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Presentation on Broadcasting Amendment Bill, 2002 to the

Presentation on Broadcasting Amendment Bill, 2002 to the Parliamentary Portfolio Committee on Communications 17 September 2002 9:00 AM. Chairperson’s Introduction. Introduction of team Time reviewing Draft Bill

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Presentation on Broadcasting Amendment Bill, 2002 to the

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  1. Presentation on Broadcasting Amendment Bill, 2002 to the Parliamentary Portfolio Committee on Communications 17 September 2002 9:00 AM

  2. Chairperson’s Introduction • Introduction of team • Time reviewing Draft Bill • Board and management support broad principles outlined in Act and Bill (e.g. mandate fulfillment and proper accountability) • Board and management bring depth and breadth of experience wrto operational realities • Ways and means of achieving the objectives envisaged in Act and Bill • Views/comments outlined in detail • Thank you for the opportunity

  3. GCEO’s Introduction (1 of 2) • Perpetual state of change • Difficult media environment • Challenges we face as a nation & unique role of SABC in meeting challenges • Stability is required to ensure delivery • Year in review • SABC way forward • Legislation must work to support delivery

  4. GCEO’s Introduction (2 of 2) Broadcasting Act, 1999 (“The Act”) in some areasworks against underlying objective of repositioning the SABC SABC suggested amendments Many of the issues raised have been satisfactorily addressed in theBill Some issues have not been addressed appropriately in the view of SABC A number of new issues have emerged in the Bill

  5. Selected Areas of Concern There are areas of the Bill & the Act that concern the SABC. • Corporate governance • Independence of the SABC • Conversion of the SABC • Re-organisation of the SABC • Regional TV services • Database of TV sets sold • TV licence fee allocation • Constitutional issues • Other major legal concerns • Drafting and other legal issues

  6. Corporate Governance Introduction • Proposed amendments conflict with current best practice at a policy level (e.g. King Report 2002 and Draft Protocol on Corporate Governance in the Public Sector) and in legislation (e.g. PFMA and Companies Act) • Specificity in Act with respect to executive committee impractical at operational and strategic levels • Issues discussed under corporate governance include • role & structure of the Board of Directors • executive committee • Ministerial approval • Sections discussed are proposed 6(2), 10(3), 11(2), 13(11), 13A, 14 and items 11 and 15 of Schedule 2, as well as 14(1) of the Act

  7. Corporate Governance Role & Structure of Board of Directors (1 of 2) Role • In law, the Board of Directors is the “controlling mind” of the company • Section 13(11) currently provides that the Board “controls the affairs” of the SABC • Proposed new section 13(11) reduces the role of the Board to mere policy making Structure • The Bill proposes in section 13A the creation of two management boards • Management boards intended to manage/oversee the PBS and PCBS divisions of the organisation • Specific functions of the management boards will be set by the Minister in the memo and articles • The Bill in attempting to create focus and efficiency would do the opposite and add to the complexity involved in managing the SABC and delivering on its public service mandate • Management Boards will require full-time Board members • Undermines the role of Board and the role of the executive committee

  8. Corporate Governance Role & Structure of Board of Directors (2 of 2) • Create a cumbersome three-tiered management structure • Lead to the potential loss of current non-executive members of the Board, all of whom are experts in their fields • The Board has structures and processes to deal with the SABC’s strategic, operational and policy-related issues • Many of these issues cut across divisions • Board’s current structures are geared to dealing with this reality • Many mechanisms exist to ensure delivery (e.g. Shareholder Compact, MTEF, etc.) • Casting structure in legislation constrains ability to deal with operational realities • Replicate powers and duties of the Board and create conflict, which will in turn lead to: • increased cost • decreased efficiency • loss of morale • corporate governance conflicts Retain existing section 13(11) and delete proposed sections 13A and 14(1) in their entirety

