After the Bell: The Sanral dispute - a decoder (Volume 2)

National roads operator Sanral announced earlier last week, after considerable legal and media pressure, that it was scrapping its new procurement policy because it didn’t want to get caught up in a long legal battle with construction companies. This requires some decoding.

I have a terrible sense that whenever anyone reads anything about Sanral, their eyes glaze over. It’s pretty complicated, I know, but it’s also extremely important. Allow me to quickly explain why.

To effect State Capture at Eskom and Transnet, the proponents had to first do three things. First, they had to control the board, so they could introduce their playthings as CEOs and other executives. Second, once that was achieved, they had to arbitrarily change the black empowerment rules, so that legitimate companies would be excluded. That would allow the actors to be granted tenders without the irritating requirement of having to compete for them. It also allowed the new board to claim loudly that it was standing up for black entrepreneurs, which would immunise them politically. 

And third, they had to suddenly require huge new acquisition programmes, creating the money stream out of taxpayers’ pockets and into the state-owned enterprise – and then into the pockets of, let’s just call them the Guptas. But, generically.

There is a cynicism about this process that is completely gobsmacking and, if it hadn’t happened, it would be hard to believe. 

But we know from the Zondo Commission that this is exactly what happened and the ultimate beneficiaries were not black South African entrepreneurs, but foreign crooks, who then took their (our) money and exited stage left to Dubai. Where they remain. With their (our) money. Until today.

Hence, whenever I heard about an organisation loudly trumpeting its desire to expand its BEE rules, I used to think, well, you know, South Africa. Now I think, well, Guptas.

The big SOEs – Eskom and Transnet – are now largely broken institutions. Eskom was once debt-free and produced some of the cheapest electricity in the world. SA has been gloriously free of load shedding for a week or so. But there have been around 20GWh of power cuts this year, more than the past five years combined. I am not making this up.

There has been an unprecedented focus on both Eskom and Transnet this year, completely understandably. But there has been comparatively little focus on Sanral, which in May this year willy-nilly decided to change its BEE requirements (see above) in such a way that legitimate construction companies in SA would be excluded. 

The construction industry in SA today has been more or less completely decimated. There are essentially two survivors from the glory days of the 2010s – Aveng and WBHO.

Aveng survived by expanding its operations outside SA and is now a South African company pretty much in name only. It has some local construction projects but the bulk of its work is outside the country. And, crucially, it does no government work – telling in itself.

WBHO went in a completely different direction; it dutifully became an overwhelmingly black SA company and participated with gusto in the process of BEE, helping to create a range of fair-sized black construction companies and building some crucial local projects. Its black ownership is somewhere between 60% and 70%.

So if you want to exclude them, you have to do some pretty wild stuff, which, under the chairmanship of Themba Mhambi, a former English lecturer appointed by arch-communist Blade Nzimande, they have done with enthusiasm and vigour. But how, you may ask?

Well, bear in mind that the profit margin on construction projects is only around 5%. So if you tip the balance by, say, 10%, you can exclude legitimate companies and open the road for the construction mafia. So Mhambi changed the BEE rules so that under the equity requirements, companies like WBHO would get zero.

How on earth would you achieve that? Well, one way is to not recognise listed equity ownership by black South Africans because it’s not “beneficial ownership”, which is what Sanral did. It also shifted the points systems and increased the requirements for outsourcing (but in a perverse way, so that large black construction companies would not be considered – only the very small ones). Hello, construction mafia.

And then, of course, the board has to shake up the management, as it did in Eskom and Transnet. So now, two of the most senior members of Sanral’s executive are currently suspended, and a new CEO has been installed. 

So WBHO did what it has never done before; it took government to court, because even though Sanral does have the right in terms of the new BEE legislation to come up with whatever regime it wants, it still has to comply – at least loosely – with the Constitution.

As you would expect, WBHO and two other construction companies,  Haw & Inglis and Smec, are delighted that the policy has been reversed and the old policy is back in place. 

The only problem is that Sanral is not backing down; this is just a temporary setback, and it’s already announced it is going to have a consultation process.

So why, you ask, did it not have a consultation process before implementing the new policy? Well, here we speculate, but in my view, it’s because the intention was to implement State Capture or, to put it another way, allow the tenderpreneurs in. But the problem is, if there is one thing the Constitutional Court is absolutely insistent on, it’s that you have to consult your stakeholders before you screw them. And as it happens, they didn’t do that, and the construction companies had proof they didn’t do that.

What happened here is that Sanral ignored the legitimate construction companies which, on its own, would have probably lost them the case. But it wasn’t just that: Sanral is sitting on about 80 tenders worth billions and is chronically behind in its procurement. 

It tried to start processing these applications, but the construction companies successfully went to court to say these tenders couldn’t go ahead without the big procurement case first being heard. So Sanral backed down.

And there is one other thing: for the first time in these more recent applications, SA’s entirely invisible Transport Minister Sindisiwe Chikunga – she who refused to give back her old ministerial cars when she got new ones – was cited as a co-respondent. 

Mhambi is clearly very happy to participate in the further destruction of SA’s construction industry, but there is one person he is not going to upset, and that is the one person who could change his own future. Obvs. BM