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Corruption perceived to be ‘especially prevalent’ in South African government tender processes


Eighty per cent of South African companies consider political interference in the public procurement process in Zimbabwe to be a regular occurrence, according to South African executives involved in risk and ethics compliance.

Surprisingly, 60 per cent of respondents to a new survey into business ethics and compliance in SADC (South African Development Community) countries considered the same to be true of South Africa itself.
The survey, carried out by the University of Stellenbosch Business School questioned representatives of 26 companies listed on the Johannesburg Stock Exchange, mainly compliance officers, non-executive directors, risk managers or company secretaries.

Forty per cent of respondents said bribing of public officials to win tenders happened often in Zimbabwe. Even more (55 per cent) considered this was the case in South Africa.

The survey said of South Africa: “While business is generally easier and cheaper to do than in the rest of the region, bribery and corruption are perceived to be especially prevalent in the granting of government contracts and procurement tenders.”

But the survey acknowledged perceptions towards South Africa itself may have been skewed negatively by the fact all respondents lived there or were employed by South African companies. Employees were “therefore more exposed to media reports of corruption in South Africa, or are more likely to have witnessed corrupt acts, than in the other SADC countries”, the survey added.

Mauritius was the only SADC country to be perceived as having a “very or somewhat ethical” business environment. The Democratic Republic of Congo, Angola, Zimbabwe and Mozambique were considered to be the most corrupt countries.

The survey said awareness campaigns, training or policy development should be encouraged to help companies deal with tender bribery and political interference in the public procurement process. It also recommended additional care should be taken when doing business or considering investments in countries that are consistently perceived to be corrupt.

 

South Africa to Publish Coal Power-Procurement Process This Year


Bloomberg News

Paul Burkhardt

Nov 21, 2014

South Africa plans to publish before the end of the year the process for independent power producers bidding to build new coal-fired generation capacity.

“We are currently finalizing the coal-procurement documents,” the Energy Department said yesterday in an e-mailed reply to questions. “We are expecting the bidders to bid the tariff and provide us with the estimated project cost.”

Africa’s second-biggest economy is struggling with a power grid under strain, leading to controlled blackouts this year. In April, then Minister of Energy Ben Martins announced additional infrastructure projects including 2,500 megawatts of coal-fired power.

“The bidders are expected to raise their own capital for the construction of the plant and Eskom will pay only for the energy produced,” the department said. “We will have sight of the total project cost at bid submission but it is premature to speculate on the price and the project cost at this stage.”

To contact the reporter on this story: Paul Burkhardt in Johannesburg atpburkhardt@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.netTony Barrett, Alastair Reed

South Africa: Government to Decide On Nuclear Procurement Process


allAfrica.com

October 1, 2014

Pretoria — The Department of Energy on Wednesday announced that government will decide on which procurement method will be used to acquire 9 600MW of nuclear power.

“… There will be a procurement process and the work that the department is doing is preparation towards that procurement process,” Deputy Director General (DDG) for Nuclear Energy at the Department of Energy, Zizamele Mbambo, said.

South Africa recently signed an Intergovernmental Agreement on Strategic Partnership and Cooperation in Nuclear Energy and Industry with Russia.

The agreement lays the foundation for the large-scale nuclear power plants (NPP) procurement and development programme of South Africa. This will be based on the construction of new nuclear power plants in SA with Russian VVER reactors, with total installed capacity of up to 9.6 GW (up to 8 NPP units).

At Wednesday’s briefing, the department said it is currently doing work in preparation towards the procurement process.

“We’ve highlighted that various models exist in the international space of the procurement process and South Africa would review all this and choose whichever procurement process it chooses to implement the nuclear programme. That decision will be made in the future,” said Mbambo.

Internationally, various procurement models are used and these are informed by the way in which countries want to roll out their nuclear programmes.

“This will apply to SA as well. Government will make a decision and say what is our national interest in rolling out this process,” said Mbambo, adding that the procurement process has not started.

