- The Department of Public Enterprises has asked National Treasury for exemption from procurement guidelines.
- Public Enterprises director-general Kgathatso Tlhakudi said SOE procurement guidelines put compliance at odds with efficiency.
- Eskom and Transnet said the guidelines have introduced red tape and delays to critical procurement functions including maintenance and inventory.
Transnet and Eskom have asked National Treasury for permission to be exempted from the Preferential Public Procurement Framework Act (PPPFA), arguing that the policy hinders efficient procurement in their operations.
Among other things, they say it causes delays and instability in prices.
The entities were briefing Parliament’s Portfolio Committee on Public Enterprises on Wednesday morning, saying that to contain costs and procure efficiently, the state-owned entities (SOEs) have often had to deviate from procurement guidelines.
While the PPPFA and the Public Finance Management Act (PFMA) aim to make sure procurement by organs of the state are ethical, efficient, and consistent with the government’s developmental objectives, the PFMA also allows entities to apply to the Office of the Chief Procurement Officer at National Treasury for permission to deviate from these guidelines on a case-by-case basis.
This permission can be granted under exceptional circumstances such as emergency procurement or in instances where there is only one known supplier of the required good or service.
Eskom and Transnet told MPs that they have previously applied to National Treasury for permission to deviate from procurement guidelines in individual procurement instances, but that these applications took time and the entities wanted complete exemption from aspects of the guidelines.
READ | How will BEE rules for state contracts work in future? All eyes are on Godongwana
Public Enterprises director-general Kgathatso Tlhakudi said a major challenge in public procurement was striking an appropriate balance between operational efficiency at entities and their compliance with legislation.
“Whilst compliance minimises the risk of corruption and ensures impartial and equal treatment of bidders, efficiency seeks to ensure agility, speed of decision-making, and attainment of the most economically advantageous outcome in respect of price and quality,” said Tlhakudi.
Thlakudi said SOEs operate in a competitive and challenging environment and as such, a more agile and responsive decision-making process is required.
“Applications to National Treasury to deviate from the guidelines in procurement by extending contracts or increasing their scope of service create another rung of administration the entities, which is time-consuming,” Tlhakudi said.
Competitive pricing
Transnet group CEO Portia Derby told the committee that SOEs needed to be given room to implement broad-based black economic empowerment in the same “market-driven” manner that the private sector, as this would ensure competitive pricing and results. The PPFA also does not allow for post-tender negotiations, which locks SOEs out of negotiating for competitive prices, she said.
READ | Treasury releases new public procurement rules after tender suspension imbroglio
Transnet Group chief procurement officer Vuledzani Nemukula said the use of original equipment manufacturers (OEMs) is critical to the entity’s infrastructure maintenance and inventory, but that procurement guidelines subject this process of price and quality volatility because a new request for proposal in every instance.
“If we can use a process that addresses the challenges and allows us to get one OEM that we can work with across the port system for our technical requirements, it would help us a lot in making sure that, going forward, we maintain infrastructure and the maintenance regime is standardised,” said Nemukula.
Eskom chief procurement officer Jainthree Sankar said the power utility was in the same position as Transnet, as it was trying to reduce non-value-adding suppliers and get costs down. She said Eskom has already developed internal mechanisms to allow for transparent procurement in recent years.
“New suppliers come in and we are engaging National Treasury and DPE about this. Post-state capture, we have put in several controls that ensure that the EXCO [executive committee] and the entity are looking closely at expansions and deviations,” said Sankar.
The delegation told the committee that National Treasury exempted Transnet while Eskom’s exemption application was still being considered. The committee requested another meeting to discuss the matter with the National Treasury present.
