Paul Janisch

More on the PPPFA regulations

I'm warming to the regulations.  I wrote an article for the Star Workplace last week and I concluded that the current status quo should remain.  I stand by this in the sense that there were certain facilities within the old regulations that could help regional businesses etc.  These do need to be incorporated back into the new regulations (sorry Kevin I pinched an idea or two from you in my submission to Treasury - uncredited of course). 

However there is a fair amount of thought that has gone into the new regulations and it would be a little sad if they aren't accepted.

Anyway what I really wanted to write about was this little section on start-ups.

6.4 Start-up Enterprises must submit a QSE Scorecard when tendering for any contract or seeking any other business covered by section 10 of the Act with a value higher than R 5 million but less than R35 million. For contracts above R35 million they should submit the generic scorecard. The preparation of such scorecards must use annualised data

I was looking at this clause with my colleague Tsele.  I wrote something about this for the British Chamber and left it somewhat open-ended.  What I wasn't sure about was whether a standard start-up certificate would work with the new regulations.  I missed the point here; namely section 10 of BEE Act.

10. Every organ of state and public entity must take into account and, as far as is reasonably possible, apply any relevant code of good practice issued in terms of this Act
in—
(a) determining qualification criteria for the issuing of licences, concessions or other authorisations in terms of any law;
(b) developing and implementing a preferential procurement policy;
(c) determining qualification criteria for the sale of state-owned enterprises; and
(d) developing criteria for entering into partnerships with the private sector.

I cannot say that I know of many instances where section 10 has been expressly used.  It is very prevalent within the PPP space - most of the bidding consortia at RFQ phase are unincorporated SPVs and their scorcards are more a case of a commitment for the future. 

Another instance of section 10 could happen with liquor licences.  They are issued by the DTI which would indicate that section 10 is involved.  I can't find a mention of section 10 in the regulations.

This then begs the question; if section 10 is used do they have to expressly mention it.  I am quite sure they do - because how is a start-up going to know whether their start-up certificate is acceptable when bidding for state business.

And then if section 10 is used - how are you supposed to use annualised data in calculating a scorecard for contracts above R5million?  I suppose this is another one of those mysteries that the DTI themselves are unable to answer.

On the subject of liquor licences, we are hosting a one day course on BEE plans for liquor licences.  It's a great course that covers the DTI's generic codes and the Tourism Charter.  If you want more information email me and I'd be happy to send you something.

 

Transport Charter gazetted says Engineering News

Again this twitter thing speaks.  I tweeted a while ago that the Transport Charter was going to be gazetted.  I heard it from the WKRP man.  Engineering News reports that it has been gazetted - all except the Aviation Charter, which is still under section 12.  It's not up on the DTI's website yet. 

The gazetting comes in time for the BRT debate 

The Code would also ensure that the taxi industry provided commuters with reliable, safe, affordable, efficient and quality public transport services.

Good luck with this one.

As soon as it is published I'll tweet on it.

PPPFA regulations and irregular fonts

I tweeted that the DTI and Treasury had just released the new PPPFA regulations for comment.  We  have until the 14^th of September, 2009 to send our comments to either JAN Breytenbach or HML Malinga.  I suppose this post could be regarded as my opinion.  If you want jungle’s opinion you’ll find it here.  I especially love his recommendation for a 60:40 system.  He must have been advised by the person (and I know who she is) who drafted the GPG’s procurement policy all those years ago.

I was expecting a lot more from this document.  The hype that has surrounded it over the last five years has set it up to be something a lot grander than it actually is – all it really is, is an endorsement of BEE scorecards.  A rather safe compromise that may shed a fair amount of light on the dti’s attitude to BEE, which is more orientated towards compliance than actual transformation.

The most significant features

• 80:20 rule is extended to all contracts below R1million
• 90:10 for contracts above R1million
• Preference points are awarded on the basis of BEE score – with different sliding scales for 90:10 and 80:20 rules
• Historically Disadvantaged Individual (HDI) status and RDP goals are no longer used in determining preference points
• (And I quote paragraph 13) Bidders SHOULD NOT be disqualified or regarded as non-responsive for being a non-compliant B-BBEE contributor.  Under such circumstances bidders will score no points for their B-BBEE status
• Treasury wants BEE scorecards and only those issued by SANAS agencies (you know that drivel)
• Paragraph 11(1) provides for local manufacturing – for specific industries (identified by the DTI) where the award of bids to local manufacturers are of critical importance, such bids may be advertised with a specific bidding condition that only local manufacturing products will be considered.  (Keywords to consider here – blackwashing, code series 1200 and the man from WKRP)
• The regulations state (strangely because the codes don’t) any certificate substantiating the B-BBEE status level of a bidder must be based on the findings of the previous year’s financial statements of the relevant enterprise.
• You’ll still need a tax clearance certificate to do business with the government.

What I think

1. A scorecard is going to become the thing you need to do business.  But that’s all you’ll need.  Black ownership is no longer relevant unless it actually contributes significantly to the scorecard, and we all know that QSEs can rustle up 100 points without any ownership.
2. At best, the state will be able to measure their procurement.  They will not be able to target certain types of businesses – this goes back to section 217 and practice note SCM 2 of 2006 (prohibition of set asides).
3. The rigid nature of allocating preference points is going to have a negative impact on the people they are intended to benefit.  By insisting on an accredited BEE scorecard they will end up prejudicing all those entities that cannot get a scorecard done because there aren’t enough verification agencies or because an agency doesn’t service their area.  The press is going to have a field day with this when that poor black person in Polokwane gets 80 points for price and functionality and no preference points – and the white-owned business gets a total of 82 points because they got seven preference points.

