Black Economic Empowerment In Department, Eskom, Denel And Transnet: briefings

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
31 August 2005
BLACK ECONOMIC EMPOWERMENT IN DEPARTMENT, ESKOM, DENEL AND TRANSNET: BRIEFINGS

Acting Chairperson: Mr P Hendrikse (ANC)

Documents handed out:
Department of Public Enterprises briefing
Eskom briefing
Denel briefing
State-owned Enterprise Procurement Forum briefing
Transnet briefing

SUMMARY
Officials from the Department of Public Enterprises, Eskom, Denel, and Transnet presented their approaches and advances in Broad-based Black Economic Empowerment (B-BBEE). Much had been achieved, but non-discretionary procurement, such as for importation, was problematic. A major problem was ‘fronting’, but internal controls were in operation to contain those practices. The difficulty of finding funding was proving to be an obstruction in BEE, but negotiations with banks were underway to overcome that. Skills transfer was part and parcel of BEE. Procurement skills was generally lacking and a plea was made for promoting the procurement profession.

Members asked for a provincial breakdown of BEE beneficiaries so that they could monitor what was happening in their constituencies. The State-owned Enterprise Procurement Forum (SOEPF) established in June 2004 had grown rapidly and was working on rationalising BEE initiatives in all SOEs.

MINUTES

Department briefing
Mr James Theledi (Department Deputy Director-General: Analysis and Risk Management) apologised for the late delivery of the study material. The Department was committed to promoting and overseeing SOEs’ efficient implementation of Black Economic Empowerment (BEE) programmes. SOEs had to face up to the challenges and learn lessons in order to take the lead in the application of BEE policies. Employment had to reflect the demographics of the country to achieve a sustainable growth rate in the economy of more than 3%.

A ‘flurry’ of charters was materialising, codes of good practise guidelines were being used, and the scoreboard approach was in operation. Tender documents were being structured to bring in black-owned entities. Many restructuring transactions had been completed in Telkom, Transnet, and the forestry industry. Challenges included the inadequate disclosure of BEE initiatives by SOEs, fronting, lack of funding and lack of skills development in operational and technical areas. SOEs had to take on a broader role than just making a profit. Shareholder compacts with, and representation on, boards of SOEs had been implemented. Training had to be targeted and meaningful, and lead to increased responsibility. Economic growth depended on skills. Lack of detailed disclosure of BEE progress was a real concern. The large amounts of money to be won in tenders were tempting. SOEs were leading the private sector in BEE in developing a more representative management profile, but more could be done.

Mr Reuben Manorare (Eskom General Manager) stressed that the main focus for black empowerment at Eskom was in procurement. They were perhaps further advanced with regards to BEE than any other SOE. The fact that procurement through importation was not discretionary was a problem. Of total discretionary expenditure in 2005, 52% had been spent with BEEs, and the target for the next financial year was 65%.

Mr B Matutle (Denel: Head of Government and Industry Relations) presented a broad overview of mainly projected sales and spending. The credentials of suppliers claiming to be eligible for BEE consideration, were being verified. 14% of the total supplier base had been assessed thus far.

Mr J Sekhasimbe (SOEPF Chairperson) recounted how the Forum had been conceived in June 2004, and from the four founder Members had grown to encompass 17 members and two more with guest status. Its aims were to standardise, align, synergise, share information, lobby jointly, benchmark policies with government requirements, and create an encouraging environment for Small-, Medium- and Micro-Enterprises (SMMEs). A common website would be launched on 2 September 2005.

Ms K van Vuuren (Transnet General Manager: Group Supply Management) was only in her twelfth day of employement at Transnet. As President of IPSA (Institute of Procurers of South Africa), she was concerned that only 1 000 out of about 30 000 active procurers in South Africa were IPSA members. She appealed that procurement be recognised as an independent profession and that young people be encouraged to follow this career path. The biggest problem was internal, in that procurers were not properly trained. SOEs were leading the field in the application of professional procurement, and should help the provinces that could then assist municipalities. Good practices could spread further to the private sector and Africa through the New Economic Partnership for African Development (NEPAD). Economic empowerment had to include skills development.

Discussion
Mr C Gololo (ANC) was deeply concerned about ‘fronting’ and asked what was being done against those practices. Mr Theledi replied that SOEs were dealing with that internally through established systems of reporting.

Ms N Kondlo (ANC) and Ms N Ngcengwane (ANC) both asked that SOEs disclose the names of BEE beneficiaries in the different provinces so that Members could monitor whether BEE was a reality. Where were these BEE companies in the Eastern Cape?

The Chairperson confirmed that all PDIs (Previously Disadvantaged Individuals) were give equivalent preferences. Of the R10 billion going to BEE, how much was actually empowering black Africans? Mr Manorare replied that millions of transactions with many companies were involved, and a breakdown could be given at a later time.

Ms Ngcengwene (ANC) enquired whether rural women were beneficiaries of BEE.

Mr C Gololo (ANC) referred to one excellent BEE project by Eskom in Barberton in Mpumalanga, and also asked for a breakdown per province of BEE activities.

Mr Manorare explained that companies had to register on the BEE database. Their status was verified with every contract, and a re-assessment was also done during the running of the contract.

The Chairperson emphasised that all women needed to be empowered, not just black women. He was most impressed with the SOEPF initiative on a common reporting format and standard.

Ms Kondlo asked whether verification of all companies was envisaged or only certain ones. Ms S Filmalter (Denel Procurement Manager: Non-production Materials/Services) replied that their aim was full verification by the end of the financial year. Mr Sikhasimbe added that they were particularly targeting those companies that were in the database before BEE was started.

Ms Ngcengwane believed that the funding of SMMEs was the main problem. Ms van Vuuren replied that a system of pre-approved loans from Standard Bank was being negotiated and that final commitment was imminent.

Mr Gololo was shocked that the majority of white women-owned companies working for Denel were ‘controlled’ by white men previously employed by Denel. Mr Sikhasimbe replied that this had not been illegal in the past, and that the Small Business Act was still in place.

Ms Kondlo asked for information on the number of successes achieved by Transnet’s two-pronged approach. Ms van Vuuren explained that a detailed evidence was not available, but there was anecdotal evidence from the provinces. Transnet’s two-pronged approach meant that two separate assessments had to be made. A pilot project at Spoornet and Transwerk was being conducted.

Mr Gololo asked whether BEE was affecting profitability adversely, to which Mr Mamorare replied that it was not. Members could assist by verifying if BEE was working in their constituent communities. A breakdown of contracts was underway at Eskom, with contracts ranging from a few thousand Rands to R1.2 billion.

The meeting was adjourned.