With vibrant young black professionals entering the commercial law sector, the need for expertise relating to current economic imperatives in South Africa abounds.
More than 20 years has passed since the historic moment when South Africa first became a democracy. As one of its hallmark features, the shift to a country that embraces human rights and freedom was accompanied by the promise of change and transformation all across society.
Without a doubt, levelling the playing field has been, and still is, no easy task, with some industries and sectors being slower to transform than others. Legal practice in commercial law for institutional and commercial clients has been a case in point. With apartheid legislation marginalising black professionals, non-white law specialists were traditionally confined to areas such as matrimonial or criminal law.
Today, however, in no small part due to the efforts of a number of champions of change, we are seeing a vibrant young breed of law graduates entering the commercial sector. In this regard, Ledwaba Mazwai has been an exemplary model of championing empowerment and commitment to redefining the status quo.
Being one of South Africa’s premier black owned commercial law firms, it goes beyond simply grooming young black professionals, but today actively engages its team in projects aimed at creating an empowered South Africa.
As part of this ambitious task, Ledwaba Mazwai is actively involved in a number of exciting and “game changing” projects aimed at large scale sectors and developments, which include power and infrastructure. Their modus operandi is: assisting government and the private sector in ensuring appropriate risk sharing through their contractual obligations while at the same time structuring and advising on social and economic initiatives, (including B-BBEE).
In an interview with Leadership, Ledwaba Mazwai’s team shared some of what they have experienced on their journey with the company, their role in the projects they are currently involved in and their visions for the future.
Under the dedicated leadership of Metja Ledwaba and Lungile Mazwai; the partners of the firm, including Calvin Nchabeleng, Innocent Khumalo and Viola Ngwenya are currently involved in matters ranging from exciting power projects and public private partnerships (PPPs) to funding, economic development and alternative dispute resolution in and for infrastructure projects.
Ngwenya, Khumalo and Nchabeleng are originally from Mpumalanga and are University of Pretoria Alumni. Their enrolment and eventual success at Ledwaba Mazwai happened through the classic meeting of preparation and opportunity.
Ngwenya, who shortly after completing her LLB degree started as candidate attorney at Ledwaba Mazwai in 2005 has since been involved in matters relating to structuring, negotiating funding and implementation of public private partnerships (PPPs), and other infrasructure projects such as the Renewable Energy Independent Power Producers (IPP) projects, Coal Baseload IPP Procurement Programme, as well as the PRASA Rolling Stock Fleet Renewal Programme.
“I’ve been doing commercial law and project finance work and have had a lot of exposure to PPPs. Generally my skills-set is focussed on legal advisory services as well as BEE or what we now call Economic Development (being a term Ledwaba Mazwai coined for B-BBEE, localization and job creation) advisory services.
“So we advise on the different projects all the way from inception, when clients first think about starting the project by conducting feasibility studies, to procurement and then going from procurement to negotiations and from negotiations to implementation. We have the skills to advise clients in all those different phases, from a legal perspective as well as from an Economic Development perspective,” she says.
Similarly, Khumalo’s involvement at the firm started with him doing his articles following his LLB degree when he was taken in by the firm where, after two years, he was offered the position of professional assistant to senior personnel.
“It has been very interesting because when I started I came directly from varsity and it was more theory. But senior partners at the firm took me under their wing and I have learnt a lot about commercial legal practice; how to transact, how to negotiate and naturally how to close deals,” he says.
As for Nchabeleng, who is currently busy with PPPs, commercial law, project finance and dispute resolutions, his enrolment at the company came as a welcome relief after being disillusioned by the prospects of criminal law.
“I got to know about Ledwaba Mazwai through a friend. I went there just to see how the outfit works and for a small firm it was impressive, so I left my CV and was called for an interview and the following day I was supposed to fly to Cape Town. I got a call later in the evening that I had got the job. The following year was my first year as a trainee.
“I was quite nervous but the challenge that lay ahead of me was fun in the sense that I didn’t want to be a criminal lawyer. What turned me off about criminal law is that for the victim's family and the community's sense of justice may differ from the courts' sense of justice. Where the courts may follow legal principles that direct imprisonment is not appropriate, the community and the victim's family might be of a different view. Where such are not the same, the victim's family and the community may feel let down by the law and thus result in them lacking confidence in the law,” he says.
Providing legal services for both the private and public sectors, corporates and institutions, including projects such as the Gautrain Rapid Rail Link Project, office accommodation PPP Project for City of Tshwane, the Coega and Avon power projects, as well as entities like the Department of Energy, Department of Health and the National Treasury; Ledwaba Mazwai has a phenomenal track record of professionalism.
Introducing the processes involved in the projects they work on, Ledwaba starts by indicating that as a first step, you need to be clear about the contracting structures.
“You have to look at the activities that are going to be taking place in the project and then decide on the risk sharing that is suitable for the project and the institution—which risks are appropriate to retain and which ones should preferably be transferred. You need to have a clear framework of a risk-sharing matrix in your mind,” he says.
Using public private partnerships as an example, he points out that there is a significant involvement from the private sector involving the transfer of the design, construction, and operational risks, etc, to the private sector. “The government does not give specifications for them but simply specifies what it wants to achieve. The public sector comes with the specifications on how they will achieve the public sector's requirements. It is a completely different model of contracting to the one which people are conventionally used to, where government would itself have designed the project and puts it out on tender to be built by the private sector who takes no risk on the design and operation of the facility. The conventional model lends itself to many claims because everything that goes wrong gets blamed on the design.
“There are arguments that the one where you transfer a lot of risks will cost you more and the one where you are not transferring many risks will cost you less. However, the model where you are not transferring more risks because you want to save money, exposes you to litigation. So you can end up paying a lot more in terms of claims than you would have with the one where you transfer a lot of risk to the private sector. You lock up every cost you have into the contract and you can plan your affordability in a more constructive manner from a budgeting perspective,” he says.
