Paul Janisch

The government has lost two significant empowerment related cases

This first one is the once-empowered, always empower issue.  To quote the Daily Maverick.

“The minister uses the Mining Charter to guide his decision-making and applicants use it to guide their application. But once the application is granted and the transformation objectives are contained in the mining right itself and provided the mining company acts under those terms, then subsequent mining charters cannot change those retrospectively,

In other words.  The right is linked to the charter that was gazetted at the time the right was granted, you can't change the scope of that right by gazetting a new code.  Gwede gets one on the nose.  He's also useless and beyond his productive age

The next one is the Solidarity/Afriforum case that we argued about the Tourism relief fund. The fund was established to assist tourism companies that were left flat during the various lockdowns. 

The minister had argued that government was obliged by statute to include B-BBEE criteria in the directions for eligibility to financial assistance.

"It is apparent that the purposes of the DMA [Disaster Management Act], on the one hand, and the B-BBEE Act, on the other, are very different and that each statute is directed at achieving different goals: the DMA is aimed at preventing or limiting disasters, mitigating their impact and enabling post-disast mitigating their impact and enabling post-disaster recovery, while the B-BBEE Act is aimed at promoting black economic empowerment in order to enable black people to participate meaningfully in the economy," the SCA ruling stated.

This case should never have gone to court.  If you are white (or not-black like a Nigerian) and you pay your UIF, then you are entitled to claim the benefit when you lose your job.  There is no requirement to prove your BEE credentials when you claim your benefit.  The Tourism Relief Fund was the same.  However it was not plain sailing for Solidarity and Afriforum.

The Solidarity Trade Union and lobby group AfriForum applied urgently, in separate cases, in the North Gauteng Division of the High Court in Pretoria, to review and set aside what they described as "race-based criteria" for eligibility for financial assistance from the fund. Their applications were dismissed with costs and they were refused leave to appeal.

Being the arrogant and incompetent legislators that both of these departments will no doubt appeal.  They can't move on.  They must take the one foot out  of their mouths to put the other one in.  And this, fellow voters, is the best the anc has to offer.  I must re-iterate, I like Cyril.  He is the only politician that can actually pull us out of this anc-created fuck-up.  I have this feeling that he may be talking to a few opposition parties, unlikely to be the EFF, to do something with them.  The anc is now so incompetent and broke that it's had it. 

Famous last wors (sic) probably.  Happy heritage day

 

 

 

Zwanton Behaviour – malicious mine minister mangles Mpowerment

This is the blog post that's been sitting in my head for over a week now. Let's say you are a mines minister who has been known to celebrate Diwali in Saxonwold and arrange for plane flights to Waterkloof and go to Switzerland to chat to Ivan about a certain Tegeta company and a mine. In short you are one hell of a GupTankCommander. Rumours are that it is likely that you got the gig because the Guptas decided they needed a patsy to push through a wide variety of their business interests. You were the man. Ah yes but there is a problem, you have inherited an old spat between the Chamber of Mines and the DMR over the once-empowered, always-empowered issue which is now sitting in court. You have said over and over again that you are seeking a negotiated settlement. This all suggests that you are reasonable man, someone who is willing to talk, your doors are open.

But as a man known as Ed Christie said to me many years ago in Oshakati – our initial assessment of the man was "'n kak waardeuring gewees". In English a shit appreciation of the man. Here's a little bit of background.

There's been a dispute for a long time about the effect of the once-empowered, always-empowered rule. The Chamber argues that they have achieved the targets and hence should be allowed to focus on the other aspects of the charter. The Minerals Department argues that this is not the case, when the black shareholders go you get others. The Chamber's argument that the beleaguered resources industry can barely afford to mine let alone refinance deals. They were getting nowhere and so it went to court. This was done under the tutelage of the former mines' minister, Ngoako Ramatlhodi. He gets fired by the Guptas/ Zuma and is replaced by one Mosebenzi Zwane. To get a feel for Zwane take a look at Justice Malala's assessment.

Mineral Resources Minister Mosebenzi Zwane, a man spectacularly unqualified and unsuitable for the office he occupies, continues to demonstrate that he was appointed by Zuma to be the Gupta "baas boy" in cabinet. Remember this is the man who facilitated the Guptas' acquisition of a farm in Vrede when he was a lowly mayor. He also facilitated their landing a plane at the Waterkloof Air Force Base in Pretoria for their wedding guests. Within months of being appointed minister he flew to Switzerland to facilitate their acquisition of the Optimum coal mine from Glencore.

