Good day MNP3703 Students

This is a written and the fifth assessment for the semester. As per Tutorial Letter 102,
the assessment in based on Lessons 1 to 9. The due date for this assessment is 25
May 2023 at 13:00.

INSTRUCTIONS ON HOW TO COMPLETE THE ASSESSMENT:

A) Master the content of Lessons 1 to 9.
B) Read the case study attentively about the growth in the buyer-supplier
relationship between MTN and Eskom.
C) Consult two additional sources that will improve your understanding and
motivation of your answers.

Introduction
In Assessment 2 you were introduced to the multinational telecommunications
organisations, MTN and Ericsson, and the relationship that grew between the two
organisations since MTN’s inception. In Assessment 5, you will investigate the
relationship between MTN and its supplier, Eskom.
Background
Eskom, is a state-owned electricity supplier that generates, transmits, and distributes
electricity to locally and the Southern African Development Community (SADC) region.
It operates several coal-fired power stations and the Koeberg nuclear power plant, as
well as a growing number of renewable energy projects. As a major player in the
telecommunications industry, MTN is heavily reliant on Eskom's electricity supply to
operate its network infrastructure. However, in recent years, Eskom has been plagued
by a series of operational and financial challenges, leading to frequent power outages
and load shedding in the country. These challenges have not only affected the general
population but also the operations of MTN, which has resulted in significant losses and
reputational damage.
The relationship between MTN and Eskom
When MTN was established, they developed a contract with Eskom that outlined the
terms and conditions for the supply of electricity. The contract was developed based
on the legal and regulatory requirements, as well as the service level expectations of
MTN at that time. MTN and Eskom negotiated the terms of the contract, including the
pricing structure and the service level expectations. The negotiation was done in good
faith, with both parties aiming to reach a mutually beneficial agreement. The contract
was implemented by MTN and Eskom in accordance with the agreed terms and
conditions. The implementation involved the delivery of the electricity supply, as well
as the payment of the agreed fees by MTN.

