn’t, which is denied, there are at least explanations of how the government considers the guarantees take effect.
  • The GEPF was consulted. The PIC, represented by then CEO Dan Matjila, says it was consulted. The GEPF, represented by principal executive officer Abel Sithole, says it wasn’t.
  • The GEPF board ever discussed the loan either prior or subsequent to it having been granted. Because the investment mandate of the GEPF to the PIC is kept confidential, respective obligations aren’t in the public domain.

This latest dispute came about because the Public Servants Association (PSA), a 230 000-member trade union with a seat on the GEPF board, has applied to the high court in Pretoria under the Promotion of Access to Information Act for disclosures that relate not only to the loan but also to the ministerial appointment of PIC directors.

What happens next? Will witnesses be called, either to the PIC commission of inquiry or to give evidence in court? Both options are debatable.

No date for the PSA hearing has been scheduled. It could be that a hearing is unnecessary because much of the requested information is already revealed in a series of voluminous affidavits. So it would be over to the commission, should it want, for a deeper dig into how the PIC operates.

The affidavits have been deposed by PSA general manager Ivan Fredericks in launching the notice of motion, then by the various respondents: Stadi Mngomezulu of the National Treasury for the minister of finance, Matjila for the PIC and Sithole for the GEPF. Incidentally, Mngomezulu is also a GEPF trustee and Sithole is also acting commissioner of the Financial Sector Conduct Authority.

In essence, the PSA wants to know how the PIC directors were appointed; for example, whether the minister exercised “due regard” to nominations submitted to him by depositors. It turned out that there were none.  The PSA also wants to see documents in support of the PIC’s contention that the loan was in fact guaranteed by the government.

On February 5 2018 the PIC issued what purported to be a joint announcement by it and the GEPF.  It stated that the PIC, on behalf of the GEPF, had agreed to advance Eskom the bridging loan for the purpose of funding Eskom’s operations for the month of February; that the PIC had obtained approval in line with its investment mandate and corporate governance requirements; that the GEPF and PIC board took comfort in the fact that the bridging loan was fully backed by a government guarantee; and that the PIC and GEPF were encouraged by the recent changes in Eskom governance.

On February 13 2018, the PIC issued a statement expressing its concern about the “false, misleading information” in the media about the decision by the PIC and GEPF to provide Eskom with the short-term R5bn loan facility. “The decision to advance the bridging loan facility to Eskom was taken in consultation with the GEPF,” it said.

In replying to the respondents’ answering affidavits, however, Fredericks contends that this PIC statement is directly contradicted by Sithole. Under oath, Sithole now says the PIC did not submit an application for the bridging loan to the GEPF; that the application was not considered by the GEPF; and that the GEPF “did not participate in taking any decisions relevant to the Eskom bridging loan”.

Fredericks further insists that the Treasury did not have any records relating to the PIC board request and that, on the minister’s version, there was clearly no valid government guarantee for the loan. Whereas the PIC claimed that the minister had considered and approved the guarantee, the minister says “that he did not and that it was not necessary for him to have done so”.

In his affidavit for the minister, Mngomezulu addresses the PSA’s concern that the PIC board’s media statements – to the effect that there is a guarantee – are untrue: “I can confirm that a guarantee does indeed exist. Part of the guarantee is used towards a domestic medium-term note (DMTN) programme, which Eskom is proceeding with, under the oversight of the JSE.”

He says Eskom does not have to request government approval prior to issuing notes under the DMTN programme. Instead, for monitoring purposes, Eskom needs only to notify the Treasury of issuances made against the loan’s amount.

“There is thus no loan agreement entered into or discussed with the lenders,” the affidavit states. “There is furthermore no individual guarantee documentation for note holders which is prepared for individual issuances, such as in the case of the R5bn in notes bought by the PIC … I [therefore] submit that the DMTN programme presents no cause for alarm.”

The DMTN programme provides for the government to issue guarantees, in respect of notes issued by Eskom, so that Eskom can raise finance for its capital expenditure programme. No note has been disclosed in relation to the short-term R5bn bridging facility and neither has a guarantee related to this facility been produced.

As far as the GEPF is concerned, Sithole says it was not a party to the loan agreement and that the PIC did not submit to it an application for the bridging loan. The GEPF is a defined-benefit fund and the members’ entitlements to benefits “are not in any way affected by any of the investments which it makes”, he adds.

In any event, says Sithole, the GEPF denies that it failed to exercise its fiduciary duties. The PSA’s allegations ignored the facts that the so-called bailout – fully backed by a government guarantee – was not free because Eskom was obliged to repay the full R5bn plus interest and has done so.

In an affidavit for the PIC, Matjila says the PSA knew from the outset that the PIC complied with its requests and that the documents requested could be obtained from the minister or the Treasury. Unfortunately, he adds, the PSA has adopted an unreasonable approach by subjecting the PIC “to this frivolous and unnecessary litigation”.

Should the PSA persist with this approach, he warns, the PIC’s answering affidavit “serves as a notice to PSA that … the PIC will seek a punitive costs order against the PSA”.

Since the PSA now has much of the information it sought, it is unclear what’s to be done with it. For the contradictions exposed, there’s at least clarity on how the guarantees are seen to be valid and on how the PIC works in relation to the GEPF.

Most usefully, the request for information on how the minister appoints PIC directors appears to have borne fruit. Indications are that in future the PIC board, as with the GEPF board, will include stakeholders, presumably trade unions such as the PSA.

  • Allan Greenblo is editorial director of Today’s Trustee (www.totrust.co.za), a quarterly magazine mainly for principal officers and trustees of retirement funds.