  9. Corporate Governance Executive Committee • Section 14(1) of the Act specifies the number of individuals who should form the executive committee • Corporation operates in a dynamic environment • Environment may call for a varying management and/or organisational approach at different points in time to achieve the policy and strategic objectives outlined in the Act • If a management model is specifically cast in legislation (as proposed): • it is much more difficult to modify • much more likely to be out of sync with operational realities and strategic imperatives • impact on delivery Amend section 14(1) to provide for the Board to constitute the executive committee as it deems fit

  10. Corporate Governance Ministerial Approval (1 of 3) • Proposed section 10(3) requires “old Corporation” in respect of the PBS division to submit to the Minister for approval: • a proposed budget • a three-year business plan • policies (including codes of conduct) relating to : • news • programming • local content • education • universal service and access • language • Similar obligations are cast by the proposed section 11(2) on the SABC in relation to its PCBS division

  11. Corporate Governance Ministerial Approval (2 of 3) • In terms of the proposed item 11 of schedule 2: • the SABC must submit, for the Minister’s approval, inventories of all its assets, rights, obligations and liabilities in respect of its PBS and PCBS divisions • In terms of the proposed item 15 of schedule 2: • the SABC must submit for Ministerial approval the deemed market-related considerations upon which any of the assets or rights of the SABC are to be made available to the PCBS division and the deemed market-related considerations upon which services are to be rendered by the PBS division to the PCBS division and vice versa

  12. Corporate Governance Ministerial Approval (3 of 3) • Such provisions are undesirable because: • They amount to “micro-management” • No criteria or guidelines are set out • No provision made for what happens if no approval given • Undermine independence, editorial and otherwise, of the SABC Delete proposed sections 10(3), 10(4) and 11(2) and items 11 and 15 of schedule 2

  13. Independence of the SABC (1 of 3) • The Bill proposes deletion of current section 6(2) that currently provides: • that the SABC will “in pursuit of its objectives and in exercise of its powers enjoy freedom of expression and journalistic, creative and programming independence” • The SABC welcomes the Minister’s proposal to reinstate 6(2) • However the proposed sections 6(3)-(5) call for the following: • an obligation to ensure “accurate, accountable and fair reporting by the Corporation in order to advance the national and public interest of the Republic” • and a further obligation to submit to the Minister for approval policies in terms of which that obligation will be discharged

  14. Independence of the SABC (2 of 3) These proposed changes will: • Question Parliament’s commitment to freedom of expression • Undermine the independence of the SABC as the public broadcaster • Create the perception that the State seeks to strengthen its control over the public broadcaster • Undermine the credibility of the SABC as an independent public broadcaster • Inappropriately duplicate existing safeguards

  15. Independence of the SABC (3 of 3) A Ministerial power to approve SABC’s policies and codes of conduct will strengthen these perceptions The proposed section 10(4) inappropriately equates policies with codes of conduct Codes and policies reflect values which may change over time and ought not be cast in legislation Retain section 6(2) and delete proposed sections 6(3), 6(4), 6(5), 10(3)(c), 10(4) and 11(2)(c)

  16. Conversion of the SABC (1 of 3) • The Act provides for a transfer of assets of the SABC to a new company, SABC Ltd • The Bill recognizes that the current wording is unworkable and introduces the notion of “conversion” of the SABC • The SABC supports conversion as it minimizes its financial, legal and other risks to the Corporation • There is a technical difficulty with the proposed section 7(1) • contemplates conversion but does not set out the mechanism to effect the conversion • the concept of conversion of a statutory corporation is not catered for in the Companies Act • therefore, the conversion must be “deemed” to occur in the Bill

  17. Conversion of the SABC (2 of 3) Deemed conversion is clearly the best option. Risks of Transfer Benefits of Deemed Conversion All contracts, assets, liabilities, licences and employees remain with one entity - no transfers or assets left behind Easier dealing with 3rd party contracts governed by foreign law No consents required from relevant creditors and third parties Less likely to breach change of control covenant Licences need not be transferred Transaction documents needed for transfer unlikely to be required Easier to deal with existing litigation No risk of conversion being treated as a sale of assets All contracts, licences, assets etc, have to be transferred individually Material contracts could be left behind High likelihood of breach of change of control covenant in existing contracts Consent of 3rd party holders and creditors required to effect transfer Increases difficulty of dealing with contracts governed by foreign law Tax liability of R263.4M on reserves Donation tax could be raised if transfer seen as donation Impact on capital allowances in terms of sec 11(e) if transfer of assets seen as sale by connected party Permission must be sought from all employees for transfer Presentation to Parliament 17 September 2002 17

