Proudly sponsored by

SAA confirms 30% Bidvest contract demand

Follows similar Eskom ultimatum.

In the past week, both Eskom and SAA confirmed huge new demands on some of their contractors – SAA demanding 30% of a contract with Bidvest’s BidAir Services and Eskom 30% equity in its boiler serve contractors Steinmuller, Actom and Babcock. These contracts are about to be renewed.

SAA confirmed that its aim is for the 30% share of BidAir Services’ SAA grooming, toilet and water contract to be transferred to a black-owned small business, apparently nominated by SAA. Eskom did not disclose whether it would retain the 30% equity it is trying to obtain, or also transfer it to a third party.

A service provider who attended a recent tender meeting at a third State-owned company (SOC) told Moneyweb on Sunday potential bidders were informed of a similar requirement.

This raises the question whether government has adopted new requirements that may effectively introduce another 30% empowerment requirement over and above existing empowerment legislation.

Corporate governance expert Charl Kocks of Ratings Afrika says if that is the case, it will corrupt the existing black empowerment programme that has been carefully introduced over a period and increase uncertainty in the market about the rules of doing business with government.

As a result, companies may either avoid doing business with government, or build in substantial risk premiums.

SAA

Moneyweb earlier obtained a copy of a letter dated June 30, and signed by Bidvest Executive Director Mpumi Madisa and CEO Lindsay Ralphs requesting “advice and guidance” on the matter from SAA non-executive director Yakhe Kwinana, who apparently made the 30%-“request”. It also asks that the request “be formalised and communicated in writing for due consideration”.

Bidvest itself would not comment, saying: “This confidential letter forms part of an ongoing engagement with SAA. Bidvest does not wish to add anything further at this stage.”

In the letter the company explains that BidAir Services is a 100% owned subsidiary of Bidvest Ltd and only the parent company can make decisions about ownership and shareholding.

It further states that BidAir Services is already 63.42% black-owned and a transfer of a further 30% to a black-owned small business will therefore result in 74.39% black shareholding. “Does this imply that SAA’s supplier black ownership requirement is now closer to 75%?” Bidvest asks.

It explains that BidAir Services provides similar services to other airlines and a new company would therefore have to be established for the SAA contract to accommodate a 30% partner, which the SAA will apparently nominate. The company asks questions about, among others, the ability of the unknown black small business to contribute to the capital cost such a new company would incur, estimated at R20 million.

In its response to questions from Moneyweb, SAA said: “We confirm that the company is in receipt of correspondence dated 30 June from Bidvest which canvassed a number of issues regarding SAA transformation requirements. SAA is neither oblivious nor in doubt of the BEE ownership of Bidvest. The intent was hardly to influence the existing shareholding at Bidvest. If anything, SAA’s intention is to contribute to transformation of services rendered by Bidvest to SAA. The 30% applies to (the) SAA contract, not to Bidvest as a company.”

SAA explains that it agreed with the Department of Trade and Industry (dti) to “contribute and accelerate transformation using procurement of goods and services as a launch pad”.

It said: “In support of a call made by our government, SAA has pledged to support black industrialists, black-owned businesses, women and the youth. These categories serve as principles that inform the criteria for eligibility.

“This is a first, bold move in South Africa’s aviation history. SAA Board is on record indicating that the airline is committed towards empowering entrepreneurs from disadvantaged backgrounds by leveling the playing fields to deliver inclusive opportunities.”

SAA does not say whether the transfer of 30% of the contract was specifically agreed upon with the dti.

Eskom

In its explanation of the 30% equity claim Eskom said: “Eskom was granted a mandate to negotiate a 30% shareholding from boiler-serve contractors: Steinmuller, Actom and Babcock – in return for a portion of the order book, which is currently valued at approximately R30 billion.”

The utility did not expand on what exactly the mandate entails, whether it was government as shareholder or its board that gave the mandate or whether it will transfer the equity stakes to a third party.

It said Eskom is looking for “constructive partnerships with the boiler-serve suppliers, to drive Eskom’s strategic procurement approach. These include improving plant and safety performance, providing greater insight in addressing the high level of unplanned boiler maintenance and enhancing skill transfer.”

Eskom denied forcing the equity requirement on the contractors and said: “It is unfortunate that the information was perceived as a non-negotiable and shut condition, which is in clear contradiction to the way Eskom conducts its business.”

Increased risk

Kocks said it is untenable for companies to tender, not knowing who will be given to them as partners. They will therefore increase their bids by up to 30% to provide for increased risk. The result will be that SOCs will pay more for goods and services. This will be recovered from their clients, who are the people of South Africa, he said.

Kocks added that when government imposes something like this on the market at short notice, it increases uncertainty.

He said there is already a suspicion in the market that factors other than the adjudication scorecard play a significant role in government procurement. “This kind of irrational demand introduces a new level of risk. Companies will ask themselves what to expect tomorrow and the day thereafter.

“Who at SAA will identify the entities that will benefit?” He says the discipline of a competitive market is being diluted by this kind of central control and inefficiencies will increase, while the door is being opened for corruption.

Kocks says on a rational basis, a change in government procurement of this kind may affect the share prices of listed supplier companies and investors may be deterred, as the market perceives bigger risk and lower return on contracts for these companies.

Please consider contributing as little as R20 in appreciation of our quality independent financial journalism.

AUTHOR PROFILE

COMMENTS   8

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Given the article in Sunday Times over the weekend suggesting a cosy relationship between SAA Board Chairperson and JZ – could this be yet another expansion of “The First Family” empire? Cronyism at its worst!

By attempting to compel an already significantly Black Empowered company [Bidest Air Services] to take on an undisclosed “hand picked” Black partner for a mandatory 30% stake in a tender proves beyond reasonable doubt that the agenda has nothing to do with transformation and everything to do with cronyism.

“Cry the Beloved Country” !

I think this is just another way to open the door for more tender payoffs!

I have some problem with the maths in the article:

BidAir Services is already 63.42% black-owned and a transfer of a further 30% to a black-owned small business will therefore result in 74.39% black shareholding.

Increasing the black shareholding by 30% from 63%, how do you get to 74%? BidAir is 100% owned by Bidvest.
If it means that Bidvest is already 63% black owned then how did they calculate this 63%? I could find on their website only 4% direct BEE shareholding, 30% Government pension fund and an other 30% shareholding by unit trusts.

Mugabe move, SAA closure notice. On its way to the shit hole, look at the management matter. JZ and his “acquaintance” running this crash landed entity. World class airline in the fold of a world class African City.

Yet another badly thought-through demand. More “unintended consequences” coming up.

Taxpayers will continue to subsidise a profit with regard to suppliers.

What is the difference between what Eskom/SAA are doing, and nationalisation? What message does this send to foreign corporates wanting to invest in SA? SA Govt: big money does not have to come here – it can and will go elsewhere. Wake up!

More black shareholders sharing the pie

Forget about the white entrepreneur who set this all up.

Watch service levels drop

More money from taxpayers to bail out SAA

How did it get to this that Black opportunists can hold a gun to the head of good businessmen with great plans: first share with us and then we will allow you to make money for us

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / PODCASTS SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: