Tag Archive | portfolio committee on trade and industry

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

 

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Changes to Protection of Investment Bill

sent to clients 13 Oct…. updates yet to be posted ….

Unpopular Bill on its way to final vote….

After some marathon debates in the Portfolio Committee on Trade and Industry, Parliament put aside the newly named Protection of Investment Bill (previously the Promotion and Protection of Investment Bill) until after the recent winter recess for members to consider two important substitution clauses suggested by an Opposition member.

Whether the final Bill will meet international expectations still remains a query despite being finally hammered through. (report and details still with clients)

lionel octoberThe Trade and Industry Department (DTI) was represented throughout the two days of clause by clause debate by director-general, Lionel October; Mustaqeem De Gama: DTI Legal Director: International Trade and Investment (ITED) and Counsellor to the WTO; with Ms. Phumelele Ngema: Parliamentary Legal Advisor. This followed earlier hearings which included many submissions from business, industry and institutions such as the Institute of Race Relations.

Taking it seriously

Bearing in mind that a full back-up team from DTI was also present for the first clause-by-clause debate, including Ms. Xolelwa Mlumbi-Peter: DTI Acting Deputy Director General: ITED who promoted the Bill from DTI, it could said that DTI fielded their full team on the issue with a full bench of reserves and consequently had taken all submissions during the Bill’s hearings a week before in a serious light.

Main objections to the Bill had come in the areas in the definition of investment; fair and equitable treatment of both local and international investors on equal terms; the definitions of “property” in the case of expropriation and disputes, particularly the issue of arbitration and the locale and parties involved in such determinations.

Lack of clarity

Specifically complaints were received that Bill as tabled was unclear on the obligations of investors;

ack bdlive

ack bdlive

there appeared to be differences in standards of fair and equitable treatment for international investors; many disliked the omission of a favoured nation clauses; lack of reference in the Bill to exactly what was meant by expropriation; and the fact that DTI in the form of the Minister had express rights to regulate in the public interest and in dispute resolution remedies.

The fact that the Minister “may” allow cases to be referred to international arbitration was, by some, expressed as an objectionable approach to international business relations.

No movement on national bias

In the first meeting  to provide responses to submissions received, Lionel October assuring members that DTI had no intention to act in a manner that reduced investment flows into South Africa.    He said government had a duty to regulate in the public interest and needed the political space to do so. He insisted that any dispute resolution is to be limited at first to domestic remedies with the option, now, of state-to-state arbitration once domestic remedies had been exhausted.

Further, he said, DTI was amenable to deleting the part of the definition of ‘dispute’ that read “provided that a dispute will only arise once the parties agree, or as prescribed by law”. He explained that the proposal that the definition of “measure” could be changed to a definition reading “measure refers to binding governmental action directly affecting an investor or its investment, and includes laws, regulations, and administrative actions…etc.”

Cosmetic change to title

de GamaMustaqeem De Gama, in agreeing to the point that the title of the Bill should be changed to “The Protection of Investment Bill” in the light of the argument that there was little in the way of Promotion, said that he wished to assure all that the phrase regarding “use of available resources” in the clauses on security of investment as only referring to physical security and policing.

It was agreed that the state must provide this type of security on an investment. Wording would apply as such. It was also agreed that the word “dispute” would not be defined as such in the Bill allowing a court to fall back to the normal dictionary definition of the term.

Rights to establish investment

On the right of international enterprises to invest and the restrictive clauses in this respect referred to under Clause 6 as the “ Right of Establishment’”, De Gama said the clause does not seek to deal with or create a right of establishment up front but only sought to require that an investment be established in accordance with domestic laws. He claimed that any state had an inherent right to regulate who does and does not “establish” in their territory.

Opposition members said that wording as such was another investment barrier and Dean Mcpherson (DA) pointed to the Regulation of Land Holdings Bill where it is proposed that no foreign person may own agricultural land.  He felt that South Africa should not be limiting investment but rather welcoming all investment of whatever kind in order to grow the economy. He was wary of specifying who can and cannot invest in South Africa, particularly in the light of other Bills now being processed by Parliament.

State to hold rights on access

DTI responded with the view that “no investors have ever been so bold as to attempt to exempt themselves from following domestic law”. De Gama continued that international law gives any state the right to regulate the access of foreigners to their land. “If the investment negatively impacts the economy, the state should have a right to take action to mitigate these negative effects through various policy spaces”, de Gama concluded.

If expropriation is ever necessary in an extreme case, the Constitution requires just compensation be paid and that was clearly stated in the Constitution, DTI pointed out. Opposition members complained that the exact definition of expropriation per se “in terms of the laws of the country” was still being debated in another Bill, the Expropriation Bill, currently before the Portfolio Committee on Public Works.

Double talk

The chairperson, Joanna Fubbs, refused to allow debate on the subject to continue on the basis that joan fubbs“this definition was the responsibility of another department”. DA member, Geordan Hill Davies, complained that Committee was “just side stepping the issue insofar as The Protection of Investment Bill was concerned” and the apparent avoidance in “debating this issue in this forum just added to the uncertainty of South Africa’s intentions”.

Fair and equitable treatment

Also under the microscope was the issue raised during a submission from American Chamber of Commerce in SA and others during hearings that any form of iron clad promise of fair and equitable treatment of investments by foreign companies was not evident in the Bill. In this regard, Lionel October argued that this could not possibly be the case as South Africa needed investment and the Bill was designed to protect such.

However, the phrase “subject to national legislation” could not be deleted as a matter of state policy and the expression at the outset of the Bill of “in like circumstances” also had to stay in view that “national treatment” was necessary to avoid ambiguity, as previously stated.

Like circumstances issue

Lionel October argued that the SA government would be applying “national treatment” in line with WTO practice. The DTI had never discriminated based on place of origin, he said. The only reason for the ‘like circumstances’ clause in the Bill before them was because, for example, “minor abuses of black empowerment policies”, such policies and others being specific to South Africa, he said.

He said a dispensation had been granted on the issue that international arbitration was only to be allowed at the Minister’s discretion after all domestic legal avenues had been exhausted and to allow state-to-state arbitration to take place. Opposition members argued that in some cases in the world of modern investment this was both an impractical and unenforceable suggestion.

No “certainty”

geordin hill-lewisGeordin Hill-Lewis said this whole section was the crux of the Bill’s weakness in encouraging investment. He felt that the essence was that foreign investors wanted be treated in like manner to domestic investors and the wording of the Bill still implied, or gave the impression, that SA would treat foreign investors less favourably.  In addition, SA could legislate in the future to the further disadvantage of foreign investors. “There was no certainty in the wording at present”, he said.

New clauses

Geordin Hill-Lewis produced two amending clauses, one on “Standards of Treatment” (to be inserted after Clause 7 to become Clause 8) and a further on “Legal Protection of Investments” (to replace Clause 9 which would become Clause 10 because of the above addition). These had been prepared overnight by the DA’s legal advisors.

DTI and all members were asked to study these two clauses during the two week recess when the Bill would be finally concluded. The Chairperson noted that this issue was not closed. DTI confirmed that they would study the recommended changes. In addition, seven issues within the Bill were carried over for further discussion before the Bill could be recommended to go forward until after the recess.

The hearings conducted before the debate included submissions from Anglo-American, SA Institute of Race Relations, Banking Association of SA, The Mandela Institute of Wits University, NUMSA, the EU-SA Chamber of Commerce and the American Chamber of Commerce in SA. All expressed disquiet to varying degrees on the Bill as originally proposed.

(further articles to be posted in due course leading to final committee vote)

Other articles in this category or as background

Promotion and Protection of Investment Bill re-tabled

Promotion and Protection of Investment Bill opens up major row – ParlyReportSA

Expropriation Bill phrases could be re-drafted – ParlyReportSA

Land Holdings Bill joins state acquisition trend – ParlyReportSA

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AGOA : Parliament this week 3 Nov 2015

cropped-sa-parliament-2.jpg

 

Editorial…….

AGOA : What and who to believe….

Reported to clients 5 November……On June 10 2015, a meeting took place in Parliament between the Department of Trade and Industry (DTI) and the Portfolio Committee on Trade and Industry, chaired by Ms. Joanna Fubbs, during which DTI was reporting back on its progress with B-BBEE.

The meeting was interrupted by the appearance of Faizel Ismail, the special SA Trade Ambassador to thefaisel ismail AGOA talks, who dramatically made an announcement with the Chair’s agreement despite nothing on the agenda, to all members of the Committee. To sum up the statement he said that the negotiations on the AGOA trade agreement could be considered a success. There was considerable joy amongst MPs generally.