  18. Conversion of the SABC (3 of 3)Proposed Changes • Redraft the proposed section 7 to clearly indicate the conversion is “deemed” to happen • Include proposed items 1 to 9 of schedule 2 of the Bill in section 7 of the Act

  19. Re-organisation of the SABC Relationship Between PBS and PCBS (1 of 4) • The PBS division is partially funded by public monies • Therefore the public and Shareholder are entitled to ensure and be assured that public funds provided for PBS are utilized substantially for that purpose • Similarly, assets of the SABC acquired with state and public funding should not be used to serve PCBS without appropriate compensation • Proposed items 10-15 of schedule 2 are aimed at achieving these objectives • Section 9 of the Act provides for the divisions and their separate administration and financial records • Section 10(2) provides for the funding of PBS • Section 11 provides for cross-subsidisation of PBS by PCBS • Section 27 provides that television licence fees be used solely for PBS

  20. Re-organisation of the SABC Relationship Between PBS and PCBS (2 of 4) It will however, be counter-productive and impractical, if not impossible, to implement in the manner contemplated in the Bill • “Holder” of rights and assets has no accepted legal meaning when used in this context • SABC Ltd will own all of the assets • Not possible to determine the “true income and expenditure” without investigating the SABC’s obligations and liabilities • SABC has over three thousand contractual relationships • Majority of contracts located in central support services and are difficult to unpack and allocate to a specific business unit (e.g. software licence and foreign acquisitions) • Majority of our material contracts are of a short-term nature (expire with the next two years)

  21. Re-organisation of the SABC Relationship Between PBS and PCBS (3 of 4) • The solution provided by items 10-15 of schedule 2 is too rigid and prescriptive… • the Minister must approve the “deemed market-related considerations” of all the thousands assets or rights made available by PBS to PCBS • …But it is also too vague since it fails to stipulate how disputes about such values are to be resolved • The SABC suggests that the Board be required to : • state in its annual financial statements that all such transactions have taken place at fair value • no funds or licence fees provided for PBS have been used for PCBS • SABC’s auditors should provide an opinion in this regard • The SABC is developing and will submit to the Minister as representative of its sole shareholder an accounting policy designed to achieve the arm’s length divisional relationship contemplated by the Act

  22. Re-organisation of the SABC Relationship Between PBS and PCBS (4 of 4) The SABC is in the process of developing mechanisms to ensure and improve accountability. Funding Model • This model flows from the financial model and will assist in understanding the impact of key strategies on the finances of the SABC • Proper accounting for PCBS and PBS divisions at core of corporation’s current financial efforts Transfer pricing policy and model • This model will ensure that internal charges between business units are accurately calculated • It will also assist in ensuring that transfer pricing between PBS and PCBS is appropriate and accurate, thereby preventing cross-subsidy • Policies with regard to transfer pricing are also being developed • An advanced costing system will also be developed to ensure successful implementation of the policies and the model

  23. Regional TV Services Situation: • Bill proposes insertion of section 32A dealing with regional TV services to be established by the Department • SABC supports any sustainable measures directed towards providing services to marginalised official languages Complication: • In absence of having sight of any detailed feasibility study the SABC is not in a position to meaningfully comment on the proposed section • SABC has initial concerns around impact on the industry and the following issues: • timing • infrastructure rollout • financial viability • funding • licensing process • impact on the viability of the SABC must be determined • constitutionality Review proposed section 32A

