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New Competition Bill invades business principles

 

Competition kill is not transformation, say critics

Due to an idealogical theme imposed by the Minister of Economic Development, Ebrahim Patel, on the new Competition Amendment Bill, recently published for comment, South Africa can expect a highly charged series of hearings following the Bill’s recent tabling in Parliament. Competition Bill

 

Posted in BEE, Finance, economic, Labour, LinkedIn, Trade & Industry0 Comments

Competition Commission gets to know LPG market

 DOE holds off on LPG regulatory changes…

Sent to clients 25 Oct….In a briefing to the Portfolio Committee on Energy on the report by the Competition Commission (CC) into the Liquified Petroleum Gas (LPG) sector, acting Director General of the Department of Energy (DOE), Tseliso Maqubela, has again told Parliament that the long-standing LPG supply shortages are likely to continue for the present moment until new import infrastructure facilities come on line.

He was responding to the conclusions reached by the CC but reminded parliamentarians at the outset of the meeting that the Commission’s report was not an investigation into anti-competitive behaviour on the part of suppliers but an inquiry, the first ever conducted by the CC, into factors surrounding LPG market conditions.

Terms of reference

In their general comments, the Commissioner observed that the inquiry commenced August 2014 on the basis that as there were concerns that structural features in the market made it difficult for new entrants and the high switching costs for LPG gas distributors mitigated against change in the immediate future.

They worked on the basis that there are five major refineries operating in South Africa, these being ENREF in Durban, (Engen);

refinery

engen durban refinery

SAPREF in Durban, (Shell and BP); Sasol at Secunda; PetroSA at Mossel Bay; and CHEVREF in Cape Town (Chevron). There are four wholesalers, namely Afrox, Oryx, Easigas and Totalgaz.

Wholesalers different

As far the wholesalers are concerned, in the light of all being foreign controlled, CC also observed that transformation was poor, but this was not an issue on their task list, they said. They had assumed therefore that BEE legislation was difficult to enforce and that the issue had been reported to the Department of Economic Development, the portfolio committee was told.

Price regulation at the refineries and at retail level is supposedly determined by factors meant to protect consumers, the CC said, but their inquiry report noted no such regulations specifically at wholesale level. This fact was stated as being of concern to the CC in the light of known “massive profits in the LPG wholesaling sector”.

Structures

Commissioner Bonakele said, “We started the inquiry because of the worrying structures of the market but in benchmarking our market structures with other countries and we found LPG in SA was not only unusually expensive but was indeed in short supply. Why? When it is so badly needed, was the question, he said

The CC established from the industry that about 15% of LPG supplied is used by householders and the balance is for industrial use.   In general, they noted that there were regulatory gaps also in the refining industry but regulatory requirements were over-burdening they felt and contained many conflicts and anomalies.

The CC had also reported that the maximum refinery gate price (MRGP) to wholesalers and the maximum retail price (MRP) to consumers were not regulated sufficiently and far too infrequently by DOE.

Contentious

There needed to be one entity only regulating the entire industry from import to sale by small warehousing/retailers, they said. The CC suggested in their report that the regulatory body handling all aspects of licensing should be NERSA .

As far as gas cylinders were concerned, Commissioner Bonakele noted in their report that there are numerous problems but their criticism was that the system currently used was not designed to assist the small entrant. The “hybrid” system that had evolved seemed to work but there was a “one price for all” approach.

DOE replies

In response, DG Maqubela confirmed that the inquiry had been conducted with the full co-operation of DOE into an industry beset with supply and distribution problems, issues that were only likely to change when there were “adequate import and storage facilities which allowed for the import of economic parcels of LPG supplied to the SA marketplace.”

When asked why local refineries could not “up” their supply of LPG to meet demand, DG Maqubela explained that only 5% of every barrel of oil refined by the industry into petroleum products could be extracted in the form of LPG. Therefore, the increase in LPG gas supplied would be totally disproportionate to South Africa’s petrol and diesel requirements.

Going bigger

Tseliso Maqubela, previously DG of DOE’s Petroleum Products division, told the Committee that two import terminal facilities have recently been commissioned in Saldanha and two more are to be built, one at Coega (2019) and one at Richards Bay (2021). These facilities were geared to the importation of LPG on a large scale.

He said, in answer to questions on legislation on fuel supplies, that DOE were unlikely to carry out any amendments in the immediate future to the Petroleum Pipelines Act, since the whole industry was in flux with developments “down the road”.
It would be better to completely re-write the Act, he said, when the new factors were ready to be instituted.

Rules

On the regulatory environment, DG Maqubela pointed out that for a new refinery investor it would take at least four years to get through paper work through from design approval to when the first spade hit the soil. This had to change. The integration of the requirements of the Department of Environmental Affairs, Transnet, the Transnet Port Authority, DTI, Department of Labour, Cabinet and NERSA and associated interested entities into one process was essential, he said.

On licencing, whilst DOE would prefer it was not NERSA, since they should maintain their independence, in principle the DOE, Maqubela said, supported the view that all should start considering the de-regulation of LPG pricing. He agreed that DOE had to shortly prepare a paper in on gas cylinder pricing and deposits which reflected more possibilities for new starters.

MPs had had many questions to ask on the complicated issues surrounding the supply, manufacture, deposit arrangements, safety and application of cylinders. In the process of this discussion, it emerged, once again, that LPG was not the core business of the refinery industry and what was supplied was mainly for industrial use. The much smaller amount for domestic use met in the main by imported supplies for which coastal storage was underway over a five-year period.

Refining

DG Maqubela noted that on Long Term Agreements (LTAs) between refineries and suppliers, DOE in principle agreed with the Commission that LTAs between refiners and wholesalers could be reduced from 25 years to 10 years, to accommodate small players. Again, he said, this would take some time to be addressed, as was also an existing suggestion of a preferential access of 10% for smaller players.

All in all, DG Maqubela seemed to be saying that whilst many of the CC recommendations were valid, nobody should put “the cart before the horse” with too much implementation of major change in the LPG industry before current storage and supply projects were completed.

However, the current cylinder exchange practice must now be studied by DOE and answers found, Tseliso Maqubela re-confirmed.
Previous articles on category subject
Overall energy strategy still not there – ParlyReportSA
Gas undoubtedly on energy back burner – ParlyReportSA
Competition Commission turns to LP gas market – ParlyReportSA

Posted in BEE, Energy, Finance, economic, Fuel,oil,renewables, LinkedIn, Trade & Industry0 Comments

Marine Spatial Bill targets ocean resources…

Bill to bring order to marine economy…

November 2017 ParlyReport…..

In the light of President Zuma’s emphasis in his recent speeches on oil and gas issues, it is important to couple this in terms of government policy with the tabling of the section 76 Marine Spatial Planning Bill (MSP Bill).  The proposals are targeted at business and industry  to establish “a marine spatial planning system” offshore over South African waters.

The Bill  also says it is aimed at “facilitating good ocean governance, giving effect to South Africa’s international obligations.”

A briefing by the Department of Environmental Affairs (DEA) on their proposals is now awaited in Parliament. The Bill until recently was undergoing controversial hearings in the provinces as is demanded by its section 76 nature.

Water kingdom

The MSP Bill applies to activities within South Africa’s territorial waters known as Exclusive Economic Zones, which are mapped out areas with co-ordinates within South Africa’s continental shelf claim and inclusive of all territorial waters extending the Prince Edward Islands.

The Bill flows, government says, from its Operation Phakisa plan to develop South Africa’s sea resources, notably oil and gas.   The subject has recently been subject to hearings in SA provinces that have coastal activities. This importantly applies to South African and international marine interests operating from ports in Kwa-Zulu Natal and the Eastern and Western Cape but also  involves coastal communities and their activities.

International liaison

Equally as important as maritime governance, is the wish to assist in job creation by letting in work creators.  Accounted for also are international oceanic environmental obligations to preserve nature and life supporting conditions which DEA state can in no way can be ignored if maritime operations and industrial seabed development are to be considered.

South Africa is listed as a UNESCO participant, together with a lengthy list of other oceanic countries, agreements which, whilst not demanding total compliance on who does what, are in place to establish a common approach to be respected by oceanic activity, all to be agreed in the 2016/7 year.  South Africa is running late.

Invasion protection

Whilst the UNESCO discipline covers environmental aspects and commercial exploitation of maritime resources, the MSP Bill now before Parliament states that in acknowledging these international obligations, such must be balanced with the specific needs of communities, many of whom have no voice in an organised sense.

As Operation Phakisa has its sights set on the creation of more jobs from oceanic resources therefore, the MSP Bill becomes a balancing act for the Department of Environmental Affairs (DEA) and the Bill is attracting considerable interest as a result.

The hearings in the Eastern Cape have already exposed the obvious conundrum that exists between protecting small-time fishing interests and community income in the preservation of fishing waters and development of undersea resources.  What has already emerged that the whole question of the creation of future job creation possibilities from seabed-mining, oil and gas exploration and coastal sand mining is not necessarily understood, as has been heard from small communities.

The ever present dwindling supply of fish stocks is not also accepted in many quarters, with fishing quotas accordingly reduced.

Tug of war

All views must be considered nevertheless but from statements made at the political top in Parliament it becomes evident that the potential of developing geological resources far outweigh the needs of a shrinking fishing industry.  At the same time, politicians usually wish to consider votes and at parliamentary committee level, the feedback protestfrom the many localised hearings is being heard quite loudly.

As one traditional fishing person said at the hearings in the Eastern Cape, “The sea is our land but we can only fish in our area to sustain life. The law is stopping us fishing for profit.”

Local calls

The attendees at many hearings have said that the MSP Bill and similar regulations in force restrict families from earning from small local operations such as mining sand; allow only limited fishing licences and call for homes to be far from the sea denying communities the right to benefit from the sea and coastal strips for a living.

Hearings last went to the West Coast and were held with Saldanha Bay communities.

Big opportunities

Conversely, insofar as Operation Phakisa is concerned, President Zuma, as has been stated, said clearly in his latest State of Nation AddressZuma that government has an eye for much more investment into oil and gas exploration.   He has since announced that there are plans afoot to drill at least 30 deep-water oil and gas exploration wells within the next 10 years as part of Operation Phakisa.

Coupled to this is the more recent comment in Parliament that once viable oil and gas reserves are found, the country could possibly extract up to 370 000 barrels of fossil fuels each day within 20 years – the equivalent of 80% of current oil and gas imports.

According to the deadline set by the Operation Phakisa framework, the MSP Bill should have been taken to Parliament at the beginning of December 2016 for promulgation as an Act by the end of June 2017, making it appear that things are running late.

Environmental focus

As the legislation is environmentally driven, with commercial interests coming to the surface in a limited manner at this stage, the matter is being handled by the Portfolio Committee on Environmental Affairs.    It is understood that later joint meetings will be held with the Trade and Industry Committee and with Energy Committee members.

Adding to the picture that is now beginning to emerge, is the fact that Minister of Science and Technology, Naledi Pandor, has signed a MOU with the Offshore Petroleum Association of South Africa.

Minister Pandor said at the time of signing, “The South African coastal and marine environment is one of our most important assets.   Currently South Africa is not really deriving much from the ocean’s economy. This is therefore why we want to build a viable gas industry and unlock the country’s vast marine resources.”

Moves afoot

OPASA is now to make more input with offshore oil and gas exploration facts and figures.   Energy publications are now bandying figures around that developments in this sphere will contribute “about R20bn to South Africa’s GDP over a five-year period.”   If this is the case, the Energy Minister might be compromised once again, as she was with renewables, on the future makeup of the planned energy mix.

Amongst the particularly worrying issues raised by opposition parliamentarians and various groupings in agricultural and fishing areas is that there is a proposal in the MSP Bill on circuit states that the Act will trump all other legislation when matters relate to marine spatial planning. DEA will have to answer this claim.

Opposition

Earthlife Africa have also stated at hearings in Richards Bay that in their opinion “Operation Phakisa has very little to do with poverty alleviation and everything to do with profits for corporates, most likely with the familiar kickbacks for well-connected ‘tenderpreneurs’ and their political allies.”

This is obviously no reasoned argument and just a statement but gives an indication of what is to be faced by DEA in the coming months.

Giants enter

With such diverse views being expressed on the Bill, President Zuma and past Minister  of Energy, Mmamaloko Kubayi cannot have missed the announcement that Italy’s Eni and US oil and gas giant, Anadarko, have signed agreements with the Mozambique government to develop gas fields and build two liquefied natural gas terminals on the coast to serve Southern African countries.

Eni says it is spending $8bn to develop the gas fields in Mozambique territorial waters and Anadarko is developing Mozambique’s first onshore LNG plant consisting of two initial LNG trains with a total capacity of 12-million tonnes per annum.  More than $30bn, it has been stated in a joint release by those companies, is expected to be invested in Mozambique’s natural gas sector in the near future.

Impetus gaining

In general, therefore, the importance of a MSP Bill is far greater than most have realized. The vast number of countries called upon to have their MSP legislation in place also indicates international pressure for the Portfolio Committee on Environmental Affairs to move at speed.