Still the man was willing to go to court. Wasn't broadsided by the Malan Scholes court case. Oh he was a man you could talk to. Yeah fucking right!!! This same personage decides that he'll allow the court case to go ahead but the outcome will be a moot point because he's publishing a new charter for comment that absolutely forbids the once-empowered rule. He justifies this using the following reasoning.

"Whether or not the mining charter is before a court does not preclude us from legislating," Zwane told reporters in Cape Town on Tuesday, without providing dates for the meeting. "We released the charter so as to engage in robust debate. That is how the final Mining Charter will come about - as a result of the engagements we have with stakeholders."

The 26% provision could have been higher, Zwane said. "If we wanted to we could have made ownership 35% or 40% as the wealth of South Africa belongs equally to all."

Ahh the wisdom of a Gupta/Zuma patsy. You might recall that a rumour went around 15 odd years ago that mining ownership compliance figures were to be 51%. Investors left in their droves. Billions were lost on the JSE. It's clear that Zwane is a very dangerous man. This move is being done with malicious intent.

Yes, the mines will engage and negotiate, they've got no choice. Mines!!!! – you are attempting to turn a mamba into a family pet. A mamba knows only to bite and flee. It's not going to sit on your lap and cuddle you on those cold wintery nights. Don't bother with the argument that it is only black people who will suffer because the unintended consequence is that the sector will collapse. They DON'T GIVE A FUCK. THEY DON'T GIVE TWO SHITS. THEY TRULY COULD NOT BE BOTHERED. Understand that when you negotiate. There is no reasonable argument that that will be considered. What they want to do is destroy white monopoly capital. And this must happen at all costs.

It still bothers me what they are doing it now, Pravin is trying his damndest to preserve the economy and the Zuma patsies are attempting to scuttle his efforts. This is a structured programme by Zuma to wreak havoc and weaken all opposition to him. Perhaps the thought is that Pravin will toss it all in and just fuck off to his retirement home.

No – we need to take the lead from the likes Malan Scholes and litigate when their arbitrariness gets out of hand. At least we know that they listen to the Constitutional Court.

Now – the final question is. Is it a mere coincidence that the mining minister has the word Benz in his first name? I think not.

Wabenzi boy – take a look at this poster. You can extrapolate it into the modern world – loose lips sink economies in this century.

 

 

 

 

 

 

 

 

 

Or is it that you prefer Catherine Tate…..

Why we should be overjoyed that ABSA may lose some of its BEE shareholding

There's been a bit of press about this, mostly about the fact that Tokyo wants to sell out via Mvelaphanda Holdings' 40% interest in Batho Bonke. Batho Bonke owns about 4% of ABSA. This is a joyous thing, a mitzvah, a blessing, a wonderful occurrence and other superlatives. Besides raising cash for Tokyo's campaign to remove the useless showerhead (although everyone I have spoken to says that Tokyo might outdoos Zuma in the doos stakes) it will apparently give about 1.2 million people a little bit of cash. And this is what the empowerment thing is about.

But alas it will have an impact on ABSA's BEE score. I think the worst that will happen is that ABSA will lose about 3 points which will drop them to a level 4. ABSA is the first to lose some shareholding; at some stage all the big banks will drop their shareholding and are unlikely to do another deal – they'd be bloody stupid if they did. This will level everything and then when you take the FSC's once empowered principle into account, the ownership scores will remain consistent.

But this is so irrelevant – what matters is that ABSA has done something for a lot of people. ABSA should be singing from the rooftops about this, they'll be the first to do so. They should go on a feelgood marketing campaign showing the poor people who have benefited (I wouldn't mention Tokyo – we all know that that he doesn't need the cash). They should use this as a starting point to provide banking services to the beneficiaries, throw a little ED money into the programme to teach these people to start creating their own businesses, co-ops etc. But whatever they do they must ignore the narrow-minded HBR (Hola Bon Renaissance) Foundation. The Sowetan reports that

HBR wants the government to acquire the shares through any of the public-owned financial entities, including the Public Investment Commission, the Industrial Development Corporation and the National Empowerment Fund and "warehouse them until another BEE consortium interested in investing in the banking sector is identified".

Everyone should ignore the HBR – this narrow-minded perception of black ownership can never create wealth, it will only bankrupt an already corrupt government.

Well done in advance ABSA, Maria give me a call if you want me to help you with this long term ED and marketing campaign.

