Business In The News South Africa

DA fails to find support for claim that SAA’s R3 billion lifeline was illegal

PARLIAMENT, October 5 – The Democratic Alliance’s objection that last week’s R.3 billion bailout to South African Airways was illegal seems unlikely to go far after Parliament’s standing committee on finance received a legal opinion Thursday suggesting there was not a clear case to be made for this.
Parliamentary legal advisor Frank Jenkins told the standing committee on finance section 16 of the Public Finance Management Act (PFMA) stipulated that a special allocation could be made in “exceptional circumstances”.
DA MP Alf Lees had flagged the 11th-hour bailout, designed to prevent the airline defaulting on one of its loans, on the basis that National Treasury had known at least a month earlier that SAA would not be able to make its repayment to Citibank.
“The concern in the letter from Mr Lees is that this was not unexpected. But section 16 does not speak of unexpected but of exceptional circumstances. So I think one must take that into account. It is a critical difference,” Jenkins said.
He added that he would not like to rule on the legality but cautioned MPs not to “jump up and down about it”, given that the minister was due to report on the matter and that his submission, and whether the lifeline complied with the PMFA, would be scrutinised by the Auditor-General.
Jenkins was asked on Tuesday to provide an opinion on the letter from Lees, who said it appeared that Finance Minister Malusi Gigaba had sought to avoid parliamentary scrutiny of the step by resorting to section 16 instead of submitting a special appropriation bill to the legislature.
Jenkins pointed out that such a bailout must be accompanied by a ministerial report to Parliament within a fortnight, which would in this case expire on October 12.
The bailout is the second this year to debt-ridden SAA to allow it to honour its loan repayments. At the end of June, Gigaba also authorised money from the National Revenue Fund be used to allow the airline to repay R2.2 to Standard Chartered Bank.
Gigaba reported to Mbete on that lifeline in a letter dated July 20. He said it was necessary to take urgent action after it became clear that SAA’s cash flow position had deteriorated further, and that Standard Chartered Bank wanted the airline to repay R2.2 billion extended in short-term bridging facilities in full at the end of June.
Regarding, government’s decision to resort to the National Revenue Fund again, National Treasury’s director of legal services, Empie van Schoor, said there were several factors at play that made the allocation a last-minute step.
“There were protracted negotiations on how we could recapitalise and that took a long time, and also protracted negotiations with lenders, with Citibank, as well as with domestic lenders and that was concluded only very late in September,” Van Schoor said.
Lees said he was not convinced.
“I do not think the drafters of the legislation would have thought that protracted negotiations were exceptional circumstances,” he said.
Committee chairman Yunus Carrim said he tended to agree with Lees but thought the fact that Parliament was in recess played a role.
Senior ANC MP Derek Hanekom said he believed that had Gigaba not given SAA the money but allowed it to default, the consequences for the country would have been “catastrophic”.
He said the bigger concern was that money was advanced to the airline without serious concerns about the current board, and particularly chairwoman Dudu Myeni, being addressed.
“I am more concerned about the prospect of further transfers to SAA in the absence of a board in which investors will have confidence. I am very worried about the extension of the November 3 date for the AGM and the extension of the contract of the chairwoman given the very low level of public and investor confidence in the board and the chairperson,” the former tourism minister, who was fired in a Cabinet reshuffle in March, said.DA fails to find support for claim that SAA’s R3 billion lifeline was illegal.


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