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PRESENTATIONTO THE STANDING COMMITTEE

ON PUBLIC ACCOUNTS(SCOPA)

22 MARCH 2006

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AGENDA

PFMA exemptions Reasons for providing PFMA exemptions Other regulatory measures

• Companies Act• JSE Listing Requirements

Way forward

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ENTITIES EXEMPT FROM PROVISIONS OF THE PFMA

Telkom is listed as a Schedule 2 Public Entity.

Telkom was listed in 200? On the JSE and NYSE.

Compliance with the PFMA would imply non-compliance with JSE and NYSE listing requirements.

Non-compliance would have prevented Telkom from listing on both these exchanges.

In 2001, Telkom was granted certain exemptions from the PFMA & Treasury Regulations in terms of Section 92 of the PFMA.

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ENTITIES EXEMPT FROM PROVISIONS OF THE PFMA

Telkom was exempted from certain provisions : 6(2)(e); 6(2)(f); 7(2); 7(4); 49; 50(1)(c ); 51(1)(d); 51(1)(b)(ii); 51(1)(f); 51(1)(g); 52; 54(1);54(2); 54(4); 55; 56; 58; 59; 60; 61; 62; 66(1); 66(3); 66(6); 66(7) ; 68; 76(4); 83 and 86.

Telkom is the only entity that has been granted an exemption from submitting an Annual Report.

Section 92 of the PFMA - the Minister of Finance may exempt any institution to which this Act applies, from any specific provisions of this Act, for a period determined by notice in the Government Gazette.

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ENTITIES EXEMPT FROM PROVISIONS OF THE PFMA

The Minister of Communications concurred with the initial exemption granted in 2001.

The exemptions were originally granted for a period of 3 years, and expired in November 2004.

During November 2004,an extension of the exemption was granted for a further period of 3 years, ending on 31 October 2007.

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OBJECTIVES OF LISTING REQUIREMENTS

Fair and equal treatment of all shareholders;

Simultaneous release of sensitive information to all shareholders and the public;

Shareholders’ best interests to be promoted by directors;

Best practice corporate governance followed; and

The Insider Trading Act makes it an offence for any person in possession of inside information to disseminate price sensitive information.

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DISCLOSURE OF PERIODIC FINANCIAL INFORMATION

Section 179: The company has a duty to prepare annual financial statements and to present them at the annual general meeting.

Section 304: Every public company shall send an interim report to every shareholder and debenture holder.

THE COMPANIES ACT

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MEMBERS RIGHTS

Section 67: A company shall send to every member at his request a copy of its memorandum and of its articles.

Section 252: Any member of a Company that complains of unjust/unfair treatment of the affairs of the Company can apply to the Court for an order under this Section.

THE COMPANIES ACT

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JSE LISTING REQUIREMENTS

DISCLOSURE OF INFORMATION

Para 3.4 : A company must from time to time, promptly release a public

announcement giving details of :• Circumstances or events that have or are likely to have a

material effect on its financial results, financial position or cashflow

• Any new developments in its sphere of activity that are not public knowledge, that may lead to material movements in its share price

Para 3.5 : Prohibits the release of information in para3.4 to any 3rd party

until it has been released publicly.

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DISCLOSURE OF PERIODIC FINANCIAL INFORMATION

Para 3.15: Reporting – Interim reports shall be published and

distributed distributed to shareholders after the expiration of the first 6 month period of a financial year, by not later than 3 months after that date.

Interim reports must comply with Statements of GAAP or IFRS

Para 3.17: Non- compliance results in a listing suspension

JSE LISTING REQUIREMENTS

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DISCLOSURE OF PERIODIC FINANCIAL INFORMATION

Para 3.19: Every issuer shall within six months after the end of

each financial year, distribute the annual financial statements for the relevant financial year to all holders of securities

Company must submit 200 copies to the JSE Publish the financial results in the press

Para 3.23: Non- compliance results in a listing suspension and

possible termination of listing

JSE LISTING REQUIREMENTS

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RIGHTS BETWEEN HOLDERS OF SECURITIES

Para 3.27: A company must ensure that all holders of any class

of its securities that are in the same position, receive fair and equal treatment.

Para 3.29: Securities in each class must rank pari passu in

respect of all rights i.e. shares are in all respects identical.

JSE LISTING REQUIREMENTS

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COMMUNICATION WITH HOLDERS OF SECURITIES

Para 3.44: A company must ensure that all the necessary

facilities and information are available to enable holders of securities to exercise their rights.

A company must: (a) inform holders of securities of the holding of

meetings that they are entitled to attend; (b) enable shareholders to exercise their right to

vote, where applicable; and(c) release announcements and distribute circulars

in terms of the Listing Requirements.

JSE LISTING REQUIREMENTS

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PUBLIC vs PRIVATE INTEREST

PUBLIC INTEREST– Financial Returns– Social Returns– Public Good

PRIVATE INTERESTS– Financial Returns

Government does not have outright control of Telkom and is not able to demand social returns

Government can use negative control to pursue its interests

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WAY FORWARD Section 3 of the proposed Amendment Bill to the

PFMA, proposes that government business enterprises listed on the JSE be exempted from the PFMA.

The intention of the Bill is to ultimately delist all the government business enterprises upon listing on JSE – Bill has not as yet been enacted.