The Public Investment Corporation's chief executive, Dr Daniel Matjila. File picture: Dean Hutton
JOHANNESBURG - Late last week, Leon Gilbert of the Public Service Administration roundly excoriated a R5billion advance to Eskom by the Public Investment Corporation (PIC) to assist the cash-strapped electricity utility meet its short-term debt covenants with financial institutions.

If the PIC did not provide evidence of the terms of the loan agreement and government guarantees that public pension money would be paid back by February 15, the union would take legal action, he cautioned in a television interview.

That caveat followed a barrage of criticism from opposition parties and other public sector unions no sooner than the PIC’s approval of the loan in late January. In fairness, it seemed a reasonable enough broadside. After all, the PIC, through its principal stakeholder, the Government Employees Pension Fund (GEPF), manages a whopping R2trillion of public assets.

But do such sweeping characterisations assert more than the moral ambitions of unions and opposition parties? Or do they simplify a multifaceted and convoluted narrative, shrink the space for temperance, blur the lines of coinciding agendas, and assert narrow sectional interests that do more to cancel out the more nuanced risks and rewards of larger economic concerns in which the PIC board and its committees ought to be invested?

Embedded in such enquiries is a simple proposition: For opponents of the bailout, it seems public engagement is really about picking battles and fighting them vigorously in the hope this will discredit, and ultimately ruin, the governing party ahead of the 2019 elections.

This is not to suggest opponents of the bailout aren’t right to defend pensioners’ interests; nor do I mean to imply that the PIC - with an exposure to Eskom of roughly R95billion and the latter’s gearing ratio estimated at 72percent in September last year - is not at risk.

It certainly does not need much hand-wringing; it’s a familiar refrain that has been building into a cacophony of outcries over feckless leadership by the previous Eskom board. To be sure, three forces - extreme maladministration by senior Eskom management; massive financial excesses by some executives; and their somewhat fortuitous acquaintance with poor governance - have conspired to weaken Eskom’s credibility, strain its cash flow and leave the organisation vulnerable to the kind of fiascos that have befallen it.

Lately, though, those pickings have been a movable feast as the ANC wrestles with a leadership crisis, internecine factional squabbles, and a legitimacy deficit that for the first time since 1994 have imperilled the party’s electoral chances. The potentially stunning reversal of fortune has been years in the making, to be sure.

First it was the realignment of opposition politics after the removal of Thabo Mbeki in 2008. Then it was the ANC’s vulnerability around service delivery amid growing state capture allegations ahead of the 2016 local government elections. Now, with the presidency of Jacob Zuma over, the battle-lines are being drawn around the next campaign ticket: state-owned entities.

Seen in that way, how the PIC responds to the overarching concerns of its shareholder while maintaining fundamental aspects of fiduciary responsibility to its clients (principally the GEPF) and unions opposed to the bailout remains a jarring question. In a word, was the bailout such a bad thing?

The answer might seem trivial or obvious, depending on how one defines the term "bailout". If the query is taken literally to mean that public pension funds were recklessly doled out, placing the GEPF at risk, or that the PIC is self-consciously governed by some hidden collusive elite, the answer is obviously “yes”. On the other hand, if the question is taken to mean “Was a bailout necessary to rescue an entity that, to all intents, is too important to fail?”, the answer is obviously “no”, and that answer would qualify as one of the most unsurprising imaginable at the moment.

Of course, one can argue endlessly over who qualifies for a bailout, whether the pricing of the bridging finance instrument used by the PIC was favourable to the GEPF, what constitutes the Financial Services Board-approved mandate entered into between the PIC and GEPF, whether the R5bn investment fell within that mandate, and so on. But if the question remains as simple as those articulated above, the basic answer will not change.

At issue is a public asset manager that is prone to a pervasive mood of contestation. Symptomatic of the PIC’s dilemma is its stakeholder and shareholder relationships centred alternately on pensioners and the general stability of the economy. According to its constitution, the PIC board must in part invest public funds where there are solid prospects for reasonable returns to its clients. In part, it must also substantially hold the national interest by advanc- ing investment policies that promote the overriding economic policy agenda of the government.

What that means is the PIC is positioned neither outside nor inside the government and its public enterprises. Opponents of the bailout - particularly unions - know this intuitively. But the trouble with their reasoning is that it leaves South Africa’s economic imperative hanging, with collateral consequences for the PIC and all other asset managers that hold Eskom bonds on behalf of their clients.

As the corporation’s chief executive Daniel Matjila put it in a letter last week to the chairperson of the standing committee on finance, Yunus Carrim: “Given its R10bn negative liquidity position by the end of January 2018, there’s every chance that a debt default by Eskom would have made a downgrade of the sovereign credit rating unavoidable, and the rand would have weakened in a situation where the oil price is above $60 per barrel, which would have led to more hikes in fuel prices.”

Collapsed

“This would have collapsed the South African economy, comparable to the 1989/9 market crash,” Matjila wrote.

In round numbers, energy expert Chris Yelland has estimated the cost of controlled blackouts in 2014/15 at anywhere between R20bn and R80bn a month. When one considers that the approximate gross domestic product of South Africa in 2014 was R4 trillion, about 1-2percent of GDP could potentially be wiped out per month in a controlled load-shedding scenario.

Of course, tabulating those numbers in order of magnitude is simply not possible at this stage. But it doesn’t take much insight to see that what the PIC was betting on was simply an extension of Eskom’s life as an entity that “is too important to fail”.

In which case, nobody should be surprised that the PIC has turned out to be the fall-guy. The bigger casualty - lest we whisper it - would have been the economy.

Malcolm Ray is a former anti-apartheid activist, award-winning journalist, editor and academic.

The views expressed in this article are not necessarily those of the Independent Group.

- BUSINESS REPORT