FSC Continuing Consequences (or once empowered etc)

(Before I start, I have prepared a comprehensive presentation on the draft FSC that I am more than happy to present to any concerned person).

The issue of once empowered, always empowered was always going to be a deal breaker under the FSC. The appetite to go off and re-negotiate another deal after billions in costs for the first one just wasn't there. The compromise is contained in paragraph 3.5 of the ownership statement in the new draft. As with the balance of the FSC, it actively incorporates the DTI's generic codes (not merely referring to them) and in many cases improves on the original codes. The basic rules contained in the DTI's continuing consequences still remain, viz (as per paragraph 3.5 of the DTI's generic codes);

• the black participant has held shares for a period of 3 years;
• value must have been created in the hands of black people;
• transformation has taken place within the measured enterprise.
• black participation arising from continued recognition of black ownership cannot contribute more than 40% of the score on the ownership scorecard.
• a written tripartite agreement between the Measured Enterprise, the black Participant and a lender must record the loan or security arrangement, unless the Measured Entity is the lender; and
• the period over which the points were allocated or recognised will not exceed the period over which the shares were held.

The FSC takes these principles and provides formulas and concrete explanations in each of these cases. But it makes it very clear that it is only those shares that were sold/loss after 1 January, 2011. What I'm not sure about is when this kicks in. For example say the black shareholder sells out on the 2^nd of January, 2011 and they'd been a shareholder for five years. This principle will only be promulgated sometime this year (2012). Do the continuing consequences start on the day of promulgation or do they start on the 2^nd of Jan, 2011 – which means that one and half years will have passed and the company may only recognise that ownership level until the 2^nd of Jan, 2016.

The machinations of the principle are contained in paragraph 5 of Annex 100 (C) which I have reproduced in its entirety below.

Some may scoff at this and say, yes but you only get 40% of the points. But that isn't the point, the point is that the big companies that fall under the FSC are all pretty much in the same boat when it comes deals and vesting. If each gets a 60% reduction in their ownership score then they'll still be much of a muchness. There'll be a slight discrepancy between some of those companies whose deals vest after others. But eventually there will be no ownership points and those companies will be measured out of a maximum of 91 points, which is still a level 2. See the FSC scorecard below

FSC ownership scorecard

FSC elements and points (taken from FSC Draft phase 1)

Annex 100 (C) paragraph 5

 

Calculation of the Recognition of Ownership after the Sale of Shares by Black Participants:

 

The calculations referred to in Paragraphs 3.5.1.2 of FSCode 100, Statement 100, use the following formula:

 

For Paragraphs 2.1 and 2.3 of the Ownership Scorecard

 

A=B x C x D

Where

A is the percentage of rights of ownership that survive the sale of an Equity Instrument by a black Participant in Paragraph 3.5.1.2 to 3.5.4.3

B is the percentage of rights of ownership for each of the indicators in the ownership scorecard that were attributable to the black Participant immediately before his or her sale

C The net value realized/created in black hands after the liquidation of debt as a % of the value of the Sale Shares of each of the indicators immediately prior to exit

The net value created in black hands is equal to the current value of the shares less any own contribution made by the BEE party at the inception date of the transaction

D is the most recently determined BEE Recognition Level of the Measured Entity (which must be less than 1 year old) based on its Generic Scorecard result for all Elements other than ownership determined using statement 000

For Paragraphs 2.2, 2.4 and 2.5, A shall be equal to the percentage held by black Women/Designated Groups immediately before their sale of shares multiplied by the result of the calculation under this Paragraph 5.1.

 

For Paragraph 2.6 of the Ownership Scorecard

 

In relation to calculating the percentage of ownership rights that survive after the sale of shares specifically for Paragraph 2.6 of the Ownership Scorecard the following calculation shall apply:

A= B X C X D

Where A is the percentage of rights of ownership that survive the sale of an Equity Instrument by a black Participant in Paragraphs 3.5.1.2 to 3.5.4.3

B is the percentage of the Equity Instruments diluted, determined on the date of measurement immediately before his or her sale

C value of the equity interests sold (less) the value of any own contribution made at the inception date of the deal in relation to the shares sold (less) the carrying value of any acquisition debts of the relevant black Participants on the date of sale or loss divided by the value of the measured entity at the date of sale or loss

D the recognition level of the measured entity excluding ownership immediately prior to the loss or sale

Illustrative example

Assume that BEE consortium holds 10% of a measured entity at 01/01/2009 (the commencement date). 50% of this holding is attributable to black women and 50% is attributable to Black Designated Groups

As at the commencement date the value of this holding is R150 (enterprise value R1500) and the value of the associated debt is R100.

