Listed pharmaceutical firms welcome BEE rules for state tenders

By Slindile Khanyile Time of article published Jun 15, 2011

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Listed drug firms will soon benefit if they are empowered when bidding for state tenders.

This is because health-care procurement has been aligned to all the elements of broad-based black economic empowerment (BEE) following the publication of regulations of the Preferential Procurement Policy Framework Act by the National Treasury last week.

Previously, these companies’ empowerment credentials did not matter because procurement was linked only to equity, which is one element of the BEE scorecard.

While these public firms have empowerment shareholders, the government did not consider these as it was felt that shareholding changed hands regularly on the stock exchange.

But the regulations that are expected to come into effect by December say the points scored by a tenderer in respect of BEE contribution must be added to the points scored for price.

Bidding firms will have to submit their broad-based BEE status level verification certificate or a certified copy thereof, substantiating their rating, except for those that are exempted. In the event that two or more tenders have scored equal total points, the successful tender must be the one scoring the highest number of preference points.

Stavros Nicolaou, Aspen Pharmacare’s senior executive for strategic trade, said it was a major policy shift that the industry had been waiting for.

“Previously they looked at equity ownership and listed companies always scored zero. It didn’t matter where you were on a BEE rating. You could have been a level two, which is highly empowered, going up against a level five; your empowerment credential did not help,” Nicolaou said. “The more empowered you are, the more the benefit on your pricing.”

Recently, Adcock Ingram had a gripe with the Treasury after the results of the latest antiretroviral tender were released because it felt that its BEE status had not been considered properly. The firm concluded a R1.3 billion empowerment equity transaction in which it sold 13 percent of the company to black investors last year.

Jonathan Louw, the chief executive at Adcock, has previously said the group’s BEE partners were locked in for 10 years, meaning that Adcock’s shareholding would not change for at least a decade even though it was listed.

Both companies are level four broad-based BEE contributors. Yesterday, Adcock said it welcomed the regulations.

“This is a significant development for us and a good outcome for our tender business,” Adcock said in a statement.

Nicolaou, who is also the chairman of Pharmaceuticals Made in South Africa, said the company was also excited by the regulations because there were now going to be products set aside for local producers.

“They would take into account the imported element. The devil is in the detail because they have to work out which products should be designated. It is important to work out if you have capacity and capability, for example, it would be pointless to designate certain oncology products because you couldn’t make them in this country.

“The products that must be set aside are the ones that are strategic to the country and high in volumes. Everyone focuses on HIV but there are a lot of other epidemics in this country, the non-communicable diseases, diabetes, blood pressure. They must also have export potential, especially to sub-Saharan Africa,” Nicolaou said.

Cipla Medpro South Africa said it was still analysing the regulations so it could not comment yet. - Business Report

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