This follows a worldwide shift to exploiting maritime resources, an issue not supported by most enviro NGOs and green movements without serious restrictions.  Most parliamentary comments indicate that the trail for oil and gas revenues needs following up and the need to create jobs in this sector is even greater.

Ground rules

Whilst the oil and gas industry and the proponents of Operation Phakisa also recognize that any form of MSP Bill should be approved to provide gateway rules for their operations and framework planning, the weight would seem to be behind the need for clarity in legislation and urgency in implementation of not only eco-friendly but labour creating legislation.

Operation Phakisa, as presented to Parliament particularly specified that the development of MSP legislation was necessary and Sean Lunn, chairperson of OPASA has said that the Bill will “add tangible value to South Africa’s marine infrastructure, protection services and ocean governance.”  He said it will go a long way in mitigating differences between the environmentalists and developers.

Not so nice

On seabed mining, the position with the MSP Bill is not so clear, it seems.    Saul Roux for the Centre for Environmental Rights (CER) says that the Department of Mineral Resources granted a few years ago three rights to prospect for marine phosphates.

He also stated that the marine process “involves an extremely destructive form of mining where the top three metres of the seabed is dredged up and consequently destroys critical, delicate and insufficiently understood sea life in its wake.”   Phosphates are predominantly used for agricultural fertiliser.

“These three rights”, he said “extend over 150,000 km2 or 10% of South Africa’s exclusive economic zone.”

Something happening

One of CER’s objectives, Roux says, is to have in place a moratorium on bulk marine sediment mining in South Africa.   He complains that despite the three mining rights having been gazetted, he cannot get any response from Minister of Mineral Resources, Mosebenzi Zwane, or any access to any documents on the subject.

He stated there were two South African companies involved in mining sea phosphates and one international group, these being Green Flash Trading 251, Green Flash Trading 257 and Diamond Fields International, a Canadian mining company. All appeared to be interested in seabed exploration for phosphates although not necessarily mining itself.

Roux called for the implementation of an MSP Bill which specifically disallowed this activity as is the case in New Zealand, he said.

Coming your way

The MSP Bill was tabled in April 2017 and once provincial hearings are complete it will come to Parliament. The results of these hearings will be debated and briefings commenced when announced shortly.

Previous articles on category subject

Operation Phakisa to develop merchant shipping – ParlyReportSA

Hide and seek over R14.5bn Ikhwezi loss – ParlyReportSA

Green Paper on nautical limits to make SA oceanic nation – ParlyReportSA

Gas undoubtedly on energy back burner – ParlyReportSA

 

Posted in cabinet, Energy, Enviro,Water, Finance, economic, Labour, LinkedIn, Mining, beneficiation, Special Recent Posts, Trade & Industry0 Comments

Fresh Cybercrimes and Cybersecurity Bill tackles Internet fraud

…  Revised Bill criminalises cybercrimes …

posted 5 Aug… A new Bill designed to give powers to the State Security, Defence, Police and Telecommunications Ministers to intervene in many aspects of South Africa’s key economic, financial and labour environments and zeroing in on cybercrimes and related offences, is in debate.  It also calls upon the financial sector to assist in tracking down fraudsters.

Offences include the circulation of messages that aim at economic harm to persons or entities; that contain pornography or could cause mental or psychological stress; the Bill calls upon the private financial and communications sector and, more specifically, electronic service providers to assist with its objectives. The Bill will also change much in the way how government and SOEs go about their business to reflect the current call for electronic security.

The revised Bill is re-write of that originally tabled in 2015 and rejected as too convoluted and wide ranging on issues that could cause unintended consequences.

Badly needed

Despite placing considerable onus upon the private sector to assist, the IT industry seems to be guardedly welcoming the debate which is about to commence. The original and rejected Cybercrimes and Cybersecurity Bill was tabled in Parliament last February.

The main comment circulating seems to be that this later version is more specific than its earlier counterpart, provides more clarity and has less weight placed upon tedious operational management factors in state structures designed to fight cybercrime.

The Bill is the product of the Department of Justice and Constitutional Affairs (DoJ) and from what has been said, Deputy Minister John Jeffreys seems to be the state official still running with the legislation. He said at a media briefing some months ago, “This Bill will give the State the tools to halt cybercrimes and trained teams to bring to book those who use data as a tool for their crime.”

Not meant

Originally, when the Bill was tabled in 2015 it caused a storm of controversy. Whilst its objectives to catch criminals and stop the growing invasion institutional attacks were understood, unintended consequences for the media were not foreseen. The new Bill acknowledges that journalists and whistle-blowers have protection under the Protected Disclosures Act.

However, the somewhat draconian powers of seizure of data granted to the authorities will still no doubt worry many service providers insofar as interlocking the proposals into the Protection of Personal Information (POPI) Act and the Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA) are concerned, it has been suggested in hearings.

However, the Minister and other ministerial portfolios concerned, appear to have weighted their decision upon the growing threat of international cybercrime and have continued to call for service providers to assist with the issue caused by a late start.

SA under limelight

Some IT forensic reports indicate that sub-Saharan Africa has the third highest exposure to incidents of cyber fraud in the world and according to those who published this fact, they also claim that incidences of cybercrimes and cybersecurity breaches are escalating globally at 64%, with more security incidents reported in 2015 than 2014 for South Africa.

South Africa is known to be a specific target for cybercrime involving unlawful acquisition of sensitive data relating to clients and/or business operations due to a very high reliance on internet connections by commerce. Large data storage packages proliferate in SA, it is suggested, ranging from the JSE to the banking sector.

ATMs, bank transfers

In the case again of South Africa as part of sub-Sahara Africa, wire transfer fraud accounts for 26 percent of cybercrimes, far ahead of the global average of 14 percent, South Africans being defrauded of more than R2.2bn each year it is estimated.

Banking and financial institutions in South Africa, it is noted in the preamble to the Bill, are particularly exposed, the Reserve Bank having stated back in 2016, “It would be remiss of us in our duty if we ignored the growing risks emerging from the financial services sector’s increasing reliance on cyberspace and the Internet.”

Definitions

The Bill now before Parliament criminalises unlawful and intentional conduct regarding data, data messages, computer systems and programs, networks and passwords and creates as crimes “cyber fraud, cyber forgery and cyber uttering”.

It criminalises malicious communications – namely messages that result in harm to person or property, such as revenge porn or cyber bullying. The police are given extensive investigation, search and seizure powers in the Bill and an array of penalties, including fines and imprisonment apply, including various prescribed in terms of the Criminal Procedure Act, 1977.

No FICA-type warrants.

It is notable that cyber-crime powers of search and arrest remain with SAPS and not any specific structure or system set up by the new Bill to monitor instances of cybercrime or detect suspicious data attacks.

There remain, however, quite onerous obligations on electronic communications service providers and financial institutions, not only to assist in investigations of cybercrimes but also to report instances of cybercrime. A “framework of mutual co-operation between foreign states” is established in respect international investigation and the prosecution of cybercrime.

Crime fighting structures

The Cybercrimes and Cybersecurity Bill also establishes a Computer Security Incident Response Team, as did its predecessor, to establish contact with the private sector alongside with the already functional Cyber Security Hub responsible to the Minister of Telecommunications and Postal Service.

Finally, on structures, the Minister of Defence is to establish and operate a Cyber Command and appoint a General Officer Commanding.

The Bill also provides for the declaration of what is termed as “critical information infrastructure possessed” by financial institutions – for example databases upon which an attack could possibly represent a national threat.    Debate will no doubt flow around who and who not should report and upon what exactly.

The crimes defined

For the technically minded, the Bill In terms of the Bill, the following activities are criminalised: unlawful securing of access to data, a computer programme, a computer data storage medium or a computer system; unlawful acquisition of data; unlawful acts in respect of software or hardware tools; unlawful interference with data or a computer programme; unlawful interference with a computer data storage medium or computer system; unlawful acquisition, possession, provision, receipt or use of password, access codes or similar data or devices.

Also included are cyber fraud; cyber forgery and uttering; cyber extortion and certain aggravating offences; attempting, conspiring, aiding, abetting, inducing, inciting, instigating, instructing, commanding or procuring to commit an offence; theft of incorporeal properties; unlawful broadcast or distribution of data messages which incites damage to property or violence; unlawful broadcast or distribution of data messages which is harmful; unlawful broadcast or distribution of data messages of intimate image without consent.

The Bill imposes a list of penalties and allows for imprisonment for up to 15 years for cybercrimes and the maximum fine that may be levied for failing to timeously report an incident or failing to preserve information is now capped at R50,000, far less than the extraordinarily high penalties for non-disclosure levied in the initial version of the Bill.

Necessary actions

The search and seizure powers granted in terms of the new Bill “do not represent increasing the state’s surveillance powers”, Deputy Minister, John Jeffries said, “But if the State cannot seize evidential material to adduce as evidence, it will be impossible to prove the guilt of an accused person.”

Any hearings will obviously focus mainly upon the onuses and impositions imposed in the Bill upon electronic communications service providers and financial institutions, known by an acronym in the Bill as “ECSPs”. A date for further parliamentary briefings by DoJ has yet to be scheduled.
Previous articles on category subject
Cybercrime and Cybersecurity Bill invokes suspicion – ParlyReportSA
Draft Cybercrime Bill drafts industry – ParlyReportSA
Lack of skills hampering broadband rollout – ParlyReportSA

 

Posted in Communications, Justice, constitutional, LinkedIn, Security,police,defence, Trade & Industry0 Comments

Barnes prepares SAPO for SASSA

Modernising SAPO a culture change

….. sent to clients 27 February…. Stage by stage, Mark Barnes, Group Chief Executive Officer of South African Post Office (SAPO), appears to be reforming cultures and cleaning out “ten years of decay”, as he put it to the Portfolio Committee on Telecommunications and Postal Services.

“The years 2017 and 2018 could be our years”, he said, “especially if the Cabinet smiles on a SASSA deal. We have the reserves to do this thing.”

Introduced by Minister Siyabonga Cwele, Minister of Telecommunications and Postal Services, on the utility’s presentation on its corporate progress report and prospects for the third quarter, CEO Mark Barnes claimed that SAPO is becoming profitable; is well capitalised and the long-awaited corporatisation process is back on track with many of its labour problems sorted out.

Up and away

When introducing him to new members of the committee, the Minister said that for the last few years SAPO had been facing many challenges, but CEO Barnes, with a new Group Chief Financial Officer, “had put SAPO on the road to recovery”.

Because of its struggles with old systems of the past, digging it out of financial mismanagement and the need to pay urgently its creditors, SAPO was given a cash injection from the State.   The Minister said this was a good decision.  In 2017 SAPO was starting to focus on new businesses, with part of the strategic planning focused on the internet. One of the key goals was corporatisation, the Minister concluded.

New world

Mark Barnes described the position when he took over the reins to save the utility from “self-inflicted suicide” was far worse than was originally thought. He described a process whereby he had to send specialised “swat” teams into each major sorting complex starting with the large Johannesburg complex and eventually to other major towns and cities.

It took months, he said, to “clean up the mess and try to establish order out of chaos”, a good deal of which had been caused by the extended postal strike but mainly poor systems and management disinterest.

The delays caused by basic simple clean-up housekeeping held the initial  financial assessment back whilst the physical clean-up operations, after years of neglect were undertaken, he said.   The “swat” teams eventually established what SAPO assets had and where they were located.

First audit

He said, “I hope this is the last time I refer to ‘the past’ but we are having a mock audit in late January 2017 to establish remaining areas of wasteful expenditure, something that was not even thinkable of last year.”   He said, “The main issue is that SAPO has established an air of confidence and that confidence has reached a point where the rest of the journey becomes a worthwhile investment.”

In answer to criticism from Shadow Minister Cameron MacKenzie (DA) who said that “this SAPO report is being prefaced by the same remarks as before” and who added that it “was the same story of promises made last year but re-hashed”, CEO Barnes made a rebuttal. He retorted that “It is a mistake to take just a superficial look from the outside. Internal organization is being achieved and we haven’t had time to wave flags.”  He gave a long list of what had been achieved.

Heavyweights in saving banking

On savings, Barnes noted that SAPO serviced some 6 million customers with 2,486 outlets and reached out where no established banking services existed. “Compliance is now in place on banking procedures with the SA Reserve Bank  and we are seeking approval to establish the promised SA Postbank Limited with CIPC,  applications being submitted before July 1 2017.”

Postbank’s depositor funds were now standing at R4.9bn, having increased by 128m. Postbank itself had invested R7.3bn, he said.  Payables, Barnes also said, were reduced by R531m and the group met liquidity and solvency standards. The Post Office is backed by a R4.2bn Treasury guarantee.

 An overdraft of R270m had been repaid and R17m had been realized from the sale of pointless property holdings. Rental from existing tenants had increased and a more suitable and less expensive head office was now being targeted. He said he was always trying to get officials out of their old mindset about SAPO and to realize they were in business.

Major cut backs

On the labour front, there were 18,000 less staff this year, Barnes said, “brought about by a process of natural attrition” and it was hoped to transfer a large portion of a “hopelessly overstaffed head office” to operational duties.

