Telkom can now procure out of rivals' gaze - TechCentral

Telkom can now procure out of rivals’ gaze

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Telkom can now procure goods and services without having to go through the very public tendering process mandated by the Public Finance Management Act (PFMA), a development that will help it keep its strategic plans out of the public eye.

Finance minister Pravin Gordhan has signed a notice exempting Telkom and its subsidiaries from the provisions of the Preferential Procurement Policy Framework Act and any regulations made under section 5 of the act.

“Telkom’s exemption from the PFMA is an important milestone in Telkom’s history. Previously, and in line with PFMA requirements, Telkom has had to go out on tender for major projects. These public tenders take time to complete and result in business plans being made public at a very early stage,” said Telkom spokeswoman Jacqui O’Sullivan in e-mailed response to questions from TechCentral.

“This is not helpful in the highly competitive and fast-changing world of telecommunications,” she said. “The exemptions … will allow [us to]level the competitive playing field. We are better positioned to pursue our growth objectives in a more flexible and agile manner.”

O’Sullivan explained that there is significant history behind the exemption signed by the finance minister.

Government’s equity ownership in Telkom was first diluted in May 1997, when it disposed of 30% of the issued shares in Telkom to a strategic equity partner, Thintana, which was a consortium made up of SBC Communications (of the US; now AT&T) and Telekom Malaysia, she said.

When the PFMA was published, government was the majority shareholder in Telkom, with the company listed in schedule 2 of the PFMA as a “major public entity”.

In March 2001, the state disposed of a further 3% equity interest in Telkom to Ucingo Investments, a consortium of black empowerment investors. Government continued to hold 67% of the equity.

During the period leading up to 4 March 2003 — the date that the shares in Telkom were listed on the JSE — and in accordance with national policy objectives at the time, Telkom underwent an initial public offering. During the course of this IPO, the state disposed of additional shares in Telkom, thereby further diluting its shareholding to less than 40%.

At the time of the listing, the JSE controversially granted certain extraordinary rights to government in Telkom’s memorandum and articles of association, to last for a period of eight years.

Among other things, these rights included government’s right to appoint the chairman of the board and six of the directors and the right for government to be regarded as a “class A” shareholder. In terms of these rights, government controlled Telkom until March 2011 when the rights expired.

Finance minister Pravin Gordhan

Finance minister Pravin Gordhan

After Telkom’s listing in 2003, Telkom was exempted from certain provisions of the PFMA and all the treasury regulations. This was because, as a publicly listed company, it had to (and still has to) comply with the provisions of the Companies Act, the JSE’s listings requirements and corporate governance rules.

Since March 2011, when the extraordinary rights of government expired, Telkom requested that it and its subsidiaries be delisted from schedule 2 of the PFMA. Government indicated at that time that it did not want to delist Telkom from the PFMA but granted a further exemption from the act and the treasury regulations in November 2013.

As Telkom is still listed in schedule 2 of the PFMA, it still had to comply with certain provisions of the PFMA, which it had not been exempted from, and also had to comply with the Preferential Procurement Policy Framework Act and its regulations.

“Telkom and its subsidiaries … have to compete with other licenced telecommunications operators such as Vodacom, MTN, Cell C and Dimension Data, which do not have to comply with the above rigid legislation, [so]it became clear that Telkom and its subsidiaries were at a disadvantage,” explained O’Sullivan.

“As government no longer has ownership control over Telkom, we approached it to exempt the company from the remaining provisions of the PFMA… On 8 July, government granted Telkom and its subsidiaries the further exemptions,” she said.  — © 2016 NewsCentral Media

9 Comments

  1. William Stucke on

    Good. Well done, Pravin.
    Now, can we stop calling Telkom a “State Owned Company” and pretending that it’s a “strategic asset”?

