2. To say that the public reaction to the announcement was one of shock and disbelief would be an understatement and various sectors of society expressed criticism and dissatisfaction at the manner in which government had gone about entering into this opaque partnership with Takatso. For the United Democratic Movement (UDM) the matter was of such gravity that we had gone as far as to brief our legal team on 21 June 2021 to proceed with court action in an effort to prevent the deal from going ahead.
4. From the UDM’s perspective, looking at Minister Gordhan’s seemingly premature announcement and President Ramaphosa’s tactical withdrawal, it seems as if the right hand does not know what the left is doing. We cannot help but wonder which version is the truth?
4.2. Why were the Portfolio Committee of Public Enterprises and the Standing Committee on Public Accounts (Scopa), which had been dealing with SAA’s business rescue, seemingly side-lined when this partnership deal was discussed and/or structured by the DPE?
5. The partnership between government and Takatso: the SAA deal
5.1. The UDM cannot imagine a situation where government and Takatso have no detailed paperwork in place already, if not, that would be utterly reckless on government’s part. Yet, neither Minister Gordhan nor President Ramaphosa have allayed the public’s concerns. The detail of the deal is still as opaque as it had been since the announcement, and it is critical that they must be established in the public interest.
5.3. An independent valuation report on SAA with all its subsidiaries and assets, including routes, aircraft, technical, aircraft spares, duty-free, apron services and properties, will show that 51% cannot just be handed over for nil consideration. As we understand it, SAA’s engineering division, on its own, might be worth at least R5 billion in assets and intellectual property. The question therefore is, how much is this 51% stake in SAA actually worth?
5.4. What informed the share value of this partnership? Has an assessment of the value of SAA and each subsidiary (e.g. Mango, AirChefs, SA Express, SAA City Centre and SAA Cargo) even been done and if so, what is that actual value?
5.7. Was the Public Finance Management Act (PFMA) followed in all respects, and also in which best strategic equity partner would be chosen?
We have been informed that Global Aviation/Airways (Global), one of the partners in Takatso, is known to have been advising the DPE on SAA. If this is true, this constitutes a serious conflict of interest as Takatso would have had insider information that would have disadvantaged other possible bidders.
As a matter of fact, what would the difference be between Health Minister Zweli Mkhize’s relationship with his friends at Digital Vibes, and the alleged relationship between Minister Gordhan and his alleged friends at Global?
5.8. How is it possible that a mere R3 billion-injection is now suddenly enough to save SAA from certain death, whilst government has been pumping billions and billions of rands, sponsored in part by the taxpayer and the Public Investment Corporation (PIC), into this entity for years?
5.9. What this deal supposedly means is that the South African taxpayer will own 49% of SAA, which will be funded from the fiscus, but they have relinquished control. Yet, the same taxpayer also owns a 30% stake, through the PIC’s private equity funding, in Harith. When considering the deal this way, is it accurate to say that the taxpayer owns 49% of SAA?
5.10. Should Takatso fail in reviving SAA, what is government’s contingency plan, now being the stakeholder that has relinquished its power.
5.12. The fact that Minister Gordhan specifically mentioned that the board chairperson and the majority of the executive team shall be South Africans, hints at international investment, which in itself is not necessarily negative or a problem, but why be secretive about it. There have been concerning allegations that the entire deal is a Trojan Horse ploy, as part of a get-rich-scheme in to gain control to SAA and some key assets, only to later sell those off to this highest international bidder for a tidy profit, thus depriving the national fiscus of that income.
5.13. As we understand it, government has advised that the partnership is at airline level, however on the ground the situation is allegedly different. We have been reliably informed that the partners are already working on moving their assets into one of the subsidiaries, South African Airways Technical (SAAT).
