R5 billion Eskom bailout violated the PIC investment mandate?

7 February 2018

The R5 billion bridging facility extended to Eskom by the Public Investment Corporation (PIC) may have violated the organisation’s investment mandate which bars it from investing in non-investment grade assets.

In May 2016, the PIC provided the Standing Committee on Finance with a document marked ‘Private and Confidential’ which set out the organisation’s investment mandate. Part of that mandate includes:

- “…the ultimate objective of generating sustainable returns for the clients on whose behalf the PIC invests.”

- “…any investment that is misaligned with the mandate cannot be funded.”

- PIC client mandates provide for investing in listed and unlisted instruments with the former allowing solely for investment grade instruments.

All the rating agencies rate Eskom well below investment grade. In fact, Eskom was downgraded further, deeper into junk, as recently as January 2018. Worse still, the suggestion by the new Eskom board to convert Eskom debt into equity, in what can only be a fake partial privatisation drive, raises concern that the PIC loan might not be paid back.

The PIC must now explain how they apparently ignored its mandate by extending a loan to a technically insolvent and junk-rated entity such as Eskom.

It must be asked whether the PIC is acting in the best interests of pensioners considering that they choose to pour money into Eskom, despite their current R90 billion exposure to Eskom bills and bonds.

The DA will ensure that Parliament takes a strong stand against any possible abuse of pension funds under the management of the PIC. We have taken the first step in this regard through the introduction of the PIC Bill which will ensure that the PIC abides by its investment mandate.

I have agreed with Natasha Mazzone, the DA Shadow Minister of Public Enterprises, to write to Eskom and request a briefing, to Parliament before the main budget, on how the Eskom plans to solve its liquidity crisis. The PIC must also account on the rationale behind granting a loan to a non-investment grade entity and terms of reference for the loan.

Issued by Alf Lees, DA Deputy Shadow Minister of Finance, 7 February 2018