Johannesburg — A tussle between the Treasury and the Department of Trade and Industry about local companies getting preferential treatment over foreign rivals in state procurement could scupper one of the pillars of the department's new industrial policy action plan, if not resolved soon.

The industrial plan's success depends to a large extent on changing the procurement system of the government and state-owned enterprises.

If disagreement over the new rules is not resolved soon, it could delay implementation of aspects of the much-vaunted industrial plan. The action plan envisages taking advantage of the R846bn which the public sector is to spend on infrastructure over the next three years in order to promote local industry.

The issue is understood to revolve around whether the plan's "point-matching" proposal is unconstitutional, as the Treasury apparently believes it is.

The introduction of point matching in state tendering would allow the highest-scoring local bidder a second bite at a tender if a foreign rival beat it only on price. It would have the opportunity to come in with a lower bid.

The pharmaceutical industry argued in favour of "point matching" yesterday, saying that in 2007-08, 53% of public sector medicines in value terms was imported. The government's annual procurement budget for medicines, including antiretrovirals, is estimated now at R4,5bn.

The Treasury did not wish to comment yesterday on the existence of a tussle.

When asked to confirm and clarify that the Treasury had concerns about the constitutionality of the "point-matching" proposal, spokeswoman Lindani Mbunyuza would only say: "This is a matter of ongoing discussion in government." She would not be drawn any further on the matter.

Stavros Nicolaou, who is chairman of Pharmaceuticals Made in SA and an executive at Aspen Holdings, said in public hearings on the plan organised by Parliament's trade and industry committee, that the Treasury had queried whether point matching was consistent with section 217(1) of the constitution - which sets out the principles on which public procurement must be based - and with the Promotion of Administrative Justice Act.

Nicolaou said Aspen had procured its own legal opinion which concluded that point matching complied with the constitutional principles of transparency, competitiveness, cost effectiveness, fairness and equitability and procedural fairness.

It would go a long way to providing local manufacturers with certainty, predictability and security of local supplies when they bid for government tenders, he said.

"Point matching costs the state nothing extra and is not prejudicial to importers as they can invest in SA and then have the same matching right," Nicolaou said. He pointed to the "worrying" increase since 2005 of cheap imported medicine from India.

Last year India overtook the UK, the US and France to become, after Germany, the biggest exporter of medicines to SA.

Nicolaou stressed co-ordination and "policy coherence" between departments would be crucial if the industrial policy action plan was to succeed. Turf battles between departments would have to be avoided.

African National Congress MP and longstanding committee member Ben Turok said the fact that the Treasury had resisted aspects of the industrial plan had come to light when it was still under preparation and when officials of the Department of Trade and Industry had briefed the committee on progress.

"We are now getting a very specific case of Treasury opposition and we as a committee are not going to be able to do our job if we can't unpack this question of co-ordination within government.

"The president and everyone else is saying co-ordination, co-ordination all the time. We are getting it in the state of the nation address and so many public fora where the leadership of the country and of the ANC are saying that government must act cohesively and yet we hear that this is not happening."

The industrial plan also emphasises the need for greater co-ordination within the government if it is to succeed.

Turok supported the point-matching proposal saying: "If two tenders are equal you must prefer the one that suits you because of the downstream effects. What these people are telling us is that if they win a tender it creates jobs, brings skills, and builds the domestic market.

"The industrial policy action plan emphasises the domestic market. We failed to do that in the past because we were led all the time by the imperative that we must be competitive internationally and that undermined companies."

He said Trade and Industry Minister Rob Davies had argued for a focus on the domestic market and emphasised exports. "Where all things are equal, you favour your own."

The Congress of South African Trade Unions condemned as "scandalous" the fact that much of this year's infrastructure inputs had been procured abroad.

"We have called for a review of the Preferential Procurement Policy Framework Act and its regulations to ensure that public procurement prioritises goods manufactured locally and their inputs sourced locally as well," it said.

Sectors cited in the plan as likely to benefit included metal fabrication; capital equipment and transport equipment; buses and other commercial vehicles; pharmaceuticals; and electronics.