Any investments used to support the development of the state should not undermine financial integrity, investment mandates or the sustainability of investment and pension funds, says Matthew Parks, the Parliamentary coordinator of Cosatu.
Speaking to Fin24 on Thursday, Parks clarified Cosatu's position on a proposed debt relief plan it put forward to save Eskom.
The state-run power utility is facing a debt burden of R454 billion. It does not make enough from selling electricity at current prices and volumes to pay off the interest on the debt without state aid.
Ahead of the Budget address in February, Cosatu released a proposal that would see the state create a special purpose finance vehicle to reduce Eskom's debt by about R252 billion. The proposal served as a basis for talks between labour, government and business bodies on reducing the utility's debt.
The public discourse on the proposal has been that government would likely use pension funds, through the Public Investment Corporation to finance the debt.
Finance Minister Tito Mboweni, at a pre-Budget briefing with journalists, briefly described the plan is a "good idea" that moves the debate forward on how to deal with Eskom's debt. He suggested that both private and public pension funds be used. The minister did not touch on the plan during his Budget address.
At a briefing to journalists this week, meanwhile, President Cyril Ramaphosa seemingly endorsed the plan to refinance Eskom via pension funds.
Speaking before the Portfolio Committee on Public Enterprises on Wednesday, Parks said that Cosatu envisions a combination of private and public financing for Eskom. The state could provide funding through the PIC, the Development Bank of Southern Africa and the Industrial Development Corporation. And private funds have also expressed interest, Parks said.
But he added on Wednesday that Cosatu is aware that any funding should respect issues of "financial integrity, fiduciary duty and investment mandates," he added.
Cosatu would want to see the public and private financing support essential public economic goods – such as infrastructure for rail and ports and funding for tertiary education, Parks said on Thursday. This alternative which Parks described as impact investing, would have broader benefits for the economy and society, as opposed to having the monies sitting on the stock market, "benefiting the private sector," Parks said.
Prescribed assets vs impact investing
Asked how impact investing differs from the prescription of assets, Parks told Fin24 that both options have the same objective, but the routes are different. "Prescribed assets are more binding, government says where you must invest," Parks explained. With impact investing, investors have more of a choice of where they can put their money. The problem with the latter is, that leaving up to the investors to decide when and where to invest, might mean that little will get done.
Regulation 28 of the Pension Fund Act allows for funds to invest in as much as 10% into alternative assets. Echoing the president's comments, Parks said that currently, out of R8 trillion pension fund market, only about 2% is invested in alternative vehicles.
Alternative investments do not fall within conventional investsment categories like stocks and bonds. These investments are unlisted and can be in things like social and economic infrastructure, such as rails and ports as Parks highlighted.
Parks said it is not necessary for funds to exhaust their full 10% allowance, but they can roll out funding to alternative investments incrementally, in a sustainable way. How this can be done still needs to be fleshed out, which is why a social compact – the coming together of government, business, labour and community is essential to chart out a detailed plan. "Political buy-in" is most critical for progress to be made, he added.
"We do not mind if it is prescribed assets or impact investments, we just want to see investments happening. And it must be done in a way that does not undermine the financial integrity, investment mandates, or the sustainability of investment and pension funds," he told Fin24.
Parks agreed that any funding channeled to the state should be towards meaningful projects that bolster the economy, and not be wasted on "salaries for politicians" or the "opening of Parliament".
Parks said that the message of Cosatu's proposal got "messed up" in the public discourse, people thought that the labour federation was targeting their pensions. But Parks pointed out that the Government Employee Pension Fund, behalf of which the PIC invests, is a defined benefit fund – which means regardless on whether there is a return on investment their pension funds are guaranteed.