Cosatu’s proposal that pension funds invest in Eskom to give it a way out of its debt trap, which is now under discussion with business and government, is taking on a more market-friendly form as discussions progress.
Cosatu, which made a presentation to parliament’s committee on public enterprises, said on Wednesday it is committed to ensuring that investments by pension funds in Eskom are in line with investor mandates. This will mean any investment necessarily has to command an inflation-beating return.
"The Public Investment Commission [PIC] has clear mandates by law. They must meet their fiduciary duties; they must ensure this meets their investment criteria. They must get a mandate from the Government Employees Pension Fund or the UIF and if there are additional criteria they want to add for Eskom, we will support that 100%," said Cosatu’s parliamentary officer, Matthew Parks.
In the talks, business has insisted that investment mandates be honoured and fiduciary duties and governance of the financial sector not be compromised. Any hint of government moves to enforce prescribed assets or compel investment in Eskom would give rise to financial contagion of the system, it has stated.
The proposal has also been tempered by the response of Cosatu’s own members and other union federations, which took fright at the idea that their pensions would be at risk. Solidarity has said it will fight in the courts any attempt to put government pensions into Eskom.
Special purpose vehicle
Cosatu’s proposal advocates the creation of a special purpose vehicle to take on R250bn of Eskom’s R450bn debt burden. It is proposed that both public and private pension funds as well as other government funds and institutions invest in the SPV.
However, due to the non-negotiables set by business, the framework agreement being brokered will not be much more than a statement of broad principles and will not commit to specific funding arrangements or a structure for investment in Eskom by pension funds.
Martin Kingston, vice-president of Business Unity SA, said in an interview on Wednesday that what had been agreed to in talks with labour and the government was a general commitment to mobilise funding from the savings industry, on a voluntary basis, in line with the investment mandates of investors and without undermining the integrity of the financial sector. It is premature to discuss any possible structure — such as a special purpose vehicle — at this stage.
"Once the framework agreement is signed we will discuss appropriate structures. That is a separate discussion and will be dependent, inter alia, on crafting an investment case that will withstand scrutiny," he said.
Uinversity of Cape Town professor Anton Eberhard, who was a member of the presidential expert task team, also made a presentation to the committee on Wednesday. In its report to Ramaphosa presented to the president a year ago, the team also recommended a "refinancing vehicle" be established to take over a portion of Eskom’s debt.
On Wednesday, Eberhard said the special purpose vehicle refinancing mechanism is preferable to the straight transfer of debt to the sovereign balance sheet. As well as providing the opportunity to refinance Eskom debt at rates close to government borrowing rates, the special purpose vehicle will have the advantage of being run and controlled by the Treasury.
While the two concepts are similar they differ sharply on where the funding should come from. The task team has suggested the government would be able to access blended finance options, including concessional climate change funding in return for faster carbon reduction commitments.
"The difference between this and taking it on to the sovereign is that the special purpose vehicle could create conditionalities around Eskom’s performance, which is very important. Otherwise you don’t change behaviour," said Eberhard.
On Tuesday, Ramaphosa said that pension funds "should not be too fearful" about the initiative as the investments would be in a reformed Eskom that is corruption-free and sustainable. The government wants both public and private pension funds to invest.
The DA said on Wednesday that it is consulting its lawyers on legal options to stop the government from using pension funds "to bail out Eskom".
"The DA will do everything in our power to stop this from happening — even if we have to go to the highest court in the land. Eskom is a big, black pit that is incapable of delivering secure and stable energy to South Africans," DA chief whip Natasha Mazzone said.
"It is unconscionable that President Ramaphosa would pander to the ideas of trade unions to flush pension funds down an endless hole of debt," she said.
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