If Gordhan is happy to risk pension savings on Eskom he should first offer his own pension
PRETORIA – News reports suggest that the Congress of South African Trade Unions (Cosatu) has proposed that pension funds of public workers should be used to settle most of what the national utility company Eskom owes. The Government Employees Pension Fund (GEPF) is the sole administrator of pensions for public servants presently worth over R2.13 trillion. The Public Investment Corporation (PIC) is also responsible for managing funds acquired from public servants through the GPEF.
The Eskom debt has been in the public domain for while now and is said to be threatening the survival of the company and health of the South African economy. In October 2019, chief operations officer Jan Oberholzer told the Western Cape legislature’s standing committee on finance, economic opportunities and tourism that Eskom’s (short-term) and non-current (long-term) debt liabilities were about R450 billion. Municipalities owe Eskom close to R20 billion, and Soweto accounts for most of this amount. Besides municipalities, Eskom is also owed R632 million in outstanding payments by foreign state-owned power utilities of Zimbabwe (ZESA), Mozambique (EDM) and Zambia (ZESCO).
The details of the plan presented by Cosatu are that “the Public Investment Corporation (PIC) – which manages pensions on behalf of the Government Employees Pension Fund – the Development Bank of Southern Africa, the Industrial Development Corporation and private lenders take R254 billion off of Eskom’s books”. Eskom will then be left with approximately R200 billion to deal with. Tebogo Tshwane says this amount equals the debt that Eskom had “previously said it would be able to handle.” The Cosatu proposal is not at new, so it is quite surprising that it is receiving so much attention as if the labour federation has just discovered a vaccine for a deadly disease like Aids, Ebola or coronavirus.
For months to date, it has been all hat and no cattle when it comes to the energy crisis gripping the country. But to suggest that workers’ pensions need to be used to rescue Eskom is beyond absurdity. France is in trouble after the government of Emmanuel Macron announced plans to reform the pension system. A non-party Cosatu has no right to touch worker’s pensions, neither is its backer in this senseless proposal Business Unity South Africa (BUSA). Both BUSA and Cosatu should be concerned about retrenchments and low growth in the economy. The proposal, therefore, seeks to facilitate funnelling of PIC monies to greedy private companies. Workers should, therefore, reject the proposal for its hidden agenda.
In 2017, Bloomberg reported that National Treasury was “pressuring the PIC to provide as much as R100bn to fund struggling state-owned enterprises”. But it was alleged that the then PIC CEO Dan Matjila rejected the Treasury overtures. Among others, labour unions, Democratic Alliance (DA) and the Economic Freedom Fighters (EFF) opposed the report that “PIC funds may be used to fund SOEs, which are allegedly riddled with mismanagement and corruption”. And in August 2019, the SABC reported, Cosatu “vowed to prevent the government from nationalising pension funds and using them to bail out SOEs”. This was after President Cyril Ramaphosa had told parliament that “it was important to hold a national discussion on the possibility of pension funds being invested in struggling SOEs”.
This is exactly where the proposal by Cosatu raises eyebrows for three reasons.
Firstly, the PIC has been freely using money to fund white-owned corporations for many years to date. The question asked when the proposal was rejected is: If the likes of Cosatu, DA, EFF and others were so adamant that monies administered by the PIC could not be spent on SOEs, then why does the private sector deserve it considering their general attitude towards the black society? The response was sheepish as all of them hid behind the Gupta narrative. The DA, for example, characterised the proposal at the time as “a greedy attempt by the Gupta’s to hijack the PIC and loot from the people of our country”.
Credit must still go to the DA though for maintaining its original position, unlike the fluid Cosatu. DA spokesperson for finance, Geordie Hill-Lewis remarked: “It is easy to use other people’s money to solve his problems. But if Pravin Gordhan is happy to risk the pension savings of millions of government employees to bail out Eskom’s debt, he should start by offering his own pension first.” Cosatu has never really forced the PIC to play in the developmental space but it gets excited when private companies need funding. Business Day’s Antony Sguazzin and Janice Kew reported: “Cosatu’s strong-arm tactics behind PIC bailout of Edcon.” The clothing retailer in January 2020 received R2.7 billion investment from the state-owned fund manager.
Secondly, Cosatu has been ambivalent in forcing Eskom to be transparent when it comes to evergreen or cost-plus coal contracts and the controversial renewable contracts. Up until this point, the nature of these coal contracts remains hidden from the public and a few large companies are said to be holding Eskom ransom with expensive contracts. These companies also ignore their primary duty of supplying Eskom with good grade coal and are determined to export coal to foreign markets to earn foreign currency as well as to participate in illicit schemes like “transfer pricing”. Furthermore, the details of renewable contracts have not been publicised. What this means is that much of the PIC money will now be directly given to white-owned companies under very dubious conditions.
Thirdly, Cosatu has been mum on the fact that the PIC does not pay out dividends directly to public sector workers who are mostly members of its affiliated unions such as Nehawu, Popcru, Sadtu, etc. The reason for this is that Cosatu has been collecting billions each year in close-shop and membership fees to fund lifestyles of its leadership. They could, therefore, not be bothered that workers were struggling to make ends meet. It is a known fact that public servants are listed in credit bureaus and many survive on loans from loan sharks. If anyone was interested in understanding the concept of ‘working poor’, public sector workers provide a classic example. Many are homeless and cannot afford to send their children to school or to feed their families when their monies are trapped in somewhere Sandton.