If operational revenue failed to provide the necessary improved results in the short term, he said, then a retrenchment programme may have to be negotiated. “It will be tough but that’s how it is. The unions are aware of the long-term planning processes that have been undertaken and the alternatives understood”, he said.

SASSA a target

CEO Barnes expanded on the possibility of SAPO handling all payments of SASSA grants in the light of the volumes of “points of presence which amounted”, he repeated, “to approximately 5,000 counter points  Postbank is also to make an application to government to both handle all government mail business and a submission to SASSA in the very near future as current hiatus evolves.

He said that they had been talking to National Treasury on the savings to the national fiscus that could be gained. It was agreed that it would take much to achieve this possibility but was highly “do-able”.

He said Postbank had sufficient funds of its own to capitalize such a venture with IT networks and training should the security of such a contract be awarded. He commented that ordinary mail had dropped to 50% of original volumes due to the advent of electronic mail.

“This sea change in the way that the world now communicates had found the original management of SAPO completely at a loss on what to do”, he said, “and the decision had  apparently been to do nothing.”

Diversification from snail mail

The plan was now to diversify into courier services probably with a partner and to focus on selling Postbank services at package rates to corporate business.  

So far, four offer attempts had been made to “buy in” as partners, CEO Barnes said, all four of which had been found totally unacceptable.  There had been an obvious attempt in all cases just to acquire Postbank’s extensive national footprint as if a possible merger of interests was a fire sale, in each case contenders having given no consideration to the idea of what “was in it” as a revenue source to Postbank.   All propositions were  rejected out of hand.

Barnes told Parliamentarians, with the Minister still present at the portfolio committee meeting, that e-commerce in the form of public hubs or malls to the SADC area as well as locally will become a major revenue base for SAPO especially in lower income groups.

Generally, on all fronts, 22 significant projects had been approved, CEO Barnes said, with a further 9 in the project stage; 4 projects were in the procurement stage and others in testing and feasibility stages.

Transport more agile

As far as the transport book was concerned, SAPO  had decreased its annual expenditure   by 30% by exercising rationality and purchasing new vehicles cutting down on maintenance and repairs to old vehicles, Savings were also achieved by boosting efficiency with “a more agile logistics mind-set.”

The overall corporate plan forecast is mixed, Barnes said, and whilst revenue has declined significantly on a net basis, which was expected and planned for whilst SAPO re-grouped and cut out unprofitable exercises, it will still meet its corporate plan targets and “looked headed to be back into the black by a small amount in 2016/7”, said Barnes.

When it came to the balance sheet, he remarked SAPO still has an extremely large amount of debt which needs to be paid. However, it was important to note that the entity was now solvent and could pay. It also had liquidity in cash of its own available for development.

The big plan

He told the Committee that the key to SAPO’s future was the corporatisation of the Post Bank, with approval to establish the bank being granted by the SA Reserve Bank in July 2016. Preparations were currently underway to submit for registration in February 2017 as a South African Postbank Limited entity with CIPC.

The Postbank staff, operations and balance sheet will transfer from the Postbank division to the new entity after the incorporation process. The Postbank will allow for broader financial inclusion for all South Africans and it has the capacity to do this, he said.

SAPO, he said, had a relatively sophisticated E-commerce infrastructure with a large footprint which allowed it to facilitate speedy connections and deliveries. This, combined with the ports, vehicles and the access SAPO has at airports could make SAPO the E-commerce hub for Africa.

Ms M Shinn (DA) asked whether anything had been done address the security of IT systems and whether SAPO had the money to recruit and retain cyber-security skills. Cameron MacKenzie asked for more information on the SASSA bid.

Biometrics needed

Outsourcing was now underway and tenders being called for on biometrics, CEO Barnes said, which was the only route to stop fraud, duplicated payments to persons claiming or withdrawing twice under different names; to follow world trends and to get SAPO into the future to serve the nation as it should. Such was necessary if they were to handle the SASSA account which would be a great achievement and was the correct thing to do.

He said that partnerships in the IT sector were very likely to be sought as well as outsourcing, as SAPO, given its size and history, was not going to be able to keep up with the latest developments in the IT sector, nor would SAPO wish to be that expert, he said. Their focus was to get into courier work and banking, not IT. So, partnerships were going to be needed on the right terms.
He said that there had been half-expected problems with the data centre and disaster recovery this year as new equipment was being added to old. Repairs had been undertaken and there were negotiations underway to outsource the work of the data centre.

CEO Barnes said motor vehicles licence renewal processing was up by about R7m transactions in the year but this figure was coming from a very low base.

Money, money, money

In response to the question of when was SAPO likely to return to profitability, he re-confirmed that SAPO expects to start trading profitably during the 2018 financial year.

On complaints from the DA that SAPO still needed help from Treasury, Barnes explained that it was the nature of a turnaround situation not use cash in hand for the wrong things. Working money was one thing but depositor’s funds and reserves were a completely different issue, he said, and these were the security needed for developmental issues to get SAPO off the starting block.

He said whilst corporates have replaced SAPO with other service providers, they are a lot more expensive to hire. “SAPO is a low-cost producer and the only reason people turned to the alternatives is because SAPO became a dysfunctional low cost producer.”
“This is changing”, he said, “and we have to change the corporate customer mindset to show that we can do things again”.
Previous articles on category subject

SAPO – one big bungle at taxpayer’s cost – ParlyReportSA

Posted in Communications, LinkedIn, Public utilities, Trade & Industry0 Comments

Cybercrime and Cybersecurity Bill invokes suspicion

Cybercrime Bill stated as invasive

…sent to clients 28 Jan…   A new law to assist in enforcing South Africa’s fight against cybercrime, hacking and unlawful interception of data is about to be tabled in Parliament. As expected, the proposals are not without considerable misgivings in the private sector and involve claims that the state may have designs upon the control of free speech and/or are intent upon the control or manipulation of cyberspace.

The draft Cybercrime and Cybersecurity Bill (C&C Bill) has now been approved by Cabinet, the draft having been published for comment as far back as September 2015.  Industry players are deeply involved and the next platform for their involvement moves to the actual wording of the document that will form the basis for regulations.

Agents for the state

The legislation states that the proposals are designed to give powers to the State Security, Defence, Police and Telecommunications Ministers, which powers will not only extend into many aspects of South Africa’s key economic, financial and labour environments but will impose responsibilities on service providers.

The Bill clearly states it will call upon the private sector for compliance into order to meet its objectives and will also change the way the public service goes about its business to reflect the call for security.  Cross hairs are to zero in on the criminalisation of cyber-facilitated offenses including circulation of messages aimed at economic harm, contain pornography or could cause mental or psychological harm.

Parliamentary stage

The next stage of public sector involvement will be extensive parliamentary hearings, no doubt involving joint portfolio committees, to cover the many aspects involved.  Also to allow for further submissions on deep concerns in the private sector regarding compliance and intrusion of free speech rights.

The long and quite complicated process of drafting such legislation has been undertaken by the Department of Justice and Constitutional Development.  It is stated that the proposals are of an umbrella approach towards legislation already in the ambit of the new Bill, the objective of which is to extend any new regulations over a wide range of business endeavours and activities “in the public interest”.

Long history

The process started at a point in the cybercrime history log which seems a century ago.  A government gazette articulated what was necessary. “I, Mbangiseni David Mahlobo, Minister of State Security, hereby publish the National Cybersecurity Policy Framework as approved by Cabinet in March 2012 for public information.”

The long journey has finally resulted in a 130-page draft which firstly creates offences, prescribes penalties and regulates for powers to investigate, gain access, search and seize items. It gives such powers to the South African Police Service (SAPS) and the State Security Agency (SSA).

Future structures

The Bill then proposes that structurally the Minister of Police establish both a National Cybercrime Centre and appoint a director in charge – a person currently serving with the SSA – and similarly appoint such a director in charge for a “point of contact centre” for cybercrime activity, outreach and contact.

Monitoring all structures will be a Cyber Response Committee (CRC) made up of 13 experienced persons chaired by the DG, Dept. of State Security.

Any interventions at this level will be, by nature of the vastly changing business environment and the global challenge of the subject matter of the Bill, “which will form the critical point of balance between the forces of state control and public endeavour”.

Ground troops

Initially, the Minister of State Security is to appoint a director in charge of a proposed Cyber Security Centre, such person also serving with SSA and for the Minister to establish Government Security Incident Response teams, also appointing a person from the State Security Agency as the head of each specialised investigating team.

Finally, on structures, the Minister of Defence is to establish and operate a Cyber Command and appoint a General Officer Commanding.

Furthermore, provision in the Bill is made for the Minister of Telecommunications and Postal Services to establish and operate a Cyber Security Hub and appoint a director of same. It is in this area that assumedly the main interface between private and public sectors will take place.

Key points

An example of a database to be protected is given in the Bill as the Home Affairs database and the mandate for dealing with cybercrime clearly includes the fact that foreign states and South Africa will be co-operating to investigate possible offences.

Also, powers are granted to the President who may enter agreements with foreign states to promote cybersecurity. The proposals make it quite clear that international crime fighting and the local protection of cyberspace are to be woven together. This will involve changes to the anchor Electronic Communications and Transactions Act, particularly where the Act deals with attempts to deal with abuse of information systems.

The nitty gritty

Where the C&C Bill ventures into the private sector there will no doubt be, and certainly has been to date, plenty of debate.  The Bill as proposed, broadly and perhaps too grandly, allows for the imposition of obligations on electronic communications service providers (ECSPs) and financial institutions in respect of aspects “which may impact on cybersecurity”.

The difference between obligations and compliance seems a fine line but already the Dept. of Telecommunications has set up a website on https://www.cybersecurityhub.gov.za/ to try and clarify issues.

At what point?

The general obligations of ECSPs are a set out in the draft bill but an obligation is proposed that as soon as a ECSP “becomes aware of an offence being committed on its network”, the matter must be declared to the National Cybercrime Centre.

The offences are enumerated in the Bill but it is possible that clarity is required, according to stakeholders who have voiced opinions so far, as to who decides at and at what level the retention of a suspicion becomes an offence or to restate the problem, at what point does a suspicion become a reportable fact.

Proposed offences include unlawful interception of data; unlawful access, personal information and financial information-related offences; unlawful acts in respect of software or hardware tools; unlawful acts in respect of malware; unlawful acquisition, possession, provision, receipt or use of passwords, access codes or similar data or devices; computer-related fraud and computer-related extortion.

Extensive powers

Most focus on the fact that the Bill’s clause 58 gives the State Security Minister powers to determine what should be included in a “national critical information infrastructure”.

The Bill goes on to state that should it “appear” to the Minister that any information presented is of such “strategic nature” that any interferences, loss, damage, immobilisation or disruption which may result in prejudice to the “security, defence, law enforcement or international relations of South Africa; or prejudice the health and safety of the public; interfere or disrupt any essential service’, then the Minister may implement the powers granted by the Bill.

The “Apple” problem

Broadly speaking, also included is any malevolent act which “causes any major economic loss, destabilises the economy of South Africa or creates any form of public emergency’’ with the proviso that the organisation must “at its own cost take steps to the satisfaction of the Cabinet minister” to comply with a state request.

Any “affected organisation may be given the right to be afforded an opportunity to make representation” but, to repeat, players in the industry note that a great amount of responsibility has been delegated without clear definitions of what is reportable.

The background

The seriousness of the Bill and the recognition that cybercrime must be dealt with firmly is measured by the background given to the Bill.    It is estimated that cyber-related offences currently exceed a value of more than R1bn annually. This is escalating at speed, the Department of Justice states.

In general terms, one of the tasks of the Cybercrime Centre is stated in the revised draft as informing all of cybercrime trends and creating an environment which enables parties to report cybercrime without being suspected of whistle-blowing with the accompanying commercial disadvantages.

In other words, the fear with the original draft expressed by the Right2Know campaign that the draconian powers of seizure worried many in the IT industry and that lack of protection for whistle blowers was out of kilter with free speech requirements, may have to some extent been responded to.

Heavy hand of the law

Still, fines of up to R10m and/or 10 years’ imprisonment are involved following a guilty verdict for unlawfully accessing or intercepting “a national critical information infrastructure” involving “critical data”, which makes for a tricky scenario for ECSPs handling traffic and journalists handling information.

This is in the light that an ECSP could be liable on conviction to a fine of R10 000 for each day on which such failure to comply with disclosure requirements continues, it was noted.    To be specific, some fifty offences are detailed in the areas of data, messages, computers, and networks.

This is serious talk.   Whilst national cybersecurity needs are recognised as paramount, as the latest draft explains, the extent of state powers in the hands of uncontrolled and misdirected state effort gives concern to many in the ECSP business community, particularly in the light of the public nature of the internet.

No warrantless searches

On the other hand, whilst the C&C Bill gives SAPS and SSA extensive powers to investigate, search, access and seize assets wherever they might be located, the search powers granted are not emanating from the proposed Bill.

Search powers are only possible provided the search entity has a search warrant granted in the normal way, the department says.  SSA will be purely looking, they say, for data that has a feature of malevolence and commits crime in terms of the need to protect the State and its citizens.

