Eskom no longer forced to use 100% black-owned suppliers

Eskom, Denel, Transnet, and other state-owned companies (SOCs) can no longer disqualify suppliers from consideration for tenders if they don’t meet black economic empowerment (BEE) criteria.

Sunday newspaper Rapport reports that finance minister Enoch Godongwana published new legislation for the Preferential Procurement Policy Framework Act (PPPFA) on Friday, 4 October 2022.

The regulations outline the criteria that SOCs need to follow when awarding tenders.

It previously specified that organs of state could disqualify bidding companies if they were not 100% black-owned.

Former finance minister Pravin Gordhan published that controversial inclusion in 2017. Gordhan currently serves as South Africa’s Minister of Public Enterprises.

Before the amendment, bidders’ BEE status carried a weight of 10% to 20% in the final tender evaluation process.

In February 2022, the Constitutional Court ruled that the new regulations were invalid and unconstitutional, following the business interest group Sakeliga challenging their legality.

The Concourt ordered South Africa’s new finance minister, Enoch Godongwana, to publish revised regulations within a year.

With the promulgation of the new regulations, all references to BEE criteria in the Act have been removed.

Enoch Godongwana, South African minister of finance

In addition, a previous clause which allowed the minister of trade, industry, and competition to force certain sectors to use local products or content has been scrapped.

However, Solidarity Research Institute’s Connie Mulder told Rapport that there were loopholes in the regulations that continued to favour black-owned companies.

Although not explicitly mentioned in the new legislation, there is a “special purpose” in the original regulations published in 2000 that allows for giving previously-disadvantaged groups preference.

Mulder said he hoped the new regulations were not intended to mislead the public and courts.

The regulations have hamstrung Eskom from procuring equipment needed to maintain its ageing power stations in a timely and cost-effective manner and getting additional power onto the grid.

According to documents that Sakeliga acquired through a Promotion of Access to Information Act request, Eskom CEO André De Ruyter sought exemption from the regulation in 2021 but was denied.

The same was the case for energy minister Gwede Mantahse, who had tried to get an exemption for the independent power producers’ procurement programme.

But since the court ruling in February, over 700 state entities — including Eskom, Denel, Transnet, and various municipalities and state departments  — have been granted exemption from the regulations.

Eskom’s new board weighs in on BEE procurement rules

Former MTN and Microsoft South Africa chief executive Mteto Nyati, recently appointed head of the Eskom board’s business operations performance committee, came under fire for stating that BEE procurement rules hampered Eskom’s performance.

“Procurement rules are not as agile as they should be, including rules which say you cannot use suppliers that are not local,” said Nyati.

“When the supplier of equipment is an international company … you have to use middlemen to satisfy the localisation rule.”

Nyati said there was no place for such regulations at Eskom, which was in a difficult position that required faster and cost-effective procurement.

“We need to remove costs from the equation. We need to make sure we are connecting directly with the people who have the knowledge that will get us out of this crisis as soon as possible,” Nyati said.

“It’s our responsibility as the board to remove any blockages or challenges in the way of the management team so they can focus on doing what they know best,” said Nyati.

The Black Business Council was unhappy with Nyati’s comments, arguing it was a deliberate diversion from the board’s mandate to improve Eskom’s Energy Availability Factor to 75%.

After the council’s scathing statement, the Eskom board distanced itself from Nyati’s comments.

It said that, as a state-owned enterprise, it embraced the PPPFA.

Eskom added that it supported “all government policies aimed at transforming the South African economy to deal with the pervasive conditions of inequality and socioeconomic imbalances”.

Eskom board chair Mpho Makwana also appeared before Parliament this week and said Nyati’s comments were misrepresented.

The Sunday Times changed the headline of its original article from “To save Eskom, empowerment must go” to “Throwing out the rule book to save Eskom”, stating that its previous headline did not accurately reflect Nyati’s views.

It has not amended any of the article’s content.

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Eskom no longer forced to use 100% black-owned suppliers