BEE Consortium provided R10 own cash contribution and R90 was debt funded in lieu of the purchase price of R100 for 10%

Through corporate action this holding is diluted fully at 31/12/2012

At 31/12/2012, the value of this holding has grown to R180 and the debt is R80. The value of the business is therefore R 1800.

The measured entity is a level 3 contributor excluding ownership as at 31/12/2012.

Calculation for Paragraphs 2.1 and 2.3 of the Ownership Scorecard:

A=B x C x D

B = 10%

C = ((180-80-10)/180) = 50%:

R180 is the value of the shares sold, R80 is the debt outstanding and R10 is the value of the consortium's own contribution at the inception of the transaction.

D = 110%

The continued recognition under Paragraphs 2.1 and 2.3 of the scorecard will therefore be:

10% * 50% * 110% = 5.5%.

The continued recognition under Paragraphs 2.2, 2.4 and 2.5 of the scorecard will therefore be:

50% x 5.5% = 2.75%

Calculation for Paragraph 2.6 of the Ownership Scorecard:

A=B x C x D

B = 10%

C= (180 -80 - 10) /1800 = 5%

D= 110%

The continued recognition under Paragraph 2.6 is therefore 10% * 5% * 110% = 0.55%.

Once empowered – always empowered discussed (disgust?)

We are about to hit the third anniversary of the DTI's codes. This is significant because to my mind it is the first time that we can use the once empowered, always empowered; high watermark or continuing consequences principle. The reason for this is paragraph 3.5.1.3 of code 100 states that transformation must have taken place. The only way that this can be measured is by comparing BEE scores over the last three years. And this can only be measured using a uniform scorecard which only came into effect on the 9^th of Feb, 2007. I suppose you could compare EE submissions over the three years but this won't apply to every company.

It would appear that if the black shareholder willingly parts with their shares by selling them then you can recognise the actual ownership percentage in perpetuity, but a only a fraction of the points. This implies that if the company was a QSE that was more than 50% black owned and the black shareholder sells out then this company is still regarded as 50%+ black owned – and hence could be regarded as a Category B ED beneficiary (provided it has a BEE score higher than level 6). I say this because the codes don't mention 25% black owned, only 50% black owned. I somehow think this might be difficult to push through but I'd invite the discussion.

The paragraph contemplates two different ways of relinquishing shares – sale or loss of shares. They are more lenient on the company if the shares are sold. If the black person loses the shares because they are taken back or for any other reason then the codes penalise the company. I think this magnifies the ridiculousness of the ownership model and seems to presuppose that the black partner is the innocent party in this programme – surely if a black partner does not pay for the shares or can't meet the payments and the shares are taken back they have to shoulder a portion of the blame. I've never been a fan of the ownership element, especially in small or family-owned businesses.

Paragraph 3.5 is the significant section (The recognition of ownership after the sale or loss of shares by black participants) and has four aspects to it

1)    Recognition of black ownership

3.5.1 A Measured Entity is allowed to recognise a portion of black ownership after a black participant has exited through the sale or loss of shares subject to the following criteria:

This is a little confusing – the paragraph says "a portion of black ownership" but doesn't explain what this means. It is different to paragraph 3.5.2 which refers to 40% of the points under ownership. The Interpretative Guide hasn't explained it either.

3.5.1.1 the black participant has held shares for a period of 3 years;

3.5.1.2 value must have been created in the hands of black people;

This is a simple calculation of the value of the company at the time of sale of shares compared to the current value of the company. I suppose this is a bit of an incentive to make sure that the company makes a bit of cash over the period.

3.5.1.3 transformation has taken place within the measured enterprise.

See above

2)    Can't have more than 40% of the score under ownership

3.5.2 black participation arising from continued recognition of black ownership cannot contribute more than 40% of the score on the ownership scorecard.

The maximum number of points you can get is 9.2 for generics and 11.2 for QSEs. But in spite of the reduction in points and the lack of clarity in 3.5.1 it would appear that the company may still be deemed the same percentage black-owned and should be recognised under procurement and ED (as I discussed above). Otherwise what is the point of regarding it as having black ownership – is it only for the points?

3)    Loss of shares

3.5.3 In the case of a loss of shares by the black investor, the following additional rules apply:

3.5.3.1 a written tripartite agreement between the Measured Enterprise, the black Participant and a lender must record the loan or security arrangement, unless the Measured Entity is the lender; and

3.5.3.2 The period over which the points were allocated or recognised will not exceed the period over which the shares were held.