  24. Database of TV Sets Sold Situation: • Bill proposes in subsection 27(6)(f) that a database of all TV sets sold be maintained by the Corporation Complication: • Legislation makes no distinction between new and used TVs • TV licence obligation for individual users is per household and not per TV set • SABC is burdened to create a national database register of all sales of TV sets without the financial and regulatory resources to do so • Regulations dealing with information regarding TV sales are not drafted with such a database in mind Delete proposed subsection 27(6)(f)

  25. TV Licence Fee Allocation • Proposed section 27(6)(d) requires that all television licence fees be used by the SABC solely for its PBS • There are numerous group functions which service both PBS and PCBS • Subsection 27(6)(d) should accordingly provide that licence fee revenue should fund PBS and “all related administration and functions” • The proposed subsection 27(6)(f), which provides that the Minister must issue policy directives on the use of television licence fees, should be deleted: • the Minister already approves the SABC’s annual corporate plan and budget • the Minister is not conversant with the details of the SABC’s financial affairs • the provision is unclear • Amend proposed subsection 27(6)(d) as suggested above • And delete proposed subsection 27(6)(f) (as previously suggested)

  26. Constitutional IssuesRelevant Provisions Section 16 of Constitution • “(a) freedom of the press and other media • (b) freedom to receive or impart information or ideas” • Section 7(2) : SABC and Parliament must “respect, protect, promote and fulfill” the fundamental right of freedom of expression Section 192 of Constitution • “National legislation must establish an independent authority to regulate broadcasting in the public interest, and to ensure fairness and a diversity of views broadly representing South Africa society.” • Government cannot direct how ICASA must regulate broadcasting • Parliament cannot regulate broadcasting itself

  27. Constitutional IssuesThe Insertion of Section 32A (1 of 2) • Insertion of new section 32A • establishes two regional television services • determines the areas within which they operate and obligations relating to the language of broadcasting • directs the Authority to license the regional broadcasters • Huge restructuring process envisaged by section 32A • Cannot risk the disruption of an adverse Constitutional Court decision several years down the line • Infrastructure development • Roll-out of programming plans • Start-up financing • Human resources transfer To advance the aims of equality, diversity and the promotion of indigenous language, Parliament must ensure that any plan for regional broadcasting is implemented in accordance with the Constitution

  28. Constitutional IssuesThe Insertion of Section 32A (2 of 2) • Proposed section addresses core issues in broadcast regulation • act of issuing broadcast licences • decision whether to license regional broadcasters • decision of how many regional broadcasters should be licensed • in respect of which regions? • with what obligations relating to the language of broadcasting? • These questions are reserved by section 192 of the Constitution for ICASA • Parliament cannot decide them directly in legislation Section 32A likely to be struck down as unconstitutional

  29. Constitutional IssuesMinisterial Control of SABC Policies • Insertion of new sections 6(4), 10(3)(c) and 11(2)(c) of the Act require Ministerial approval of SABC broadcasting policies: • Violation of section 16 read with section 192 of Constitution • Limits right of the SABC to broadcast information and Right of public to receive information • Unguided discretion is contrary to rule of law • Minister given functions which Constitution vests in ICASA • Accountable and fair reporting • News and editorial matters • Programming policy • Local content policy • Language policy • Educational policy Sections 6(4), 10(3)(c) and 11(2)(c) unconstitutional

  30. Constitutional IssuesClause 6 and the Deletion of section 6(2) • Existing section 6(2) guarantees SABC’s “freedom of expression and journalistic, creative and programming independence.” • Deleting 6(2) unconstitutionally limits freedom of expression of the SABC and its viewing and listening public • Unconstitutional purpose of limiting section 16 of Constitution • Clear violation of duty on State under section 7(2) of the Constitution to respect, protect, promote and fulfil the fundamental right of freedom of expression.