South Africa has a number of nuclear agreements with several countries, including Russia and the US. SA is set to sign an agreement with France this month.

The department’s Acting Director General, Dr Wolsey Barnard, said that no information relevant to the public about South Africa’s nuclear build will be withheld.

South Africa’s nuclear energy policy was approved in 2008 and was further enhanced by the approval of the Integrated Resource Plan (IRP) 2010 – 2030, which stipulates that nuclear power will form part of the country’s energy mix to a level of 9 600MW.

“Some of the key elements of the policy revolve around the fact that as South Africa, we want to be self-sufficient. We want to be able to exploit nuclear technology for peaceful use purposes. Currently, people are focusing on the 9 600MW, which is mainly for the generation of electricity. But if you look into the process, the entire programme involves training, skills development and job creation [among others],” said Mbambo.

South Africa is looking at the entire nuclear energy value chain.

On how long will the procurement process take, Mbambo said that this will depend on the type of model that government approves.

He said the aim of the procurement process is to put the country on a path where there is energy security and to reduce greenhouse gas emissions, among others.

To date, South Africa generates 5% of its electricity from nuclear power through the Koeberg Nuclear Power Plant in the Western Cape.

At the centre of the new nuclear build programme will be a concerted localisation plan that will ensure that existing South African industry participates to the maximum extent.

The department said government is committed to ensuring that the new nuclear build programme is undertaken in a fair, competitive and cost effective manner.

– SAnews.gov.za

South Africa Signs Agreement With Russia for Nuclear Power


Bloomberg News

Paul Burkhardt

September 22, 2014

South Africa signed a partnership agreement with Russia’s state-owned nuclear company that may see Rosatom Corp. build reactors in Africa’s second-biggest economy.

“The agreement lays the foundation for the large-scale nuclear power plants procurement and development program” using Russian VVER reactors with installed capacity of about 9,600 megawatts, or as many as eight nuclear units, Rosatom and the South African government said in an e-mailed statement today. The country also has a draft nuclear cooperation pact with China.

South Africa’s integrated resources plan envisions 9,600 megawatts of nuclear energy being added to the national grid to help reduce reliance on coal, which utility Eskom Holdings SOC Ltd. uses to generate 80 percent of the country’s electricity. The state-owned company is struggling to meet power demand,

The National Treasury said in February 2013 that a 300 billion-rand ($27 billion) nuclear program was in the final stages of study.

Areva SA (AREVA), EDF SA (EDF), Toshiba Corp. (6502)’s Westinghouse Electric Corp., China Guangdong Nuclear Power Holding Corp., Rosatom and Korea Electric Power Corp. (015760) have expressed interest in building the plants.

Local Procurement

“This agreement opens up the door for South Africa to access Russian technologies, funding, infrastructure, and provides a proper and solid platform for future extensive collaboration,” South African Energy Minister Tina Joemat-Pettersson said in the statement. It will allow the country to implement its plan to create more nuclear capacity by 2030, she said.

The collaboration will result in orders worth at least $10 billion to local industrial companies, Rosatom Director General Sergei Kirienko said in the statement.

In addition to building the nuclear units, the agreement provides for partnerships including the construction of a Russian technology-based research reactor, assistance in the development of South African nuclear infrastructure and education of specialists at Russian universities, the parties said in the statement.

Rosatom currently holds projects for the construction of 29 nuclear power plants, including 19 foreign commissions in countries including India, China, Turkey, Vietnam, Finland and Hungary.

Financial Implications

Eskom operates a 1,800-megawatt nuclear facility at Koeberg, near Cape Town. In December, the Energy Ministry published a revised 20-year energy plan, which projected that new nuclear power won’t be required until at least 2025.

If finalized, the deal may have significant financial risks and implications for electricity prices in South Africa, said Anne Fruhauf, an analyst at New York-based consultants Teneo Intelligence.

South Africa’s energy regulator last month approved a power-tariff increase that could amount to 5 percentage points on top of the above-inflation 8 percent previously agreed, and prices may have to rise even further for Eskom, which supplies 95 percent of the country’s electricity needs, to plug a 225 billion-rand funding gap.

