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Oct 26, 2012

New template, new tension?

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Technology|Blade Nzimande|South Africa
technology|blade-nzimande|south-africa-region
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There is little question that most South Africans have grown intolerant of black economic-empowerment (BEE) transactions that enrich a few ‘usual suspects’ but do little to transform the still highly racially skewed business environment.

South African Communist Party secretary-general Blade Nzimande has again criticised the way BEE is being pursued, saying there is a risk of creating a class of ‘compradors’, or black capitalists who owned shares in companies they could not run and who supported the maintenance of ‘semicolonial’ economic structures.

It will be interesting to see, therefore, whether the empowerment model being pursued by the State-owned Passenger Rail Agency of South Africa (Prasa), which is at the beginning stages of a multibillion-rand fleet procurement process, has the potential to offer a new template.

On the face of it, the process looks strange, even disingenuous. That is because the broad-based black economic-empowerment (BBBEE) request for proposals has been separated out from the tender for the design, manufacture and maintenance of new commuter trains for delivery from 2015.

In other words, the empowerment process is being conducted in parallel to the main equipment tender, for which seven companies and consortia submitted bids by the September 30 deadline.

That means that the winning rolling-stock supplier would hold 70% of the project delivery company, with the BBBEE equity participants holding the 30% balance.

The proponents say the separation of the two elements is informed by a desire to ensure a genuinely broad-based empowerment structure that is decoupled from the technology offering. Under the scheme, Prasa would insist that 10% of the 30%, or 33% of what is available for empowerment equity, is held by an employee trust, to benefit staff below the senior management level. The balance would be divided between black businesses active in the rail industry (10%), passive black investors (7%) and an educational trust (3%).

Critics of the separation argue that it will lead to a “forced marriage” between the winning rolling-stock supplier and the winning BBBEE bidder. They add that the arrangement could well lead to a partnership that is even more short-term in nature than early-generation BEE deals, which saw partners flip their shares at the earliest opportunity.

The proponents, however, assert that there are sufficient legal and contractual instruments available to ensure that the preferred technology supplier and the preferred equity partner forge a workable, long-term partnership around the project, which could ultimately involve an investment of R123-billion and the purchase of 7 200 passenger coaches by 2035.

They also argue that the 65% localisation stipulation will provide considerable scope for black businesses keen to participate as suppliers to the Prasa fleet renewal programme. In other words, black business is being told to not simply aim to become passive holders of shares in a project company, but rather to invest in real businesses that are able to supply into what is poised to be a multidecade project.

The jury will no doubt be out on whether this new approach will result in broad-based participation and industrialisation, or whether it will create untenable tensions between international suppliers and the domestic partners that had no part in selecting.

Edited by: Terence Creamer
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