At a briefing for the media, the Justice and Constitutional Development Department in Pretoria Deputy Minister of Justice and Constitutional Development, John Jeffery, gave a further assurance that what is about to arrive in Cape Town “will not give any powers to the State Security Agency (SSA) to control the internet or spy on local users”.

Criminal data

The search and seizure powers granted in terms of the latest draft of the C&C Bill around the interception of data “do not represent increasing the state’s surveillance powers”, the Minister said.

“As part of the final draft of the bill, it says that to prove an offence in a court of law, data must be seized as evidential material.  If the State cannot seize evidential material to adduce as evidence, it is impossible to prove the guilt of an accused person. “

The criminal procedure act is currently used to investigate cybercrimes, Minister Jeffery said, and to this end the Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA) “are already in the tool box”.

Anchor still RICA

The C&C Bill is merely extending the RICA from that aspect, he said, which already has basic general principles in place to protect persons against unlawful interception of communications. “There is thus no extension of the so-called ‘surveillance powers’ of the State”, he added.

He confirmed that previous versions of the Bill, whilst stating a person who fell foul on the issue of state information that was classified as secret could go to jail for 10 years without the possibility of a fine, now, the final draft of the Bill acknowledges that journalists and whistle-blowers have protection under the Protected Disclosures Act.

Minister Jeffrey said was satisfied that the C&C Bill, now headed towards its final shape, gives the State the tools to halt crime and bring those who used data as a tool of crime to book.

 Defining data

He concluded, “Data is merely a means to commit offences such as fraud, damage of programmes and computer systems, extortion, forgery and uttering. It can also be used to commit murder by remotely switching of a respiratory system or terrorism by overloading the centrifuges of a nuclear station or remotely opening the sluices of a dam which causes large scale flooding.”

Much of what will come up in the parliamentary hearings of submissions will most likely involve the space occupied by the ECSPs and their responsibilities as perceived by the State. Furthermore, the role to be played by any business institution using large amounts of data needs to be clarified as far as areas of compliance are concerned.

Previous articles on category subject

Draft Cybercrime Bill drafts industry – ParlyReportSA

South Africa on international cybersecurity – ParlyReportSA

Broadband allocation could involve SABC – ParlyReportSA

Posted in Communications, LinkedIn, Security,police,defence, Trade & Industry0 Comments

Credit regulations to squeeze racketeers

Debt relief and credit under microscope

… sent to clients 22 Dec 2016…. Further powers for the National Credit Regulator to regulate against reckless lending have been reaffirmed as necessary and the subject of debt relief for needy persons considered.

This conclusion was the result of a series of hearings conducted by Parliament and criteria are to be developed for the application of debt relief measures and how this could be achieved are now being studied.

Such criteria could include target groups of debtors who would be eligible for the relief; the period in which the measure would apply; the type of debt that would be covered and how the measure could be implemented.

An earlier study, commissioned by the National Credit Regulator (NCR) some months ago, concluded that there was a need for the National Credit Act to make provision for the introduction of some form of national debt relief but the NCR decided to consult Parliament and to involve public input.

Growing debt bubble

Whilst reckless lending and irresponsible borrowing which led to the disastrous housing bubble in the US, Joanna Fubbs, as chairperson of the Portfolio Committee on Trade and Industry, acknowledged that the situation regarding any retail debt bubble is not as bad in SA.   Nevertheless, she said that for some time she has been concerned that the National Credit Amendment Act is not working in the best interests of vulnerable groups.

On the issue of debt relief, whether from reckless lending or not, it was agreed some time ago by the Committee that it was important for stakeholders to be consulted to establish a better picture.  A parliamentary select committee, chaired by MP Eddie Makue of the same Committee, was formed to investigate whether debt relief would be an acceptable policy for SA and to organise parliamentary hearings focusing on banking input and debt control aspects.

The brief

The Portfolio Committee also recommended to this subcommittee that there needed to be a better understanding between the excesses of lending, the plight of borrowers and a view established on regulations which should refrain from fostering any culture of not paying debt in the hope that it might be written off.

Meanwhile, it has been proposed by the Department of Trade and Industry (DTI) to extend the powers of the National Credit Regulator to conduct proactive investigations into reckless lending . They would also be asked to impose administrative fines and to empower the Minister to provide debt relief mechanisms through further regulations, yet to be drafted.

Also, NCR submitted that it had already laid out its own proposals to tighten up existing regulations and penalties for perpetrators of reckless lending which the Regulator was currently entitled to enforce under the Act but the views of the Regulator were to be sought on debt relief by Makue’s Committee.

DTI view

DTI has since confirmed to this Select Committee that it was their view was that the Minister of Trade and Industry, Rob Davies, should be given the power to prescribe debt relief measures, the nature of which must be carefully thought through . At the time, DTI acknowledged that banks and credit providers had to make their views known preferably in a series of hearings now conducted.

NCR view

National Credit Regulator, Nomsa Motshegare, has confirmed to the Select Committee that in their view some form of debt relief is necessary given the reasons of the country’s slow economic growth; retrenchments that were taking place; and rising unemployment figures.

In general, she said, these factors had already diminished household income and led to difficulty for consumers to repay loans.   The NCR had found, they said, that there was a willingness in general amongst banks to find ways to relieve the financial burden of indebted clients, many of them stating that they did this already, but there was considerable doubt on whether this should or could be backed up by any enforcement measures and regulations.

 The banks

In this regard, during further public hearings, Cas Coovadia of the Banking Association of SA (BASA) emphasised that legislated debt relief for all would have negative consequences since this was far too prescriptive. He  called for “a customised debt relief approach that would suite various portfolios” as a better principle to follow.

At the outset of the discussions, Coovadia stated that BASA did not support the principle of debt forgiveness as an objective.  One of the banking system’s foundation principles, he said, was the need to efficiently and legally lend money to borrowers and to collect repayments from borrowers to settle the loans.

He told parliamentarians. “A confluence of pricing, regardless of individual consumer risk, will arise at a portfolio level to offset the inability to price for the risk.    This will mean that consumers who have a good repayment history will no longer be rewarded for such behaviour when they apply for further credit.”

He warned that blanket debt forgiveness would accelerate irresponsible borrowing and said all banks offered means to repay and gauged the circumstances when lending.   Any failure to perform on this principle would have severe consequences for the industry and economy; would increase risk to depositors/savers; would impose a cost on society; and would limit credit providers’ ability to extend credit, he said.

Making a plan

Nedbank said that the option of rehabilitation was always a preferred course rather than hard legal collections and the bank had recently adopted a philosophy in general banking terms that to become proactive in terms of debt relief solutions was the far better solution for those who had over-extended themselves.

They said the situation between credit provider and consumers should remain “mutually beneficial”, which principle bore in mind that the economy of the country was less affected.   Nedbank confirmed that a satisfactory low, in their view, of 4.6% of their clients could be classified as technically in total default without the any possibility of rescue, as at the end of 2015.

Too prescriptive

Individual banks, such as Standard Bank, Absa, First Rand, Capitec and African Bank generally supported BASA’s view that prescriptive laws or regulations regarding lending, collection and debt relief would remove the principle of case by case treatment which in turn, they said, would probably inhibit loans being granted or drive up their cost

Debt and labour

Chamber of Mines was blunter and took the view that employee over-indebtedness was a major problem in labour relations and “fed into unrealistic wage demand” scenarios.  Indebtedness, they said, was one of the major catalysts in recent mining unrest.

They were clear that education on family accounts and the implications of over borrowing had to be stepped up, rather than complicated prescriptive measures on relief that would favour one and not the other.  More important they said was that loan sharks should brought under control and whose malpractices were rife amongst the mine working community.

Ms Sue Fritz, speaking for the Chamber, said that any form of debt relief provisions must consider the danger of undermining the basic principle that with the ability to borrow came the understanding such debt had to be repaid or quality lending would cease and debt might increase.

Cosatu view

Cosatu’s Matthew Parks urged that some form of debt relief be provided to a defined base of categories, such as retrenched workers; those only on social grants; the poor; working-class and middle-class students with student loans and borrowers who had paid off a large part of a loan but fallen on hard times. He also appealed to parliamentarians that there was a need to crack down on loan sharks, formal and informal.

Paul Slot, speaking as president of the Debt Counsellors Association, said some form of debt relief was necessary to counter the current high level of household debt, noting that according to the association, 54% of those in financial trouble simply applied for more debt to extricate themselves.

Conclusions in process

The Select Committee has now made a call upon on the National Credit Regulator to tighten regulations further on loan sharks and the registration process.  Chairperson Eddie Makue has now reported back on the hearings to the Portfolio Committee but has noted in Parliament that he was deeply concerned that a large amount of vulnerable people remain exposed to unregulated credit and can become victims purely because of greed alone on the part of the lender.

On reckless lending, it was noted that often ridiculously high repayments from the poor were a weapon used to gain control of assets.    Makue said, “The NCR has to protect poor South Africans against such lending by unregistered and immoral micro-lenders.   In most rural and semi-urban areas people maintain their existence through borrowing and the interest they sometimes get charged is shocking, and interest rates should be capped by law”, Makue said.

State debt relief and debt relief regulations

The “jury is still out” therefore for 2016 on the issue of DTI tabling a Bill and the subject of debt relief generally.

Parliament closed 7 December and will resume this debate early in 2017

 Previous articles on category subject

National Credit Act Bill aims to help consumers – ParlyReport

Treasury proposals on debt control approved – ParlyReportSA

National Credit Amendment Bill changes – ParlyReportSA

 

Posted in Finance, economic, LinkedIn, Special Recent Posts, Trade & Industry0 Comments

Communal Property Bill assists land reform

Reform assisted on communal property 

communal-land-4…sent to clients 21 Oct….The tabling of the Communal Property Associations Amendment Bill could represent a major advance in bringing order to many aspects of government’s land reform policy. In essence, the Bill will ensure that householders have security of tenure and thus have the ability to raise capital before they enter into any agreement on the management of communal land.

The new Bill focuses on developing the practical and legal aspects of ownership of communal land by a communal property association (CPA) whilst at the same time providing security of tenure with a new initial procedure of naming householders to benefit. The draft has now been approved by Cabinet.

Whilst the thrust of government policy on land reform has always been to bring ownership ofland-reform self-sustaining agricultural land to previously disadvantaged communities, the process has been much bedeviled by conflict over land falling under the control of traditional chiefs; the inability of small farmers to raise finance without title and, most important, for households able to enjoy security of tenure.

Communal confusion

An unintended consequence of the original CPA programme launched by government has been that government has not wished to involve itself, nor has any investing entity for that matter, in the community strife and argument over communal land, a feature of many CPAs. Consequently, the CPA system has demonstrated its inability to involve itself in loans, any state support, or receive the support of agricultural assistance programmes.

community-farmIt might be said that CPAs as a structural system is “off the banking radar”, a fact which MPs in parliamentary committee meetings have complained of a number of times.

As a result, expensive trusts have become the order of the day, banks preferring to deal with such entities and even government itself having to use them because of the informality of a CPA and the inability of loan applicant to show security.

The objective of the Act when it was signed into law was to create a new form of juristic person to allow disadvantaged communities to acquire, hold and manage property in common. A community that qualifies in terms of the Act can therefore, on the basis of agreement contained in a written constitution, form a legal entity (the CPA) and thereby become owners of property, including land, via the CPA.

Agricultural reform

A CPA as it currently stands allows its members to become owners of land which has been “prioritised for the provision of infrastructural support to land reform farmers to enable them to create sustainable jobs and alleviate poverty.”

However, over the few years since CPAs were established, it appears from parliamentary Lesedi traditionalportfolio committee meetings, that things have not gone well. In some cases, traditional chiefs had intervened and gained control of land previously under the aegis of the members of a CPA. Meanwhile, traditional chiefs had complained that CPAs were acting like “chiefdoms” in themselves, the department told parliamentarians.

Tweaking and compromising

Some attempts were made by the Department of Rural Development and Land Reform to persuade CPA members to appoint traditional chiefs on an “ex-officio basis” but the situation remained untenable, not necessarily just because of the problem of traditional control but because, due to shortage of staff, they said, had no ability to monitor the situation and no picture of what land was under CPA control, where CPAs were, and their needs.

In addition, no measurement of outcome of any schemes appeared possible, Opposition members complained. Quite clearly, they said, the NDP land reform programme has not been successful to date. Whilst the idea had been along the right tracks, it seemed the system was patently in trouble.

Green Paper study

After two years of investigation, in 2014 the Ministry, produced a Green Paper on the subject. After creating communal property ownership rights, the new proposal in the Paper was to secure individual tenure to each household beforehand, be it a farm-dweller or tenant, and for each household to own its rights at law before the CPA was formed to lock into this.

land-reform-5As per the Act in force, it would be possible for a community or group of persons to have access to a registered title to land through common or joint ownership with every name included (in a deed of transfer) or through a trust (with title vesting in the trustees) or a juristic person (with title vesting in that legal entity). Once registered, the CPA would become a juristic person – that can sue and be sued. It could acquire rights and incur obligations in its own name, in accordance with a CPA constitution.

In a policy statement, a Bill was proposed along these lines with a CPA constitution as before dealing with sub-divisions, servitudes, the right to encumber with a mortgage, deal with leases and settle disputes – all essential to the development of the area concerned but in respect of nominated persons giving those persons therefore security of ownership.

