Data shows most ARVs are imported into South Africa.
Health Minister Aaron Motsoaledi and a large group of senior officials appeared before the parliament’s portfolio committee on health, where they were questioned about the process used to award the antiretroviral (ARV) tender, worth at least R15.5 billion.
This follows after two pharmaceutical companies, which are part of the group that is appointed to supply the medication used to treat HIV, entered business rescue. This raised eyebrows about whether due diligence was applied when awarding the tender.
Are ARVs locally manufactured?
The committee was told by the health department that at least 70% of its ARVs are procured from local manufacturers. However, the committee questions this, as it estimated that 70% of ARVs are imported, while only 30% are produced domestically.
“This assessment is based on several factors, including referencing Tenofovir Dolutegravir and Lamivudine (TDL), which accounts for 80% of the contract value,” said the committee in a statement.
“For the 84s pack size, members noted that Emcure (India) won 15% of the tender, but trade data from Indian customs indicates that Emcure imports its ARVs into South Africa.
“In the last three-year contract, which ended two months ago, Emcure imported $43 million (R1.6 billion) worth of ARVs, yet the department lists Emcure as local.”
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Local companies import ARVs
The committee found that the department lists Innovata, Barrs, Aurobindo and Viatris as local manufacturers, despite evidence that they are importing ARVs into the country.
Another issue the committee found is that Barrs, one of the companies that went into business rescue, has been acquired by Hetero, which will also import ARV products.
Motsoaledi and his entourage were asked how they arrived at the minimum of 70% local procurement, given that import data for the mentioned suppliers indicates otherwise. The committee has since requested documentation from the department to confirm that the aforementioned companies produce ARVs locally.
“Additionally, members inquired why local producers like Sunpharma, Cipla and Adcock Ingram were excluded in favour of importers, and why the department did not maximise the capacities of both Aspen and Cipla, which could provide three million monthly patient treatments when both companies are competitive,” read the statement.
Loyalty to Innovata?
The committee asked the department why it would award a new contract to Innovata after previously excluding it from a contract due to legal proceedings.
“Questions posed to the department sought to clarify how it applies local preference in its tender process and what percentage premium, if any, is applied for local manufacturing.
“The committee was of the view that South Africa’s fiscus might have benefited from a small premium to award contracts to local producers, like Pharmacare, instead of companies based overseas.”
The committee also questioned why multiple suppliers were awarded the tender, as they don’t accept the department’s claim that this was a ‘risk mitigation strategy’.
“They urged the department to explain the rationale behind awarding contracts to suppliers with common shareholdings, as this does not seem to constitute effective risk mitigation.
“The committee requested a breakdown of how the department conducts its due diligence, particularly in confirming the shareholding of these companies and verifying whether manufacturers claiming to produce ARVs in South Africa are genuinely doing so.”
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No due diligence
The committee noted with concern that due diligence appears to have been predominantly desktop-based, limiting the accuracy of local assessments.
Faith Muthambi, chairperson of the committee, said it would appear that the country has at least 4 million monthly patient capacity for TDL, yet less than 50% of this has been awarded domestically.
Members stressed the need for greater transparency and accountability in the tendering process. The committee requested that written responses be submitted for questions that the department could not respond to due to time constraints, particularly the one referring to due diligence.
Commitment to fixing the issue
Motsoaledi told the committee that director-general Sandile Buthelezi bears full responsibility for the tender, as the accounting officer, he is responsible for final sign-off on all procurement contracts.
He acknowledged that the department did not scrutinise the financial statements of companies bidding for tenders because it did not have the capacity to do so, and outsourcing the task to an auditing firm would be prohibitively expensive.
“The chances of companies going under are so slim it would not be worth hiring audit companies and paying exorbitant sums of money.”
SIU to investigate
EFF MP Naledi Chirwa suggested that the committee recommend the Special Investigating Unit (SIU) to investigate the ARV tender.
“There are too many red flags for us not to be suspicious [of] what is happening with this ARV tender,” she said.
“We want the SIU to come in and investigate after so many red flags, and these guys got the tender,” referring to Barrs and Innovata, which received a share of the tender, despite not being financially able to do so.
Motsoaledi said he would welcome any recommendations made by the committee.
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