By Eamonn Ryan
Ongoing legal action against move to deal directly with original equipment manufacturers closely watched as it will hit middlemen. This is Part 2 of a two-part series.
The period between 2011 and 2018 marked a troubling chapter in South Africa’s democratic era, during which several state-owned enterprises—including Eskom, Transnet, Denel and SAA—were systematically undermined by entrenched corruption. According to the findings of a judicial commission, losses from this sustained mismanagement are estimated to have reached R57 billion.
Key to this erosion of public institutions was the collusion between certain senior officials and private contractors, where procurement processes were manipulated in exchange for personal gain. The fallout extended well beyond the balance sheets of these entities, with the broader economy suffering massive setbacks. Estimates suggest that the knock-on effect in lost investment and productivity could be as much as R1.5-trillion.
In response to this legacy of abuse, recovery efforts have focused in part on overhauling procurement policies to plug financial leaks. At Transnet, leadership has acted decisively. Following board approval in September, the organisation swiftly rolled out its updated procurement manual—an effort that has already triggered industry pushback. Among the first moves was the cancellation of three tenders tied to the purchase of 22 rail-mounted jib cranes meant for shipyard operations and vessel maintenance.
In early February last year, Transnet initiated efforts to acquire new cranes to replace aging jib cranes at its port facilities in Durban, Cape Town, and East London. Initially, three separate tenders were made available to local companies. However, following the formal approval of a revised procurement manual, these tenders were withdrawn, and the entire procurement process was relaunched.
By May, a consolidated tender had been issued, merging the previous three into a single bid. A notable change in the new process was that only original equipment manufacturers (OEMs) were permitted to participate. This shift effectively sidelined intermediary firms that had previously been regular participants—and often successful bidders—in such projects, leading to significant discontent.
One of the affected local firms, Channel Construction based in Durban, had previously collaborated with an international OEM in an attempt to secure the East London crane installation contract. In response to the new exclusionary criteria, the company sought an urgent court order from the Johannesburg High Court to halt Transnet’s revised tender process. The court, however, declined to grant the interim relief, and Transnet has since moved forward with its procurement plans.
Nonetheless, the legal proceedings continue to draw attention, particularly due to their broader implications for local entities that have historically played a role as intermediaries or OEM affiliates in major public procurement projects. The National Treasury also has a stake in the matter, as it is currently drafting a new procurement framework under the recently enacted Public Procurement Act, which is set to replace the current Preferential Procurement Policy Framework Act.
The National Treasury has to balance the interests of black and local suppliers who feel entitled to a fair share of the state’s R800-billion annual procurement spending, against the interests of the state, which must be protected from paying inflated prices for goods and services.
References: Businesslive