“The million-dollar question will be the financing details and equity ownership,” Fruhauf said in an e-mailed response to questions. “We don’t have the details yet but it could be one of the biggest public procurement programs on which South Africa has ever embarked.”

To contact the reporter on this story: Paul Burkhardt in Johannesburg atpburkhardt@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.netAna Monteiro, John Bowker

Indian arms deal probe exonerates Denel


Defenseweb.com

By Oscar Nkala

October 2, 2013

India’s Central Bureau of Investigations (CBI) has closed its eight-year long corruption probe into South African arms manufacturer Denel following allegations that it paid kickbacks to Vara Associates, a company based in the Isle of Man, to help secure five deals between July 1999 and April 2005, to supply the Indian Army with 1 000 anti-material rifles and over 300 000 rounds of ammunition.

Indian defence procurement rules and the country’s Prevention of Corruption Act expressly forbid original equipment manufacturers who bid for contracts with the army from hiring any middlemen or intermediaries to influence or ‘swing’ the adjudication of the contracting process.

According to reports from the Indian capital New Delhi, the CBI dropped the case on Monday after eight of years of trans-national investigations in South Africa, the Isle of Man, Switzerland and the UK failed to prove the allegations levelled against Denel.

The probe started in June 2005, two months after the Indian government stopped all dealings with Denel amid allegations that the South African company had paid ‘commission’ to the value of 12.75 per cent of the total worth of the arms deals secured with the Indian Army to Vara Associates, based in the tax-haven Isle of Man, to ‘swing’ the five contracts in its favour.

The contracts involved the supply of 700 NTW-20 anti-material rifles (bunker-busting and light armour penetrating), knocked-down kits for another 300 rifles of the same make and 398 000 rounds of ammunition. According the CBI case opened in June 2005, allegations against Denel were that it had made the pay-offs to Vara Associates, accused by investigators of acting as an intermediary, disguised as technical assistance and consultancy fees.

In the course of its eight-year probe, the CBI sent requests for information to judicial and investigative authorities in the UK, South Africa, the Isle of Man and Switzerland which all reported that they could not find any evidence to support the charges against Denel.

Several employees of Vara Associates and the Indian Ministry of Defence were being probed alongside Denel on allegations of conniving with Vara Associates to swing the five contracts in question in favour of the South African company.

After the Denel deal fell through, India’s Ordnance Factory Tiruchirappalli began manufacturing the locally developed Vidhwansak multi-calibre anti-materiel rifle, which bears many similarities to the NTW-20. Available in 14.5 mm, 12.7 mm and 20 mm calibres, it has an effective range of approximately 2 000 metres.

SA watchdog slams ‘flawed and unlawful’ procurement process


Supply Management

By Will Green

September 8, 2013

The public protector in South Africa has called for cash to be recovered after R15 million ($1.5 million) was “irregularly spent” in the procurement of legal services.

Thuli Madonsela said the amounts charged by legal firm Morake Inc were “unconscionable” for services provided to the Department of Finance of the North West Provincial Government (NWPG).

Morake was appointed in connection with disciplinary action against three employees in 2011, but an investigation by the public protector found R500,000 ($49,530) was spent just drafting charges against the trio.

Madonsela said the procurement process was “flawed, unlawful and in violation of the constitution and the National Treasury regulations” and said disciplinary action should be taken against all the officials involved.

A related investigation is taking place concerning a member of the executive committee of the NWPG and their relationship with Morake, while Madonsela said action should be taken against the attorney in the case if misconduct is discovered.

The public protector, the Public Service Commission, the auditor-general and the South African Police have all been asked to investigate the matter by the North West Standing Committee on Public Accounts (SCOPA).

Madonsela said: “Morake Inc were initially procured for half a million for drafting the charges, thereafter their services were expanded. That was irregular. Morake Inc further double-charged the department on some of the invoices, particularly for travelling.

