Public Enterprises Committee hears legal advice on confidential SAA transaction document

7 March 2024

Yesterday the Portfolio Committee on Public Enterprises met, to discuss feedback from Parliament’s legal adviser on a document the committee received last week from the Minister of Public Enterprises, Mr Pravin Gordhan.

The portfolio committee Chairperson, Mr Khaya Magaxa, highlighted that Mr Gordhan had raised concerns about the confidentiality of the information in the document. The committee agreed to grant the legal adviser access to the document so as to review the contents and provide guidance on a way forward, in light of the Minister’s concerns.
 
The committee is tasked with investigating allegations against Mr Gordhan made by a former Director-General (DG) in the department and taking a decision on them once their veracity has been established.
 
The legal adviser clarified that the document is not a legal opinion or an appraisal of the commercial viability of the transaction in question. Rather, it is a briefing note addressing issues related to whether Takatso Consortium was part of the shortlist for the appointment of the preferred strategic equity partner (SEP) for South African Airways (SAA).
 
It is important to note that the transaction under review pertains to the disposal of shares, as regulated by Section 112 of the Companies Act. This section requires shareholder approval for the disposal of assets. In July 2020, Rand Merchant Bank (RMB) was appointed as the transaction adviser by the Department of Public Enterprises to identify equity funders for SAA.
 
One of the allegations against Mr Gordhan is that no proper process was followed for the appointment of RMB as the transaction adviser. The former DG claims he was informed that only RMB had the necessary capacity and experience of the aviation industry to perform the role. This prompted the committee to question whether the market was tested to ascertain if other entities could fill the role.
 
Once appointed, RMB’s selection criteria for the transaction were based on an assessment of funding capacity, ability to provide an immediate equity injection, perceived interest, strategic fitness, operational capability, track record in the aviation industry and national interests.
 
According to the documentation provided to the committee, it is evident that Takatso Consortium was not included in the shortlist when the RMB evaluated the expressions of interest from potential SEPs. The evaluation phase identified ASL Blue Sky Consortium and Fairfax Consortium as the most promising, but their inability to provide proof of funding hindered their selection. As a result, no suitable SEP with funding evidence could be found.
 
The RMB requested to be released from the contract, and the Department of Public Enterprises took over the process. The committee questions the initial decision to appoint a transaction adviser and the subsequent lack of effort to appoint another one after RMB withdrew.
 
The Department of Public Enterprises established an evaluation committee, led by the former DG, to evaluate four potential SEPs. This committee based its assessment of suitability on strategic fitness, funding and operating capacity, national interest and executability.
 
ASL Blue Sky was disqualified due to a lack of funding, while Lufthansa Consortium was also disqualified as they had prerequisite of including Airports Company South Africa in the transaction. These disqualifications were communicated in letters drafted by the former DG.
 
Meanwhile, proposals from Global and Harith were rated favourably by the evaluation committee, as indicated in letters from the former DG to both entities, and they were both shortlisted as significant airlines of interest on 8 April 2021. The possibility of combining Global and Harith to complement each other in their long-term strategy was also mentioned.
 
Subsequently, Global and Harith (which later became the Takatso Consortium) submitted a proposal to the Department of Public Enterprises with an offer that fulfilled the department’s requirements, including the ability to provide the necessary funding to restart operations. Takatso was then appointed as the preferred SEP, with approval from Cabinet.
 
During the committee’s engagement with the legal adviser yesterday, he confirmed that the information before them is confidential. The committee will now review the information provided in a closed session, specifically the Single Source Provider Application. This is due to the ongoing nature of the transaction and the absence of definitive outcomes.
 
The committee has received the legal advice it sought and will now deliberate on how to proceed with the information under the proposed confidentiality regime. It will schedule another meeting to finalise the matter.

Issued by Yoliswa Landu, Media Officer, Parliament, 7 March 2024