State plans to force BEE partner on rail tender

Prasa believes this "new and innovative" approach to black economic empowerment (BEE) will address some of the pitfalls experienced in the past, when inappropriate BEE partners with no long-term commitment were chosen for projects, often only because of their good connections.

Two 10-year contracts to produce 360 rail coaches a year are envisaged and a minimum target of 65% local content will be set for manufacturing. The programme is expected to create 65000 direct and indirect jobs.

The request for proposal documents for the R123bn manufacture of 7224 metro coaches over the next 20 years went on sale yesterday.

Instead of the winning bidder of the contract bringing its own BEE partner, as has been the practice in the past, Prasa itself will appoint the partner.

Risks

Prasa CEO Lucky Montana conceded in an interview recently that such an approach to BEE participation carried the risk of clashes and incompatibility between the selected BEE partner and the original equipment manufacturer, but said these could be mitigated by agreements and guarantees.

He said he believed it was better for Prasa to choose the BEE partner than to have the winning manufacturer bring its own partners, often chosen on the basis of being politically well connected rather than having a long-term and committed engagement to the project - as had happened so many times in the past.

"What we are trying to avoid is a situation where the original equipment manufacturer brings their own BEE partner who is not an appropriate partner," Montana said.

"We have seen from the history of BEE that you get partners who are not even involved in the project. As soon as the contract is signed, they cash in and go away.

"We want a long-term partner who will take part in the revitalisation of the local industry over the next 10 years. We want a BEE partner who will add value and take a long-term view.

"Secondly, we are trying to avoid a situation where you have BEE guys who are well connected and are appointed for this reason, and they bring their own international original-equipment manufacturer."

Fund to be created

In the past, a manufacturer was selected "on the basis that they have been brought in by the well-connected BEE partners rather than because they have the best technology to achieve our economic objectives".

A special-purpose vehicle would be created. The BEE stake in the vehicle would be ring-fenced and housed in the National Empowerment Fund, Montana said ahead of his briefing yesterday to Parliament's transport committee.

Within 12 months of appointing the manufacturer, the appropriate BEE partner would be selected through "an open, competitive process".

The winning bidder would lead the special-purpose vehicle, with the BEE partner getting a stake of 26%-40% in the project.

Montana told MPs that the programme to renew rolling stock would contribute to the government's industrial policy action plan by strengthening local manufacturing and production, skills development and job creation.

Setting high local content targets would assist in creating local industries that could sustain local production, he said.

Source: Business Day via I-Net Bridge