Looking at the Renewable Energy Independent Power Projects (IPPs) in particular, Ngwenya refers to the work they have done with the Department of Energy and, with specific reference to procurement, says the contractual structure utilized on that project has managed to save the department “a huge amount of time.”
A similar structure was used by Ledwaba Mazwai for the Statistics South Africa accommodation project, which significantly limited the period for the negotiation process.
“I think our involvement is really in getting the client up to signature of the transaction document from project inception and then moving on to implementation,” she says.
“In terms of assisting the different clients post-procurement, in the implementation phase, like in the South Africa Headquarters building project (a PPP project), we advise them in terms of implementation and then assist the Department of Energy’s IPP office with some ad hoc advice on the implementation of the IPP projects with a specific focus on Economic Development.”
Ngwenya points out that since power projects are relatively new to the country, a number of projects happening at the moment need legal advice. In terms of procurement she also focuses aligning it with Economic Development imperatives. Another aspect which Ledwaba Mazwai ties in with these imperatives is PPPs.
In Ngwenya’s opinion, public private partnerships constitute an excellent vehicle to drive infrastructure development as it is able to channel private sector funds and skills to assist in building public infrastructure. “I think there is definitely more room for these projects. We did the City of Tshwane Municipal headquarters project, as well as assisted Statistics South Africa with their headquarters building, which were both done on a PPP basis. So I think they [PPPs] are excellent mechanisms to leverage private sector funds and skills to build public infrastructure and with the fiscus under pressure, I see it as the only mechanisms to actually build infrastructure,” she says.
Expanding on some of the work they have been doing with regard to PPPs, Nchabeleng says when looking at the City of Tshwane Municiple headquarters project ("the Tshwana House PPP project"), the PPP was procured by the city under the Municipal Finance Management Act, 2003 (MFMA) and is today the first municipal PPP of its size and nature to be procured under the MFMA. Exciting, but daunting at the same time, Nchabeleng says the project has truly been a benchmark initiative and having the Municipal Finance Act as one of the only pieces of legislation at the time governing a PPP project at local government sphere of this nature, saw them having to deal with new pieces of legislation as the project progressed, for example Municiple Public Private Partnership Regulations promulgaed in terms of section 168 of the MFMA, the National Treasury's Municipal Service and PPP Guidelines which were all promulgated after inception of the Tshwane House PPP project.
Another vital aspect that accompanies large infrastructure and power projects is funding. This is where Khumalo steps in. Being involved with the Pan African Infrastructure Development Fund (PAIDF) and the Publice Investment Corporation (PIC), Ledwaba Mazwai Attorneys has been able to assist in legal matters related to funding projects.
As Khumalo explains, “PAIDF has been a long-standing client of the firm and is a continental fund that deals with all funds in Africa for infrastructure development projects; so whoever has their project in Africa can approach them for funds. A good thing about it is that it helps provide funding to developing entities who want to do infrastructure projects, because sometimes in other countries it’s very difficult to get funding just based on the nature of the country itself. With some lenders, or your traditional banks, we are never asked to go into those countries. Institutions looked to traditional banks that are either too expensive and where they will not be funded at all by traditional funders so it [PAIDF] is a very fundamental and important organization on the African continent,” he says.
Khumalo. however, says in general, the acquisition of project funding remains problematic in South Africa. This, he says, relates specifically to shareholders, often B-BBEE shareholders, since the way the deals are structured dictates that 90% of funds will be supplied, but 10% will have to be provided by the applicant. This, he says, becomes problematic when you are dealing with large amounts of money.
When all is said and done, the possibility of disputes remains when there is implementation of major infrastructure projects. Part and parcel of the legal work that Ledwaba Mazwai often do with clients involves alternate dispute resolution, which as Nchabeleng mentions, can be quite "tricky". The benefits are, however, that courts are sidestepped, resulting in significant time being saved, and confidentiality protected.
"You do not get to expose commercially sensitive information to competitors of the party in the dispute. The only drawback is you don't have a lot of legal precedence on similar cases relating to these disputes under public private partnerships," he says.
The Way Ahead
Ledwaba says that without a doubt, there is still a long way to go in terms of transforming commercial legal practice. “I think there are many concerns at the moment about transformation in the legal practice. There has been some progress but I don’t think it is at the level where black practitioners will say that there has been adequate progress on transformation. There are opportunity creators from government work to gain some margins in transformation, but you do not see much in private sector work.”
In terms of how the projects they work on promote transformation while at the same time building the economy, Ledwaba admits these projects do indeed present the opportunity to do exactly that. He does, however, highlight that the amount of transformed involvement of black lawyers is still very small in the overall and that there is a long way to go before there will be “huge transformation celebrations” in the industry. He says that as far as the firm goes they have managed to make some progress with regard to becoming involved in these projects, but that he would not call it progress that represents or speaks for black law firms in general. That being said, however, the firm remains a sound example and representation of the direction and much needed change the industry would have to adopt to assure proper transformation in commercial law in South Africa.
Ledwaba concludes that “there is still a lot of work to be done to benefit black practitioners. The milestones we want to achieve is to diversify the work we are doing. When we started the firm we identified our aspiration to be broadly involved in the area of commercial work practice. What we have been discussing now is quite limited to project finance work so in terms of that, we have made, and are continuing to make, good progress.
“We initially started our involvement in commercial work, by being involved in and making progress in corporate finance transactions. This however stagnated for us, and as such we have not made as much progress there as we did in project finance. We therefore would like to diversify more broadly in the commercial work space in which we participate.
“We do not want to lose the gains we have made so far on project finance, but our immediate challenge is to be more diversified and to grow the firm.”