Open Rubric
However, in 2019, MTN was embroiled in a dispute with Eskom over the payment of
outstanding bills. Eskom claimed that MTN owed over R430 million in unpaid bills,
while MTN argued that the bills were inflated, and that Eskom had overcharged the
organisation and had failed to provide a reliable electricity supply. The dispute between
the two organisations became public in July 2019 and escalated, with MTN seeking
an urgent court interdict to prevent Eskom from cutting off the power supply. Eskom
threatened to cut off electricity supply to MTN's sites due to the organisation's failure
to pay outstanding electricity bills. Eskom maintained that MTN had not paid its bills in
full and had therefore breached its contractual obligations. MTN argued that Eskom
was not providing a reliable electricity supply and that this was affecting the
organisation's ability to provide telecommunications services to its customers. The
court granted the interdict, and the two parties continued negotiations to resolve the
issue.
The South African government intervened in the dispute, with President Cyril
Ramaphosa instructing the Minister of Public Enterprises to resolve the issue. The
negotiation outcomes were aimed at being mutually beneficial for both MTN and
Eskom. In October 2019, the two companies reached a settlement, with MTN agreeing
to pay a reduced amount in outstanding electricity bills and Eskom not to cut off the
electricity supply. Eskom also agreed to reduce its tariffs to MTN by up to 50% for the
next three years. The negotiated price of electricity was reasonable, taking into
consideration Eskom's cost of production and MTN's affordability. The settlement was
seen as a victory for MTN, as it reduced their operating costs and ensured the
continuity of their services.
Meeting with the Minister of Electricity
In March 2023, the Minister of Electricity, Kgosientsho Ramokgopa, requested a
meeting with mobile telecommunications organisations including MTN. The purpose
of the meeting was to determine the energy needs of the organisations since it related
to the efficiency of their operations and protecting their assets. The Minister
acknowledged that another aim was to explore how telecommunications organisations
could assist in generating power and contributing it to the grid. MTN and Vodacom
broadcasted last year that they would reduce their dependency on Eskom for power.
MTN focussed on facilities in Centurion and Gqeberha for extensive solar deployments
with battery storage within the 2023/2024 financial year. It also remains in consultation
with private power producers to procure electricity from renewable sources. MTN will
also reduce its dependency with rooftop solar systems and a concentrated solar plan.
It will also switch to efficient lighting replacements.
Alternative sources of electricity
Coal is the largest source of electricity in South Africa and provides around 90% of the
country's electricity needs. The coal is mostly mined for Eskom from several mines
located mainly in the Mpumalanga and Limpopo provinces. Nonetheless, there are
alternative sources of electricity. South Africa has one nuclear power plant, Koeberg
Nuclear Power Station, which is located near Cape Town. It generates around 5% of
the country's electricity needs. South Africa also has significant potential for renewable
energy, particularly solar and wind power. The Renewable Energy Independent Power
Producer Procurement Programme (REIPPPP) has encouraged investment in
renewable energy, with several large-scale projects currently in operation or under
construction Independent Power Producers (IPPs), another source, are private
companies that generate electricity and sell it to the national grid. Many IPPs operate
renewable energy projects and have been encouraged to invest in the sector through
government incentives such as the REIPPPP.
Ending the relationship
With the reveal of alternative sources of electricity, MTN may decide to end their
relationship with Eskom. This may pose many benefits and risks for MTN. There are
several aspects that should be judged while weighing the benefits against the risks.
Firstly, MTN would need to consider the cost of alternative sources of electricity
compared to the cost of the existing contract with Eskom. This would include not only
the initial capital investment but also ongoing maintenance and operating costs. MTN
would also need to evaluate the reliability of alternative sources of electricity, as well
as the availability of backup power in case of outages. Secondly, MTN would need to
consider the potential impact on their business operations if they were to end the
contract with Eskom. They would need to ensure that they can maintain uninterrupted
power to their facilities and operations. This may require significant changes to their
infrastructure and backup power systems, which could have a significant impact on
their operations and finances. Thirdly, MTN would need to consider the terms of the
existing contract with Eskom, including any penalties or fees for terminating the
contract early, as well as any provisions for dispute resolution or renegotiation. Finally,
the South African government has set a target of increasing the proportion of
renewable energy in the country's energy mix. If MTN were to consider switching to
renewable energy sources, they could benefit from government incentives and tax
breaks, but would still need to consider the initial capital investment and ongoing
maintenance costs.

Conclusion
The dispute between MTN and Eskom highlighted the ongoing challenges facing
South Africa's electricity supply industry, which has been plagued by issues such as
aging infrastructure and financial mismanagement. The dispute also demonstrated the
potential impact of these challenges on other sectors of the economy, such as the
telecommunications industry. The importance of reliable electricity supply for
businesses and the need for a stable energy policy in the country are clear. MTN and
Eskom used to have a long-standing stakeholder relationship that was based on
mutual benefit and good faith. However, due to several changes in the market and
strategies of Eskom and MTN, the organisation had decided to invest heavily in
renewable energy and reduce its reliance on Eskom's electricity supply. In conclusion,
the viability of ending the contract between MTN and Eskom for the supply of electricity
would depend on several factors, including the cost and reliability of alternative
sources of electricity, the potential impact on business operations, and the terms of
the existing contract. A thorough analysis of these factors would be necessary before
making a decision.
Sources:
https://mybroadband.co.za/news/telecoms/483323-minister-of-electricity-meets-with-
vodacom-and-mtn.html#:~:text=Vodacom%20and%20MTN%20announced%20
large-scale%20projects%20last%20year,all%20its%20electricity%20from%20
renewable%20independent%20power%20producers.
https://www.businesslive.co.za/bd/companies/telecoms-and-technology/2019-12-17-
mtn-to-seek-court-interdict-against-eskom-over-electricity-cut/
https://www.eskom.co.za/about-eskom/company-information/
https://www.eskom.co.za/eskom-divisions/gx/nuclear/
https://techcentral.co.za/mtn-takes-r695-million-hit-from-load-shedding/223223/

