President lays pensions back on the altar of failing SOEs

13 June 2022

In a rare face-to-face session with journalists last week, President Cyril Ramaphosa resuscitated the idea of using pension savings to bail out Eskom.

The notion of using pension funds to bail out Eskom raised widespread alarm early in Mr Ramaphosa’s Presidency. Officials from the Government Employee Pension Fund (GEPF), which holds about a fifth of Eskom’s debt, drew attention at the end of last year to significant obstacles to the mooted “debt-equity swap”. Under such a “swap” money that Eskom owes to pensioners is never repaid in order to allow Eskom to borrow more elsewhere.

President Ramaphosa said he was “very encouraged” at a new proposal to enact such a debt “swap”. Ramaphosa promised that this “is a matter that can still be taken forward. I saw a great deal of merit in the matter, and I didn’t really see it as a matter that could collapse Government Employee Pension Funds.”

The late Mike Schussler, an economist whose insights were widely acknowledged in tributes following his recent death, warned against dipping into South African pension funds to bail out state-owned enterprises (SOEs), partly by reference to the Transnet case study. At Transnet, according to Schussler, roughly 70 000 pensioners were effectively “robbed” and condemned to penury by debt-restructuring in a “similar process” to the debt “swap” mooted since 2017.

Last year Sifiso Sibiya, chief investor at the GEPF, said that such a debt “swap” would be complicated by allocation rules designed to protect savers from having their savings over-concentrated or exposed to equity risks. Sibiya added that when it came to managing GEPF assets, GEPF pensioners must be “put first in terms of expecting returns”.

When finance minister Enoch Godongwana passed amendments to Regulation 28 of the Pension Funds Act earlier this year it seemed that the idea of sacrificing pensions was being abandoned. Instead Minister Godongwana lifted the offshore exposure cap on retirement savings from 30% to 45%.

This benefit to savers had no negative impact on Eskom, which can improve its position without cutting into pensioner’s security, according to comments by Eskom CEO Andre de Ruyter in a recent interview with the Centre for Risk Analysis.

De Ruyter criticized what he called the “arbitrary” 100MW cap on private power generation, saying that “I don’t see any rationale for capping it at 100MW”. According to De Ruyter, vast new generation capacity is needed that requires “maximum private sector investment”.

Asked whether current race-based policy was hampering Eskom on the procurement side, De Ruyter said: “Interposing non-value-adding intermediaries in the process of procurement inflates cost, it introduces additional risk in terms of potential corrupt practices, and it also slows down our supply chains. I therefore think that there’s a good case to be made to streamline procurement processes in order to ensure that we can head off this challenge in the most cost effective way possible.”

These comments match sentiments expressed in the State Capture Commission Report which highlights an “inevitable tension” between current race policy and maximum transparency and efficiency at SOEs. “Ultimately in the view of the [Zondo] Commission the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised.”

Eskom is in deep trouble and one option is to streamline its procurement while letting in massive private capacity to power a growing South Africa. That way, innovation and voluntary action keep the lights on and the wheels turning in wider circles of higher employment.

Another option is to maintain the government’s monopoly on major power generation, while ramifying cadre deployment – which will require that millions of pensioners’ savings are “swapped” away to keep Eskom going. This seems to be what President Ramaphosa has in mind.

Said Gabriel Crouse, IRR Head of Campaigns: “Almost $30 billion in SA pension value was lost during 2020 alone. No more sacrifices can be made at the altar of SOE monopolies, least of all from the shrinking pool of savings ordinary people need to survive in old age.”

Issued by Gabriel Crouse, IRR Head of Campaigns, 13 June 2022