Business Lobby Questions B-BBEE After Ruling on Eskom Tender

A business lobby group says it has instructed its legal team to evaluate the wider implications of the broad-based black economic empowerment (B-BBEE) commission’s ruling on Eskom.

This week the commission found that the embattled power utility — which has been flagged by ratings agencies as the biggest risk to SA’s economy — failed to comply with the Broad-Based Black Economic Empowerment Act in awarding a tender for the Duvha power station to Chinese-owned Dongfang, which did not meet empowerment requirements.

The commission said Eskom failed to comply with section 10(1)(b) of the act in awarding the controversial R4bn tender to Dongfang, an entity with zero black ownership, when the tender required at least B-BBEE Level 4, which calls for elevated black ownership, among other targets. ?

Eskom awarded the tender to the state-owned Chinese company even though its offer was R1bn more than rival bids.

On Thursday, business lobby group Sakeliga said it had instructed its legal team to evaluate the B-BBEE commission’s ruling for its larger implications, as well as any bearing it might have on pending litigation to challenge race-based pre-disqualification of prospective contractors at state-owned enterprises.

Sakeliga is also engaged in litigation with the department of public works to have regulations that allow race-based pre-disqualification of prospective contractors set aside. The regulations, adopted in 2017, allow state-owned enterprises such as Eskom to set their own discretionary and arbitrary minimum BEE requirements a contractor must meet if it wants to do business with the power utility, said Sakeliga.

“At present, if a prospective contractor is not 51% black-owned, Eskom frequently pre-emptively disqualifies it for doing work for this state-owned enterprise. That is, without even considering its proposals,” said Piet le Roux, CEO of Sakeliga.

“It is a practice that precludes — at a critical time for the economy — electricity consumers in SA from the full range of cost-effective expertise available on the market. In the end, consumers and taxpayers lose, because the wrong benchmark is applied,” he said.

Tenders should be about value for money for consumers or taxpayers, not about the race of a contractor’s shareholders or the ability of a contractor to get special treatment, Le Roux said.

“The ruling by the B-BBEE commission raises serious questions on the application and impact of BEE at state-owned enterprises. In this case, the ruling shows how Eskom’s tender committee negligently at best, or fraudulently at worst, selectively applied BEE criteria to disqualify some contractors, while at the same time flouting rules in awarding a tender to Dongfang,” said Le Roux.

In 2017, rival bidders, including General Electric, accused Eskom of rigging the tender and approached the high court in Johannesburg to interdict the power utility from implementing Dongfang’s contract until it had been reviewed and adjudicated again. They were successful in obtaining the interdict, but the main application is still pending.

This week, the B-BBEE commission said that, in addition to the recommended contract cancellation and the independent audit by Eskom, investigations with respect to officials that were involved in the tender process be done so that decisive action can be taken to prevent this in future.

“Of concern also is the possibility that this tender process may have been deliberately compromised to favour a specific entity,” the commission said.