The bigger picture

The new Bill therefore speaks to a process to align a CPA to the broader land reform mandate in terms of the policy statement. The Bill also says a Communal Propertyland-claims-court Associations Office is to be established which is headed by a Registrar of Communal Property Associations. As a result, CPAs will be better equipped, it is felt, to take part in development; its status is recognised and is known to government; and has a secure system of tenure established as a base for ownership.

DHA said the plan was to clearly establish the connection between the land itself and those who live on it and depend on it for agricultural income. With more clearly established security and a need to register for compliance, it is hoped that a CPA structure will present a more viable face to the investing world.
Previous articles on category subject
New approach to land reform – ParlyReportSA
Restitution of Land Rights Act reversed – ParlyReportSA
Land Holdings Bill joins state acquisition trend – ParlyReportSA

Posted in human settlements, Justice, constitutional, Land,Agriculture, LinkedIn, Special Recent Posts0 Comments

FIC Bill hold up goes to roots of corruption

Bill originally approved by Cabinet

.….. sent to clients 20 Aug…..Going to the heart of the issues facing National Treasury on money launderingzuma9 and financial crime, or in this specific case the Financial Intelligence Centre Amendment Bill (FIC Bill), is the failure of President Zuma to give assent to the Bill and to sign it into law.

The delay in adding his signature gives yet another signal that there is lack of interface in constitutional terms between the Presidency, the Cabinet, National Treasury and Parliament and all of this adds more uncertainty in the economic sphere.

fic-logo-2The main objective of the FIC Bill is to conform with international pressure placed upon South Africa to update its governance ability to monitor international financial crime. During the passage of the Bill, however, it became quite evident to interested parties that the Bill could expose a lot more about South Africa’s own internal money laundering, inflows and outflows, than simply making a contribution to the global money laundering problem.

This, of course, was the original point made by international agencies when calling upon countries to agree to such legislation.    Countries have to clean up their own affairs in the process.

Crime busting

Africa MoneyThe Bill intends enhancing South Africa’s anti-money laundering (AML) processes to combat more effectively the crime of financing of terrorism to be achieved by amending the anchor Financial Intelligence Centre Act “so as to define certain expressions”.

However, in exposing monies destined for terrorism, a lot more than just terrorism could become evident in the category to be classed as “prominent persons”, a fact which has been endlessly debated in Parliament and why the Bill has come to the fore in the media.

More entrants

The fact that some in the Cabinet may not like the preamble to the Bill is evident, particularly expressed byzwane Minister Zwane in his ridiculous call for a judicial investigation to investigate the motives for calling the banking sector to report to Treasury on individual groupings and persons and for an investigation into the banks themselves for closing the accounts of certain “prominent persons”.

The target of Minister Zwane’s diatribe, the major banks, are a grouping simply preparing for the FIC Bill to become law since they know it was tabled by the Minister of Finance, having been approved by the Cabinet in the first place and having made considerable input to the parliamentary process. Also they must realize that the Bill in turn will make considerable demands upon them in terms of time and money and will be a test of integrity for all.

Split in the ranks

ramaphosaThe delay, even if for a moment, is one of many factors giving rise to the belief that the Cabinet is “at war with itself”, a fact which Deputy President Cyril Ramaphosa admits. President Zuma attempted dismally at first to distance himself from Minister Zwane’s attack on the banks, then seemingly relented but suspiciously will not let the banks proceed with the FIC Bill by making it law to set up the paper trails.

Commentators say the President is effectively involved in a web of issues involving alleged “state capture” and perhaps therefore instructions to hold up the Bill maybe upon advice from elsewhere from parties involved in the bigger picture.

No stroke of the pen

However, the very act of signing or not will eventually show if it is the President is alone in this matter since a cabinet statement in 2015 stated that the Cabinet had approved for the Bill for tabling.Parliament awaits, holding its breath, for clarification from the Presidency.  President Zuma is now, of course, embroiled on issues over the Public Protector’s report on “stature capture” by the Gupta family and, like so many other important state issues, the FIC Bill has gone on to the back burner.

In the meanwhile others, including actors who would definitely be defined as “prominent persons” as defined by the new Bill, are now crowding the stage and expressing their views, so the FIC Bill must be touching a raw nerve somewhere.

The old argument

jimmy-manyiDespite the Bill being passed by State Law Advisors, now one Jimmy Manyi, previously a corporate public affairs head, a DG in the Department of Labour and previously a Cabinet spokesperson and recently President of the Progressive Professionals Forum – all in a short period of time – has lodged a constitutional challenge to the Bill, presumably on the basis of invasion of rights regarding pr1vacy. 

MPs have complained that the Bill in question has been debated at length over one year at portfolio committee level; hearings were conducted with public expression therefore being accounted for and finally the Bill was passed by a unanimous vote in the National Assembly.  Whether nefarious or not, one must assume that any delay by the President is for good financial reason and bearing in mind the call is in fact an international call to upgrade the SA money laundering watch, the stakes are high.

At this stage nothing is stated as fact and rumours abound.     An exasperated Minister of Finance Gordon Pravin stated in an interview run by E-NCA, “Well if I can’t get the Bill through then we must just try something else.” He added, “They had just better come and arrest me. What have I done?”, he asked.

The aim

pravingordhanIndeed, the parliamentary record shows quite clearly what Minister Pravin has done.    By introducing this Bill and having had it agreed to in the National Assembly, a paper trail  is to be established in conjunction with banks on any suspicious movement of money involving “prominent persons”.   Locked cupboards will be looked into therefore and it seems as if someone or a section in the Cabinet  has had second thoughts about the Bill.

Hopefully, the stall is only temporary and the Public Protector’s report is released

Aims of Bill

Treasury originally said in their briefing to Parliament that the four principal objects of the Bill were to align the country with international standards on AML and to counter terrorist bodies; to enhance customer due diligence within financial institutions; to provide for the implementation of the UN security council resolutions relating tomoney laundering the freezing of assets of persons suspected of financial crimes; and for the FIC to introduce a risk-based approach by financial entities to the current aspects international financial crime.

Treasury countered any argument that dis-investment would be encouraged by the Bill with the answer that a lack of compliance with international rules by South would be worse but now the silence on the FIC Bill seems to have taken a back seat in National Assembly questioning in the face of rows over state funding, “state capture” and individual financial investigative probes.

Prominent persons

yunus carrimMuch debate, took place at the time within the Standing Committee on Finance when the Bill was originally debated over the definition of “prominent persons both domestic and foreign”. These were the persons who were to be monitored as part of the Treasury’s appeal to banks “to know their clients better”. The meetings were chaired by the obdurate, diligent and politically respected Yunus Carrim (SACP) and finally recommended to the House.

Treasury’s Ismail Momoniat was at pains to state to Parliament at the time that “there was no implication or presumption that prominent persons being investigated were presumed to be involved in any financial crime.”

Getting to know you

Probably the provisions most likely to affect entities operating in South Africa are the clauses affecting due diligence. Those that are accountable in terms of the Act will be required to undertake ongoing customer due diligence overviews in order to establish the identity of “the beneficial owner” and a customer’s full identity and whereabouts.

This might be where the problem lies for Cabinet, not necessarily just about the “G people”, as referred to indavid maynier Parliament by David Maynier, Shadow Finance Minister (DA), but which might involve issues of party funding – the sources of which at the moment do not have to be declared to Parliament.

Objective views

As put by Roger Southall, Professor of Sociology, University of Johannesburg and quoted in précis form by Creamer Polity, “The ANC is appropriately anti-corruption in its official stance, and indeed has put in place important legislation and mechanisms to control malfeasance. Equally, however, it has proved reluctant to undertake enquiries which could prove embarrassing.” Parastatals still account for around 15% of GDP, Southhall notes.

Whilst Minister Lynne Brown said she was determined to overhaul all state entities, nobody its seems was ready for President Zuma to assume the chair of the new idea of a State Owned Enterprises Council, meaning that he is in charge of para-state strategy – the policy of which was announced many months ago in that government wants a greater slice of the R500m spend on goods and services to go to emergent suppliers.

President Zuma said in Parliament on that issue that the reason for the consolidation was to bring about cross-cutting coordination as a policy within state utilities.

Getting control

Southall continues in his article in similar vein, “The ANC continues to regard the parastatals as ‘sites of transformation’ with certain corporations distributing financial largesse to secure contracts and favour from government. However, their success in so doing is hard to prove given the secrecy of party funding. Secondly, ANC politicians at all levels of government have sought to influence the tender process in their favour.”

On the good side, the Department of Public Service and Administration has, for instance, a draft a Bill underway for Parliament that will require all government departments to put in place measures to prohibit employees and those in special consultancy positions from “directly or indirectly” doing business with government.

Furthermore, the Public Finance Management Act, signed by President Zuma, has proven to be a well-tuned tool to control misdirected state expenditure. The FIC Bill will be the anchor legislation needed to dig deeper into AML money movements.

Who blinks first

fic-bookWith the FIC Bill, the next move then must come from the Presidency, if he remains in  office, to give good reason to send the Bill back to the Parliament despite the agreement of the South African banking system to comply with Treasury requirements to report. This is a day-to-day developing issue.

Quite clearly, some banks have forestalled their problems by refusing to handle certain business banking accounts of “prominent persons”, perhaps pre-empting that the Bill would receive Presidential assent and thus earning the ire of Minister Zwane “in his personal capacity”.

Whether the FIC Bill might get further to the very roots of the party funding system is another matter but for the moment the focus was on “prominent persons” and the necessity to get the banks into action in terms of the law.

Meanwhile, the Portfolio Committee on Trade and Industry will continue to debate the “Twin Peaks” legislation which will again tighten up on banking and financial procedures on both regulatory and prudential aspects. But here again, there might be delays.

Previous articles on category subject
Red tape worries with FIC Bill – ParlyReportSA
Parliament, ConCourt and Business – ParlyReportSA
PIC comes under pressure to disclose – ParlyReportSA

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PIC comes under pressure to disclose

Unlisted investments of PIC queried….

matjilaWhen asked for information on how the Public Investment Corporation (PIC) had invested its funds, Dr  Daniel Matjila, Chief Executive Officer, told parliamentarians that the most he could do, even with ‘listed’ investments, was to give only names. Any terms and condition of any investment agreement could not be made public. On ‘unlisted’ investments, he held back completely.

He was then formally asked by David Maynier (DA) if the PIC had invested, directly or indirectly, any funds in any Gupta-owned enterprise. He was also asked for details of any financial implications upon the Government Employee Pension Fund (GEPF) and other pension fund assets resulting from the dismissal by the President of former Finance Minister Nene.

Confidentiality

Dr Matjila responded that the fund “could not cross the line of disclosing private information” and the members ofPIC logo.2 the Standing Committee on Finance, before whom he was appearing “should not read into his statements any insinuation that the PIC was protecting information.” He noted that he was totally aware of the fact that the PIC was under investigation for passing funds to the ANC and any such idea “was totally false”.

As far as funds to any Gupta owned business was concerned, Dr Matjila replied that the organisation stood by its earlier answers to the media that it had not invested directly in any Gupta owned enterprise. Following this remark, ANC MPs stood by Dr Matjila and told Opposition members that the PIC could not become “entangled” in such questions which were veiled with gossip and insinuation. It was the word “directly” used by Dr Matjila that caused the question.

Sub-judice

yunus carrimThis point was emphasised by Yunus Carrim, Chairman of the Committee, that most of the questions that were concerning Mr David Maynier should only be dealt with after the investigation of the possibility of ANC funding by the PIC had completed its course. He said that Dr Matjila was bound by circumstances to say nothing.

Present at the standing committee meeting was Deputy Minister of Finance, Mcebisi Jonas, who said the reporting process of h a pension fund to the committee should not get side-tracked with politically motivated questions. Maynier had asked this time about the possibility of “indirect” investments by PIC of any Gupta businesses.

On the issue of the effect of the ‘9/12 issue’, as referred to by Dr Matjila when Nhlanhla Nene was fired, he reported that the impact of this event had caused “significant losses” to the PIC portfolio. The GEPF lost R95bn, the Unemployment Insurance Fund lost R7bn and the Compensation Fund had lost R3bn – all managed by PIC and the event had been most worrying.

However, he said that the performance of all the funds had been subsequently excellent in the sense that recovery was achieved quite quickly – in fact “the recovery represented more than all the PIC funds lost within those two days of crisis.”

Information withheld

David Maynier (DA) remarked that funding was still shrouded in mystery and that he was “extremelydavid maynier uncomfortable” that the PIC would give no information at all on the “unlisted” investments of PIC.

Reporting generally, Dr Matjila said the fund had benchmarked itself and its operations compared favourably with “top private sector investment companies”. The GEP Fund “had shown over five years a 14.3% interest factor compared, he said, to a global median of 9.9% and a local investor median of 10.1%.” It had invested approximately R33.9bn in numerous portfolios aimed to drive transformation and create jobs, he said.