  31. Other Major Legal Concerns (1 of 2) Broadcasting Licence • The proposed definition of “broadcasting licence” requires amendment by the inclusion of a reference to the IBA Act Conversion • The “deemed conversion” model needs to be adopted consistently throughout the Act to avoid the dangers of an actual conversion. • This requires amendments to subsection 7(1) and items 1-9 of schedule 2 • The requirement in the proposed subsection 7(3) that the Minister must deliver the memorandum and articles of association of the Corporation needs to be more specific about the content of these documents SABC’s licences on conversion • The proposed section 22, which deal with the issuing of new licences to the SABC upon conversion should be amended • Upon conversion licences issued to the old Corporation shall be deemed to have been issued to the Coroporation as at the effective date of the conversion

  32. Other Major Legal Concerns (2 of 2) TV Licence Fees • Amendments proposed by the SABC were intended to create four categories of licences, including lessors • Bill incorporates some aspects of Corporation’s proposal • Concerned about exclusions, particularly of lessors • The concept of “lessor” as a licence holder needs to be applied consistently in the Act

  33. Drafting and Other Legal Issues The SABC makes the following proposals: Deletion of existing subsection 14(2) of the Act Amendment to subsection 18(4) of the Act Deletion of the proposed subsection 24(4) of the Act Deletion or amendment to subsection 25(1) of the Act Deletion of existing subsection 26(3)-26(7) of the Act Amendments to the proposed section 27 of the Act Deletion of the proposed subsection 28(3) of the Act Amendments to the proposed revision of section 31 of the Act Amendment to definition of “free-to-air” services in the act to accommodate distribution by the SABC of its signal by means of satellite Amendment to proposed definition of “multi-channel distribution services” Deletion of the proposed definition of “radio station” Amendment to the definition of “television licence” Consequential amendments to subsection 4(1) of the Act and proposed subsections 4(6)-4(8), dealing with broadcasting licences Amendment to proposed subsection 5(3) to include global reference to IBA Act Amendments to items 1,5 and 6 of schedule 2

  34. Conclusion • Detailed comments contained in written submission • Covered areas touched on in written submissions as well as others THANK YOU

  35. QUESTIONS

  36. Appendix Contains detailed comments on areas of concern and suggestions on ways to address

  37. Overview of Time Spent Corporatising On average corporatisation processes have taken 15 months**. Average = 15 months *Corporatisation process still ongoing; **time estimated from the time internal action was initiated on the part of company; please note does not include time to draft original legislation initiating the corporatisation process Source: Interviews (Metelec: Andersen Consulting, SAA : Gasant Orrie, Eskom: Benji Mothibedi;)

  38. Independence of the SABC (4 of 5)International Examples Cornerstone of public broadcasters around the world is the explicit statement of independence “We believe it to be in the interests of Our Peoples in Our United Kingdom…that there should be an independent corporation which should continue to provide broadcasting services…” (BBC Royal Charter) BBC “The Corporation (CBC) shall, in the pursuit of its objects and in the exercise of its powers, enjoy freedom of expression and journalistic, creative and programming independence.” (Canadian Broadcasting Act) CBC “The corporation shall take account of the responsibility of the corporation as the provider of an independent broadcasting service…” (ABC Charter – section 6 of ABC Act) “The ABC Act guarantees the editorial independenceof the Corporation’s program services…By law and convention neither the Government nor Parliament seeks to intervene in those decisions.” (ABC Code of Practice) “It is the duty of the Board … to maintain the independence and integrity of the Corporation.” (Section 8 of ABC Act) ABC • “To provide timely, impartial coverage of local and global events and issues” (Mission statement and Framework Agreement) • “Editorial independence, Impartiality, Serving the public…” (Vision) RTHK

  39. Re-organisation of the SABC Relationship Between PBS and PCBS (1 of 5) The core features of the SABC’s accoutning policy are:

  40. Re-organisation of the SABC Relationship Between PBS and PCBS (3 of 5): The SABC is different from the BBC in that it is majority funded (84%) by commercial/other sources, while the BBC is majority funded by licence fees (75%).