The law society should check the billing by Morake Inc and check if this was consistent with professional requirements, and if any money was overbilled it should be repaid, and if there was misconduct by the attorney in this regard it should be dealt with, because this was a junior attorney with four years’ experience.”

SCOPA chairman Hlomane Chauke said the committee was “happy” with the report.

“This matter will not end here, things that need to be referred to police will be. Both the speaker and the premier will receive a copy of the report and it will be tabled in the provincial legislature.”

Morake Inc could not be reached for a comment, and SM is awaiting a response from the NWPG

Does the procurement profession in Africa have the right profile to capitalise on the region’s economic growth?


SupplyManagement

8 August 2013 | Andrew Allen

Sub-saharan Africa has become one of the world’s great economic success stories. It is the second-fastest growing region in the world after Asia and, according to the International Monetary Fund, it will see growth of more than 5 per cent this year, compared with 3 per cent worldwide.

But is procurement missing the party? Academic Douglas Boateng indicates this may be the case when in a recent presentation he described the function as undervalued and under-rewarded across the region.

Professor Boateng, of UNISA Graduate School of Business Leadership in South Africa and CEO of consultancy PanAvest International, says government and industry increasingly accept the need to bring procurement into the strategic decision-making chamber. But, he adds: “The pontifications have unfortunately not really been matched by real corrective structural adjustments.”

In his view, procurement professionals receive less recognition as well as worse remuneration than counterparts in other business functions. These factors make it hard to attract talent. Lower pay also raises the risk individuals will act unethically.

The solution? Boateng calls on industry leaders and government policy makers to take “decisive steps” to “ensure respectable recognition for the ethically and performance-driven procurement and supply chain management professional”.

The remarks will strike a familiar chord for many procurement professionals in Africa. Chabeli Ramakatane, CEO of Bareki Consulting, South Africa, tells SM: “There is progress, however, it is not at the pace we expect. The highest-paid procurement person here is poorly remunerated compared to the highest-paid finance or marketing person.

“There is definitely a leadership vacuum. Even where you find capable leaders they might not be empowered to do what is necessary.”

At the heart of the problem is organisations’ reluctance to appoint a CPO who reports directly to the CEO and who has a strategic remit. Instead procurement tends to be located further down in the structural hierarchy led by a purchasing manager. “Fewer than 20 per cent of companies or large public sector organisations have CPOs,” says Ramakatane.

Naomi Kinyanjui, civil projects operations manager at Ardan Risk and Support, Kenya, agrees the function has typically been pigeonholed as a back office transactional role. “With regards to it being under-rewarded, that has been true to a large extent,” she says. But she believes that private sector organisations are increasingly beginning to pay their purchasing staff a fair market rate as they realise procurement can add value to their businesses.

Phillip Dahwa, managing partner, The Global Procurement And Supply Chain Management Practice, Zimbabwe, believes that if procurement is undervalued, this is precisely because the function has not yet earned its stripes. “The calibre of most procurement professionals is questionable in most instances,” he says.

While the professionals have technical skills they tend to lack business acumen, softer skills and leadership competencies. This, in turn, has denied them the chance to shine at the highest levels of their organisations, he believes. “The challenge is now for the professionals themselves to prove that they can add value rather than just purporting to be undervalued,” he says.

Skills shortages pose a problem for procurement everywhere, but Tom Woodham, director of Crimson & Co consulting, which works with many multinational clients in Africa, believes the talent pool in Africa is particularly small. Not only are there fewer business graduates in the region but procurement, like most business functions, is lagging behind many other regions in maturity “by about 20 years”. Nevertheless, Woodham does not consider buyers – at least in many of the larger multinationals – to be more poorly paid than colleagues in other business functions. In Africa the lack of prestige attached to procurement rather than lack of pay is the most serious obstacle to attracting the best talent, he believes.

“FMCGs and multinationals really struggle to find people to bring in both in terms of previous experience and of people with an interest in procurement.

“These companies spend an awful lot of money training people and they find they have to start from a lower base than they would in Europe or elsewhere,” he says.