The minimum amount of time that a company can regard itself as being black owned (or getting the points) is then 3 years. This is just plain stupid!

4)    A calculation to determine the points

3.5.4 The ownership points under this paragraph that are attributable to the Measured Entity will be calculated by multiplying the following elements;

3.5.4.1 The value created in black hands as a percentage of the value of the Measured Entity at the date of the loss of shares as a percentage of Measured Entity's value;

3.5.4.2 The B-BBEE status of the Measured Entity based on the balanced scorecard at the date of measurement; and

3.5.4.3 The ownership points that were attributable to the Measured Enterprise on the date of sale or loss.

Maths and I aren't the best of friends, but I can proudly state that I understand English particularly well. Even so – I do not know how to calculate these points. The Interpretive Guide offers some clarity but no enough. I'm sure Vuyo's book says something but I can't seem to find my copy. If you do find yourself in this position I am happy to announce that BEE-Matrix can help you with the calculation.

PIC and Cyril - two from Business Report

This is truly an hysterical article.  I would normally Tweet on these things but it warranted a lot more than 140 characters.   Ann Crotty reports that the Public Investment Corporation (PIC), which manages about R800 billion of funds on behalf of the Government Employees Fund, is in discussions with the Department of Public Works to resolve concerns about the PIC's black economic empowerment (BEE) status.

PIC chief operations officer Albertina Kekana said various government departments and local authorities were tenants of properties owned and managed by the PIC and noted, "we sometimes have difficulty with renewing leases because the department's procurement officers say we're not empowered".

And the upshot of this lack of empowered status

in some instances the PIC struggled to collect rent from the departments and local authorities.

This either goes to show how clueless government departments are about BEE (which they are) or that PPPFA cannot come to terms with state-owned entities bidding for government contracts.  The latter is addressed in the new regulations.

The only BEE solution I can think of is the BEE that of a BEE Facilitator.  Paragraph 3.4.3 of code 100 states

The Minister may by notice in the gazette, designate certain Public Entities as BEE Facilitators. In calculating their Ownership score, Measured Enterprises must treat BEE Facilitators as having rights of Ownership held:

• 100% by Black People;
• 40% by Black Women;
• 10% by black designated groups:
• without any acquisition debts; and
• without any third-party rights.

In other words they get the full 20 points for ownership.  The DTI has done it before with PetroSA.  I suppose the question is whether the PIC is a Public Entity.  They are not in Schedule 2 of the PFMA but then neither is PetroSA.  They do say that they are subject to three different acts - one of which is the PFMA. 

Cyril doesn't like BEE lockins

Also from the Business Report today written by Mzwandile Jacks.  Mzwandile is a great journalist - I've met him before

Bidvest chairman Cyril Ramaphosa yesterday launched a fierce assault on black economic empowerment (BEE ) lock-in agreements, saying they inhibited black access to profit.

He reckons it messes with the spirit of empowerment and he's right.  Being locked-in because you fulfil certain BEE requirements is stupid and sorely lacking in any business sense.  They've tried to alleviate this problem with the "once empowered, always empowered" rule, which Cyril says is open to abuse. 

The "once empowered, always empowered", "continuing consequences", "high watermark" rule is a fantastic get-out clause for black players.  They stay in the business for three years, make a bit of cash and go.  The business continues to recognise the ownership level (albeit with reduced points) and everyone is happy. 

However Ajay Lalu does not agree with me (he apparently drafted that useless verification manual)

Ajay Lalu, a BEE expert and partner at Bravura Consulting, said the "once empowered, always empowered" approach was enshrined in the financial sector charter. "This goes against the spirit of broad-based BEE," Lalu said.

I don't really understand this paragraph but if I am reading the bold correctly then Ajay is talking the most misinformed drivel yet uttered in the BEE world - and the competition for that accolade is fierce.  Let's go back the preamble of  BEE Act.  And I quote

(to) promote the achievement of the constitutional right to equality, increase broad-based and effective participation of black people in the economy and promote a higher growth rate, increased employment and more equitable income distribution

If the rule is properly implemented then you'll achieve a few of these requirements and the underlined part.

Caird has developed an accounting officer's template for EMEs that contains all the necessary information that an EME might need to adequately demonstrate their EME status. This document contains an affidavit that contractors can sign confirming their EME status (this is very useful for procurement departments). The cost is R350 - for more information email me.