  41. Internal Re-organisation of the SABC Internal RestructuringRelationship Between PBS and PCBS (5 of 5) • In South Africa, the desire to separate PBS and PCBS have been incorporated in the White Paper, Act and Bill in part in two ways: • separate management structures • separate accounts for the two divisions of the Corporation • In the case of the SABC it is not as straight forward as it is for the other public broadcasters • Our public service is currently and is likely to remain, in the near to medium term, funded primarily by commercial means What is therefore required is an approach that takes into account our unique situation rather than trying to impose a model that is inappropriate to our specific context

  42. Internal Re-organisation of the SABC Internal RestructuringAllocation of Rights and Assets (1 of 6) • Situation: • Bill, in proposed item 13 of Schedule 2, deals with the allocation of rights and assets • Stated aim is to ensure the true income and expenditure incurred by the Corporation in rendering a public broadcasting service and the commercial broadcasting service • States the public services division must be regarded as the holder and owner of all the assets and rights of the Corporation as the date of conversion • Proposed items 14 & 15 of Schedule 2 deal with arm’s length contractual relationships between the PBS division and the PCBS division

  43. Re-organisation of the SABC Relationship Between PBS and PCBS (3 of 5) • In the SABC’s view, these provisions are sufficient to ensure objectives of divisionalisation are met • Unlike some other public broadcasters (example BBC), the vast majority of SABC funding is drawn from commercial sources – approximately 84% • According to a 1999 McKinsey report, the SABC has one of the highest proportions of commercial funding of any public broadcaster in the world • PBS expenses are X times higher than TV licence revenues • Even if all TV licence fees are allocated to PBS, approximately 72% of the PBS division’s funding will be drawn from commercial sources

  44. Internal Re-organisation of the SABC Internal RestructuringAllocation of Rights and Assets (6 of 6): Proposed Changes As previously mentioned, delete proposed items 13-15 in schedule 2

  45. Corporate Governance Role of Board of Directors (1 of 2) • In law, the Board of Directors is the “controlling mind” of the company • Section 13(11) currently provides that the Board “controls the affairs” of the SABC • The Board has created sub-committees to deal with various aspects of its business • The proposed amendments to sections 13(11) and 14(1), and the introduction of section 13A will: • Remove the Board’s power of management and control over the SABC and invest the power it has in two “management boards” • Reduce the Board to a mere policy making organ

  46. Corporate GovernanceExecutive Committee (1 of 2) • The Act specifies the number of individuals who should form the executive committee • In the White Paper, however, section (2.2) dealing with the Corporation’s Charter states the following: (The statutory charter … will have the following features) operate through its Board of Directors, which will independently exercise management of the SABC through the management team it chooses … • Board and Management maintain that the above section is appropriate and should have been extended as a principle in the Act to allow the Board and Management to institute the appropriate management structures to achieve the policy objectives in the White Paper and the subsequent legislation

  47. Re-organisation of the SABC Relationship Between PBS and PCBS (1 of 6) • The PBS division is partially funded by public monies • Therefore the public and Shareholder are entitled to ensure and be assured that funds provided for PBS are utilized substantially for that purpose • Similarly, assets of the SABC acquired with state and public funding should not be used to serve PCBS without appropriate compensation • Proposed items 10-15 of schedule 2 are aimed at achieving these objectives. It will however, be counter-productive and impractical if not impossible to implement the manner contemplated in the Bill • It would be appropriate for the Act to require the Board to formulate and submit to the Minister a policy which will achieve these objectives • The SABC has already taken steps to ensure transparency in relation to its assets, liabilities, income and expenditure by: • Undergoing a detailed due diligence and submitting report to Minister • Involving the Department in all due diligence exercises related to the conversion of the Corporation

  48. Re-organisation of the SABC Relationship Between PBS and PCBS (2 of 6) • The objectives of the internal re-organisation into PBS and PCBS are to ensure that: • public funds are not utilised for PCBS • PCBS does not compete unfairly with other commercial broadcasting services • Section 9 of the Act provides for the divisions and their separate administration and financial records • Section 10(2) provides for the funding of PBS • Section 11 provides for cross-subsidisation of PBS by PCBS • Section 27 provides that television licence fees must be used solely for PBS

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