Tag: Eskom

Criminal cartels & dilapidated energy networks: Will South Africa act?

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A true challenge to the impartiality of the South African Competition Authority: Eskom and its Criminal Supplier Cartels — Let’s wait and see what SACC does now

By Joshua Eveleigh

Will South Africa’s antitrust watchdog, under the aegies of its relatively new head Doris Tshepe, investigate and prosecute flagrant cartel conduct, when it is practically presented on a sliver platter by one of the CEOs of the (willing?) victims of said illegality…? Andre De Ruyter, former CEO of South Africa’s recently-infamous Eskom, is no stranger to the limelight – this is particularly true, following his scandalous (but not so surprising) bombshell allegations of deep-rooted and systemic corruption within the State-Owned Enterprise, together with ‘senior politicians’.

Even more recently, De Ruyter tested the antitrust waters and emphasised the existence of at least four cartels amongst coal mines in Mpumalanga (the Presidential Cartel, the Mesh-Kings Cartel, the Legendaries Cartel, and the Chief Cartel, respectively) intent on defrauding Eskom by, amongst a myriad other means, engaging in collusive tendering, so as to ensure that one of the cartel’s participants would ultimately be appointed as a lucrative vendor.

While there may not be any definitive or public available evidence, as of yet, the mere allegations of such cartels by the SOEs former CEO should at least raise enough red flags for South Africa’s Competition Commission. In this respect, section 4(1)(b)(iii) of the Competition Act expressly prohibits collusive tendering, forming part of the ‘cartel conduct’ category, the most egregious form of competition law contraventions due to their unnecessary raising of prices – of which may be passed down to end-consumers.  Mr. De Ruyter noted that the mere reality that cartel chiefs had ceased posting personal jet set lifestyle photos on social media was evidence of their having been alerted to the risks attendant to flagrant antitrust violations.

Given the current state of load-shedding, Eskom’s R423 billion indebtedness (as of March 2023) and the prejudicial impact that these factors are having on both business and personal livelihoods, the South African Competition Commission – theoretically in charge of cartels in the country — must surely regard the energy sector as a priority.  In this regard, one would expect a similar sense of urgency and emphasis that the Competition Commission has recently placed on the retail and grocery sectors, for the focus to be on South Africa’s energy sector.  After all, says Primerio partner John Oxenham, “this sector impacts every facet of commerce and consumer welfare.  If this was the case, the South African public could expect to see the prosecution and sanctioning of numerous cartels, each allowing for a maximum administrative penalty of 10% of the cartelist’s locally derived turnover as well as the potential for subsequent civil follow-on damages claims as well as criminal prosecutions.”

Oxenham’s competition-law colleague, Michael Currie, opines that, “[i]n the event that the Competition Commission does not investigate and prosecute against the coal mine cartels, such a position would largely reinforce the notion that some of the most unscrupulous of cartels are immune from prosecution, further entrenching the existence of cartels in South Africa’s most sensitive sectors.”

Are the 2017 PPPFA Regulations Misaligned? Can Competition Law Assist?

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By Mitchell Brooks, AAT guest author

If one looks at the 2011 Preferential Procurement Policy Framework Act (PPPFA) Regulations, the Regulations provide two ratios to be used in determining a tender award. The two point systems are the 90/10 and the 80/20 ratios. The 90/10 ratio indicates that 90 out of 100 points are to be awarded based on the price of the bidder and 10 out of 100 points are to be awarded based on “special goals”[1]. Since the commencement of the 2011 PPPFA Regulations, special goals have primarily been allotted to BEE status levels.

slide_1Turning to the 2017 PPPFA Regulations, in which the above-mentioned ratios have been maintained, regulation 4 provides for pre-qualification criteria for preferential procurement. Interestingly, according to regulation 4(1)(a) of the 2017 Regulations, an organ of state may stipulate a minimum B-BBEE status level for tenderers. Furthermore, regulation 4(2) deems any tender in contravention of pre-qualification criteria unacceptable. In essence, the pool of bidders can be reduced significantly by requiring all bidders to possess as a B-BBEE Contribution level 1 despite primary legislation only allowing B-BBEE to be taken into account at a maximum threshold of 80/20. Therefore, it is hard to understand why the allocation of points to special goals is capped at 20 points whereas there is no maximum level allocated to the minimum pre-qualification criteria. Arguably, pre-qualification criteria in this regard are open to abuse in oligopolistic markets with few suppliers.

If one views this legal framework holistically, it may seem that the points allocation in the PPPFA is capable of being somewhat circumvented. In other words, the importance attached to a tenderer’s B-BBEE status level may be increased immensely if a level 1 or 2 B-BBEE status level is stipulated as a minimum pre-qualification criterion. On the other side of the coin, the significance of price may be undermined, rendering a competitive tendering process ineffective in securing value-for-money. This suggests the 2017 Regulations are misaligned in that the purpose of the 80/20 split is unclear when read with regulation 4.

In an effort to restrain pre-qualification criteria restricting a large pool of bidders, a bidder may ask whether a dominant public entity, for example, a monopolistic entity such as Eskom, would contravene section 8(c) of the Competition Act if the pre-qualification B-BBEE status level is set too high. Does it qualify as an exclusionary act which is likely to affect competition in the particular market? This falls part of a larger looming question, at what point does pre-qualification criteria by dominant parastatals become anticompetitive in terms of the Competition Act and how will Competition Law interact with procurement? Section 217 of the Constitution of South Africa does not provide a clear answer but it does suggest that competition may have an important role to play going forward.

[1] section 2(1)(e) of the Preferential Procurement Policy Framework Act Regulations 2011

[2] Competition Act 89 of 1998