He told parliamentarians that the PIC “had invested approximately R33.9bn in numerous portfolios aimed to drive transformation and create jobs.” He said any risk taking was carefully managed and remained on the conservative side. Furthermore, he assured MPs that PIC did not take any risk that could not be “managed”.

Listed investments growing

Dr Matjila said that for all investments, the total allocation was now R400bn and “partners were always sought that would make positive returns”. ‘Listed’ investments in the last five years had grown from R495bn to R892bn recording a growth factor of 12.5% per annum.

vodacom logoThe PIC always held to principle, he said, that there was always a need for BEE compliant businesses to be considered so that it attracted a portion of government expenditure. ‘Unlisted’ investments, nevertheless, had large share of the market holdings, he said, with roughly R55 billion allocated to this form of investment. The total allocation for PIC investments, including GEPF and UIF, was approximately R400bn.

On investment policy, Dr Matjila said that his team liked to look at partnering with other stakeholders that added value and knowledge to make sure that maximum benefits and input from any arrangement were received.

Downstream SMME outlets

On SMME development, Dr Matjila said that PIC was “in discussion with groups such as Spar and Woolworths to ensure that small business was represented in their current growth patterns.” He said it would seem important for PIC to participate further in the Barclays Africa “sell down”. PIC, he noted, had invested in many international and local companies with assets within South Africa “in order to drive economic growth and increase job creation.”

Dr Matjila turned finally to ‘unlisted’ investments and said PIC had a slate of roughly R55bn to work from. Such investments were usually international, he said, and were not necessarily BEE compliant. David Maynier (DA) asked whether the GEP Fund management was “comfortable with the fact that a confidentiality clause existed on so many investments and the fact that disclosure to Parliament was denied.” Some ANC members also mentioned disquiet on this issue. Maynier said he intended to pursue the issue of non-disclosure of “unlisted” investments further.

Previous articles on category subject
Retirement savings subject of treasury probe – ParlyReport
Treasury calls for “Twin Peak System” with two financial bills – ParlyReportSA

 

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Environmental legislation updates

Changes to environmental legislation….

dea logosent to clients 10 Oct….. The Department of Environmental Affairs (DEA) has published for comment a whole series of amendments to the cluster of laws generally referred to as the NEMA laws, or South Africa’s national environmental legislation.

The changes affect mining and quarrying, the industrial and manufacturing sectors and relationships of the many sectors with local authorities on licensing.

The draft Bill refers to the overarching National Environmental Management Act; the National Environmental Management: Protected Areas Act; National Environmental Management: Biodiversity Act; the National Environmental Management: Air Quality Act; the National Environmental Management: Integrated Coastal Management Act and the National Environmental Management: Waste Act.

Piggy bank for closures

In the case of National Environmental Management Act a number of changes are proposed, perhaps the most notable being ” to provide clarity to the definition of “financial provision” that an applicant or holder of an environmental authorisation relating to mining activities must set aside financial provision for progressive mitigation, mine closure and the management of post closure environmental impacts”.

NEMA generally provides that if environmental harm is authorised by law, such as a permit issued under any environmental law, the relevant operator is obliged to minimise and rectify such harm. Where a person fails to take reasonable measures to minimise or rectify effects of environmental pollution or degradation, the relevant authority may itself take such measures, and recover costs from the responsible operator. Failed mining operations apparently have presented government with little option but to use taxpayer’s money.

With the recent amendment to provide for liability for historical pollution any operator occupying land may also be liable in future for remediation costs under the NEMA: Waste Act equally and this is notwithstanding that the activity is authorised by permit. All five laws are designed to intertwine, the Management Act amendments say.

Mineral Resources only

Other changes under the National Environmental Management Act provide clarity that “the Minister responsible for mineral resources is also responsible for listed or specified activities that is or Is directly related to prospecting, exploration, extraction or primary processing of a mineral or petroleum resource.” Various other changes are proposed which should be read by parties affected.

The changes under the NEM: Protected Areas Act are relatively minor providing for the chief financial officer of the SANParks to be on the board; various new offences in marine protected areas and to clarify certain offences andenvironmental2 procedures.

Again under the NEM: Biodiversity Act changes are proposed on board representation to include technical experts; steps, actions or methods to be undertaken to either control or eradicate listed invasive species and, importantly, to ensure that MECs in the provinces “must follow a consultation process when exercising legal powers” under the Act.

Air quality ; Who licences what

Under the NEM: Air Quality Act the issue of who does what is clarified for municipalities on listed unlawful activities and the proposals provide clarity on the issue of a provincial department responsible for environmental affairs is the licensing authority where a listed activity falls within the boundaries of more than one metropolitan municipality or more than one district municipality and to deal with appeal processes.
Other articles in this category or as background
NEMA: Waste Bill passed – ParlyReportSA
Environmental pace hots up – ParlyReportSATougher rules ahead with new evironmental Bill – ParlyReportCoastal environment bill proposals clearer – ParlyReport

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PetroSA on the rocks for R14.5bn

Project Apollo plan to save PetroSA…

Sent to clients 6 Oct.…..A team comprising of industry experts is now defining a new strategy to save the PetroSA struggling offshorePetroSA logo gas project on the East Coast.   The experts were not named but the exercise is entitled Project Apollo and reports were given to Parliament that the team has progressed well so far, said controlling body Central Energy Fund.

Despite producing a balance sheet that shows a technical cash profit of R2.5bn in simplistic terms made up of revenue less operating costs, in reality PetroSA is clearly beyond business rescue in proper commercial terms unless it manages to get a bail-out from Treasury to save the troubled entity from written off “impairments” of R14,5bn. But business rescue is on the way it would appear.

R11.7bn of the “impairment” was as a result under performance of its Project Ikhwezi to supply gas onshore to Mossgas.

Reality sets in

The total loss for 2014/5 was in reality R14.6bn after tax.      Project Apollo will now tackle the main cause of the loss at Ikwhezi, options stated as including “the maximisation of a number of upstream initiatives; the utilisation of tail gas; and how the gas-to-liquid refinery itself can be optimised with the new, revised and “limited under-supply of feedstock.”

cef logoThe Central Energy Fund (CFE), acting as the parent body for PetroSA, told Parliament that it is applying for such assistance, PetroSA being flagged by Cabinet some twelve years ago as “South Africa’s new state oil company”. CEF described PetroSA’s performance as merely “disappointing”, which raised the ire of most parliamentarians.

Those present

To add pain to the proceedings for Deputy Minister of Energy, Thembisile Majola, and senior heads of the Department of Energy (DOE) also in attendance together with the full board of CFE represented by new acting Chairman Wilfred Ngubane, the auditor general’s (AG) highly critical findings were read out one by one to MPs of the Portfolio Committee on Energy.

All this resulted in the remark from Opposition member, Gordon Mackay, that PetroSA “instead of becoming afikile majola national oil company had become a national disaster”. Criticism was levelled at both CEF and PetroSA across party lines, Chairman Fikile Majola demanding that Parliament conducts its own forensic audit and investigation into the facts that had led PetroSA to achieve such spectacular losses.

It appears that in the total accounting of the loss of R14.6bn for the year under review, R1.8m was also incurred in the form of non-performance penalties; stolen items of R110,000; over payments in retrenchment packages of some R3m; and R55,000 stock losses. Irregular transactions in contravention of company policy amounted to some R17m, the AG noted.

Lack of industry skills

Although the AG’s report was “unqualified” in terms of correct reporting, lack of management controls and bad investments were identified by the AG as the problem. In fact, acting CEO of PetroSA, Mapula Modipa, clearly inferred that lack of skills generally in the particular industry, lack of background knowledge in the international oil investment world and lack of experience in upstream strategic planning had led PetroSA year after year into its loss situation.

Particularly referring to troublesome investments in Ghana, Equatorial Guinea and continued exploration and production at Ikhwezi resulting in the “impairment”, a sort of write down of assets totalling R11.7bn, reports have been submitted before to the Portfolio Committee on Energy over the last two years. Warnings were given.

However in this meeting the AG’s views on the subject were under discussion and the terminology used by the AG could only be interpreted, as put by MPs, as poor management decision-making, lack of knowledge of the oil industry and the appropriate management skills in that area.

Roughnecks wrestle pipe on a True Company oil drilling rig outside WatfordHowever, over the years going back over previous annual reports for the last five years with forwards by Ministers and Cabinet statements issued over the period, it becomes self-evident that the “drive” to establish PetroSA as a state entity in the fuel and gas industry was politically driven, coupled with (as acting CEO Mapula Modipa had inferred) inexperience in the top echelons.

Still the Mossgas problem onshore

However, self- evident this year were the declining revenues from the wells at sea supplying Mossgas, where it was stated that now one wells had been abandoned, three were in operation and two had yet to be drilled. Project Inkwezi, against a target of 242bn barrels per cubic feet (bcf) only delivered 25 bcf from three wells. A “joint turnaround steering committee” had been formed to help on governance issues, technical performance and the speeding up of decision making. But the bcf is unlikely to change

Part of the new plan has involved of a “head count reduction” and employees had been notified. It was admitted that PetroSA had an obligation to rehabilitate or abandon its offshore and onshore operations costed at R9.3m in terms of the National Environmental Management Act and a funding gap of R9.3m now had to be bridged in the immediate future to pay this further outstanding in terms of the Act.

Further forensic audit

The cross-party call for an independent parliamentary forensic investigation that was made (which included thegordon mackay DA chairperson Fikile Majola as the driver behind the motion) “will hopefully not just result in a blame game”, said Opposition MP Mackay “but get to the bottom of how such an irresponsible number of management decisions with public money took place over so long a period.”

Chairperson Majola (ANC) concluded “This amount of money (R14, 5bn) cannot just be written off without someone being responsible.” He added, “There has appeared much difference between the abilities of technical staff and the technical knowledge of the leaders and decision makers on the board of PetroSA.”

Minister of Energy, Ms Joemat-Pettersson, was again absent from the meeting. However, earlier, in the meeting, the Deputy Minister standing in for her, said “when all is said and done we intend staying in this business”.

Nil from Necsa

necsaA meeting following in the same day, following the CEF presentation, was a report from the Nuclear Energy Corporation (Necsa) which failed to happen because Necsa were unable to produce an annual report or any report, Minister Joemat-Pettersson having obtained an extension of one month to the end of October for the annual report to be ready. Chairperson Majola said that the meeting could not take place without a financial report since oversight of such report was their mandate.

Opposition members complained that not only had Parliament’s time been wasted but that the whole instruction for Necsa to be present “appeared to be a media exercise to show that the governing party was on the ball”.

A litany of problems
The extension for the Annual Report conclusion had been granted to the Minister in terms of the Public Finance Management Act (PMFA), a fact well known, but the media were present in strength in the morning not only for the CEF’s explanation for the PetroSA loss but in the afternoon for Necsa explanation of its loss as a regulatory body, in the light of current media reports on irregularities, staff resignations and dismissals.

Other articles in this category or as background
PetroSA has high hopes with the Chinese – ParlyReportSA
CEF hurt by Mossel Bay losses – ParlyReportSA
Better year for PetroSA with offshore gas potential – ParlyReport

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Expropriation Bill grinds on

Expropriation: “public interest” and “property”

3- day précis…sent to clients 2 Nov….. Parties are coming closer during debate in the Portfolio cronin3Committee on Public Works to a slightly watered down Expropriation Bill, with Deputy Minister of Public Works, Jeremy Cronin, leading for the Minister who tabled the Bill before Parliament.

The name of the Bill has not resonated well amongst the international business community in the light of other events in Southern Africa.

Nevertheless, Minister Cronin has stated that eventually such a Bill will succeed, despite the concerns of many parties and that the proposed Bill has no malevolent purpose other than assisting “in the public interest”.

The public interest?

Therein lies the problem in that it remains a state responsibility to decide what the public’s interest is and which “public” is the subject matter of any decision for invoking the legislation.   As is the case with so much legislation at the moment, it is therefore a question of the wording of the Minister’s powers and the definitions of the tools at his or her disposal which is of debate.

Most of the debate earlier had centered around the definition of “property to be expropriated” in the light of the fact that the Bill cannot exceed the powers of the Constitution, wherein the word “property” is also not expanded upon – a number of court precedents arising previously where no final determination was made on the subject.

Calling in the Constitution

At one stage, the Deputy Minister proposed that “property” could be defined as “contemplated in section 25 of the Constitution”, the Deputy Minister considering this a major concession by the Department.  However, Opposition members still claimed that the word “property” could not be used in any piece of legislation without a definition of the term “property” also being listed and also in the knowledge that such terminology could not be contextualized even in terms of the Constitution.

On what could be expropriated, the Deputy Minister presented another alternative wording stating the that “the Minister’s power to expropriate property applies to property which is connected to the provision and management of the accommodation, land and infrastructure needs of an organ of state, in terms of his or her mandate”.

This was not found to be satisfactory either by the Committee since the term “that does not fall within his mandate” was vague and could be determined in any number of ways and open to any kind of interpretation.

The Deputy Minister was advised by senior counsel the way the Constitutional Court defined property land seizureremained “ a moving target”, especially section 25, and also in the Bill of Rights and this matter needed to be looked at again.

New draft for discussion

The Deputy Minister is to return to the next meeting with a further proposal on the definition of property issue which would possibly be part of a “B” version of the Bill, then to be reconsidered in totality by the committee. Such will be ready in a few days.

Another alteration of major importance so far is that a new wording using the expression “disputing party” has used in some cases instead of “claimant”. This is now used to describe “claimants” where they no longer are such in the process of expropriation, particularly in not accepting the amount of compensation offered. This is important, as thus the Bill and the parties will accept that indeed a dispute has occurred.

Two months in debate

At this stage the Bill has had three full days of “clause by clause” debate with more to come, draft clauses flying backwards and forwards, the final to be proposed by the Minister as agreed to and under the guidance of the State Law Advisor representing the State’s last offer of compromise and agreement to change wording and those changes as so far agreed to by the Committee.

Minister Cronin still maintains infrastructure projects are being held up, having to be changed or stopped. He had earlier called upon Eskom to give evidence of this.

There is general agreement that Deputy Minister Jeremy Cronin has bent over backwards with subsequent alterations to meet demands but there still exists amongst Opposition a feeling that ulterior motives exist for the legislation and the legislation is not simply “to assist Eskom buy land for electricity development”, as Minister Cronin first declared.  In the background is the threat of a constitutional challenge but this has dissipated somewhat.

The “E” word

pylonsMuch of the debate has also centered around the issues of “municipal planning” and “powers of municipal mangers” giving credence to Minister Cronin’s views. He has said the word “expropriation” is a loaded expression at this time in Africa’s history and has an unfortunate influence on the necessity for the Bill to proceed.

There is also change, seen by Opposition members as an improvement, which deals with the mediation process which previously allowed the expropriating authority to use the absence of a timeous response to bypass the process of mediation. This is not now the case, the issue of mediation being allowed to proceed under any circumstances should this be required.

Progress

More debate is to follow in subsequent days but a final document will no doubt be voted on by the committee shortly before going to the National Assembly, probably in this session of Parliament. In a meeting subsequently, a “B” version of the Bill was introduced and Chapter 4 on Intentions to Expropriate and Expropriation of Property was completed to the satisfaction of most, leaving the impression that much of the steam about the Bill in general had been reduced.

The issue of the definition of “property”, however, still remains a contentious issue simply because of legal determinations.  On 21 October, to expropriate where there was a mortgage bond was debated at length and satisfaction reached and that notice to the expropriated party and any farm workers or dwellers must be simultaneous before the issue of “just and equitable compensation” is considered.

More serious issues

On 27 October the major issue of debate involved the term of “just and equitable” compensation in the Constitution and how this would be applied to the expropriation process in the Bill.

Also debated was the question of a large community being expropriated and whether water availability, dwelling provision and the needs of a community restored. The Minister explained that the Expropriation Bill per se was about expropriation and the process and not about land reform and for this process there was plenty of legislation already to hand and new legislation planned.

The following week of November, however, should see this matter resolved mid-month providing hecronin current NEHAWU strike action of disturbing meetings does not continue, but whether all will be to the satisfaction of each party has become somewhat academic, it becoming more and more evident that Deputy Minister Cronin, who has handled each stage of the process personally, seems determined, in his patient and determined way, to see this Bill through with the property clause undefined.

Last minute attack

The EFF attempted to delete the whole of chapter 5 on compensation in the Bill as they maintained that the subject matter was expropriation, not compensation at all but such a suggestion was put aside by the chairperson Ben Martins as a political ploy rather than a serious contribution.

Other articles in this category or as background
Expropriation Bill phrases could be re-drafted – ParlyReportSA
Expropriation Bill has now to be faced – ParlyReportSA
Zuma goes for traditional support with expropriation – ParlyReportSA
Expropriation of land stays constitutional – ParlyReportSA
Amended Expropriation Bill returns – ParlyReportSA

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Draft Copyright Amendment Bill raises queries

Copyright Bill proposes revenues to state…

copyright graphicsent to clients 28 Oct….  Anomalies abound in the draft Copyright Amendment Bill, recently published for comment and now awaiting tabling in Parliament hopefully with a number of changes, say experts in the intellectual property industry.

The Bill primarily affects music, artistic and literary copyrights but the whole issue of patents, copyright and intellectual property rights are so intertwined that any changes will undoubtedly send up red flags up in various areas.

Government says in this instance it is trying to modernise the existing Copyright Act but as with any changes to established procedures that have existed for years, there are pros and cons that come with change it seems.

50 years after death

The draft Bill deals primarily with copyright of artistic, musical and literary work and most assume earphonesthat works of great composers such Brahms, Beethoven and Schubert are free of copyright, those geniuses having long since passed away. In fact under the existing Act, the author, composer or artist has copyright for life and then fifty years

The draft states both clearly and unambiguously that the ownership of all copyright held by individuals will automatically transfer to the state upon their death.

Until death do us part….

There is not the slightest indication of what body or entity is involved, other than the fact that the Bill is to be tabled by the Minister of Trade and Industry, meaning that DTI, or an entity controlled by it, would receive such, presumably the individual’s Estate being responsible for notifying DTI that they are heirs. The draft also states that government may never re-sell or pass on such copyrights.

The question to any casual observer is what happens to this money, at present collect by such bodies in doubtful manner by such bodies as SAMRO and passed to DTI? It is revenue and does it go to National Treasury, perhaps a fund for aged musicians, authors and artists even child education in the arts? On this the Bill is silent, no policy having been ever stated by any cabinet minister on such matters.

Another tribunal

In the absence of any new guides as promised on intellectual property in general, such having been promised by DTI in the form of a National IP Policy many months ago, more concerning is the establishment of an Intellectual Property Tribunal which is a case of “overkill” in dealing with this limited area of copyright and royalties.

Such a body may adjudicate on “on any application and on any legislation brought before it”, the draft supermarketstates.

On the whole, we have to assume that the majority of the draft Bill applies to individuals only, with the exception of the recording industry and literary reproduction industry, there also being certain clauses regarding End User Licence Agreements affecting software sales.

Criminalisation

Of concern though to many is the growing tendency to introduce criminalisation into legislation such as areas of BEE with fines normally reserved for more serious and harmful criminal police offences. In this case DTI have once again mentioned maximum jail and penalties of totally disproportionate periods and amounts.

To many, this Bill appears to have a lot more written in between the lines and prompts again many questions as to the direction DTI is taking with regard to international agreements, in this case the Agreement on Trade-related Aspects of Intellectual Property Rights.

It will be interesting to see what is finally tabled in Parliament for debate and what emerges from parliamentary public hearings

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Green Paper on rail transport published

sent to clients 12 October…..

National rail policy mapped out…..

metrorailA Green Paper on South Africa’s National Rail Policy has been published for comment naming the country’s challenges in rail transportation, recommending policy direction and containing broad proposals for the way forward to develop the current rail network.

Gazetted recently, the Green Paper represents work commenced in 2010 and says the document “Seeks to revitalise the local railway industry by means of strategic policy interventions”.   Not only is freight rail included in the proposals but long-distance rail passenger and localised commuter services.

Road dominates at a cost

Minister Peters said in a media statement at the time that railways in South Africa had operated for almost more than a century without a proper overarching policy framework to guide development.   “The railway line and its railway stations have played a pivotal role in the day-to-day lives of communities, especially those in the rural areas, but as far as freight is concerned, 89% of freight is still transported by road and the future of commuter rail conducted on an ad hoc basis”.

roadsThe emphasis of road transport is costing the country millions of rands annually in road maintenance, money that could have been well spent on developing freight rail, she said.

The process

Cabinet last month approved the release of the Green Paper for public consultation. When all is finished, a final White Paper on National Rail Policy will be released to guide and direct development of infrastructure and develop more modern commuter systems. A National Rail Act will be the final result of the White Paper.

These interventions, according to Minister Peters, will reposition both passenger and freight rail for inherent competitiveness by “exploiting rail’s genetic technologies to increase axle load, speed, and train length.“

Lining things up

railway lineWider-gauge technologies are on the cards.   The government has said it is converting 20 000km of track to standard gauge from the narrower Cape gauge. This would bring the network in line with an African Union resolution on the subject and at the same time would boost capacity of goods carried, with longer trains and a reduction in transportation costs.

With both passenger and freight rail falling within its scope, part of the envisaged national transport policy includes involvement by the department of transport (DOT) in the local government sphere to create capabilities to move more passengers by rail with infrastructure, more rail line and technical assistance.

Creating local commuter rail

Secondly, once the localised capacity is in place, DOT says it will be able to appropriate subsidies for urban commuter rail, the management of the mini-systems then being devolved to municipalities themselves.

The Green Paper talks of investment and funding, private sector participation, inter-connection with the sub-Continent, skills planning, investment strategies and the start of a regulatory system.     Part of the master plan at operations level would include a branch line strategy with the private sector involved to improve connection between cities with towns and industrial areas.

Other articles in this category or as background

Transnet improves on road to rail switch – ParlyReportSA

South Africa remains without rail plan – ParlyReportSA

Minister comments on taxi and rail plans – ParlyReportSA

PRASA gets its rail commuter plan started – ParlyReport

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Draft Copyright Bill raises queries

Copyright Bill gives fees to State…

Sent to clients 6 October….

theatreAnomalies abound in the draft Copyright Amendment Bill, recently published for comment and now awaiting tabling in Parliament, hopefully with a number of changes say experts in the intellectual property industry.

The Bill primarily affects music, artistic and literary copyrights but the whole issue of patents, copyright and intellectual property rights are so intertwined that any changes will undoubtedly send up red flags up in various areas.

Government says in this instance it is trying to modernise the existing Copyright Act but as with any changes to established procedures that have existed for years, there are pros and cons that come with change it seems.

50 years after death

The draft Bill deals primarily with copyright of artistic, musical and literary work and most assume that works of great composers such Brahms, Beethoven and Schubert are free of copyright, those geniuses having long since passed away. In fact under the existing Act, the author, composer or artist has copyright for life and then fifty years

The draft states both clearly and unambiguously that the ownership of all copyright held by individuals will automatically transfer to the state upon their death.

Until death do us part….

There is not the slightest indication of what body or entity is involved, other than the fact that the Bill is to be tabled by the Minister of Trade and Industry, meaning that DTI, or an entity controlled by it, would receive such, presumably the individual’s Estate being responsible for notifying DTI that they are heirs. The draft also states that government may never re-sell or pass on such copyrights.

dti-logoThe question to any casual observer is what happens to this money, at present collect by such bodies in doubtful manner by such bodies as SAMRO and passed to DTI? It is revenue and does it go to National Treasury, perhaps a fund for aged musicians, authors and artists even child education in the arts? On this the Bill is silent, no policy having been ever stated by any cabinet minister on such matters.

Another tribunal

In the absence of any new guides as promised on intellectual property in general, such having been promised by DTI in the form of a National IP Policy many months ago, more concerning is the establishment of an Intellectual Property Tribunal which is a case of “overkill” in dealing with this limited area of copyright and royalties.

Such a body may adjudicate on “on any application and on any legislation brought before it”, the draft states.

On the whole, we have to assume that the majority of the draft Bill applies to individuals only, with the exception of the recording industry and literary reproduction industry, there also being certain clauses regarding End User Licence Agreements affecting software sales.

Criminalisation

copyright graphicOf concern though to many is the growing tendency to introduce criminalisation into legislation such as areas of BEE with fines normally reserved for more serious and harmful criminal police offences. In this case DTI have once again mentioned maximum jail and penalties of totally disproportionate periods and amounts.

To many, this Bill appears to have a lot more written in between the lines and prompts again many questions as to the direction DTI is taking with regard to international agreements, in this case the Agreement on Trade-related Aspects of Intellectual Property Rights.

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25.1% is maximum BEE control, says DTI

DTI upbeat on implementation of BEE codes…..

lionel october 3

In a report to Parliament on the amended BEE Codes of Practice and their implementation as from 1 May 2015, Lionel October, Director General of Department of Trade and Industry (DTI) and his B-BBEE staff team, emphasised that the generic scorecard was aligned to government’s key priorities. He also said the State had no ambitions to take their target on black control beyond 25.1% of ownership.

Supplier Development is new title

DG October said the main emphasis of the codes had now switched to greater emphasis on what was previously termed procurement – now referred to as “supplier development”. This approach was more in alignment with the National Development Plan (NDP) objectives, DG October said, simply because that was the main direction needed to empower the development of black enterprises and build the economy on a stable growth path.

“In fact the German auto industry working with the German Chamber of Commerce had established a fund

BMW-Werk Südafrika

in South Africa”, he said, “for financing, training and building expertise in black businesses to supply the auto industry”.

There was considerable discussion on this by members and DG October said that there had been a general recognition in business and industry of the word “must” had replaced “may” in terms of B-BBEE requirements; that level four had to be reached for incentives and in general now “certainty” had been restored to the business environment on BEE issues, he felt.

Five “Elements”

The generic scorecard now had five elements, he said, which all companies, except those micro-exempted, had to comply with for recognition. All employment equity and management control had now been merged into one of those elements, now termed “management control”.    Sector codes were now to be aligned by 1 Nov. 2015, as set out in Code 003.