Then on September 8, Lionel October, Director General of the Department of Trade and Industry (DTI), surely “Mr. Big” when it comes to knowledge of trade relationships and policy with other countries, made the following rather obtuse statement to the PC on Trade and Industry when asked for the current position with regard to the AGOA.

He answered, “As for SA’s US relationship, no one relationship would save SA. The US has decided to re-industrialise with an emphasis on energy development in Africa after a previous emphasis on the service industry. The AGOA had been reviewed, and meat trade issues needed to be resolved but in general the AGOA had grown in its relationships.”

What this was supposed to mean was difficult to interpret. But then discussions were on-going at the time between SA representatives and the US congress over poultry, meat and pork issues and relationships were admittedly difficult. Dumping by the US was the accusation. Lack of certification of SA exports was the reply. Most were downcast.

The context

The occasion for DG October’s remark was DTI’s presentation of its annual report to Parliament, with Minister Rob Davies present, and it was in answer to an Opposition member on the subject. It was apparent to all at the time that the AGOA had not been mentioned as one of the “achievements” of DTI for the year 2014/5 and the first quarter of the present year. That’s as close as Parliament can get to being up-to-date.

Then newspapers announced that South Africa’s inclusion had been agreed to by Congress and the AGOA Bill had been sent to President Obama for signature. The poultry and meat issue had been resolved apparently.

lionel october 3Everybody relaxed and Lionel October told Parliament in a further PC Trade and Industry meeting, this time on the Protection of Investment Bill, that indeed the Bill had indeed gone for signature and all was done and dusted.

Reverse gear

The we heard from the media, not DTI, that everything is held up again after DTI had admitted under pressure that they had failed to meet a poultry declaration deadline under the AGOA. A war of words started on whose fault that was, DTI claiming that the fault was mutual between the US and South Africa.

In the meanwhile we had put the AGOA behind us, the focus having shifted in the meanwhile to watching the Portfolio Committees of Police and awaiting the return of Private Security Industry Bill, President Zuma staying “mum” on the subject and the Cabinet saying nothing in their regular statements from GCIS.

Clearly the preamble to the AGOA agreement had fallen foul with the US Constitution finding this particular Bill objectionable in terms of international obligations on expropriation, presumably connecting AGOA to US investments in the security sector industry where US owned interests stood to lose control of their investments in South Africa. This time it was the US media reporting, not the negotiating parties.

Just recently, Ms. Joanna Fubbs, chairperson of the Trade and Industry Committee, refused Oppositionjoan fubbs members the right to discuss the issue of the Private Security Industry Bill in her Committee, stating that the subject matter was the domain of another Committee. The subject at the time was the Protection of Investment Bill, now passed at committee level, and whether this Bill would contribute further to poor US relationships, as was apparent with the Security Industry Bill already.

 Passing the cushion

But that was not the full truth. The PC Committee on Police, as far as we can establish, has never discussed in depth the implications of the Private Security Industry Bill as far as the AGOA is concerned. Meanwhile President Zuma, who had the Bill and still has, must be perfectly aware of the implications as must the whole Cabinet, since it is not just the poultry industry that is affected but the security industry, the automotive industry and a whole lot more.

This is especially in the light of the fact that, according to reports, this Bill has been mentioned in Congress in front of the SA Ambassador called to Congress to answer on the subject. Nobody knows therefore, if Parliament will again verbalise on the Bill because nobody will come clean on why the Private Security Industry Bill is stuck where it is in the Presidential office.

 AGOA vs Security Bill

Is AGOA on the altar of ideology, one must ask therefore.

courtesy iol

courtesy iol

During a very recent briefing to the PC on Trade and Industry on AGOA progress, Minister Davies told parliamentarians that everything “was in the hands of veterinarians, both on the US side and in South Africa, both parties taking the issues of animal disease and sickness very seriously“. He continued, “It has been more than we dare do in DTI to interfere or intervene in this process. It is supposed to be an independent process. Avian ‘flu in the US is a repeating disease but, however, all is now resolved from an SA perspective.”

The Minister added, “Furthermore on our side we, the Department of Agriculture and Fisheries and their veterinarians have written to the US side to say we are ready to implement all conditions so President Obama can sign. All the deals are done in both the US and SA industries and we just await the US response”, he concluded with Faizel Ismail present.

Dave MacPherson (DA) pointed to the fact that the whole of AGOA would be torpedoed anyway if the Private Security Industry Bill were to go through. Minister Davies responded that the Private Security had not come up once in the AGOA talks with the US. “Too much of this has been a media debate”, he said.

Under pressure

Consequently Minister Davies is fully aware the situation but dealing with the issues as if they were not connected, which could be considered slightly disingenuous. It is known that Minister Davies very much wants the AGOA deal signed but Oppositions members conclude, when asked, that they also cannot think of a single reason for pushing through the Private Security Industry Bill if it is at the expense of the AGOA and growth.

Unless it can be put down to disharmony within the Cabinet or intransigence on the part of the Minister of Police, they say.

As for the future of the AGOA then, for the moment don’t hold your breath but rather cross your fingers that Cabinet as a whole will come out of its ideological bubble, if this is the case.

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Sept workshop: Protection of Investment Bill

Report to clients 15 Sept. Two more posts to follow…

Initial discussions on Investment Bill…

In a parliamentary Trade and Industry Committee workshop, two professors of law at South AfricanCOMMITTEES_large universities stated that the Promotion and Protection of Investment Bill (as it was then called) seemed to be little about promotion of investment but more about local protection.

Nevertheless, both felt that localised jurisdiction was the more appropriate way to settle issues under arbitration conditions in the South African context; was in line with SADC modelling and introduced the elements of national interest and “fairness”, which they said international arbitration often precluded.

Both added that some of the vague wording and definitions had to be tightened up upon if the Bill was to be a useful tool in encouraging developmental investment and that, in purely legal terms, their view was that the Bill would pass constitutional muster.

Legal minds

joan fubbsMs. Joanna Fubbs, chairperson of the committee, had invited a number of legal and trade entities to share opinion on the new Bill under relaxed workshop discussion rules and on the invite list was Prof. Riekie Wandrag of University of Western Cape and Prof. Jonathan Klaaren of Wits University.

Department of Trade and Industry (DTI) also made a presentation by Ms. Xolelwa Mlumbi-Peter, who was to be leading DTI’s briefing of Parliament on the PPI Bill in the coming days.

 International views

An international guest to report on the PPI Bill was a United Nations Conference on Trade and Development (Unctad) representative, James Zhan, who noted that the proposals contained in the Bill seemed to be following the new trend, particularly in developing countries.

It was now becoming standard practice, he said, not to have traditional bilateral trade treaties (BITs) butzahn rather an agreement that favoured economic development in the host country and subject to the laws of that country.

Unctad led most of the discussions during the debate and stated that any such legislation as proposed by the PPI Bill could “fill an important gap in the developmental role of a country and help with economic development.”

The trend in many countries such as South Africa, Mr Zhan said, was to move away from BITs which tended to be a legacy from the past. However, he added that this was not the whole story. What was put in its place, such a Bill as proposed, had to be part of a whole regulatory framework that encouraged development strategies as well as investment. One could not be without the other.

 Part of a state policy perhaps

D Macpherson DAWhen asked by DA member, Dean Macpherson, if he was aware that the PPI Bill was part of a whole number of Bills that were part of the South African government’s present land and state expropriation policy, such as the Expropriation Bill and a draft Land Holdings Bill, Mr Zahn said he was not asked to talk on these further Bills or discuss any state policy nor was he asked to study the wording of the Bill before them in detail.

His brief, he said, was merely to comment on the Bill as this was a workshop and on the basis of what was happening elsewhere in the world and the role of Unctad. Each government had its own policies and laws and it was not Unctad’s role to get involved in specific national issues.

On issues of arbitration on BITs resulting from disagreements with host countries, he said globally there were over 3,500 treaties of some sort in operation in 160 countries on trade at any one time and, on average, a new treaty is signed every week including mega regional BITs.   He said “few countries were satisfied with the current international trade regime” and it was fast changing.

 Where the argument comes

He said most arbitration matters or points of disagreement arose over waste collection, treatment and disposal (3%); transportation and storage (3%); the manufacture of food products (4%); real estate (4%); telecommunications (6%); construction (8%); financial services and insurance issues (9%); mining and gas (16%); supply of electricity (19%); and other varied issues (28%).

65% of arbitration cases were decided in favour of the businesses involved and 35% in favour of the state involved.    Zahn said that “the world was going through a period of reflection on trade agreements” and whilst companies in the major trading nations in some cases might prefer BITs, most of them were coming to terms with the fact that many smaller nations, especially those with poor communities, were asking for national priorities to be included in packages.

History of up and down

In terms of foreign direct investment (FDI), South Africa was amongst the world’s top recipients but South Africa’s graph of incoming funds since 1994 was “lumpy” he said, “sometimes up and sometimes down due to the fact that most projects in South Africa were very large infrastructure projects and only occurred now and then”.

FDI graphAs far as FDI was concerned, the UK was by far the largest supplier of FDI in South Africa (48%), with the Netherlands coming in at 16%; the US at 6%; Germany at 5%; and China at 4%.  Financial destinations provide 40% of FDI applications in SA; mining, quarrying and petroleum at 28%; and manufacturing at 17%.   Transport, storage and communications was at 10% and gas, water and electricity, at this stage, almost 0%.  The reason for the odd groupings was not given.

Zahn said Unctad saw this Bill as a natural bridge to the country’s own developmental strategies and it was in general was in line with Unctad’s core principles. When asked by Opposition MPs if the wording regarding “the public interest” and vagaries of allowing the Minister to decide if an investor may use international arbitration methods on disagreements worried him at all, Chairperson Joanna Fubbs stepped in and said that the meeting was a workshop, not a clause by clause debate on the Bill.

 Findings often obscure

However, Zahn did say that he could only opinionate in broad terms and state what the rest of the world was doing in general terms. The point was that arbitration under BITs was a different issue to the state to state relationships envisaged by the Bill before the workshop but he noted that many international arbitration findings in favour of the investing company were on obscure technical points and had little to do with the investment itself and the country in which the investment was made.

He understood, however, that whilst the Bill might not be coming at a good time from the point of global economic factors, “it was a good Bill generally in broad principle and it was a good time to set up new structures”.

Gives policy space

 Jonathan klaarenProf. Jonathan Klaaren of Wits University said in broad terms BITs probably do not affect a leaning towards good developmental investment but do not hurt inward flows of capital. Thus he felt that DTI, by giving protection for inward and outward SA investments and retaining “policy space for a legal and policy framework attuned to sustainable development”, allowed South Africa to do some of “the agenda setting”.

He agreed with the recent Policy Review on trade treaties which stated that BITs tended to open the door to narrow commercial interests and that matters of national interest became subject to unpredictable international arbitration outcomes if they went wrong. “This may lead to a result that may constitute a direct challenge to legitimate, constitutional and democratic policy making”, he said.

In his view, procedural “fairness” contained in a domestic jurisdiction approach was superior to the arguments often given in favour of “fairness” at international level. He said the “fairness” was guaranteed with a robust judicial system such as existed in South Africa whereas in the international environment of arbitration, quite often “fairness” was not reached because of obscure legal issues. The national interest of a country was therefore made irrelevant because of a technical point at law.

He noted that issues of economic development could not be addressed outside of borders but human rights issues such as land grabs in Zimbabwe were coming into the matter and involved the SA Law Society at the moment who were deciding upon such issues. At the moment the SADC Arbitration Tribunal was only state to state, so matters raised in this workshop fell away.

The future with SADC

reikie wandragProf. Rieikie Wandrag of the Faculty of Law, UCW, gave a detailed comparison with existing SADC investment protocols and hoped-for changes being negotiated. She also drew comparisons with the East Africa COMESA trading bloc.

She said the Bill was generally in line with the regional perspective in SADC and Africa generally and that the PPI Bill attempted to address most of the concerns currently being expressed in many developmental regions. Prof. Wandrag undertook a comparison of expropriation wording; the use of the expression “in like circumstances” in each region, which was usually the contentious area in any such Bill; and how each region dealt with the area of “fair and just compensation”.

DTI’s view

DTI’s Xolelwa Mlumbi-Peter complained that arbitration panels produced inconsistent interpretations even on similar matters and undermined in their view the predictability of investment law.   She said that with international arbitration, DTI had noted that matters were shrouded in secrecy; rulings were not published because of confidential rules and which affected governments; whilst matters were not generally conducted on a “proper state-to-state basis”.

 Social imperatives to be included

She said the trend was now to have state-to-state international investment agreements, where implications for countries was involved and arbitration issues could not avoid local courts or the laws of the country where the investment took place. Broader social and public imperatives would have to be considered when considering investment because, DTII said, it had to be understood that South Africa was engaged in a process of socio-economic transformation.

The agenda in South Africa was set by the NDP, New Growth Plan and IPAPs in addition to the local laws of the land, Mlumbi-Peter said, and the implementation of this “ambitious development agenda required the development of new policies and regulations whilst ensuring that South Africa remained open to foreign investment and trade”.

The workshop concluded with the chairperson pointing out that the idea had been to “set the scene” for parliamentarians on the forthcoming hearings and the reasons for introducing such a Bill.
Other articles in this category or as background
Promotion and Protection of Investment Bill re-tabled
Promotion and Protection of Investment Bill opens up major row – ParlyReportSA
Protection of Personal Information Bill almost concluded

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Treasury’s plan for carbon tax

Morden’s thinking on carbon tax….

cecil mordenBearing in mind Cabinet has not agreed to a carbon tax at this stage, Cecil Morden, National Treasury, explained to the portfolio committee on environmental affairs that the carbon tax as currently proposed could reduce South Africa’s GHG emissions by between 35% and 45% by 2035.

It had to be noted, he said, that SA was in the top 20 in absolute global emissions.

Looking back, Cecil Morden said carbon tax policy proposals began with the Environmental Fiscal Reform Policy Paper in 2006, a Carbon Tax Discussion Paper in 2010 followed by a Carbon Tax Policy Paper 2013, a Carbon Offsets Paper in 2014 and now the current legislative drafting process.

The anticipated carbon tax implementation date, Cecil Morden said, was still mid-2016.

Balancing the books as well

The problem now was with South Africa joining with others COP15 in 2009 with a commitment to curbemissionsgraphic GHG emissions by 34% by 2020 and by 42% by 2025, the question was now of how to reduce the need for higher levels of growth and the energy and carbon intensive nature of the SA economy against the world commitment to reduce GHG emissions.

Cecil Morden told parliamentarians that there was always a concern that climate change could slow or possibly even reserve progress on poverty eradication based on the fact that most developing countries were more dependent on agriculture and other climate-sensitive natural resources for income and quality of life.

In addition, developing countries usually lacked sufficient financial and technical capacities to manage climate change, particularly in Africa and South Asia. Both of these continents seeing more substantial increases in poverty relative to a baseline without climate change, yet the cost of which would still fall disproportionately on the poor.

Done by offsets

carbontax1The rationale behind carbon tax was a means, Cecil Morden said, by which government can intervene by attempting to level the playing field between carbon intensive, fossil fuel based firms and low carbon emitting sectors using renewable energy and energy efficient technologies using a carbon offsets scheme.

In referring to the several carbon tax modelling schemes that had been produced and results of studies, the model proposed could reduce GHG emissions by between 35% and 45% by 2035, the study to be made public by the end of July 2015.

The major concerns at the moment and noted by Treasury were the impact of higher electricity prices on low income households and on the international competitiveness of exports in the world market.

Killing the cat

“The choice”, Morden noted, “had been between command and control measures, in other words byemissions regulation or by market based instruments. In other words by regulations that used legislation or administrative measures that proscribed certain outcomes usually targeting outputs or quantitative factors such as minimum ambient air quality measurements.

The second option of policy instruments that attempt to internalise environmental externalities through the market by altering relative prices that consumers and firms face.”

“Although this second option”, Morden said, “ does not set a fixed quantitative limit to carbon emission over the short term, a carbon tax at the appropriate level and phased in over time to the correct level will provide a strong price signal to both producers and consumers to change their behaviour over the medium to long term.”

He concluded that an introduction of a carbon price will change relative prices of goods and services, making emission intensive goods more expensive relative to those that are less emission intensive”.

Behavioural changes

Africa MoneyCecil Morden said that Treasury saw this as a powerful incentive for consumers and businesses to adjust their behaviour, resulting in a reduction of emissions.

MPs expressed concern that carbon offsets could be manipulated so they had to be related to actual reductions of emissions on paper, Morden replying that in terms of off-sets, there were going to be “quite rigorous requirements for how it should be monitored and Treasury would work closely with the DEA and DoE in this regard.”

Carbon thresholds the hope

In the discussions that followed Cecil Morden further noted that a carbon budget system was an evolving mechanism using information from companies to inform the budget. After a number of years, he said, the relative thresholds could be captured into absolute thresholds. The other possibility was to move towards an emission trading scheme and use the carbon budget just as an indicative monitoring tool, rather than as an instrument of penalty.

He then explained the use of border tax adjustments to try to level the playing field on imports. What ever happened, however, he promised, the entire matter would come before Parliament before South Africa participated in COP21.

Other articles in this category or as background
Carbon Tax under attack from Eskom, Sasol, EIUG – ParlyReportSA
Treasury sticks to its guns on carbon tax – ParlyReportSA
Minister Gigaba to line up Eskom for carbon tax – ParlyReportSA
Carbon tax not popularly received by Parliament – ParlyReportSA
Gordhan gives out strong message on carbon tax – ParlyReportSA
WWF warns that carbon tax must come to SA – ParlyReportSA

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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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DTI Manufacturing Competitiveness Programme scrutinised

 pics ack bdlive

Plan not easy to work, says October…..

lionel octoberLionel October, acting DG, department of trade and industry (DTI) admitted to Parliament the Manufacturing Competitiveness Enhancement Programme (MCEP) had been a difficult programme to run.   Over eight hundred applications with a grant value of R5.1bn had been agreed upon but only R1.5bn disbursed.

However by  2018, he said, DTI would have allocated all R7.4 billion and the amount granted One of the major problems faced, October said, was brought about by the confusion in the minds of many on the nature of the MCEP.  A good number of applicants had tried to apply as if their applications were for a social grant, which was certainly not the case.

MCEP was a short term stimulating package designed for already successful manufacturing companies to assist them during current global and difficult times. Addressing Joan Fubbs of the trade and industry portfolio committee, DG October told parliamentarians that national treasury had been approached for funds in 2012 to revive the manufacturing sector for a period of six years.    R7.4bn in the end was provided.

One year later, trade and industry minister Dr Rob Davies reported that R3bn MCEP approvals had beenRob_Davies made, which would support industrial investments by 436 applicants  and this would a sustain more than 116 000 manufacturing jobs.

The MCEP was conceptualised as a result of the one-million jobs shed during the 2009 recession, he said, and which had badly hurt the nation’s finances. Minister Davies described at the time how the MCEP incentive programme was a critical element of DTI’s Industrial Policy Action Plan (IPAP) designed to stem the sudden loss of the manufacturing sector’s contribution to GDP.

The MCEP was not designed to assist new companies but support existing ones with the potential either of recovering from an earlier troubling status or developing new markets, Davies insisted.

susan mangole Ms Susan Mangole, COO at DTI,  explained to parliamentarians at the recent meeting that the department maintained a “pay-out system” where, after initial approval, the incentive money was only paid once the agreed plan was up and running and jobs had been retained. There was accordingly a time lag between approving a grant and receiving the funds in reward. The time lag could be up two years before fruition of the project was apparent.

The programme, she told parliamentarians was now two and a half years old and, after a slow start, the applications “became a flood”.  Currently, DTI had already committed well over half of the total package. DTI focused on two components with MCEP, Ms Mangole said.   Firstly, through production incentives as described and then with industrial financing loan facilities through Industrial Development Corporation, who had been given R1bn from the fund by DTI.

Any company could only qualify if it had level 4 B-BBEE status or could achieve the status within twomanufacturing years. Lionel October concluded that DTI had been instructed (presumably by treasury) that by the end 2016 it should entertain no more applications and only deal with those already filed.   By 2018, he said, DTI would have allocated all R7.4 billion and the amount granted had now been rationalised to a maximum of R30m, although it had started at R50m.

Some DA opposition members complained that it was absurd to exclude companies because of their current B-BBEE status when the idea was to create more jobs.   DG October stated that this was a “must” in applying, since it was a fact that all companies had to comply with BEE and labour laws. But, he said, most larger companies did in fact comply and the focus of DTI remained revitalising such sectors as agro-processing sector, where most imports of machinery occurred.

“So the problem is not on the supply side but on the demand side”, he said and added that the agro-processing industry in South Africa was experiencing a massive turnaround with exports probably reach double digits of a percentage towards GDP.

He commented, “Then this industry could then pay its workers decent wages.”

The DA complained about poor communication between DTI and applicants saying that a year couldparliamentary committee elapse without even hearing an acknowledgment of an application. There was, the member said, without any doubt an enormous backlog of applications and delays in correspondence on those that were in process.

He complained that DTI was very inefficient in its customer/client care relationships. G Hill-Lewis (DA) agreed and said that it was nearly impossible to “get anybody on the ‘phone at DTI, let alone the person dealing with MCEP issues”.

Ms Mangole confirmed that DTI was working towards improving its response system but that DTI had informed its clients and stakeholders that there would be delays because the system was under strain and that it would be difficult to honour the claims within reasonable times. In subsequent presentations DTI showed a shortage of 271 posts of qualified persons.

lionel october 3On the subject of which industries were getting the most grants, Lionel October said those businesses, such as in the automotive and textile industries that had access to other schemes, were excluded by default. He thought now that the DTI might move to strategic sectors but in any case, in the final play out, it was the manufacturers who succeeded with good proposals who would determine where the market for incentives was.

He stressed that the programme was aimed at retaining and sustaining jobs but not creating jobs. He admitted that as DTI did not make labour law, compliance in this respect was of low priority in considering factors for approval of an application.

Acting DG Lionel October agreed to some extent with opposition members that the issue of complying with labour laws was indeed a matter for labour inspectors. Meanwhile, he said the main focus was on revitalising the companies involved.

Other articles in this category or as background

DTI earns ire of Parliament on BEE – ParlyReportSA

DTI gives warning on investment climate – ParlyReport

SA Manufacturing Competitiveness Enhancement cash grants from DTI

DTI claims new SEZ investment incentives are better

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DTI earns ire of Parliament on BEE

 

Lack of BEE transformation flagged….

plan BEEThe divergence of views on BEE between the parliamentary committee on trade and industry and the department of trade and industry (DTI)  heightened recently with committee chairperson, Joan Fubbs, demanding that within seven days a “technical explanation” as to why  DTI was not hastening speedy transformation within South Africa.

A full report on Broad-Based Black Economic Empowerment (BBBEE) had to be submitted. to all the members of her committee on progress, or the lack of it in certain areas and the reasons why,  she said, and this was to be submitted before the Christmas recess for further debate in the New Year first session.

Uphill presentations

After a presentation on the current position regarding BEE as a broad subject, Ms Nomonde Mesatywa – chief director of DTI’s BEE secretariat – ran into heavy traffic upon her failure to quantify the nature and amount of research that had been conducted on the success or failure of BEE and the total lack of data on its implementation in her presentation.

The governing party MPs bitterly complained regarding the “soft nature” of recent BBBEE legislation, including the recent BEE Amendment Bill and the powers and suspected lack of ability of the proposed BBBEE Commission to enforce any of the current legislation.

Ms Mesatywa went through the standard briefing for the benefit of newer MPs to explain that the Act had been amended and promulgated in January 2014 to ensure standardisation in reporting from all sources reporting across the economy; the BBBEE Commission having been established to monitor and evaluate BBBEE processes.

The new amendment, she said, aligned the anchor legislation with other legislation impacting on BBBEE and with the Codes of Good Practice.  All the provisions had come into effect on 24 October 2014, she said, except for the trumping clause (section 3), which had been deferred for 12 months and would come into force in October 2015.

DTI said the alignment of sector charters was at an advanced stage and included the construction, property, tourism, transport, financial, mining, chartered accountancy, forestry, agriBEE and IT charters.

Elite only benefitting

Committee members from both the opposition and governing party both lodged complaints that there was a public perception that it was only the black elite who benefited from BEE programmes and there was little factual evidence to the contrary that “ordinary black South Africans” were benefitting.

The Democratic Alliance said it was totally offensive that the state offered a reward to companies only if they complied with BEE regulations and if they did not do so, not only could they not do business with the state but also not with any other companies that dealt with state. The DA described this as “awful”.

The EFF was called to order for suggesting that economic transformation would only be realised “if the ANC was taken out of power” but it was the ANC who sought clarity from DTI on how the new mechanism of using a commission in terms of the new Bill could possibly monitor and evaluate compliance “to ensure that the Codes of Good Practice were taken seriously.”

Long term view

DTI responded on the basis that they had been “overseeing, monitoring, and evaluating black empowerment for a long time” and they wished to assure parliamentarians that they had the experience to do this.

With regard to research generally on the subject of BEE compliance, DTI said their the original survey of some ten years ago showed pretty dismal results at around “level four” but DDG Mesatywa said the latest surveys were on the DTI website and had risen to “level eight”.

The chair commented that such kind responses were vague and unhelpful and the nature and lack of adequate quantitative results was unacceptable and, rather than return for a further presentation in view of the Christmas recess, DTI were instructed to respond in writing to Parliament giving exact numbers on it success or failure, sector by sector, within seven days.

ParlyReport will ask for this document.

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Small business gets R1bn incentive scheme

Tax relief and business incentives

The new small business development department (SBDD) has transferred from the department of trade and industry (DTI) the R1bn fund which covers both corporate incentives to develop small business and the Small  Enterprise Finance Agency (SEFA).

However, it will leave with DTI all matters relating to B-BBEE insofar as regulations are concerned.  Both the new minister, Lindiwe Zulu, and deputy minister, Elizabeth Thabethe, were present for a short departmental briefing by SBDD given to the new small business portfolio committee chaired by Ruth Bengu, who in the last parliamentary period served as chair of the transport committee.

Revised thinking

In an earlier portfolio committee meeting of trade and industry, a few days before under their chair, experienced ANC member Joan Fubbs, DTI had called for a rethink on small business policy.

They said they wanted to see a clearer policy on the SMME support role by national government with provincial and local government and to establish a programme for rolling out more small business “incubators”- something that opposition parties had been calling for over a long period of time.

Also DTI supported the call to review the small claims court system so that access to affordable justice was more affordable. They wanted this to be a further target of the new department.

Such recommendations came amidst a foray of criticism by commentators that the new department could become a diversion for unsolvable small business issues or alternatively the new department could become merely a point for start-up small business without any real muscle.

Less red tape

The new department in addressing MPs confirmed to them that its mandate was to focus on “enhanced business support” and they emphasised their support for women, people with disabilities and to provide mechanisms to access finance, business skills development.  They also said they were there to ease regulatory conditions; to help regulate better the SMME environment and to give leverage on public procurement.

It was important to recognise, SBDD said, that it was also there to encourage the development of cooperative entities, in which instance shareholders themselves were the members and entrepreneurs. Finally, the process of creating market access was an important task, they added. Nothing was new here.

But opposition ears pricked up when they said tax relief grants to corporates that invested in small business development were to be considered and incubation programmes and technology upliftment were priorities.  The immediate future, however, was all about configuring the new department; the “migration” of responsibilities from DTI; and transferring allocations for the establishment of support institutions.

Chair of the committee, Ruth Bhengu – previously chair of the parliamentary transport committee – then called for response from opposition members which mainly came from Toby Chance of the DA, whose questions were answered by both by the new minister and deputy minister.

Jobs or not

Chance said that whilst applauding the formation of this department, he wanted to know whether or not any success was to be measured in terms of jobs created,  which to him was the bottom line, he said. Also he wanted a clearer definition of what government actually meant by the term “small business”.

He said there were plenty of “gleaming new supermarkets in our townships but very little industrial developments, in fact some industrial parks were in a state of decay.” Chance said the DA was also worried that the impact of new labour legislation and labour regulations was immobilising small business and the amount of red tape currently being experienced was becoming “out of hand”.

Chance said he hoped the new department recognised the fact that that corporates and industry should focus on the development of small businesses to create the job growth called for by the NDP.   Partnerships with small business were the best way of achieving this, he noted.  He concluded that all “tax incentives should be re-visited” and that more emphasis should be laid on small manufacturing businesses.

In reply, minister Lindiwe Zulu agreed on the issue of red tape as a hindrance to small business and said her objective was to become like Rwanda where direct contact with national bodies that supported initiatives was far easier.

Compliance for all

However, she said that business had to understand that it had a role to play and a “culture of compliance” had to be encouraged in both small and large business and manufacturers or there would be anarchy.   Also large businesses and the state will have pay small business invoices on thirty days or risk penalties.

The minister said on the subject of labour regulations, dept of labour had its own targets and own agenda on decent work conditions and that was a separate issue. “The job of small business development was to work inside current conditions and for business to respect that.”

Chance replied that the governing party seemed to have “developed a track record of “attacking business persons when they criticised ANC economic policies or asked tough questions”, which statement prompted vehement denials from the minister and deputy minister.

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http://parlyreportsa.co.za//bee/minister-davies-gets-cooperatives-bill-approved/
http://parlyreportsa.co.za//parlyreport-contacts/cabinet-ministers/ministry-small-business-development/

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Credit amnesty proposals pushed through

ANC majority agrees to idea….

The department of trade and industry’s (DTI) credit amnesty proposals aimed at reducing “credit impairment” were voted through by the parliamentary trade and industry portfolio committee, opposition members either abstaining or opposing the proposals.

A draft Bill, following a thirty day period for hearings, will be tabled in the next and final session of Parliament once approved by cabinet and before the present government ends.

The proposals, which came unexpectedly and at the last minute of the present parliamentary session, were proposed by the minister of trade and industry, Dr Rob Davies and the office of the National Credit Regulator (NCR).

Customer credit “impairment”

The amnesty proposals, it was stated, were aimed at “reducing credit impairment, by addressing its cause;  allowing for restorative justice;  and aimed also to redress the failure of credit providers to make proper assessments of risk.”

The credit amnesty is also intended to address over-pricing, stimulate economic growth and address some of the barriers to credit, McDonald Netshitenzhe, acting director general, DTI,  told parliamentarians. He replaces Lionel October as head of DTI.

In an earlier meeting in August on the subject, Netshitenzhe said before the same committee that the proposals were not only to reduce credit impairment by going to the root cause of the problem cause and legislating for “restorative justice” but in addition DTI’s proposals intended to cover the issue of the “failure of credit providers to consider broader economic factors”.

Three options

As a result of investigations by the NCR, he said at the latest meeting, three different amnesty options had been considered, all with the extent of mitigation in mind that such an amnesty would have on the provision of credit facilities by credit providers when considering their credit risk offerings.

Option one, said Nomsa Motshegare, CEO of NCR, at an earlier meeting, was the “least risk” option, with credit providers being the least disturbed; option two being “medium risk” and option three being “high risk.  Motshegare told parliamentarians that her department had appointed an independent firm to carry out an analysis of the impact assessment of the likely effect of removing various data scenarios from credit records according to the three options.

This study, she said, looked at the number of consumers that would be impacted; the totals of credit granted; the possible risk to the portfolios of credit providers and possible consumer impact.

End result

In terms of the proposal considered, i.e. option two for medium risk, NCR would remove certain categories of credit information from the record to be seen by banks, as well as the removal of all paid-up judgment data and adverse information listings on credit default following satisfactory conclusion of payment of the underlying debt.

The NCR spokesperson was outspoken on the issue that credit providers must conduct more stringent “affordability assessments” and advise “discretionary income guidelines” when providing credit facilities to consumers. NCR advised that reckless lending was to be isolated and “dealt with”.

Too much haste

In answer to opposition objections on the speed of introducing the amnesty proposals and the apparent wish to fast-track the proposals, acting DG Netshitenzhe said that whilst DTI acknowledged that their proposals had come before Parliament without the normal notice, the fact was that the credit situation was “spiralling” dangerously and the build up of genuine consumer complaints that was complicating the issue had to be addressed.

He said that many credit producers had been consulted with in the survey but that they looked forward to further constructive proposals from the major banks.   NCR separately acknowledged the haste had been applied “out of necessity”.

Half on credit prejudiced

NCR added that it was probable that some 50% of consumers with credit facilities were “impaired” from further credit in some way or another and the causes for this had to be assessed and regulated for. Ill advised lending was the main cause for concern, with unsecured lending a major issue and the need for affordability guidelines, it was said.

It was recommended by DTI that any legislation should be aligned with other laws dealing with debt as an issue, involving both debt collection and garnishees. The proposal before Parliament was that the minister should draft regulations in terms of the option agreed to in order to give effect to a credit amnesty, a notice being published giving 30 days to comment on the draft.

Date to remember

The period of comment will be gazetted, Netshitenzhe said, in the period June to September 2013 to allow for DTI to assess these by October 2013.   Meanwhile a number of reputable voices have expressed dissatisfaction with the proposals in the media.

Opposition members objected to the idea that options and drafts should be considered by Parliament before DTI had received the benefit of public hearings, saying that full legislative proposals and the choice of options should come forward following such hearings, especially any submissions from the banks.

They agreed, nevertheless, that reckless lending had to be curbed in the national interest, proposing that hearing and submissions with further investigations by NCR should be conducted over three months, not one month, and carried forward into the new government as far as debate was concerned. DTI said again that the matter was particularly urgent.

More analysis to be done

DTI said that more investigation would be carried out at the same time as the hearings took place and a report for cabinet would be drafted and confirmed and, as asked by the chair, a further report on that investigation be submitted to Parliament.