Ulrike Kussing, at PwC in South Africa, believes companies are increasingly seeing the value in supply chain management. “Now there is more of a focus on looking at things end to end. The stance has shifted from the past where it was viewed more as a logistics function,” she says.

Nevertheless Kussing says that while supply chain managers can rely on modern technology and increasingly good infrastructure, problems such as facilitation fees and unreliable delivery times present a major challenge for supply chain professionals.

She is not alone in seeing significant grounds for optimism in the region.

Woodham says: “A lot of multinationals out there are changing their focus. Previously they would have brought in expats to fill vacancies. Now they are training and developing local people.”

For Ramakatane there is one factor that will guarantee procurement’s rise up the corporate ladder in Africa – that organisations will sooner or later come to realise the significant cost savings that can be achieved by implementing a strategic sourcing model.

“We expect organisations in both private and public sector to realise that the only place left to achieve savings or to improve the bottom line is in procurement,” he says.

Does low pay cause corruption?

“Most procurement professionals are not bold enough to stand up against fraud and corruption,” says Phillip Dahwa. “They facilitate corruption in an attempt to win the hearts of their bosses.”

It is a controversial viewpoint but one that African procurement professionals will understand.

Chabeli Ramakatane says the lack of visible punishment for buyers caught accepting bribes is a major incentive for fraudsters. He believes low pay bears some responsibility for the prevalence of bribery, as well as unmanaged conflicts of interest, inadequate screening of suppliers and just plain greed.

Naomi Kinyanjui says it is inevitable that low pay leads to increased temptation to engage in corruption.

However for Ian McNally, vice president of Efficio, it is not always clear where cases of ‘supplier loyalty’ within companies are due to corruption or rather “loyalty to a supply base that has delivered service and where the relationships are strong and long lived”.

“What we have seen is that in most cases, a clear, open, transparent, fact-based approach works with stakeholders in the same way as it works in a European or North American context,” he says.

Kenya: Youths, Women, PWDs to Benefit From New Procurement Rules


AllAfrica.com

By Capt. (RTD) Collins Wanderi

OPINION

On 18th June 2013 the Cabinet Secretary for the National Treasury published the Public Procurement (Preference & Reservations) (Amendment) Regulations 2013.

The objective of these regulations is to accord the youth and other disadvantaged groups in Kenya preference in the supply of goods and services to the government. This is in line with one of the key promises of the Jubilee government to give the youth, persons with disability (PWDS) and women at least 30 percent of all supply contracts to the government.

The significance of these regulations is that the National Treasury and all the Treasuries in the 47 county governments shall be required to register and maintain a database for all Small or Micro-Enterprises (SME) or disadvantaged groups that wish to participate in public procurement.

The regulations also seek to favour local businesses by granting exclusive preference to local contractors who supply motor vehicles, electrical goods, furniture and other items which are fully assembled or manufactured in Kenya. Road works and electrical installations of below Sh1 billion, other public works of below Sh500 million and supply of goods and services of below Sh100 million and Sh50 million respectively are now exclusively reserved for Kenyans.

When these regulations come into effect the government and all its agencies will inevitably become the largest promoters of the motto, “buy Kenyan, build Kenya”.

The regulations also make it possible for procuring entities to divide supplies in lots of goods, works and services into practicable quantities which the youth, SMEs and other disadvantaged groups can afford. A new Regulation 31 enjoins the National, County governments and other agencies of government to allocate at least 30 percent of their procurement to the youth, SMEs and other disadvantaged groups.

To enhance compliance with this regulation these procuring entities will now be required to make budgets, issue tender notices and award contracts with at least 30pc participation by the youth, SMEs and other disadvantaged groups. They will also be required to submit quarterly reports to the Public Procurement Oversight Authority for compliance audits.

To participate in the new preferred and reserved public procurement scheme, the youth, women, persons with disability, SMEs and other disadvantaged groups are required to register their enterprises with the relevant government body e.g Registrar of Companies, Business Names, CBOs, NGOs etc.

