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SAA defies National Treasury, dti instruction

CFO resigns. Board persists with 30% procurement set aside.

Update: Moneyweb has confirmed that SAA CFO Wolf Meyer tendered his resignation on Tuesday morning. No further details were immediately available.
Correct dti letter inserted.

The SAA board is persisting with efforts to have 30% of its procurement contracts set aside for transformation partners in defiance of express instructions by National Treasury and the Department of Trade and Industry (dti) to stop this practice.

Against this background tension between the board and top officials who continue to war against unlawful practices, is reaching breaking point.

This has become clear from a Moneyweb investigation into efforts to amend the SAA ground handling contract with Swissport International.

Bidvest

Moneyweb first wrote about the 30% requirement in July, after a letter from Bidvest to the SAA board about the issue surfaced. Upon enquiry SAA confirmed that it wanted 30% of BidAir Services’ SAA grooming, toilet and water contract to be transferred to a black-owned small business. Apparently the small business would be nominated by SAA. (BidAir is a subsidiary of JSE-listed Bidvest.)

In the letter, addressed to SAA non-executive director Yakhe Kwinana who made the request, Bidvest sought clarity and explained it was already 63.24% empowered and only the parent company could make decisions about shareholding. It raised several other problems with implementing the SAA 30% requirement.

SAA at the time said: “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 levelling the playing fields to deliver inclusive opportunities.”

Moneyweb has since learnt that both National Treasury and the dti wrote to the SAA board in September to advise it that SAA’s 30% requirement does not comply with the B-BBEE Act, the Codes of Good Practice or the procurement legal framework. See the letter from National Treasury here, and the letter from the dti here.

‘Stop with immediate effect’

On September 13 dti acting B-BBEE commissioner Zodwa Ntuli wrote: “SAA should not proceed to implement the 30% set aside until approval is applied for” from the minister of Trade and Industry. On September 28 Treasury Chief Procurement Officer Kenneth Brown wrote: “The resolutions of the Board to set aside the 30% in its current form is not supported by any procurement legal framework and must be stopped with immediate effect.”

From e-mail correspondence that Moneyweb has seen, between SAA head of supply chain management Dr Masimba Dahwa, Kwinana and SAA chief financial officer Wolf Meyer, it is however clear that Kwinana was driving the amendment of the Swissport contract to include a 30% BEE partner from November 1.

Former non-executive director Tony Dixon, who has since resigned from the SAA board, and board chairperson Dudu Myeni were among those copied in on the correspondence.

Changing contract dates

In the correspondence, Dahwa points out that changing the commencement date of the Swissport contract from the original date in 2011 to 2015 could be challenged legally.

Kwinana responds by brushing this concern aside and asking whether Dahwa will implement the board resolutions on the matter.

Meyer, to whom Dahwa reports and who also serves on the board, then takes over and writes a long response about the Swissport agreement “as well as our Engen Board Memo”.

He warns in detail against several aspects of the proposed amendment of the Swissport agreement that would be non-compliant with supply chain policies, the Public Finance Management Act (PFMA) and good governance. He also refers to the correspondence and “direct guidance” from National Treasury and the dti about the 30% set-aside “which should not be ignored by the board”. He further warns against the board getting involved in operational matters and giving instructions that expose the airline to non-compliance.

‘SAA exposed to governance transgressions’

Meyer concludes by stating: “SAA is currently exposed to and cannot afford an audit report containing findings (of) governance transgressions.”

Kwinana responds, saying that Meyer’s response is noted and she will respond to it later. “I do not blame you for protecting the status quo,” she says.

Moneyweb asked Kwinana about her apparent involvement in operations issues, which would be inappropriate for a non-executive member of the board. She linked it to transformational roadshows that SAA is currently hosting in several provinces, for which Dahwa is responsible and in which board members participate. These roadshows are however never mentioned in the emails, that were exchanged over several days.

She said the Swissport file “was brought to the board for approval” and that the prospective transformation partner Jamicron (Pty) Ltd, was brought by Swissport.

30% based on Zuma speech

The 30% set-aside requirement she bases on a statement by President Jacob Zuma in his 2015 State of the Nation Address: “Government will set-aside 30% of appropriate categories of State procurement for purchasing from SMMEs, cooperatives as well as township and rural enterprises,” Zuma said in February.

Kwinana told Moneyweb the proposed agreement with Jamicron was not implemented. “Unfortunately not, the implementation has been met with resistance. Those who resist do not understand it either by virtue of them falling in economically advantaged groups and/or come from other countries that do not understand what South Africans went through.”

She presumably refers to Meyer as being “advantaged” and Dahwa, who is from Zimbabwe, as coming “from other countries”.

Asked why she wanted to change the commencement date of the contract, she said she had been asking for the contract and has come to the conclusion that it doesn’t exist. She therefore proposed that it starts on November 1.

‘Gross negligence’

She accuses “the officials” of “gross negligence and/or high incompetence” with regard to her statement that the existing contract was never signed.

Asked whether the change in commencement date has been implemented, Kwinana said: “Unfortunately not and SAA continues to incur irregular expenditure in respect of this service”.

She said the board has written to the dti for further information about the 30% set-aside and to National Treasury “seeking guidance on how to implemented the 30% set aside. We are still waiting for their response.”

Three independent sources within SAA told Moneyweb that all existing maintenance and services contracts with SAA were being reviewed by the board to monitor compliance with transformation requirements. This has “got completely out of hand”, Moneyweb was told, with certain board members interfering in procurement, including that of fuel, and insisting on having 30% of contracts set-aside for small businesses with no track record in aviation.

Turnaround specialist ‘on leave’

This comes as reports were published about alleged interference by Myeni in the multi-billion rand Airbus-agreement and against the background of Dixon’s resignation and SAA head of commercial Sylvain Bosc being “on leave”.

Bosc is an international airline turnaround specialist who was earlier head-hunted to help get SAA out of its financial crisis. There is further doubt whether Meyer will remain at SAA much longer.

The current SAA board is an interim board. Expectations that a permanent board would be appointed in October were not met and all eyes will be on the cabinet meeting on Wednesday to see if any decision will be forthcoming.

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Yes do that follow No 1’s great plan for SA. When the toilets are overflowing and there is no fuel for the planes and the baggage is still piling up at ORT then we will have achieved the 30%. Then blame it on apartheid. In some industries the outsourcing is specialized and not any Tom, Dick or Harry from a disadvantaged background can be brought in to do it. Yes even toilets, one is fine but a few hundred with 4 A380’s off loading at the same time is a little different.

What’s new, why are we surprised? Govt and their “friends” will get the BBEE contracts make lots of money and the ultimate banker, being the hardworking taxpayer of all colours and creeds, will pay! Quite why we vote these people into power I have no idea, but we get what we vote for. Have a good look next time round Joe public

Well that is a disaster and another national embarrassment waiting to happen. The suppliers must just be smart now and get iron clad contracts agreed stating exactly what they are responsible for, clearly the scope of work will change if there is going to be a 30% redistribution of work/responsibility/revenue. The suppliers should just stick to their contracts without deviation and when the system collapses due to the “other” 30% being incapable of performing the service efficiently the old suppliers come back and do the work on a consultancy basis and charge a fat premium in the process. SAA and government has been stupid enough to fall for that trick for years, this will just be another inefficient redistribution of wealth to the wealthier members of our society. But that is business…..

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