Parliament legal adviser questions R3bn SAA bailout

Cape Town - A legal opinion from a senior Parliamentary legal adviser has called into question Finance Minister Malusi Gigaba’s R3bn bailout for national carrier South African Airways (SAA). 

The letter, dated October 16, deals with issues around the legality of Gigaba invoking a section of the Public Finance Management Act (PFMA) to access funds from the National Revenue Fund to transfer to the cash-strapped airline in late September. 

“Government has approved the transfer of funds from the National Revenue Fund (NRF) to SAA to allow the airline to address the debt obligations to Citibank, thereby avoiding a default," said National Treasury in a statement on September 29, the day before  it had to repay its debt to US lender Citibank. "Funds will also be used to assist SAA with its immediate working capital requirements.”

Following the transfer of funds, DA finance spokesperson Alf Lees requested that Parliament's oversight committee on finance get legal advice on whether Gigaba’s decision was legitimate or not. 

Exceptional nature 

According to a Parliamentary legal adviser, Section 16 of the act does make provision for the minister dipping into the revenue fund for exceptional circumstances. 

It states: “The Minister may authorise the use of funds from the National Revenue Fund to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future parliamentary appropriation of funds.”

The legal opinion states the issue at hand is whether settling SAA's debt and granting the carrier access to working capital constituted exceptional circumstances.  

“Reading section 16 with the object of the PFMA, it appears that section 16 is intended for use where good financial planning and management could not avert the need for unusual expenditure,” read the opinion.

“In my respectful view it appears that the expenditure was forseeable and as such, not unusual or atypical. It would not have been the first time such expenditure had to be affected." 

Treasury at the time said the transfer of funds were vital, because if SAA defaulted on the Citibank debt, it would trigger a "call on the guarantee exposure totaling R16.4bn".

This, it said, would possibly result in "elevated perceptions of risk related to the rest of SAA's guaranteed debt".

Auditor General 

The letter noted that the ball was now in the court of Auditor-General Kimi Makwetu to make a finding on whether the use of the funds was legal or not. 

According to the PFMA, after invoking Section 16 of the act, the minister of finance must refer the matter to the office of the Auditor General within 14 days.

Lees said in a statement on Tuesday that the adviser's the legal opinion “confirms our belief that it [the bailout] was not lawful”. 

He said the DA would be writing to Makwetu to seek confirmation that he was notified within 14 days. The party will also “request details of his finding on the legality or otherwise of the use of section 16 by Gigaba”.

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