ESKOM HOLDINGS LTD COMMENT ON THE BROAD-BASED BLACK ECONOMIC EMPOWERMENT BILL AND THE BROAD-BASED BLACK ECONOMIC EMPOWERMENT STRATEGY DOCUMENT
Introduction
Eskom is in agreement with the goals and direction in the Bill and strategy document. There are basically three areas that Eskom feels the need to comment on. Two of these have to dc with section 3.5 in the strategy document: Policy instruments to achieve BEE", and the third has to do with the definitions of black empowering enterprises.
Policy Instruments: the Balanced Scorecard Eskom is in full agreement with the 3 core elements measured. These agree with Eskom's criteria set out for companies that wish to do business with Eskom as black or black empowered suppliers. Eskom's only concern is that the potential for manipulation should be eliminated as far as possible. The document addresses this where there are charters, where the targets will be set at sectoral level. Where there is no charter, the targets need :o be se per sector by the state entities that do business with such a sector to ensure that effort expended in black empowerment is equal for all participants.
Policy Instruments: Preferential Procurement Eskom has not followed the State process of 80/20 and 90/10 preferential procurement Eskom has a preferential procurement process where black and black empowering companies get preference over all other suppliers except suppliers from within Eskom itself price quality and lead-time being equal. This was discussed with National Treasury in September 2000, and Eskom was assured that the 80/20 or 90/10 preferential model would not be enforced on Eskom, as long as Eskom had an acceptable programme of Black Economic Empowerment through procurement.
To further the opportunities of black suppliers, where break-out procurement is possible such black suppliers are allowed to match the tender price of lower-priced non-black tenderers. This price matching" means that the black suppliers get preferential treatment but no price premium is paid, and suppliers do not depend on a subsidy.
Where break-out procurement is not possible, Eskom specifies the percentage of contract value that has to be sub-contracted to black suppliers.
Due to the pressure Eskom has put on large non-black suppliers, many have sold equity t( black individuals or businesses and have begun promoting black managers and developing skills amongst their black workers. This helps them to qualify as black empowered enterprises. The incentive of price matching has played a large role in bringing about this change.
It would seem, however, that the State (especially DPE) now wishes Eskom to comply full' with the 80/20 and 90/10 preferences. This would mean that price matching would end, and with it the benefits to black businesses and the power to convince large companies to sell equity and speed up empowerment.
A major problem that arises if price preferences are granted, is the funding of the price premium/subsidy. There is currently no funding or funding mechanism for such additional expenditure.
Eskom believes that this entire issue of preferential procurement needs further discussion, since we believe that Eskom's process has been very successful in delivering the desired outcomes, although it has not implemented the preferential model set out by the Preferential Procurement Policy Framework Act.
Definitions of Black Empowerment Entities (Appendix C) The basic problem with BEE endeavours and measuring the impact and success of such measures remains the definitions used. Until all involved use the same definitions, it will be difficult to establish how well the policy is being implemented. Eskom would, therefore, wish to have the definitions that will be used set out in the Act.
The definitions in the policy document make provision only for ownership and a rather unspecific statement about management control. There is no provision for the other factors covered in the scorecard (and in Eskom's qualifying criteria). Eskom believes that this needs further thought.
The definition for "black woman-owned enterprise" is unclear because it is not apparent whether the 25,1% is a percentage of the total equity, or whether it is 25,1% of the black equity. We believe that the first meaning is intended.
The definitions do not differentiate between micro, small, medium, large and very large enterprises. We believe that there needs to be some differentiation, and differing percentages of ownership. For instance the requirement that management control be shown by the proportion of black executive directors is only applicable in very large enterprises. Also, in investment terms, 25,1% of Anglo is different from 25,1% of a CC.
From experience we know that the concept of ownership must be further defined in the case of, for example, CCs. The fact that the 2 members invest R100, with R50,10 from the black member and R49,90 from the white member, does not mean that the black member owns 50,1% of the enterprise - this is really determined by the working capital provided, the risks and potential benefits to the members individually, and the personal contribution of each member to management decisions.
We believe that this section needs careful attention, since this will serve as the basis for BEE efforts.
Eskom currently uses the following definitions:
Black South Africans previously classified as Blacks, Coloureds and Indians.
BWO - Black Women-Owned Enterprise A supplier with an annual turnover of R25 million or less and with Black Women ownership, risk and control of not less than 50% is termed a Black Women-owned Enterprise. It is also a (SME).
SME - Small and Medium Enterprise A supplier with an annual turnover of R25 million or less and with Black ownership, risk and control of not less than 50% is termed a Small Black Supplier (SME).
BEE - Black Empowering Enterprise A supplier with an annual turnover of more than R25 million and with Black ownership and risk and control of 10% to less than 50% is termed a Black Empowering Enterprise. The supplier must score at least 9 points on Table 1 with mandatory points on each of the following criteria: Ownership, Management, % Skilled Black Personnel and Procurement from Black suppliers.
Large Black Supplier A supplier with an annual turnover of more than R25 million and with Black ownership, including investment risk and management control, of not less than 50% is classified as a Large Black Supplier.