After considerable debate and objection by opposition members that the proposals were “being rushed through to satisfy a policy agenda”, and despite even a comment from one ANC member “that not enough time was being given to the public” with just a thirty day consideration period for submissions, it was agreed by a majority of members, with opposition members voting against, that DTI’s request should be approved and that should proceed on the basis proposed of the medium risk option credit amnesty provision in terms of regulations to be published.

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Nedlac gets a stronger voice in SEZ management

Long time in making

Coega harbour equipMinister of Trade and Industry, Rob Davies, told parliamentarians that much of the delay in bringing the Special Economic Zones (SEZ) Bill to parliament was the result of lengthy negotiations on SEZ board make-up.

Whilst the draft Bill was at Nedlac negotiation stage, it had resulted in the proposed six independent members of the fifteen member SEZ board were now proposed as three independent members from Nedlac “constituencies”, the other three independents being proposed by the minister.

However, DTI had insisted that the three Nedlac independents balancing the independents, presumably from business, meet a criteria set rob daviesby DTI and the minister.

Linking SEZs to IDZs

Another reason for the lengthy gap between the Bill first appearing for public comment and its tabling was that a considerable amount of work and input had been made at provincial and localised areas in places such as Coega and East London, where SEZs were in embryonic stage, or in areas where IDZs were about to happen such as Saldanha.

DTI was at pains to state that the two complimented each other, although SEZs were a subsequent development found necessary to develop all areas of South Africa, especially in depressed rural areas, whereas IDZs were linked to ports or international airports.

The new SEZ board will administer proposals for SEZs, run funding mechanisms and handle incentives, said minister Davies. In each area set up, DTI will be responsible for setting up a “one stop government shop” to deal with all government departmental issues involved with the investors dealing with the particular SEZ.

State will work with partners

The Bill will provide for municipalities, in fact any tier of government, to apply for an SEZ but a rigorous process of evaluation is called for in terms of the Bill where a business applies for an SEZ in evaluating whether a municipality is capable or has the capability to provide the services called for. No private ownership of a SEZ will be allowed but private and public partnerships are to be encouraged.

DTI provided Parliament with the figures to date on progress with existing IDZs amounting to some R3bn providing nearly 50,000 jobs. Saldanha particularly had provided a strong foundation for the oil and gas industry in that area, said Lionel October, director general, DTI.

Four types

Most importantly, October said that the SEZ Bill provided the missing framework for this kind of area industrial development and there were four types of or categories of SEZ, which were a free port; a free trade zone; an industrial development zone; or a sector development zone.    Any government or municipal involvement is to be in terms of both the Public Finance and Municipal Finance Management Acts, the Bill proposes.

In answer to comments that Kenya and Nigeria were ahead of South Africa in such investment offerings and speed and good incentives were essential, Minister Davies responded that it was not a question of anybody being “ahead” of anybody.   South Africa, he said, wanted to see all of Africa grow and South Africans wanted to be able to trade with the whole of Africa. All of Africa must grow for all to benefit. It was not relevant to him, he said, whether Nigeria was economically larger or smaller than South Africa.

Will SEZs override traditional land?

Various MPs gave voice to the worry of land issues in rural areas where SEZs were to be established or created but DTI expressed little concern on this matter as far as drafting the Bill was concerned.     DTI responded that that such issues were specific to an individual SEZ and such matters would be dealt with in terms of an individual application and by the individual SEZ working party involved.

The primary concern, said DTI, had to be the re-industrialization of the rural areas.
Associated articles archived
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http://parlyreportsa.co.za//cabinetpresidential/sez-programme-to-get-going-with-new-bill/

Posted in Cabinet,Presidential, Finance, economic, Labour, Land,Agriculture, Mining, beneficiation, Trade & Industry, Transport0 Comments

Electricity tariffs: Billiton tells its side

Benefits amounted to massive subsidy….

Mhkwanazi BillitonThe cumulative benefit to Eskom as a result of BHP Billiton buying out Eskom’s excess capacity of electricity generated over the 14 years until the recent 2008 crisis amounted to a figure in excess of R26bn, Dr Xolani Mkhwanazi, chairman of the South African company, told parliamentarians of the trade and industry committee.

What is more, he said, when Eskom’s near collapse occurred in January that year due to heavy rains, flooded collieries and low coal supplies, BHP Billiton mothballed for some time its Bayside aluminium plant with no compensation and with the purpose in mind of preventing further national blackouts.

Protecting grid together

The company now works, he said, on an ongoing basis with Eskom, both managing and protecting the grid by adjusting demand from its Bayside and Hillside aluminium smelters. No compensation is asked for

In answer to MPs further questions on this subject, he said, “We know we are operating in an environment where there are currently conditions of restraint that have to be exercised.”   He repeated again that such restraints were carried out as a joint exercise to protect the grid as a whole.

These facts were made public to parliamentarians this week after months of questioning by MPs during numerous portfolio committee meetings at which Eskom said it could not discuss the special rates negotiated with large power users, known as NPAs or negotiated power agreements, particularly that which had been negotiated some years ago with BHP Billiton.

Shielding Billiton

Dr Mkhwanazi confirmed that agreements in the past between BHP Billiton and Eskom were related to the international price of aluminium to the Rand/Dollar exchange rate, thus shielding BHP Billiton from local market related problems since the formula when applied meant that in times of high aluminium on a weak rand, lower prices are paid for power.

It had to be borne in mind that such agreements were conducted when Eskom was in highly favourable reserve margin situation, he said. A new NPA has now been struck with BHP Billiton, Dr Mkhwanazi confirmed under questioning.

When asked by opposition ID member Lance Greyling from the energy portfolio committee, who attended the meeting as a guest MP, whether under the new tariff arrangements the contract was still linked as before on a risk sharing basis based on the global price of aluminium, thus shielding BHP Billiton, Dr Mkhwanazi at first did not answer the question

When pushed again on the subject in a second round of questioning, Dr Mkhwanazi replied, “Yes”.

Why Mozambique?

When asked why BHP Billiton had gone into aluminium smelting at Mozal in  Mozambique when Richards Bay appeared undercapitalized at one point, Dr Mkhwanazi pointed to the very advantageous incentives offered by that country some years shortly after peace had returned to the territory.

Lucas Msimanga, asset president, BHP Billiton Aluminium, said that the group’s operations covered three main resources – coal, aluminium and manganese.

Manganese was centred around Hotazel in the Northern Cape and the larger reserves of the Mamwatan open-cut and Wessels underground operations, both in the Kalahari.

It was a fact that 80% of the world’s high grades of manganese existed in South Africa but, said Msimanga, both were in remote situations thus involving high transport cost. Consequently, said Msimanga South Africa had about only 11% of the world market based on pricing factors.

BHP Billiton had five collieries and supplied 25% of Eskom’s coal.

Aluminium eats electricity

On aluminium operations, he said the group was the eighth largest aluminium producer in the world and the two smelters were originally constructed to “absorb the excess generation capacity of Eskom in the late 1980s when Eskom had a reserve margin of 40%.”

Msimanga reminded parliamentarians that aluminium was little more than solid electricity, the furnaces taking calcined petroleum coke, mixed with molten pitch to 1100ºC over 21 days, the resulted aluminium anodes going through electrolytic reduction processing “pots” for a further 27 days. To be in aluminium industry, he said, you were deep into the energy industry, bearing in mind BHP Billiton was also a coal producer.

In manganese, the M14 BHP Billiton furnace was probably the largest in the world and exercises currently being carried using CO gas to the onsite power plant raising self-sufficiency in energy was an important exercise at present being conducted. This was aimed at a hoped for reduction in CO2 footprint.

Associated articles archived
http://parlyreportsa.co.za//energy/new-energy-legislation-is-lined-up-for-next-two-years/
http://parlyreportsa.co.za//energy/dpe-reports-on-eskom-and-it-utilities-to-parliament/
http://parlyreportsa.co.za//bee/eskom-black-owned-coal-mining/

Posted in Electricity, Energy, Enviro,Water, Fuel,oil,renewables, Land,Agriculture, Public utilities, Trade & Industry0 Comments

Port charges and inefficiencies leaving SA behind

Transnet port charges far too high…..

portsharboursEscalating administered prices in SA’s manufacturing system including port charges that were amongst the highest in the world were amongst the subjects discussed during a colloquiun called by Parliament’s portfolio committee on trade and industry.

The meeting was called by Joan Fubbs, the PC trade and industry’s chair and in responding director general of department of trade and industry (DTI) Lionel October said these high costs pointed at Transnet were undoubtedly coupled with “significant logistical inefficiencies” to form a major reason for the country’s inability to compete in global export markets.  Transnet’s tariffs were far too high, he said and were contributing to high import costs in most sectors.