5.14. Much is allegedly already happening at ground level, which is inconsistent with Minister Gordhan’s announcement, and it is alleged that the end-coup is on Mango’s air operator’s certificate and SAAT, which is of more value. The Interim SAA CEO’s letter (Annexure A) seems to give impetus to the allegation that there are indeed machinations inside SAA that contradicts President Ramaphosa’s statement of 22 June 2021 that the deal is not a foregone conclusion.
5.15. Another aspect that is of serious concern in this so-called due diligence process is the protection of SAA’s intellectual property (IP) as members of staff have been instructed to co-operate with the due diligence process and it might have unfettered access to documents, copyrights, patents and plans, etc. In a worse-case scenario, should the deal fall through, those IPs would have been compromised.
6. Regarding Takatso Consortium
6.1. The manner in which the shareholders agreement is structured is critical for another reason, as this will reveal who in Takatso bears the burden of providing funding for the new airline. According to information we have been provided with, the R3 billion capital “injection” Harith has talked about, is sufficient for two to three months of operational expenses and not the three years that Harith has intimated.
6.2. Furthermore, the details proposed management agreement is also of critical importance. For instance, who at Takatso will be made responsible for and control cash flows, operations and procurement? Given what Minister Gordhan said about the management team and that he specifically mentioned that they will hopefully be predominantly South Africans (see paragraph 5.11) one cannot help but wonder about these aspects.
“5. The earnings and incentive schemes provided rich rewards for those selected by the PIC to fulfil these roles, confirming that PIC directors and employees used their positions for personal gain and/or to benefit another person.”
“7. Harith’s conduct was driven by financial reward to its employees and management, and not by returns to the GEPF. In essence, the PIC initiative, created in keeping with government vision and PIC funding was ‘privatised’ such that those PIC employees and office bearers originally appointed to establish the various Funds and companies reaped rich rewards.”
“8. The Commission recommends that the GEPF and the PIC should jointly appoint an independent investigator as soon as possible after receiving this report. The mandate must be to examine the entire PAIDF initiative to determine that all monies due to both parties have been paid and properly accounted for; to determine whether any monies due to overcharging or any other malpractice should be recovered, and to provide the results of such investigation within six months to the Boards of both the GEPF and the PIC.”
“9. The Board of the PIC should examine whether the role played by either Mr Moleketi and Mr Mahloele breached their fiduciary duties or the fit and proper test required of a director in terms of the Companies Act.”
7.2. It is inconceivable that government has chosen Harith as an SEP with such stains on its record and this whilst the Mpati Commission’s recommendations have not yet been fully executed as far as we are aware.
7.3. The Public Investment Corporation (PIC) and the Government Employees Pension Fund (GEPF) must, in terms of Number 8 (above) of the Mpati Commission’s recommendations confirm that they have in fact “jointly appoint[ed] an independent investigator” and whether this investigative process has been concluded in terms of a comprehensive terms of reference (TOR).
The PIC and the GEPF must also confirm whether this investigative process has started. If so, what progress has been made? If not, why not? If concluded, has it unequivocally cleared, or not, Harith and its management of all suspected wrongdoing. It must also confirm that it has addressed, not only the Mpati Commission’s findings, but also explain the independent investigator’s, as well as the PIC’s and the GEPF’s, actions taken in terms of the detailed opinions of the Mpati Commission on Harith.
Perhaps, in all the aforementioned regards, Scopa could ask the PIC and the GEPF for an update on this process and the TOR and/or report of the investigator, should they exist.
One would also expect National Treasury to make similar declarations where needed, yet given Minister Gordhan’s past ministerial roles, the South African public should be assured that National Treasury is not biased in its opinions and execution of the Mpati Commission’s findings.
7.4. To further cloud matters, there is a school of thought that would argue that Harith still belongs to the PIC in totality. The PIC had set aside R22 million to establish Harith in the mid-2000s, with fewer restrictions to invest across Africa in lucrative sectors. Back then, it is understood, it was wholly owned by the PIC which had seconded one of its trusted executives to run it.
