Public Investment Corporation decisions have put the spotlight on the company's governance framework and the role of its board.
Recent controversy about investment decisions made by the Public Investment Corporation (PIC) has put the spotlight on the company’s governance framework and the role of its board, which answers to its chairperson and the finance minister.
One of these is the PIC’s investment of roughly R3-billion in Camac Energy, an oil company that last year teetered on the brink of bankruptcy.
To add to the unease, the former chief executive, Elias Masilela, resigned suddenly and without any explanation in May.
The newly appointed finance minister, Nhlanhla Nene, replying through the treasury, would only say that all PIC investments are subjected to a “rigorous internal process”, starting with screening by a team of investment professionals.
Treasury spokesperson Phumza Macanda said: “Investments are selected in line with the expected risk-adjusted returns they can offer, as required by the client mandate.”
Daniel Matjila, the PIC’s chief investment officer, said that proposed deals, in line with the delegation of authority and depending on their size, are first discussed at executive level by the portfolio management committee (PMC) and then referred to the board’s investment committee for approval if the deal is outside the delegated authority of the PMC.
The PMC includes the company’s chief executive, formerly Masilela, and Matjila as chief investment officer. The delegation of authority specifies “delegated threshold limits” for management and board committees but is confidential, Matjila said.
Camac, “like any other investment, was subjected to the normal internal process and was within the delegated authority of the PMC”, he said.
Camac’s reported poor performance is “typical of any exploration company, which requires some time before it can show some viability”.
After a Mail & Guardian investigation revealed Camac’s struggling state in February and questioned the motives for investing in the company, which is headed up by a politically connected American-Nigerian, Kase Lawal, the PIC defended its decision.
But it said certain conditions would have to be met before it would pay over the second tranche of funds, including the completion of Camac’s Oyo-7 well, off the coast of Nigeria, and the production of 7 000 barrels of oil a day.
According to Matjila, the drilling of Oyo-7 was complete and drilling of Oyo-8 was beginning.
The PIC was “happy with the progress so far” and he had taken a seat on Camac’s board to “ensure that PIC’s interests are fully represented”.
Overall, the PIC’s portfolio has performed well, returning more than 14% in compound annual growth since 2003, Matjila said.
But it is “not an anomaly for some investments within a portfolio to underperform and for others to perform well”.
The M&G reported on June 6 that drilling on Oyo-7 had still to be completed and drilling on Oyo-8 had not yet started. But the second tranche of pensioners’ money was paid to Camac on May 6.
Typical in the industry
In response to follow-up questions, the PIC referred back to its previous statements – that this was typical of any exploration company and that the PIC was happy with Camac’s progress.
According to Ansie Ramalho, chief executive of the Institute of Directors in Southern Africa, for a company such as the PIC, investment decisions are made in the ordinary course of business and would fall within management’s responsibility.
But the board “cannot abdicate responsibility and needs to ensure that there are necessary checks and balances in place to ensure that the investment decision-making processes are robust and that there is a proper delegation in place that determines up to which level management can make decisions, or for which board approval should be obtained”.
Depending on the nature of an investment, in the case of negligence directors can be held responsible in terms of the Companies Act.
But sometimes even the best-laid plans fail, Ramalho said, and, in such cases, “the assessment of the appropriateness of the decisions taken by the directors is not based solely on the manner in which the decision turned out but also on the process that the directors followed in arriving at their decision”.