  2. AFAIK, Gov has indirectly another 11.7% shares through the PIC, the Public Investment Cooperation.

    According to an article ” Telkom’s 10 biggest shareholders revealed” on MyBB of 2 Aug 2015 the share holders are :

    Gov 39.76%
    PIC 11,65
    Visio Capital Management Pty Ltd 4.11
    Acadian Asset management LLC 3.84
    Dimensional Fund Advisors 2.56
    LSV Asset Management 1.85
    Vanguard Group 1.84
    Robeco Institutional Investment BV 1.68
    Old Mutual 1.60
    Sanlam 1.58

    Gov should relinquish their nearly 40% ownership in Telkom. It has no role to play in private, commercial companies, this is just an awkward historical legacy.
    Yeah, that silly semi communist argument of a “strategic asset ” !

  3. Kerron Edmunson on

    Perhaps we also need to consider the implications of the timeframe? – the exemption applies until Telkom is “nationalised” or delisted.

  4. Well well Pravin Gordhan it now explains why your crooked bunch were delaying everything even Treasury knew of the breaches to PFMA regarding Telkom and why Mr Jabu Mabusa has been spending so much time with you on TV and Davos. This is an acknowledgement as to how corrupt officials in both camps have been. I trust the issued securities in Telkom SA SOC have been cancelled so you have effectively given away this “strategic asset” . Fortunately this can have no effect on the past manipulated tenders Telkom were well known for. One cannot in this move further attempt to enrich your cadres it merely has proven that the ANC and Government both embrace Fraud and Corruption When are you going to remove SABC and SAA from the PFMA.

  5. It seems people within Government are confused as the original limited exemption granted Telkom by Minister Trevor Manuel had to do specifically with King Code 3 and Sarbynes Oxley which are supposed to be policed by the then NYSE and JSE. One can only wonder why Telkom was removed off the NYSE. The entire debacle around Telkom was that taxpayers money was going down the tubes through MultiLinks, IWay Mauritius, sale of numerous state assets with the ruling parties knowledge. If Pravin Gordhan had done the trouble to investigate the reasons which he was fully aware of he would have protected tax payers interests. Government Governance, Corporate Governance rules, (remember why Sipho Maseko as it was ruled by a competent body had to undergo a course in basic companies act. Don’t worry taxpayers you have paid 40% of approx R40 billion no actually another 11% due to the PIC shareholding. Not naming Jacques Schindehutte departure with full benefits, Contingent asset of Blue label claim US$582 Million which disappeared, What a lovely country to be part of.

  6. Telkom, SAA, SABC/Sentech, and most other parastatals/SOEs should be fully privatised.
    Eskom should be divided in 3 or 4 power producing units, and one that runs the grid. And all fully privatised.
    In that scenario energy regulator NERSA should be a truly independent, powerful watchdog to guard against price collusion and environmental issues of the producers. Maybe only the company that runs the grid should be half owned by Gov. Gov should only provide a framework and guidelines to make sure that we move away from fossil fuels to renewables in the next 20 years. All coal powered stations should have FGD (Flue Gas Desulphurisation) and particle filtering, not even talking about carbon capturing.
    These private power producers are operating in most western European countries, starting from the 80s.
    The USA have had private power producers for ages, probably from early 20th century.

  7. I cannot agree with you more but strangely it is brought into the open that as far as procurement process however Telkom broke the rules and even under oath swore that they had full exemption of PFMA and this was not applicable to them. At least Gordhan has now opened the way to so many attacks regarding tender manipulation by Telkom they are going to have their hands full as they have lied their way through a miriad of affairs. The appointment of Bain & Co just to mention one where they publicaly denied being bound by the PFMA. As far as the other companies they too should stop mal administering Public money.

  8. You are correct in saying that the previous exemption applies until Telkom is “nationalised” or delisted. What about the securities issued yet now with the removal from the PFMA they are removed off the procurement section 217 of the Constitution of South Africa 1996 as they are no longer a SOC making them a loose horse with no restrictions in what they do. They are effectively written out of law.

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