The silence of the usually vocal opposition and media on the PIC is glaring
It can be confirmed that Weekly Xposé, a duly registered electronic newspaper, recently broke three stories on the Public Investment Corporation (PIC), on May 31, June 7, 2017 and a follow up on July 26, 2017. These stories expose irregularities in regards to the PIC, informed by two independent forensic investigations cited as the KPMG 2012 and Gobodo Investigative Accounting reports 2015. The latest revelation details the claim that the PIC is facing a multi-million rand law suit in regards to the suspicious R1bn Mozambican oil deal as authorized by the CEO of the PIC, Dr Dan Matjila.
This is predicated on Matjila’s role in the investment in a dilapidated Mozambican oil refinery plant that is not operational, literally years after the cash injection from the PIC. Matjila’s office confirmed in 2017 that plans are afoot to bring the project to full operation.
It is perhaps important to first look into the reports of the respective accounting firms. The intention is to engage these reports and their subsequent revelations on the plausible looming court case. We will therefore juxtapose the seriousness of the allegations on the one hand and the silence of the media, opposition parties, and even active civil society groups who usually engage on matters of this nature in general. A challenge is the fact that these revelations, despite being in the media space since May 2017, are not engaged, commented on or entertained by some segments of our society.
The KPMG report is scathing when it concludes: “confound clear fiduciary decision making authority and reflect a highly fragmented and dysfunctional system”. The KPMG also confirms “a lack of clear authority and accountability and inconsistencies in operational dysfunctions as well as lack of a galvanising sense of mission among leadership.”
The Gobodo Report, finalised in August 2015, reiterates some of the key KPMG findings that confirm how the PIC is compromised, and plausibly defrauded by staff members and executive leadership.
On the basis of the two commissioned reports and the Weekly Xposé reporting on the PIC and S&S Oil Refinery Mozambican deal, we herewith venture an analysis that confirms legitimate grounds for undeniable concern as to the executive role and functionary activities at PIC.
The PIC manages over R1,8-trillion in funds on behalf of the state and its employees. It is essentially the custodian of the government pension and social security funds, meaning it has a mandate and fiduciary responsibility to protect, invest, grow, and account on behalf of those who work for the State. This confirms the need for an environment of critical responsibility and utmost circumspection as to how the protecting, investing and accounting should take place.
KPMG (2012) & GOBODO (2015) – Reports and findings:
- The first challenge the reports point at is the emphatic lack of fiduciary decision-making authority. It would therefore be imperative to have a sustained fiduciary decision-making authority. In order to give effect to that decision-making authority, a sensitive and conscious system is needed that is streamlined and not fragmented.
- The second key aspect, which the reports also raise, is the subject of executive management and leadership. In order to realise the overarching fundamental mandate of the PIC, decisive executive leadership would be needed. The reports show how under the current executive leadership the fiduciary decision-making authority and its system reveals clear dysfunction.
- The third aspect the reports speak to is that the current CEO Dr Matjila in his previous position as the CIO (Chief Investment Officer) failed to oversee a comprehensive and consistent investment strategy. This is a key position and responsibility and warrants again necessary clear-cut comprehension of the PIC mandate, mission, aims, and confines. When the reports demonstrate how the PIC under the leadership of its CIO failed to show a clear investment strategy that necessarily must guide the work of the investment managers particularly in regard fixed-income dealings, we must flag it as cause for grave concern on the part of the board and the primary stakeholder.
- In the fourth instance at another level due to a confirmed lack of an overall investment strategy, investment appears led by quantity instead of a quality driven format and vision. This practice also opens the entity up for plausible wrongful investment and therefore a much higher risk exposure. Again, the board and the stakeholders need to insist on clarity as to why this practice that renders the PIC risk prone is accommodated.
- In the fifth instance the independent reports confirm glaring inconsistencies in operations and functionalities supported by a non-galvanised sense of mission among the executive leadership. It is important to appreciate what this means; if the executive leadership proves haphazard as to the fundamental mission of the entity the likelihood for misdirected investment is increased and therefore the return on investment on behalf of its core beneficiaries is left exposed. The reports delineate the conflicting multiplicity of challenges of roles and delegations in the investment process. This lends itself to manipulation, and opportunity for the company to be at risk of being used as a means to an end by those who are responsible for the act of investment on behalf of the stakeholders.
- In the sixth instance, the Gobodo report cited an example of these irregularities immanent in decision-making in the SacOil investment, a Moseneke family 60% owned company where the PIC is a 40% shareholder. It cites how this investment of R75-million was done with Mr Fidelis Madavo as central figure and done without any quantitative analysis or due research. According to the Weekly Xposé account it can be confirmed that the PIC lost millions in this transaction yet Mr Madavo, who still holds his position, was not held accountable for mismanagement, possible fraud and claims of insider trading. The lack of due rebuke, and sanction against Mr Madavo on the part of Dr Matjila is another part of fiduciary decision-making and executive leadership that falls short.
- Equally, the response of the PIC to the questions sent by the Weekly Xposé confirms an acceptance that the challenges raised by the respective reports are truthful. The PIC’s Deon Botha, in his capacity as senior corporate governance specialist, responded to the forwarded questions from Weekly Xposé. In such he cites the fact that Dr Matjila, when appointed as CEO, commissioned a process to develop a revised mission, vision and investment strategy for the PIC. This then therefore confirms the lack of, or the problematic context of, the strategic ethos of the PIC in experiential reality.