The good and the bad

He said there were some successes recorded recently, such as South Africa being high on the list of best places to invest in automobile assembly plants, but decreased demand from traditional trading partners, coupled with the fact that “container and automotive cargo owners faced price premiums of between 710% and 874% above the global norm. “Such facts were leaving South Africa as an uncompetitive nation”, he said.

During a rigorous and frank debate on the multiple shocks facing manufacturing in South Africa, which were stated as ranging from rising electricity prices to the costs involved as a result of unstable labour-relations, a gathering of Eskom officials, Transnet executives, South African Local Government (SALGA) representatives, the electricity regulator NERSA, and the department of trade and industry (DTI) gathered to debate the current picture facing the SA manufacturing sector under the chairmanship of Parliament’s trade and industry portfolio committee.

Electricity charges vary from one to another

In addition to existing other and well established problems in the electricity transmission and generation area, DTI’s deputy director Garth Strachan, weighed in saying that there were complete anomalies in tariffs charged either to members of the same sector of industry and to manufacturing plants existing next door to each other.

Strachan said DTI had examples where one manufacturer was facing certain price increases in electricity and another factory “right across the street” was paying a tariff more than double.

He said that whilst global recession might have played a part in the current negative situation mostly arising from “bunched up” administrative prices from state utilities, some thinking “outside of the box” was now called for if South African manufacturing was to gain any traction and contribute to growth in a meaningful manner, thus creating more jobs.

Next to New York comes SA

marineReturning to the high port cost issue, Strachan said that Cape Town, Port Elizabeth and Durban port terminals had the dubious honour of following Charleston, Baltimore and New York, as the top high-cost terminals worldwide, mainly as a result of excessive cargo dues charged.

Returning to electricity charges, he concluded by saying that one of the biggest problems facing South African consumers was the considerable publicity given to the NERSA announcement that Eskom had been restricted to an 8% hike, which had given the impression to consumers that “this was the end of the story”.

Yet manufacturers still had to face up to municipal mark-ups, he said, both in the case of urban and peri-urban situations, a matter which had not been discussed on a national basis nor any guidelines established.

Dry bulk goods to be target

On the matter of port charges, Transnet’s Mohammed Abdool said Transnet was applying to the ports regulator for a complete re-structuring of tariffs applying to containers, dry bulk goods and manufactured and beneficiated goods.

He said a complete “rethink” on the objective of encouraging the export of beneficiated goods had taken place, coupled with the principle that Transnet would move from becoming one of the lowest rental charging landlords in the world by re-aligning its land based rentals by upwards of 46%.

Abdool said the new suggestions would result in up to 43% reductions in total port revenues for containers, whilst dry bulk exporters would go from a current 18% contribution to about 33%. All this from April next year which was given as a possible starting date.

NERSA will control municipal incenses

Still on price hikes and specifically on electricity mark-ups, NERSA responded to DTI comments and confirmed that it was obligatory for Eskom not go above the 8% allowed but that agreed limits would be allowed for each municipality or local authority as per agreement made or being made. No deviations would be tolerated and the case brought forward by DTI of two adjacent manufactures with vastly differing electricity rates would be investigated.

Touching up the recent decision to fix the Eskom price at 8% increase, NERSA said that in their view it was not correct for South African consumers to pay for massive reserves and financial safety margins on Eskom’s balance sheet and that Eskom should be run like any other state utility in an atmosphere of total adherence to the principle that where costs are concerned the interests of the consumer must be borne in mind.

SALGA must be committed

Joan Fubbs, chair of the committee, then sought a verbal pronouncement by SALGA to all present into Parliament, both stakeholders and members, that no deviations from the NERSA allowances to be agreed as reasonable mark-ups by their members would be accommodated by SALGA.

SALGA spokesperson, Mthobeli Kholisa, in charge of infrastructure development,  said there was no other system in place in most local authorities to pay for such items as street lighting, pumping of water services or handling of waste facilities. However, such an undertaking was  given by him.

Eskom chips in

Eskom presentations added little that was new to the situation, other than spokesperson for Eskom, Hillary Joffe, said that Eskom was “reserving its comments” on the situation until it had re-studied the entire financial situation but asked for an inter-governmental task team to be set up to align municipal tariffs and called for a plan to ensure that municipalities had sufficient fiscal support to maintain infrastructure and essential social services in the long term.

DOE warns on China

On the rising costs of fuel prices, department of energy’s deputy director general, Tseliso Maqubela, said  that oil and gas exploration would play a large part in South Africa’s energy future but that the unseen and hidden player in South Africa’s structural and economic future remained the economic giant China.

With vast reserves of cheap coal, China had not yet entered the market, he said, and when this occurred it would amount to a “game changer” in every respect, affecting not just the energy scenario for South Africa.

April looks better

On prices generally, he said that things were looking better for April but that oil and gas prices were long-term issues in general and current factors at play would not affect the situation in the short term.

He said exploration would probably would remain, by and large, in the hands of private ventures for years to come. He said that the costs of exploring for oil using one rig could amount to US$1m to 3m for one day alone and “that kind of money does not come easily to a state utility”. Maquebela said that the country owed the present private owned refineries much as they stabilized the chemical industry and saved much in imports but warned that they also faced enormous recapitalization costs in the near future.

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Posted in Finance, economic, Mining, beneficiation, Public utilities, Trade & Industry, Transport0 Comments

New B-BBEE Bill avoids circumvention of the law

lionel octoberB-BBEE legislation needs overhaul…

Director General Lionel October led the department of trade and industry’s (DTI) presentation on the new B-BBEE Amendment Bill  to the portfolio committee on trade and industry, stating that the anchor BEE legislation in place for some ten years badly needed a “proper mechanism to support the actual implementation of black empowerment and methods to deal with non-compliance and circumvention”.

He said the new changes resulted mainly from the work of the President’s Special Advisory Council charged with investigation into the areas where monitoring, evaluation and reporting were clearly ineffective, resulting in a need and to introduce penalties and criminalise those who purposely made false declarations.

Maximum penalty only set by Bill

The Bill, he said, set the maximum penalty but it was up to the courts to set penalties according to circumstances’.

The purposes of the new Bill was to give further effect to the aims and objects of black empowerment legislation, said October, and especially to improve monitoring and evaluation of SA business and industry on the subject; strengthen access to procurement opportunities for black business with focus on opportunities; and funding to improve the technical capacity of the verification industry.

NEDLAC, BUSA, Black Business Council and government departments had been consulted, including all departments in the economic and employment “cluster”, he said.

Most agree changes needed

October said that public hearings had also been conducted. On the whole, these  submissions in broad principle had supported the necessity for amending legislation with a certain number of changes being acknowledged as badly needed, mainly because of misunderstandings particularly in the area of verification and scoring and to clear up a number of unintended consequences of the original Act.

Nomande Mesatywa, chief director of B-BBEE at DTI, told parliamentarians that the objectives of the Bill were to line up other legislation impacting on B-BBEE and also to line up with the Codes of Good Practice.

The Bill established a B-BBEE Commission to monitor and evaluate black empowerment as practised; to deal with non-compliance issues and circumvention and give effect to government policy on the issue of black business empowerment.

Material amendments included a whole number of key definitions and re-definitions and matters regarding the establishment of the B-BBEE commission office.

MPs complain of racial bias

A number of MPs complained that definitions included that of black persons, defining them as black, coloured and Indian, which was simply re-introducing racially based legislation based on skin colour.

October said DG had no option but to follow procurement legislation where the scorecard used such determinations. He said that South Africa was not returning to such levels as had been practiced “in the bad years” but it was now the option or choice of business in terms of a scorecard system whether to do business with government or not.

He said that South Africa was not like Malaysia or Zimbabwe where only nationals of a certain skin colour or nationality could do business with government.

MPs still disagreed with DTI and said not only was the legislation racially based but it disenfranchised white persons from an opportunity that was their constitutional right.

Furthermore, there was a differential between national and foreign business where one’s nationality was prejudicial in dealing with government on tenders and this was bad for investors to see and contributed to the idea that South Africa was unfriendly to foreign investors.

Fronting the main problem

Again, DTI rejected such notions stated by opposition MPs, October defending the proposals in that the B-BBEE legislation before them was mainly aimed at those attempted to defeat the regulations on “fronting” and by supplying false information when submitting scorecard facts. It also remained purely an option for business whether it wished to comply or not with the scorecard system when applying for government business, which he confirmed amounted to some 45% of GDP.