According to specialists in mergers and acquisitions, anything which a subsidiary subsequently buys and/or invests in, entirely belongs to its parent company.
So, time passes, and a few cleverly crafted sets of paperwork later, and the R22 million is somehow reduced to a loan, which had allegedly been paid back.
The aforementioned school of thought therefore argues, that in this process the proceeds of the R22 million had been left in the hands of a selected few, whereas the proceeds and assets actually belong to the PIC. It is no wonder that the Mpati Commission echoed this sentiment when it unambiguously stated that “The earnings and incentive schemes provided rich rewards for those selected by the PIC to fulfil these roles, confirming that PIC directors and employees used their positions for personal gain and/or to benefit another person.”
The starting point to get to the bottom of this mess would be to conduct an audit in terms of the establishment of Harith and all of the projects which the subsidiary company has been involved in (such as NOVO Energy, Traxtion, the Zimbabwe Beitbridge border post complex, Lanseria International Airport, Lebashe, the purchase of Capitec shares, to name but a few) and also establishing which assets it bought and its proceeds and then the parent company should claim all those it has rightful ownership of.
7.8. There are several Politically Exposed Persons (PEPs) at Harith’s helm and even though this argument has been rebuffed in the past by Harith and them, these ties remain problematic.
7.9. The PIC must not be allowed to play games with the GEPF monies as this will further endanger the retirement of thousands upon thousands of public servants. Like it or not, Harith has been fingered by the Mpati Commission and it is not yet certain whether Harith is in the clear and is in good standing. It begs the question why the investigation has not yet kicked off and perhaps Scopa could satisfy itself on this score to understand the overall dynamics of the SAA “partnership”.
8. Regarding Global Aviation/Airways (Global)
8.1. Global apparently has a reputation of employing retired white males with no regard to employment equity legislation, and we wonder what the rationale is for government to associate itself with such an employer?
8.2. There are allegations that they also employ South Africans under foreign laws to circumvent South African employment and financial control legislation, and we also question what government’s rationale is in dealing with an employer?
8.3. We query whether government has satisfactorily established that it has been dealing with a legitimate aviation company, or rather a front for other things?
8.4. There are allegations that Global has been attempting to move into SAAT for some time, and one wonders how this alleged conflict of interest has been addressed?
8.5. There are allegations that Global has been trying to buy Mango Airlines for a while as well, how will this alleged conflict of interest be addressed?
8.6. There are even allegations that Global has been trying to take over SAA’s fleet from SAA and lessors behind its back. How is this alleged conflict of interest being addressed?
9. It is clear that there are more questions than answers and I hope that you, as Scopa chairperson, and the committee members will agree that there is sufficient evidence that this entire deal and the proposed partnership between government and Takatso is suspect and needs to be scrutinised.
If not merely because Parliament and the relevant committees, including Scopa, seems to have been ignored in the “rigorous, year-long process” in setting up this dodgy deal, but because the signs are there that all is not well and that it is in the public’s interest that all be revealed.
10. Lastly, the salvage operation of SAA, no matter the form it takes, must be done with the oversight of the Portfolio Committee on Public Enterprises and Scopa. The DPE and Minister Gordhan must not be allowed to run roughshod over these committees and the critical role they play.
Furthermore, should Scopa decide to investigate the SAA deal and the numerous issues I have raised in this letter, the UDM would suggest that the entire deal be held in abeyance and that the process of finding a SEP be started from scratch in a transparent manner and in line with PFMA and sound business practice.
11. I thank you and the committee members for your time.
Mr Bantu Holomisa, MP President of the United Democratic Movement
Copied to: President CM Ramaphosa
Minister of Finance, Mr TT Mboweni, MP
Minister of Public Enterprises, Mr PJ Gordhan, MP
Public Enterprises Portfolio Committee Chairperson, Mr KE Magaxa, MP
Mr E Mabuza, Mabuza Attorneys