PIC Mozambican R1, 1bn Deal – Key Questions
The latest Weekly Xposé account details a specific contract and deal the PIC entered in Mozambique with S&S Oil Refinery, in purchasing a dilapidated oil refinery. A subsequent development attests a letter of demand by one of the persons, Mr Mirza who facilitated the transaction.
This account has a few dimensions:
The first deals with the clearly questionable investment into this project. The exorbitant facilitation fees paid to Indiafrec Trade & Investment (PTY) Ltd with listed directors with Indian-born Mr Ameer Mirza and Mr Siyabonga Nene, son of Nhlanhla Nene, whose father was the finance minister at the time of the deal. This aspect therefore attests clear questions, was the then-Minister of Finance aware of the transaction? What was his potential role? Did he in any sense influence the outcomes? Were those who decided on the efficacy of the transaction subtly or overtly influenced by the office of Nene or not? How was the facilitation amount determined when the deal appears compromised almost from then start? What are the procedures for this risk condition that the PIC is exposed to in typical cases? Was the PIC out of its bad due diligence compelled to buy the entire stake in S&S Oil Refinery? Did the PIC investors not foresee the implosion of the transaction and what were the risk mitigation factors considered?
The claimed new relationship between S&S Oil Refinery represented in Mr Rassul Momade and Dr Matjila that led to a further U$10m (R128-million) investment also raises suspicions, particularly since it is claimed Mr Mirza was not paid his facilitation and shareholding portions. This is another challenge, since there ought to be standard procedures as to how this is dealt with and how risk for the company, be it in monetary or reputational, is engaged.
Granted, the new strategy as Botha alludes to, has the aim of harnessing a more coherent alignment informed by technical skills and expertise specific to each asset class in line with the private sector footprint of five core asset managers. We must accept that that efforts have therefore been made to align the PIC in investment functionality, yet we cannot assume that those responsible for the dysfunctionality with plausible intent of fraud and mismanagement should not be held accountable, in particular the executive management team of the PIC.
Our growing and nagging questions on the PIC and its strange business transactions as highlighted in the respective forensic reports remain the same.
We must involuntarily ask as to how only now in 2017, as is confirmed by Matjila’s office, plans are afoot to bring the project into full production? Does this justify the investment or the means by which it was facilitated and the role players in such transaction?
We know now that while Matjila previously revealed that the PIC had paid a facilitation fee to a company called Indiafrec Trade & Investment (Pty) Ltd, whose directors are listed as Mirza and Nene, Weekly Xposé revealed that Mirza’s lawyers, Barry Aaron and Associates, have sent Matjila a letter of demand dated 12 July 2017.
The details of the letter which is on the Weekly Xposé platform contains explosive accusations of how Matjila manipulated the deal in favour of Rassul and to the disadvantage of Mirza, who introduced Matjila to Rassul.
At a fundamental level we must ask how the PIC can invest R1.1bn of stakeholders’ money in such a questionable transaction and fail to account for it in due process informed by a clear and concise investment strategy led by executive leaders that appear compromised. According to Botha, the PIC leadership has responded and implemented most of the raised issues from the Gobodo report and its board is satisfied with the improvement.
Is the PIC being duly led? Is its mandate fulfilled with this type of challenging investment in a dilapidated oil refinery deal? Why is the PIC and its CEO being threatened with legal action and made the subject of a court case in claims of owing Mr Mirza on the R1bn Mozambican oil refinery deal as is confirmed his attorneys?
We must ask as to how the PIC could function effectively when its CIO and CEO clearly did not lead from a visionary approach sensitive and in full cognisance of the mandate and critical role the PIC fulfills.
With Momade Rassul, owner of S&S Oil Refinery based in Nacala in Northern Province of Mozambique currently in custody, as arrested on 29 June, and facing an assortment of serious charges including money laundering, illicit enrichment, tax fraud, foreign currency manipulation, smuggling and misappropriation, how can the CEO of the PIC be associated with such a character?
What is the role of the PIC board and the executive management team, do they not warrant explaining their respective and collective roles to the primary stakeholders and the beneficiaries and South Africa when it seems for the last five years much occurred that renders the entity prone to risk?
What has been the risk (monetary and reputational) exposure to the PIC as a result of this deal? The evidence of that risk is detailed in the forensic reports that beyond doubt confirms a lack of synthesised fiduciary decision-making authority, conflated implementation of appropriate systems, dysfunctional policies and suspect executive leadership? This all appears under-girded by an almost convenient lack of core ethos that serves the original mandate of the PIC.
We know in any normal society the activities at the PIC as delineated would long have been the subject of a real investigation, with Matjila at least being suspended from his job subject to findings of the investigations.
Perhaps more troublesome has been the reluctance from some sectors of our society, usually rightfully vocal on the matters of corruption, to engage the topic. We will ask why there is such a reluctance to engage what is now public and in the interest of the South African public and broader society.
We must also ask how serious the opposition parties and some in the media and civil society are when they can raise a red flag on many issues but prove silent on this aspect.
There was much protest from opposition parties and those who share the circumference of opposition politics when the finance minister Malusi Gigaba indicated that he is considering approaching the PIC for a bailout for SAA. The flags were summarily raised. The challenge is how there can be an outcry for the PIC to be approached to rescue the SAA when there is no interest that R1,1bn of the PIC that was spent in a questionable deal.
It would be important for the new finance deputy minister Sfiso Buthelezi, who chairs the PIC board, to get to the bottom of this at his earliest convenience.
Clyde N.S. Ramalaine