The membership of such registered bodies may have 30 percent members at most who are not youth, women or PWD but their leadership must be 100 percent youth, women or PWD. Procuring entities will be required to pay for supplies made under this scheme within 30 days. A delay beyond 30 days requires the entity to make 50 percent part-payment and explain the delay in writing.

Regulation 33 which deals with financing is of great importance. While young people often have the benefit of fresh ideas, energy and vigour they are seriously deprived while in competition with older people who have the advantage of time, experience and money. Procuring entities will be required to authenticate Tender Awards and Local Purchase or Service Orders (LPOs & LSOs) and enter into agreements with relevant financing institutions with an undertaking that the contracted enterprise will be paid through the account opened with the financier.

Banks, Deposit Taking Microfinance Institutions (DTMs) and other lenders licensed by the Central Bank of Kenya must also come up with very innovative ways to help the government, the youth, PWDs, Women and other disadvantaged groups achieve the objectives of the new regulations.

The youth, women and PWDs need these contracts but on the other hand government agencies require assurance that the contracted enterprises will perform their part of the bargain and with the requisite skill and expertise. One method to ensure satisfaction of reserved and preferred public procurement contracts may be through the doctrine of cession which is widely used in South Africa.

The law has created a new spectrum of proprietary rights for the youth, PWDs & women by dint of their status in society. These rights are exclusive, reserved and can be quantified in economic and monetary value once a procuring entity has authenticated a tender award and issued an LPO or LSO.

Once an enterprise owned by the youth, PWDs or women gets a contract to perform certain obligations for the procuring entity, such an enterprise acquires a right of claim for payment in anticipation by virtue of regulation 33. Consequently in terms of the doctrine of cession in anticipado, the future right to claim payment may be ceded. This way the youth, PWDs and Women owned enterprises (cedent) would retain ownership of the contractual rights but only surrender to a limited degree the ability to enforce those rights.

An agreement to cede would be in writing and a formal document known as the Instrument of Cession will have to be executed. A cession as opposed to delegation or sub-contracting would be the best method to facilitate access to finance and specialist expertise by the youth, women and PWDs who want to benefit from the preferred and reserved public procurement under the new regulations.

Wanderi is the chairman-Kenya Institute of Forensic Auditors (KeIFA)

South Africa: DA to Submit a PMB Forcing Transparency On Arms Deals


AllAfrica.com

PRESS RELEASE

Tomorrow the Arms Procurement Commission begins public hearings into what appears to be the biggest corruption scandal in the history of South Africa.

One of the effects of the arms deal scandal was to destroy any scrutiny and oversight of future arms deals by Parliament.

Stung by the political fallout from the arms deal scandal, the Defence Department now refuses to disclose any detailed information about armaments acquisition to Parliament.

There is a complete lack of transparency on current Defence Department armaments acquisition programmes.

The fact is that we know less about arms deals now than we did a decade ago.

The Defence Department’s White Paper on National Defence for the Republic of South Africa (1996) requires the department to:

“… publish an annual Acquisition Master Plan to indicate all new acquisition projects required for political approval from the minister and to inform the Joint Standing Committee on Defence“; and

“… publish a medium-to-long-term Defence Requirements Statement to guide long-term technology and industrial planning”.

Moreover, the Defence Department’s Defence Material Division’s Policy, Process and Procedures for the Acquisition of Armaments in the Department of Defence (“DAP 1000”) is very clear about parliamentary oversight stating:

“The relevant parliamentary committee(s) on defence will have an oversight function to provide guidance to the DOD with respect to the relevant facets of its acquisition programmes. The oversight function will include guidance to the DOD with respect to timing of tenders, counter trade obligations, and acquisition prioritization. The DOD will submit bi-annual and ad hoc reports to the relevant Committee on Defence on all acquisition activities. The DOD will keep the relevant Committee on Defence abreast of developments in all its cardinal acquisition programmes, and will inform the relevant Committee on Defence at all relevant stages of such acquisition.”

However, for at least the past four years, the Defence Department has failed to produce any of these reports.

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