He concluded that it was important for government to have a B-BBEE commissioner as a party to investigate, regulate and impose penalties on those who wished to defeat the purpose of the legislation and who wished to counter government policy on the necessity to empower middle class black development; black small business development and therefore improve the black contribution to GDP.

Posted in BEE, Earlier Stories, Finance, economic, Labour, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Eskom MYPD electricity call is to sustain ratings

 Eskom stands by its MYPD3 asking price…….

Brian Dames, CEO, Eskom, on their Multi-Year Price Determination (MYPD 3) application to the National Energy Regulator of South Africa (NERSA), told parliamentarians of the trade and industry portfolio committee that price increases were necessary. He said that on one hand they had to have a respectable balance sheet to obtain development money whilst on the other hand, Eskom was coming from a background where investment activity had been inactive over the years.

“To keep the lights on”, Dames said, “there is now a cost.”

Electricity currently below cost

He said that because of historical reasons, electricity was currently charged at below cost-reflective levels and was not sustainable. Electricity prices needed now to have a “transition to cost-reflective levels to support a sustainable electricity industry that had resources to maintain operations and build new generating capacity, guaranteeing future security of supply.”

Dames said that Eskom had also recently issued an “interim integrated report” for the six months ended 30 September 2012 setting out a contextual review of the company’s overall performance from 1 April 2012 and in the light of this had presented the NERSA application.

He said that the current MYPD 2 was ending and consequently Eskom had to submit such an application to NERSA to determine the country’s electricity price adjustment for 2013/14.

However, this time Eskom was proposing a five-year determination for MYPD 3, running from 1 April 2013 to 31 March 2018, which would ensure a more gradual and predictable price path for households, businesses, investors and the country as a whole.

Eskom’s five-year revenue request translated into average electricity price increases of 13% a year for Eskom’s own needs, plus 3% to support the introduction of Independent Power Producers (IPPs), giving a total of 16%, representing a total price increase from the current 61 cents per kilowatt-hour (c/kWh) in 2012/13 to 128c/kW h in 2017/18.

Balance sought between needs of Eskom and poor

The impact of the price increase on the economy had been considered in addition to guidance from the President’s State of the Nation Address in which he requested Eskom to consider a price path which would ensure that Eskom and the industry remained financially viable and sustainable, but which remained affordable especially for the poor. Dames said he believed that Eskom’s application achieved an appropriate balance.

In addressing the impact of price increases, Dames said that Eskom believed that poor households should be protected from the impact of electricity price increases through targeted, transparent cross-subsidisation in accordance with a national cross-subsidy framework.

A failure to achieve cost-reflective prices would sooner rather than later impact on South Africa’s economy and its growth prospects, he said.

MPs query what electricity giant has as objective

A number of opposition MPs disagreed and queried the entire cost-reflective process used by Eskom, saying that the tariffs proposed by Eskom rather posed a dangerous threat to economic growth and the future of business in South Africa, as well as job creation.

Whilst Eskom wanted a 4% targeted return in the medium term and 8% in the final year, they said, JSE majors had returned on average 6.6% per year in the last ten years. They asked if Eskom was attempting to build a balance sheet that compared with global corporates just in order to get loans.

The main thrust of certain opposition MPs queries was the sacrifice in growth rate, damage to business development, to job creation. ANC MPs complained of the effect on the poor.

Paul O’Flaherty, finance director at Eskom, said that the only sources of funding available to Eskom were debt; equity injected from Government and operating profit from its revenue. Eskom had requested for an additional equity injection from the state but that was not forthcoming leaving generation of debt to them and raising enough operating profits from its revenue.

He said in terms of depreciation factors on the figures shown, such was regulated by Nersa and that there was no way of getting around the fact that Eskom had to pay its way. According to the cash flow predictions, a trillion rand of revenue would be needed to pay for primary energy costs, employee costs and demand side management, repairs and maintenance.

Eskom must be seen as viable entity for capital programmes

Eskom’s capital program over the next five years included finishing the Kusile power station repayments, plus a further R360bn in debts, which meant that R200bn had to be raised from the market. This had to be done against a successful balance sheet. Eskom got investment status because of Government uplifting, he said. It had to show its cash metrics were moving towards a more sustainable company, he said.

Dames added that Eskom required on its equity a higher return than the sovereign because of the risk involved and in terms of the cost of debt in a normal environment and that the cost of Eskom borrowing was more expensive that the sovereign borrowing. The cost of debt had been arrived at by Eskom working with NERSA as well by as KPMG and the costs included in the MYPD 3 application were appropriate, in his opinion.

Mohamed Adam the legal representative at Eskom said on questions relating to the impact of price increases on the manufacturing sector, that the impact of price increase on the economy had been considered in addition to ensuring that both Eskom and the industry remained financially viable and sustainable, but which remained affordable especially for the poor. There was a threshold at which Eskom would also face which amounted to a tipping point if prices were too low.

Unbundling of Eskom not an option

In conclusion, Mr Dames said that the submission of the MYPD 3 application was the beginning of a public process and he rejected MPs suggestions that Eskom was a monopoly that should be broken up.    He said that any unbundling of Eskom accompanied by the introduction of private participants would fail to bring in lower prices since higher returns would be needed by private generators and distributors.

As to whether Eskom would be willing to supply certain municipal customers,  Dames said that local authorities had a constitutional right to supply the customer within their jurisdiction and  Eskom was unable to supply a number of municipal customers anyway based on their relation to the network. Also municipalities would lose revenue.

Dames said that the growth rates in the MYPD 3 submissions were lower than those required in the New Growth Path and the National Development Plan and whilst the energy reserve margin might be held in the immediate future, it would disappear if new generation capacity was not brought on line after the completion of Kusile and if there was growth. The current build programme did not address all the capacity needs of South Africa into the future.

EIUG figures do not reflect current picture

Dames, in addressing the claim by Energy Intensive Users Group (EIUG) that Eskom’s costs of maintenance were higher than they should be, said a considerable quantity of EUIG’s comments were based on inaccurate figures.

Much in the way of numbers quoted by EIUG were based upon “aspirational targets achieved during the 1990s when Eskom’s power stations were a lot younger”, it was said. The constrained power system now existing did not now allow for such philosophical assumptions. There was a balance which Eskom now needed to strike in practical realities as far as keeping the lights on was concerned.

Posted in Electricity, Energy, Finance, economic, Land,Agriculture, Public utilities, Trade & Industry0 Comments

BEE Bill to stop fronting tabled in Parliament

Fronting control not passive participation is aim…..

Department of Trade and Industry (DTI) has published a notice stating that it has tabled a Broad-Based Black Economic Empowerment Amendment Bill before Parliament, the eradication of “fronting” being perceived as one of the main objectives of the proposals.

In a statement released at the time, the amendments seek amongst other things to establish a B-BBEE commission “to deal with compliance” in respect of B-BBEE-related legislation and  strengthen compliance-related monitoring and evaluation and providing for offences and a maximum penalty.

On the issue of fronting, DTI have referred to in a number of documents issued by the department, although by now suggesting criminalization of the issue a clearer legal definition is going to have to be found, commentators have noted. DTI in the past has said that any process of black participation in business must result in an increase in the ownership and control of the economy by black persons.

The BEE  scorecard currently being used by business gives points for direct empowerment which focuses on black ownership of enterprises and assets through shares and other instruments that provide the holder thereof with voting rights and economic benefits, such as dividends or interest payments.

Control means, according to DTI in their BEE statements, the right or the ability to direct or otherwise control the majority of the votes attaching to the shareholder’s issued shares; to appoint or remove directors holding a majority of voting rights at meetings of the board of directors of that shareholder and the right to control the management of that shareholder.

DTI has been particularly vocal on the subject that passive ownership by black people is in itself not sufficient to bring about “transformation” or where investors have very little control over the direction of investment decisions made by fund managers. Such passive ownership of enterprises can also lead to a form of ‘fronting’ “and this needs to be guarded against”, says DTI.

Minister of trade and industry, Dr Rob Davies, has referred to this matter and further consequences of the new Bill in a number of DTI press statements recently and conferences he has addressed.

The Bill also contains more regulations to control B-BBEE verification agencies involving an independent regulatory board of auditors is also part of the minister’s proposals contained in the Bill and the provision or creation of incentive schemes to support black-owned business. The Bill is notable in that it follows the BEE scorecard principle of specifically defining a “black person” as Africa, Coloured or Indian.

A draft bill was published for comment and no doubt the portfolio committee on trade and industry will announce public hearings before the committee in the new parliamentary session of 2013. The Bill as tabled is available on the DTI website.

Posted in BEE, Cabinet,Presidential, Land,Agriculture, Mining, beneficiation, Trade & Industry0 Comments


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