The solution

Judging by Rob’s reluctance to insist on only accredited verification agencies we can assume that he doesn’t believe in them or that there aren't enough to cater for the demand.  This means that the two systems need to run in conjunction until scorecards become more prevalent.  Maybe the 2001 regulations should be used for the 80:20 system exclusively and both for the 90:10 rule. 

Broad-based BEE scorecards are extensively used in Public Private Partnerships – so there is some conditioning in certain government departments.

Anyone ever BEEn to Namibia

Last year I got a telephone call from a lawyer in Namibia.  He'd read my book and wanted me to come through and help them with a fronting problem they had.  We managed to solve this problem without me going there but since then I have harboured a great desire to do some work up in Namibia.  I spent a year on the border in Oshakati in the mid eighties and I have been to Windhoek a few times since then.  I love the people, the country and the dangerous hospitality that I experienced with one Barney Harmse.  I wrote a few articles for the Namibian Economist on the subject hoping to stir up a little interest (if anyone is reading this from Namibia - please invite me on a speaking tour, I promise I'll be there in a shot).

Namibia's BEE programme is known as The Transformation of Economic and Social Empowerment Framework (TESEF) and is supposed to have been finalised sometime last year.  A draft policy has been published but needs to be pushed through the legislative process.  Sounds strangely familiar.

The policy favours historically deprived Namibians (HDNs) and can include white women to a certain extent.

If anyone has a copy of the draft TESEF document please send it through to me - I'll comment on it in this blog. 

Mine!!!!!!!! (as Oliver is wont to say)

There's been a fair amount of speculation as to the future of the Mining Charter and how it might move across to the Codes.  It is due for its five yearly review in October this year.  I found a few articles that discuss this review.

“The Mining Charter review comes on top of the Codes of Good Practice, which are problematic, and which, I think, retrospectively 
amend the Charter,” says International Bar Association mining law chairperson and Webber Wentzel chairperson Peter Leon.

“Where the Mining Charter, I think, has fallen down is that it hasn’t promoted broad-based black economic empowerment, which accounts for some frustration with it by government and by communities.

In terms of the amendment to the Mineral and Petroleum Resources Development Act, which is not yet in force, the Minister of Mineral Resources can impose conditions on mining companies to advance the participation of near-mine communities, which new Minister Susan Shabangu referred to in her recent Budget speech.

I like the last paragraph - it's a bit of positive move towards the codes.

This next article shows how the charter's insistence on equity actually contributed to Mvela's demise

Mvela CEO Pine Pienaar  highlights a “fatal flaw” in the legislation – the Minerals and Petroleum Resources Development Act (MPRDA) and associated Mining Charter – that’s forced Mvela into the situation it now finds itself in.

Pienaar says: “The fatal flaw in the Mining Charter is the obsession with measuring black empowerment in terms of percentage equity stakes instead of taking an approach based on value. I think it’s often far better to have a 5% stake in a strong business than 51% of a weak business.

“You need to be able to dilute for value and I hope that, over time, the politicians will accept that and realise there are enough other checks and balances in place to achieve their empowerment aims.”

And here is the crux

Pienaar says the need for Mvela to maintain its high empowerment shareholding was a major constraint on the group.

Mvela’s controlling empowerment shareholders – Afripalm Resources and Mvelaphanda Holdings – are short on funds, which put severe limitations on what Mvela could do without diluting the equity stakes of the two major shareholders that had to be maintained to meet legal empowerment requirements.

Says Pienaar: “We couldn’t go to the market and raise capital to strengthen our balance sheet – as a number of mining groups have done so far this year – because that would have diluted our major shareholders.

From the horse's mouth.  The charter is a mess, and the mining codes don't make anything clearer or easier.  If you don't believe me take a look here.

Zimbabwe is paying close attention to our legislation too.  Mugwump announced a few years ago that a controlling stake had to be given to indigenes.  Gono made a recent speech where he poured water on the senile idiot's policy.

The Mines and Mineral Act should reflect an indigenous policy that encourages foreign investment. The policy should allow foreign investors who are bringing in capital to own more than 50% of the venture

Gono is acutely aware of our policies and their potential for cronyism.

South Africa embarked on a Black Economic Empowerment (BEE) drive a few years ago but the exercise is now mired in controversy after the ruling African National Congress officials got the lion’s share of empowerment deals.

I'm not too sure about the complete accuracy of the last paragraph

SANAS is extending the accreditation and a Twitter endorsement

I subscribe to numerous blogs and one of them is the 16th letter. Melissa posted one post on Twitter and I registered.  It's only over the last week or so that I have been tweeting and it has had a huge impact on my blogging.

And so to the point.  I got sent this note from an associate.  It appears that SANAS is going to extend the verification licence to include the new charters.  The notice concludes that the charters are not so different to the codes and that "the outcome is that the assessment will not be necessary."  Do I sense that standards might be slipping.

Take a look at the notice and decide for yourself.

Extension of deadline

The DTI must've twigged that the 1  August deadline was never going to make it.  The deadline for non-accredited verificatiion certificates has been extended to the 1st of February next year, and then August of 2010 etc.

And I quote

• From 1 February 2010, only BEE verification certificates issued by Accredited Verification Agencies or VAs that are in possession of a valid pre-assessment letter from SANAS will be valid
• Despite the provision above, all verification certificates issued by non-accredited agencies before 1 February 2010, will remain valid for 12 months from the date of issues
• Notice 354 and 677 are deemed to be repealed from 1 August 2009

The notification was signed by Rob Davies too.

 You can look at it here.  Also and importantly the ABVAndals have also noted this extension - this means that they CANNOT reject certificates as they are wont to do.

You may have seen that I twittered that the Transport Charter is due to be gazetted in the next few days/weeks.  Apparently the aviation sub-sector will not be included.  I suppose they will look a lot like this.