Is the SAA transaction subject to the PFMA?

NOMPU SIZIBA: We now take a closer look at the SAA partial privatisation deal, with a specific focus on the Public Finance Management Act, or PFMA. My colleague Ryk van Niekerk spoke with Saica [South African Institute of Chartered Accountants].

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RYK VAN NIEKERK: The proposed partial privatisation of South African Airways has received a great deal of reaction. The reaction was initially positive but quickly turned negative when it became apparent that former ANC leaders were involved, and that the Public Investment Corporation, or PIC, may play a role in financing the deal. One of the reasons for the knee-jerk reaction was the absence of any detailed information about the proposed transaction.

It seems as if the Department of Public Enterprises, the DPE, might have jumped the gun a bit and announced the deal somewhat prematurely. It is clear that a final deal has not been signed and that negotiations are still at an early stage. The Takatso Consortium is also still conducting a due diligence investigation. Several commentators have stated that the transaction is subject to the Public Finance Management Act. With the information currently in the public domain, it seems as if the government might have taken a few shortcuts to reach an agreement with Takatso.

Natashia Soopal joins me now. She’s a senior executive, Public Sector and Enabling Competencies, at Saica, the South Africa Institute of Chartered Accountants. Natashia, thank you so much for joining me. Is the proposed SAA transaction subject to the PFMA?

NATASHIA SOOPAL: Thank you so much for having me. I think just from that perspective, if you look at Section 3 of the PFMA, it actually indicates to which entities the PFMA is applicable. It’s applicable to your Schedule 2 and Schedule 3 public entities, among others. And if you look at SAA specifically, it is a Schedule 2 public entity, and therefore the PFMA is applicable to it.

If you look at it from that perspective, it means that SAA’s procurement framework is governed by the PFMA, as well as all relevant procurement legislation established by National Treasury, which means that the proposed SAA transaction is subject to all of the PFMA requirements.

RYK VAN NIEKERK: Do you think the Department of Public Enterprises followed the PFMA strictly in this case?

NATASHIA SOOPAL: I think, if you look at it, it’s very difficult to confirm based on the information in the public domain. Since SAA has to comply with the PFMA, it will have to comply with all of the procurement regulations relating to this transaction. If you look at the media briefing by government on the deal, it stated that the deal is a private-public partnership (PPP) – and this therefore has additional compliance requirements. So, in terms of your PPPs, there’s a whole lot of other compliance that needs to take place, and this is outlined in your treasury regulation, and includes that an accounting office may not proceed with the PPE without approval from National Treasury.

So first there had to be approval from National Treasury. And in order for National Treasury to have approved the deal or to approve the PPP, there were a number of things that they needed to be satisfied with. Obviously if there was no satisfaction from National Treasury in terms of the PPP agreement, that agreement can’t go on.

So those are some of the main things that are there. Obviously there is a feasibility study that needs to take place by the accounting officer. This would have had to take place before the agreement was signed. And I think, as we know currently, there is still a due diligence taking place. So it stands to reason as to whether the feasibility study has taken place or not. Like I said, it’s very difficult to confirm if the SAA transaction is currently compliant. It obviously won’t be compliant if it hasn’t followed all of the legislative requirements.

RYK VAN NIEKERK: Which entity should take responsibility for overseeing the compliance in terms of the PFMA, as well as maybe other legislation?

NATASHIA SOOPAL: If you look at the legislation, the Constitution actually mandates National Treasury to ensure transparency, accountability, and sound financial controls. This is in terms of the management of your public funds. We see this in the Treasury regulations, where it also requires PPP transactions to be approved by National Treasury, as I mentioned previously.

However, it is important to note that National Treasury is not responsible overall for an entity’s compliance by itself. If we look at an entity specifically, or a department, it is the accounting officer who’s responsible for compliance for transparent systems for appropriate procurement systems within that department. And the accounting officer is generally the head of the department; he is ultimately responsible and accountable for compliance in terms of the PFMA.

I think it’s also important to note here that the minister is the executive authority and not the accounting officer. So the executive authority is responsible for the policy choices and outcomes, but the accounting officer will implement those policies and achieve those outcomes and, in this case, compliance with the PFMA and procurement regulations. So ultimately the accounting officer of the department is responsible for ensuring compliance within that department.

RYK VAN NIEKERK: Have you seen, with the information available to us, any contravention of the PFMA?

NATASHIA SOOPAL: It’s difficult to know. I know one of the key things – if you look at the PFMA currently – is that there needs to be transparency. And in line with transparency a few years ago government issued an instruction, which was in 2015/16, which made it mandatory for all bid adverts and awards to be shared publicly. So that had to be included on the eTender Portal – which is managed by National Treasury – and that eTender Portal currently is not functioning. So if this deal was advertised, it had to be advertised publicly. If it was awarded, the awarding also had to be made public.

As I said, that eTender Portal is not currently functioning. However, at a minimum Treasury has indicated that all awards and advertisements need to be uploaded onto the institution’s website. I’m not too sure if this has been done; I haven’t seen it anywhere. So yes, from that perspective, I can’t confirm if they have complied or not in terms of making it publicly available.

RYK VAN NIEKERK: Natasha, do you think the DPE should have issued a public tender to enable other parties to also throw their hats into the ring?

NATASHIA SOOPAL: Well, that is one of the requirements of the Treasury’s regulation and specifically if we think it’s a PPP. But also for all of your other procurement processes it has to be an open and transparent process. So the prequalification process at least has to be open and transparent to all; everyone or all should be allowed to bid. So the answer is yes, it should be open to all.

RYK VAN NIEKERK: Natashia, thank you so much for your time today. That was Natashia Soopal. She’s a senior executive for Public Sector and Enabling Competencies at Saica.

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