D) Address the following questions based on the case study:

Question 1
Eskom has been plagued by a series of operational and financial challenges, leading
to frequent power outages and load shedding in the country. External factors, such as
social changes may affect relationships between buyers and suppliers. Relate how
social changes affected the relationship between Eskom and MTN. (2)

Question 2
The case study states that in in 2019, MTN was embroiled in a dispute with Eskom
over the payment of outstanding bills. Eskom claimed that MTN owed over R430
million in unpaid bills, while MTN argued that the bills were inflated and that Eskom
had overcharged the organisation and had failed to provide a reliable electricity supply.
To have reached a point of that magnitude about payment issues, reveals that the
contract was not monitored for compliance. The study guide suggests seven tools to
measure suppliers’ performance. Explain the following three tools and motivate how
they may have assisted MTN in monitoring Eskom’s performance: (9)
a) Work breakdown schedule (WBS) (3)
b) Responsibilities matrix (3)
c) Risk management assessment (3)

Question 3
The performance of Eskom has a significant impact on MTN's operations and
customer satisfaction, therefore it is important to continuously measure their
performance. Assume MTN has reached the point where they consider alternative
 sources of energy supply. How would they implement the weighted point method in
choosing the best supplier of energy?
To answer this question, (a) provide a brief description of the weighted point method
and (b) then suggest the way in which MTN may apply the method when assessing
Eskom and another supplier’s performance. (Note that neither a table nor calculations
should be provided.) (11)

Question 4
The case study mentions that MTN and Eskom continued their negotiations to resolve
the issues of payment and abruptly ending electricity supply after the court granted the
interdict. The two companies eventually reached a settlement. Debate whether
negotiations were conducted ethically. (5)

Question 5
Sometimes, it may become necessary to terminate a relationship between a buyer
and supplier due to various reasons such as non-performance, bankruptcy, or a
change in business strategy. At times, buyers and suppliers, such as Eskom and MTN,
cannot resolve a contractual disagreement in face-to-face negotiations. (5)
a) What was the initial action in which MTN attempted to avoid the termination of the
contract with Eskom. (1)
b) Identify the way in which MTN ultimately settled the contract dispute in 2019 and
identify the role played by the minister. (1)
c) Elaborate on the process that followed once negotiations started referred to in
question 2. (3)

Question 6
The process of supplier relationship management (SRM) involves several steps that
are designed to ensure that suppliers are treated fairly and that the buyer receives the
best possible value from the supplier. In its first step, a supplier relationship
management team should be created in which several disciplines should be
represented. Discuss eight of these disciplines that may relate to MTN. (8)

E) Ensure that your assessment adheres to the technical requirements.

Students who do not adhere to these requirements will be penalised.
i. You MUST TYPE your assessment by using Arial font, size 12 and line spacing
of 1.5.
ii. Your answers to the assessment should not exceed 8 pages. Take note that this
page limit does not include the cover page and declaration of honesty or list of
references.
iii. Structure your assignment as follows:
 • Complete the cover page and sign the declaration of honesty attached to these
instructions and ensure that it is the first page of your assessment. Assessments
without the correct cover page will not be accepted for marking.
• Answer the questions according to the instructions.
• List of references
o Make sure to reference any sources that you have consulted in the text, as
well as in a list of references according to the Harvard style of referencing.
The study guide should be acknowledged as a source in the following way:
o University of South Africa. 2023. Supplier relationship management, only
study guide for MNP3703. Pretoria: University of South Africa.
o You do not have to reference the case study in your assessment, however, if
you quote parts of the content it should be acknowledged in inverted
commas - “ ”
• Note: You do not have to include a table of contents, introduction or conclusion.

iv. Save your assessment as ONE Adobe PDF file and upload it under the
Assessment 5 tab.

Total for Assessment 5: 40 marks.