He said that “in response to public submissions” the import exclusion principle would be maintained and that the definition of an “empowering supplier” in the context of code alignment was a compliant entity which could demonstrate that its production and/or value adding activities were taking place in this country.”

DTI said that that “deviations of sector codes in terms of targets must be over and above those of generic codes and companies that derive more than 50% of revenue from sectors where there is already a sector code must be measured in terms of that sector code.”

DTI has no doubtful intentions

George Washington, having cut down the cherry tree, with his fatherIn general, DG October said in response to questions from MPs about the amendments, it had been his impression that business seemed to accept there were no political mala fides on the part of DTI; just a wish to get on with the planned NDP growth path which required the co-operation of business and industry on black empowerment.

The funding of Sector Charter Councils was a “joint responsibility between government and the private sector and entities must report annually on their B-BBEE status to sector council who will in return reports to the BEE Commission”, DTI said.

New sectors in the sights

Sector codes were being considered for the tourism, which had reached the stage of gazetting for public comment; “alignment” was being reached in the construction, integrated transport, ICT, financial services and chartered accountancy sectors; the property and forestry sectors had reached gazetting stages and marketing, advertising and communication were with their appropriate ministries for approval.

DG October mentioned the fact that the manufacturing industry stood alone as there were so many different sectors but over a period, aspects would be dealt with such as the film industry and textile and clothing industry.

DTI concluded their input to the meeting by advising that a technical assistance guide to B-BBEE was in process and DTI were in the process of finalising the B-BBEE verification manual.

Recent faux pas

rob davies2Opposition members asked how it was that DTI went so wrong with the question of  downgrading the pointing system for employment schemes and why it was that the Minister of Trade and Industry, Dr Rob Davies, had to retract that portion of the amendments which were not gazetted for public comment.

Chairperson Joan Fubbs intervened at this point, noting the Minister had taken the blame, had apologised for the mistake and could do no more than admit that DTI had been wrong.

DG October added that at a DTI workshop on the subject with “some stakeholders” this direction had been considered as a good option for broader rather than narrow empowerment but it had now been recognised by DTI that “they had gone down the wrong route as far as investor confidence was concerned”.

DTI had now reversed everything with the promise that this would not occur on the agenda again.

Better ideas could come

It had also been realised that such a move could also destroy imaginative plans for black management control such as that pitched by Standard Bank where 40% shareholding went to staff who could have representation on the board; 40% went to recognised BEE shareholders and 20% went into community organisations and trusts.

In answer to direct questioning by MPs, DG October confirmed that by the term “black”, DTI translatedlionel october this as African, Coloured, Indian and Chinese. He also confirmed that all these groups, if foreign and not South African citizens, were excluded.

More than 25.1% “unrealistic”

DG October, when asked by ANC MPs whether the 25.1% target for black ownership was realistic and fair considering that the demographics in South Africa demonstrated a far larger proportion of black people, he said that 25.1% could be considered as a “basic critical mass to engender a solid forward movement”.  To go any further would be unrealistic, he added.

In Malaysia, he said, local ownership was considered fair at 30% and other African countries as high as 50%, but he felt that in South Africa, where the need for the transfer of skills and training from large to small companies, especially through supplier development by state utilities and large businesses, was essential, this was a fair percentage assumption and which called for co-operation and fairness between all parties, all bearing in mind “a pretty hideous past”.

Redress of the past in all preambles

joan fubbsAt this point, Chairperson Joan Fubbs referred to the South African Constitution, reading out the clauses which not only stated that all were equal despite race colour or creed but that discrimination was possible if it was fair and she reminded MPs that redress of the past was “fair”.

She asked for all “not to isolate clauses in the Codes to determine personalised interests but get on with job of re-aligning communities that had been excluded from ownership for over 300 years”.

One ANC MP asked that the focus on big businesses be less emphasised and that DTI rather spent considerably more time with the job of developing ownership of black small business, which he stated could be “the power house of South Africa”.

He called for legislation that enforced government and public utilities, “as custodians of state power” to set an example on supplier development since, he said, one could hardly expect the private sector to follow suit, if the SOEs did not lead the way on this issue.

Incentives needed, not law says DTI

DG October said such sort of things were “impractical in the real world” and said the main challenge was a phased process of change which now had the support of many in positions of power in business. He also emphasised that B-BBEE had to tie in business and industry with incentives rather than with the law.

When asked about his recent public statement that he had set DTI’s target to produce “100 black industrialists”, he was referring rather to 100 black industrial leaders “financed and supported by DTI initiatives”.

Other articles in this category or as background
BEE comes under media scrutiny – ParlyReportSA
Rumblings in labour circles on BEE – ParlyReport
B-BBEE Codes of Good Practice far more onerous – ParlyReportSA
One year to implement B-BBEE Codes – ParlyReportSA

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SARS understaffed to deal with transfer pricing

Davis report on transfer pricing confirms …

NB: This article updated after two recent meetings of committee on transfer pricing. Report with clients.

JudgeDennisDavisSouth African Revenue Service (SARS) was completely lacking in sufficient staff to deal effectively with transfer pricing in order to spot illegal transactions, said Judge Dennis Davis in his capacity as chairperson of the Tax Review Committee when addressing the Parliamentary Portfolio Committee on Mineral Resources.

He also pointed out that SARS, in any case, was also not provided with sufficient information by declaring companies, particularly multinationals as legislation stood at present, to further probe cross-border transactions to determine whether the movements involved the illicit transfer of profits from high-tax to low-tax regimes.

He told parliamentarians that whilst about three years ago SARS had conducted a very specific and targeted investigation, and had raised in one financial year alone some R1.1bn, this only illustrated the far larger amount of “haemorrhaging” that was taking place.

Not transfers but manipulation…

The Judge had to explain to MPs time and time again that transfer pricing in itself was not illegal, only any manipulative tax behaviour usually involving non-declaration or undervaluation.

Judge Dennis Davis referred to the recent highly publicised case involving HSBC where some R23bn directly involved the SA fiscus “and which was under review by SARS”.  He also drew attention to the fact that as a result of disclosures during the Marikana inquiry, Lonmin appeared to have profited by some R280m in saved taxes by transfers.

railfreight“Fictitious transfer pricing declarations were the problem”, he said, where multinationals managed to declare profits which appeared lower in countries with higher tax rates and higher in countries with lower tax rates. This occurred where the culprits identified transfers of intangibles for less than full value; showed over capitalisation of tax group companies and declared contractual arrangements with low risk tax environments.

Digging deeper

The Davis Tax Committee had recommended to National Treasury Department that the current unit in SARS, dedicated to base erosion and profit shifting be strengthened. At present this constituted only twenty personnel. “Building up this team would enable SARS to dig deeper into companies’ affairs”, he said.

Billy JoubertBilly Joubert, Tax Director, Deloittes, pointed to the fact that transfer pricing was in fact a “neutral” instrument in terms of its intention to promote industrialisation because its purpose was in fact to achieve arm’s length profits across the value chain.

Transfer pricing rules based on international best practice provided investors with certainty and it also protected the tax base of the relevant country, he said.   It was therefore an essential part of any tax system, providing taxpayers did not manipulate prices by shifting profits to lower tax jurisdictions. He condemned the practice.

Arm’s length reporting in question

Joubert said South Africa was an observer and an active contributor to the OECD and their transfer pricing guidelines was a resultant consensus document. It was critical for SA to align with the tax policies adopted by their trading partners where they could, endorse “the arm’s length principle” adopting the guidelines in their own domestic environment and follow global standards.

He said that SARS had achieved the collection of approximately R5bn over the last three years from some 30 audits and adjustments of R20bn.

He concluded that SARS’s new rules “were now more closely aligned to the global standard and possibly ahead of many other countries”, noting, however, there was a lack of certainty in terms of outdated practice notes; limited guidance on implementation of “secondary adjustment mechanisms”; and also a lack of interaction with double tax agreements which were closely allied to the process.

Back to understaffing…

Prof Johann Hattingh of UCT pointed to the fact that the Davis Tax Committee recommended full compulsory OECD style taxpayer information disclosure and there “was more than enough in the legislative armoury of SARS to effectively combat intercompany mispricing or tax abusive behaviour”.

However, he also pointed to the fact that SARS was understaffed and simply outnumbered by input of declarations to effectively implement transfer pricing legislation across a broad spectrum.

Prof Hattingh explained that insofar as tax interpretation was concerned it was a complex and ultimately subjective evaluation because of the difficulty in identifying intangibles and services which were transferred or provided and the arm’s length price at which they were valued. Even the whole definition of an “arms length transaction” was subject to difficult legal, accounting and tax interpretation, he pointed out.

OECD the genisis

He said all BRICS countries, except Brazil, took the OECD guidelines as a starting point, Brazil using fixed international commodity prices which provided more certainty but which conflicted in many cases with double tax agreements, since double tax could arise in one of the countries involved in transfers.

EFF member Freddie Shivambu said that in terms of SARS, staffing with skilled personnel was not the only problem as far as could see but there was a lack of clarity on the way forward.  Judge Davis replied that there were indeed criminal elements involved, such as illegal siphoning of money and under-declaration of assets, but his committee had established “empirical evidence” that the amount lost to the fiscus was not always as high as it was reported to be.

But the way forward, he re-empahsised, involved updating wording of legislation; the ability to follow up on “arms length transactions” and more staff to do this. His Committee’s report was with the President.

ANC says transfer pricing is manipulation

Some ANC members pointed to the fact that some multinationals were making “massive profits and not contributing to the country’s agenda to address poverty, inequality and unemployment and transformation” and that transfer pricing should be banned. Others called for it to be declared “illegal”.

They were corrected again by Judge Davis who explained that transfer pricing was a legitimate necessary process for companies doing legitimate transactions and as such it could not and would not be “banned” or illegalised.

D Macpherson DAMr D Macpherson (DA) joined the debate to say that the issue of illicit transfer pricing should not become a political matter but that it was a national concern for all, pointing to the fact that whilst transfer pricing was one issue, the country was losing some R6bn through other forms of corruption.

It was all part of the same problem, he said, and the country had to take a stand against all illicit activities that deliberately robbed the government of revenue.

Not just mining worldwide

Meanwhile Judge Davis agreed with ANC members that “additional revenue was needed to redress historical injustices” but the World Bank had reported that South Africa had addressed this challenge better than most countries, including Brazil. There was no evidence to suggest that transfer pricing affected the mining industry notably.

He was joined by Billy Joubert of Deloittes who stated that such a transaction should not be criminalised because they were cross-border transactions, which was essentially transfer pricing, and re-emphasised that they were “neutral” until  assessed and found to be illicit or not.

National Union of Mineworkers said transfer prices should in principle match either what the seller would charge an independent, arm’s length customer, or what the buyer would pay an independent, arm’s length supplier. He claimed that transfer pricing defeated the objectives of the Minerals and Petroleum Resources Development Act.

“All it meant”, said the NUM spokesperson, “was retrenchment of employees; low and unequal salaries: inadequate investment on skills development; poor implementation of social and labour plans and less investment on health and safety standards, resulting in injuries and fatalities.”

brigette radebeBridgette Radebe of South African Mining Development Association (SAMDA) said her records showed that “out of 151 countries, South Africa lost, on average, the twelfth highest amount of money through illicit financial outflows”. She disagreed with Joubert of Deloittes on the ‘neutrality’ of transfer pricing and the effects and that the statement that the mining industry was a “small player” was incorrect.

She said the mining industry contributed 17% of GDP and 38% of exports, plus 19% of private investment with R78 billion spent in wages and salaries. “These figures were totally eroded and made misleading by transfer pricing”, she said.  She provided the parliamentarians with a series of figures explaining how transfer pricing in the mining industry took place and claimed that manipulation was often the practice.

SAMDA suggested the immediate alignment of the mining charter with the B-BBEE Codes of Good Practice with transfer pricing and to address the issue of penalties contained in the charter for non-compliance.  Much agreement from ANC members took place.

Multinationals under attack

One ANC member stated that “the bulk of South Africa’s mineral resources were in the hands of foreign nationals and it was good that SAMDA and organised labour came together and addressed the issue of transfer pricing in terms of the South Africa’s economy.”

A department of mineral resources (DMR) staff member attending was called upon by the chair to respond, who stated that all the issues raised would be discussed by his department and in the light of success with penalties under the Mine and Safety Act, increased penalties for breeches in declarations might be considered.

Cooperation possible

DMR and SARS had been working together, the spokesperson said, on the whole issue of transfer pricing, a memorandum of understanding between the two departments having been established.

SAMDA said that some multinational companies often wished to “manipulate prices to such an extent that there was no income for beneficiation or share distribution and consequently loans on shares could not be repaid.”

Other articles in this category or as background
http://parlyreportsa.co.za/uncategorized/sars-to-be-given-right-to-search-without-warrant/
http://parlyreportsa.co.za/securitypolicedefence-2/customs-duty-bill-cuts-inland-ports/
http://parlyreportsa.co.za/finance-economic/promotion-and-protection-of-investment-bill-opens-major-row/
http://parlyreportsa.co.za/finance-economic/financial-sector-regulation-bill-heralds-twin-peaks/

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