Paul Hoffman SC challenges SOEs conduct

FMF Statement

Hitachi Power Africa (HPA) and Eskom’s Medupi debacle and the government’s decision to recapitalise or “bail out” South African Airways (SAA) do not comply with constitutional and legal aspects of procurement.  This is according to Paul Hoffman SC, a director of the Institute of Accountability in Southern Africa (IFAISA).  He was speaking at a Free Market Foundation (FMF) media briefing on the eve of the 100 year anniversary of public administration on August 01 2013.

He stressed the need for constructive compliance by state owned enterprises (SOEs) in relation to public procurement both as required by S217 of the Constitution and in terms of applicability of the Public Finance Management Act (PFMA) which he said is sadly lacking in South Africa today.

He used the HPA and Medupi debacle and the government’s bail out of SAA as case studies to illustrate the importance of compliance with the law and the Constitution. Both deals did not comply from a constitutional and legal perspective and ignored the impact of a justiciable Bill of Rights on procurement and its consequences for the value of openness, accountability and responsiveness.

In celebration of the 100 year milestone of public service, the ISASA today (August 01) launched a Pledge for adoption by the public servants taken directly from the 10 requirements set out in S195 of the Constitution which govern the behaviour and practice of public officials. These 10 principles must apply to every sphere of government administration including state owned enterprises (SOEs) but which, according to Hoffman, “are certainly not the way things are done in SA”.

To set Eskom and SAA in context, Hoffman said that the Constitution is supreme and entrenches the rule of law and that no one, including politicians, can ignore the constitutional framework.  “It is not a free-for-all but a blueprint and the rules for procurement are clearly laid down in S217 which says that all public procurement must be fair, equitable, transparent, competitive and cost effective. The PFMA is an embodiment of those principles and any public money spent must strictly comply.” He continued “the media should hold officials to account by asking them to explain and justify any deviation from their clear constitutional obligations”.

Hoffman said it is very clear that both Eskom’s relationship with HPA and the role of the state in SAA are both unconstitutional in terms of sections 217 and 195 of the Constitution and embodied in the PFMA.

Hoffman told the audience that in 2007 the ANC’s investment arm, Chancellor House, took a 25% share in HPA for approximately R100m, which then successfully tendered to supply massive boilers for new power stations being developed by Eskom. The chair of the tender committee was Valli Moosa, a former ANC cabinet minister and then chair of Eskom. “The inwardness of the transaction is that the consumers of electricity who pay for the service they receive become contributors to the coffers of a political party, whether they wish to support it or not”, said Hoffman. He said that dividends paid to Chancellor House from HPA were in the region of R5.8bn on an investment of R100m for the initial shares.  Hoffman questioned the kid glove treatment of HPA in the recent Medupi construction delay crisis which was obviously responsible for the poor quality of welding and said that the whole saga ran contrary to the principles and values required of SOEs by S195 of the constitution.

In relation to SAA, Hoffman said that it was clear that the SOE was perennially short of capital and could not compete at any level in the aviation market. “In terms of unconstitutional procurement, where taxpayers’ funds are being used to bail out an SOE which then proceeds to buy goods and services in a competitive environment against local private operators, then this is clearly not honouring or adhering to S217.” The government is providing capital injections when no other private airline in the same market is allowed the same treatment and benefit and “is therefore unconstitutional and it is corrupt to continue to throw money at SAA when it is dysfunctional” he said.

Hoffman referred to private national airline Comair’s current constitutional legal case against the government bailouts to SAA and said it was “good to shine light on dark deeds” and that he believed Comair’s case against the government was a good one and likely to succeed. “The only constitutional course for the government was to either provide access to funding for private operators on the same terms as SAA or to sell off the airline to the private sector”.  He continued “Under the constitution, every SOE operating in a competitive market has to stand on its own feet or otherwise go out of business like any other private company.  The same rules for all and a level playing field where the only difference is the shareholder must apply. Discrimination in favour of SOEs and parastatals is unconstitutional” he said.

Hoffman said that both Eskom and SAA are victims of political control and meddling. Both are subject to established and binding government policy which is not being applied. Yet politicians have not gone through the prescribed procedures set out in S195 which then allows government policy to be changed through a defined process of public participation. According to Hoffman, without following the S195 process and by not implementing the 1998 White Paper on Energy Policy and the Domestic Aviation Policy*, the government is acting illegally under the Constitution.

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