What was expected from Cosatu is a proposal of reforming the PIC. These reforms could entail its expanded role in the economy like providing developmental finance to black entrepreneurs and to allow public servants to borrow against their pensions to improve their lives. It is no wonder that many teachers and nurses resign from their jobs in order to access their pensions. Others who live up to the retirement age splurge their money on basics like cars and houses and finish their money before they die. Retired public servants are poorer as a result of stringent conditions that are applied to their pensions. In this regard, there are lessons that can be learned from Mexico.
In Mexico, there are two housing savings plans which are complementary retirement savings for workers, both in the public and private sectors. In 1972, the government created two savings schemes, namely INFONAVIT (for private-sector workers) and the FOVISSSTE (for public-sector employees), to provide worker housing credit in Mexico. Mexican labour law compels employers must make deposits of an equivalent of five percent (INFONAVIT) and six percent (FOVISSSTE) of the workers’ wages in order for these institutions to use these funds to provide mortgages. Credit extended to workers enables them to build a home, purchase a home, expand or remodel a dwelling, pay an existing mortgage or to rent a home. They also offer co-financing products with other state institutions and financial intermediaries such as commercial banks. The funds that are not used by a worker during his/her career are given to him/her upon retirement.
Mexican law prescribes that all private companies resident in the country must register both themselves and their workers with INFONAVIT, and those government ministries to register their workers with the FOVISSSTE. South African law also demands of companies to register themselves and their workers with contributory schemes such as pension funds, UIF, Compensation Fund, etc. But the difference is that in South Africa pensions are in the hands of the PIC and other private fund managers who invest them willy-nilly, and workers have zero access before retirement. On the other hand, Mexican workers can borrow against their pensions (or savings portion of their pensions) and use the funds to build or improve their homes. These workers are not subject to mortgage loans from unscrupulous banks.
The 20-year house loans are a scam. They are designed to enrich gobbling banks and to defraud workers with their high interests. This money could be channelled to other needs if workers had access to their pensions. After all, according to Marco A. López, Raúl Abreu, et al, a quality house enables families “to increase their capabilities and thus enlarge their wealth, both for its current members and for future generations”. INFONAVIT, for example, makes credits of up to $65 000 (about R970 000) available to private-sector workers. With the economy in trouble, such a scheme could provide relief to households in South Africa. The government schemes account for over 80 percent of housing loans in Mexico. In addition, the state plays a huge role in the construction sector and directly contributes to job creation.
If both INFONAVIT and FOVISSSTE were operating in South Africa, they would have been opposed because market fundamentalists would argue that they “have a crowding-out effect on private participation in both pensions and mortgage finance”. It is clear that Cosatu has turned a blind eye on the role played by banks in impoverishing workers. The strength of the Mexican system lies in the fact that if a worker does not use the funds, they are reimbursed at retirement. The reality of the matter is that should the GEPF approve the Cosatu-sponsored Eskom bailout, there is a serious likelihood that state employee pensioners will never see their money again.
It has been many years that the pensions of public servants have been abused and wasted right under the noses of Cosatu and other public sector trade unions. Over the years the PIC has dismally failed to act on behalf of workers. For example, the money lost in the Steinhoff corruption scandal is lost forever and is unlikely to be recovered. Other pension funds are equally atrocious in managing funds of workers. It is puzzling why Cosatu burdens public servants with Eskom debt and why it does ask the National Treasury to compel even private pension funds to also contribute. In January 2020, Cosatu instead urged the government “to consider making it mandatory for private pension funds to invest part of the money they control in infrastructure”.
As things stand, many public servants contemplate resignations before their pensions are completely wiped off as a result of the ongoing shenanigans. It is for this reason that Hill-Lewis argued: “This is a deeply irresponsible policy proposal that should be resisted by government employees and pensioners alike.” It is, therefore, quite strange that public sector workers are not being asked via ballot to consent or refuse the proposal. There is a huge democracy deficit in the manner in which Cosatu goes about offering money which is not theirs without consulting real owners.
There is a reason for Cosatu’s scramble to impoverish workers. The trade union federation is deeply involved in ANC politics and now realises that Eskom can easily cut short the length of stay of the faction that won in the 2017 elective conference. Already, there are misgivings in the manner in which the energy crisis is being handled. ANC treasurer Paul Mashatile and the women’s league said in January 2020 that Eskom must be moved out of the department of public enterprises (DPE) to the newly created department of mineral resources and energy (DMRE).
Public commentators said at the time that the proposal to move Eskom was “a political football in succession debate”. Cosatu’s latest suggestion appears to be a counter to this growing displeasure. It is racing against time to save face before the ANC’s mid-term national governing council (NGC) meeting to be held in June 2020. Cosatu parliamentary co-ordinator Matthew Parks told Fin24 that the exchange about Eskom within ANC ranks was being fuelled by “factional battles”. But Cosatu is now right in the eye of the storm with its reckless proposal of using pensions of public servants to reduce Eskom.
In conclusion, it is becoming clear that Cosatu could be up to something with its proposal. The proposal is not only dishonest but has politicking written all over it. As a worker organisation, Cosatu should act to protect the value of workers’ pensions rather than destroying them. There is no undertaking that the likes of Eskom have turned the corner looking at raging power cuts and the noise surrounding the SOEs. The procurement spend in many SOEs has also not been disclosed to the public. The proposal makes no reference to plans to unbundle Eskom. Corruption at SAA Eskom and other SOEs continues unabated and workers face a bleak future, and that should be Cosatu’s preoccupation and not politics.
Perhaps it’s time workers marched against Cosatu House.
Siya yi banga le economy!
Siyabonga Hadebe is an independent commentator on socio-economic, politics and global matters based in Pretoria.