Competition-Based Procurement of Network Assets

1. Introduction

Competition-based procurement of network assets means selecting suppliers through an open, fair and competitive process when acquiring important infrastructure such as electricity transmission lines, distribution equipment, substations, transformers, smart meters, grid-control systems and other network facilities.

In the energy sector, network assets are often expensive and technically specialised. Because electricity networks may operate as natural monopolies, procurement is particularly important. A poor procurement process can increase costs, reduce quality, create opportunities for corruption or favouritism, and give one supplier excessive control over important infrastructure.

In South Africa, procurement must comply with constitutional, public-finance and competition principles.

2. Constitutional and Legal Framework

Section 217(1) of the South African Constitution requires organs of state to procure goods and services through a system that is fair, equitable, transparent, competitive and cost-effective.

For electricity network procurement, this principle operates together with:

the Public Finance Management Act (PFMA);

the Preferential Procurement Policy Framework Act (PPPFA);

Treasury regulations and instructions;

the Competition Act 89 of 1998;

PAJA where administrative-action review applies; and

electricity-sector legislation and regulatory requirements.

Eskom procurement is subject to several of these legal requirements because Eskom is a Schedule 2 public entity under the PFMA.

3. Why Competition Is Important

Competition in network-asset procurement can produce several benefits.

First, it can reduce procurement costs because suppliers compete on price. Secondly, it can encourage better technical quality and innovation. Thirdly, it reduces dependence on a single supplier. Fourthly, transparent competition can reduce opportunities for collusion and corruption.

However, the cheapest bid should not automatically win. Network equipment must satisfy safety, reliability, compatibility, maintenance and long-term performance requirements. A procurement system must therefore compare both price and technical value.

4. Main Competition Risks

Several competition problems may arise.

Bid rigging and collusion: Suppliers may secretly agree on prices or divide contracts between themselves.

Supplier concentration: If only one or two companies can supply specialised transformers, control systems or other equipment, competition may become weak.

Preferential treatment: A procuring entity might give one supplier confidential information or design specifications unavailable to competitors.

Unfair technical specifications: Specifications may be written in a way that effectively excludes competing suppliers.

Vertical integration: A company controlling network infrastructure may also participate in generation, trading or electricity services, creating possible opportunities for discriminatory treatment of competitors.

Long-term exclusivity: Long contracts can make it difficult for alternative suppliers to enter the market.

5. Important Case Laws

AllPay Consolidated Investment Holdings v SASSA

In AllPay, the Constitutional Court emphasised that procurement requirements are legally important and cannot simply be ignored as internal administrative rules. The Court connected procurement with fairness, transparency, competitiveness and cost-effectiveness.

This principle is highly relevant to network assets because deviations in tender specifications, evaluation or award procedures can affect the competitive integrity of infrastructure procurement.

Waco Africa v Eskom

Waco Africa v Eskom is particularly relevant to electricity procurement. The litigation concerned Eskom procurement and confirmed that Eskom's procurement is governed by constitutional and statutory requirements, including the PFMA and related procurement rules.

The case illustrates why electricity infrastructure procurement must maintain equal treatment among competing suppliers.

Premier of Free State v Firechem

In Firechem, the Supreme Court of Appeal stressed the importance of a credible tender procedure and comparable offers. Competition cannot operate properly if some bidders have information or advantages unavailable to others. This principle is directly relevant where technical specifications for network assets are prepared.

Smada Security Services v Department of Justice

The 2026 Smada Security Services judgment again emphasised that section 217 requires procurement to be fair, equitable, transparent, competitive and cost-effective and that tenders must be evaluated according to the applicable tender requirements.

6. Competition Act and Network Procurement

The Competition Act can operate alongside procurement law. Section 4 addresses restrictive horizontal practices such as price fixing, market division and collusive tendering. Section 5 addresses certain vertical restrictive practices, while sections 7 and 8 regulate aspects of dominance.

Therefore, several suppliers participating in a tender does not automatically guarantee competition. Authorities should examine whether bidders have coordinated their conduct or whether a dominant supplier has used its market position to exclude competitors.

7. Conclusion

Competition-based procurement of network assets is essential for efficient and reliable electricity infrastructure. South African law requires procurement to be fair, transparent, competitive and cost-effective. The principles in AllPay, Firechem, Waco Africa and Smada Security Services show that procurement procedures must be legally compliant and designed to protect genuine competition.

For energy networks, effective procurement should therefore combine competitive bidding, clear technical specifications, equal access to information, independent evaluation, anti-collusion safeguards, value-for-money assessment and appropriate competition-law oversight.