Finance Ministry dispels woes over hotly debated procurement law

By Muluken Yewondowssen

The Ministry of Finance (MoF) dismisses concerns of State-owned companies (SOEs), who argue that the draft proclamation on public procurement and property administration compels them to follow the law when making purchases.

According to MoF which has ownership over the proclamation, the law was not emplaced to hurt companies’ operations but rather the idea of the proclamation’s governance of public enterprises is to comply with worldwide standards and practices.

The much awaited declaration that would drastically alter public procurement has been the subject of modification processes for more than three years.

After a flurry of debates owing to concerns made about the law, the new proclamation that would amend the 2009 “Procurement and Property Administration Proclamation 649/2009” was expected to be adopted by the parliament in the current budget year.

In a recent meeting, which was convened by the Standing Committee on Plan, Budget, and Finance Affairs on Wednesday, December 27, representatives of State-Owned Enterprises (SOEs), including those affiliated with Ethiopian Investment Holdings, expressed concerns over the draft proclamation’s potential to significantly affect their operations.

“If the enterprises follow the procurement law, which will be ratified and amended very soon, it would affect their day-to-day operations,” the SOEs reps opined.

Prior to the meeting, representatives of the aforementioned SOEs, Ethiopian Shipping and Logistics and Ethio Telecom, submitted their concerns on a well-reasoned basis.

Based on the specifics of their operations, the representatives conveyed their grievances on the proclamation.

They asserted that there was agreement on the matter at the time of the original draft proclamation, and that the inclusion of SOEs in the text was not specified.

The Public Procurement and Property Authority’s Director General, Haji Ebsa, stated that the proclamation’s primary goal is to make SOEs more profitable, globalized, competitive, fast, and of high quality, “We take into account their goals and demands under the upcoming proclamation.”

Haji reminded that the nation’s procurement system has been degraded on an international scale in accordance with the Public Expenditure and Financial Accountability (PEFA) and the Methodology for Assessing Procurement Systems (MAPS) evaluations of the foreign partners.

“SOEs are public properties that should be governed on the proclamation,” he stated, adding, “But according to the nature of their activities, they would operate on directives they are issued with.”

He emphasized that the MoF is ultimately the higher authority responsible for monitoring and safeguarding public businesses.

“Majority of SOEs require a guarantee from MoF to access credit, and the ministry would be responsible for paying if they fail to settle their loan,” he underscored elaborating that without the guarantee that SOEs would not function outside of the law.

“We recognize that misunderstandings accounts for the majority of the concerns expressed by the SOEs. The idea behind the proclamation is to have solid laws rather than jeopardize the operations of state businesses,” State Minister of MoF Eyob Tekalegn said at the session.

He said that the proclamation contained clauses that would maintain the SOEs’ operations.

According to Habtamu Menesha, MoF’s Legal Advisor, foreign rating agencies have questioned the nation’s procurement system in relation to the PEFA assessment.

“They did contend that our scattered procurement system is not acceptable at the international trend, which is the reason for our rate to stand at C+. Therefore, if the nation has a harmonized legal framework it shall improve on its rate,” Habtamu cited.

The main goal of including SOEs in the proclamation, according to the MoF’s legal advisor, is to make the procurement proclamation acceptable worldwide since, unlike us (Ethiopia), “Other countries have harmonized single legal frameworks.” For SOEs and other budgetary offices, it is not distinct.

In Ethiopia, SOEs have a procurement directive that is endorsed by their board of directors and varies depending on the entity.

The legal expert said the World Bank, among others, gave Ethiopia a very low grade because of this practice.

 “This has its own negative impact in terms of value for money, transparency, accountability, and other internationally accepted measurements,” Habtamu further explained citing that the country’s procurement legal framework is yet to b harmonized.

“Partners have advised us to make the necessary corrections, and we have also determined that it needs to be done since the majority of the SOE’s procurement directives closely resemble the budgetary offices’ procurement law and system,” he continued.

According to him, the threshold is the only distinction that can be seen because SOEs are in charge of managing enormous resources.

 “SOEs can engage in both direct and restricted procurement in addition to open bidding. In all other respects, they are run according to the same rules as other public offices. It can be harmonized as a result,” he affirmed.

The primary goal of the new proclamation, according to authorities and MoF officials, is to regulate SEOs within the law in response to the criticism that the nation faces. The legal procurement framework will be unified and broadly accepted, rather than affecting state-owned enterprises, restricting their operations, or jeopardizing their profitability.

The authorities asserted that the proclamation has provisions that let enterprises use their particular directives, which is issued by their respective governing board to have plenty of room to grow and expand. To this end, Habtamu cited the draft proclamation’s articles 87.3 and 4, which spoke about SOEs having the authority to provide orders for their purchases.

Experts claim that improved ties with foreign allies would result from the nation’s central government adopting a uniform legal framework.

“If our legal system were more unified, lenders, including those that SOEs use would be more willing to lend money,” the legal advisor told Capital.

“This is one of the advantages we would have when the procurement system had a centralized design. The country’s international rating will also improve if we address the issue’s pitfall,” he added.

According to Habtamu, “A stronger procurement system would mean that the nation would receive the most from its partners,” and that, “SOEs would also receive more trust from their partners.”

According to the State Minister, the designed new law “will support them rather than have a negative effect” on the SOEs.

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