Chancellor House must be dismantled before SA can slay party-funding dragon

30th April 2010 By: Terence Creamer - Creamer Media Editor

Perhaps by the time you read this, the African National Congress (ANC) would have moved decisively to deal with the entirely improper structure that is the Chancellor House Trust – or, perhaps not.

True, its liquidation is complicated by the fact that the entity is a trust, without direct shareholders. But there seems to be little doubt that it has links to the ANC and has been established, in part, to provide some form of funding for the party, or entities that fall under its influence.

In fact, it is entirely possible that the beneficiary groups detailed recently by Hitachi Power Africa (HPA), in which the trust has a 25% interest through Chancellor House Holdings, could even include entities such as the ANC Youth League and the ANC Women’s League.

This is because HPA indicated that “natural black persons” falling within such categories as the “youth”, or “women”, had emerged as one class of beneficiary confirmed through what appears to have been a fairly superficial due diligence exercise.

The exercise was carried out by the company once Hitachi reportedly became aware that Chancellor House was an ANC “front company” and after Eskom refused to grant HPA black economic-empowerment (BEE) credit for the Chancellor House shareholding, owing to the fact that the class of beneficiaries listed was not aligned with South Africa’s BEE guidelines, which specifies that beneficiaries need to be “natural black persons” and not entities.

HPA insists that when it was formed as a “start-up” entity in 2005, primarily to pursue emerging power-industry opportunities in South Africa, it was entirely unaware that Chancellor House had any links to the governing party. It was selected in favour of an entity that included black professionals and Chancellor House reportedly paid “more than R1-million” for the stake.

At a media briefing convened to address the fallout surrounding the fact that a company with political affiliations was awarded part of a R38,5-billion Eskom contract (the single largest ever awarded by the utility) to supply boilers to the Medupi and Kusile projects, HPA’s leadership made it clear that it would not have pursued the relationship if it had been aware of ties to the ANC.

They also made it painfully clear that they would be eager to end the relationship.

In fact, CEO Johannes Musel said that Hitachi would “gladly” entertain an offer from Chancellor House to sell its interest in the company, but signalled that no such offer had been made.

Less satisfactory, however, were HPA’s arguments that it had done all it could to ensure that no funding flowed to a political party.

CFO Robin Duff indicated that efforts had been made, for instance, to seek guarantees that the beneficiaries were indeed previously disadvantaged South Africans, in line with South Africa’s BEE rules.

A due diligence conducted by Hitachi found there to be two classes of beneficiaries to the Chancellor House Trust, including black “natural” persons, as well as black “natural” persons classified into groups such as youth, women, rural citizens and the disabled.

But when pressed on the precise identity of the beneficiaries, Musel indicated that it would be up to Chancellor House to provide further insight.

“All we can do is to ensure that the legal conditions are correct in terms of what the trust deed states,” Musel argued, while acknowledging that there might be a dis- connect between what was legally allowable and what was proper from a moral stand- point.

Surely, as part of a global group, which reported sales of $102-billion in 2009, and given the reputational damage being caused, a more proactive and aggressive stance could have been taken to ensure the liquidation of the Chancellor House shareholding.

Musel said that such a transaction required “all parties involved to agree”, indicating that, while numerous discussions had been entertained on the matter, no sale offer had been forthcoming.

But given this stance, it is now up to the ANC to do the right thing and dismantle the entity and do so in full view of the public.

To be sure, value could well be extracted from such an unwinding process and here too the ANC must show rectitude.

The sale of the HPA stake and any other interests Chancellor House may have should be done transparently, and no proceeds should be allowed to flow to party coffers, or to ANC-aligned entities.

Beneficiaries should be identified upfront and they must have names and faces. If any groups are identified as potential bene- ficiaries, their activities should be opened up for public scrutiny.

Once the ANC has taken the important step of cleaning house, it will be able to turn its attention to the bigger issue of party political funding.

Here there are no easy answers. But it’s painfully clear that it is entirely improper for political parties to have business wings, particularly entities that might be seeking contracts from government departments or State-owned enterprises.

Indeed, as Public Enterprises Minister Barbara Hogan pointed out recently, Section 236 of the Constitution requires that legislation be enacted to regulate the manner in which political parties are funded.

“These matters of transparency regarding political funding and the resolution of conflicts of interests, even perceived conflicts, can only be addressed and regulated in terms of the legislation envisaged in the Constitution,” Hogan said, while calling on Parliament to move swiftly to give effect to such legislation.

The sooner, the better, in my view. But it should also be said that, until the ANC dismantles Chancellor House, it will be unable to speak with any authority on the matter, whether in Parliament, or anywhere else.