Broadband Infraco a "feeding ground" for its own executives

Broadband Infraco’s executives allegedly used the state-owned entity tasked with bringing down the cost of broadband, as a feeding ground. Of the 11 board members, three (including the chairman) have shares in companies which were awarded contracts with the parastatal.

In Broadband Infraco’s incompetence exposed Moneyweb showed how an explosive Deloitte audit report ripped into the lack of internal controls at the entity. Moneyweb can now reveal that Broadband Infraco’s Chairman Andrew Mthembu, Non-Executive Director Tumi Magasa and Cornelis Groesbeek (also a non-executive director) were awarded contracts by the institution where they serve as board members and sit on the company’s tender and procurement sub-committee.

Andrew Mthembu – Chairman

Mthembu, Broadband Infraco’s chairman, a non-executive director at Gijima Group and Vodacom’s former deputy chief executive officer, owns an undisclosed interest in Siemens Africa through his investment company Imphandze (Pty) Ltd which in turn holds a 0.83% in Nokia Siemens Network (NSN).

According to Broadband Infraco’s 2010 annual report, NSN was awarded R94.8m worth of business, last year. Moneyweb understands that Mthembu held equity in NSN prior to being appointed to Infraco’s board in 2007.Despite this, Broadband Infraco only disclosed the potential conflict of interest in its 2010 annual report.

When Moneyweb asked Broadband Infraco how Mthembu’s potential conflict of interest is managed its media liaison co-ordinator Thamie Mthembu (no relation to the chairman) said, “Broadband Infraco has an approved code of ethics policy that requires all board members and stakeholders of the company to declare their interests annually and the declaration of interest register which is held by the company secretary [Fahim Mohamed], is updated prior to every board and board subcommittee meeting, Mr Andrew Mthembu, as non-executive chairman of the board of Broadband Infraco has complied with this policy and declared his interest in Nokia Siemens Networks (NSN) at all times”.

Furthermore, “non-executive board members are not involved in any manner in the normal operations or commercial procurement activities of Broadband Infraco. This is the responsibility of executive management.

“As such, Mr Mthembu was not involved, in any capacity whatsoever, in the adjudication process when NSN was bidding for work at Broadband Infraco.  This was done by the Commercial Procurement Department of Broadband Infraco and no member of the board or tender and procurement sub-committee of the board was involved in the adjudication process.

“When the outcome of the adjudication process and the request for approval of the recommended contract with NSN was submitted to the tender and procurement sub-committee of the board for consideration, Mr Mthembu recused himself from attending the said meeting.  Mr Mthembu also recused himself from the board meeting when the final approval decision was made”.

Mthembu’s mysterious letter to Alec Erwin

Interestingly it appears that Mthembu, “… on his appointment as non-executive chairman of the board…made a declaration of his interest in NSN to the then minister of public enterprises, Mr Alec Erwin in writing”, says Thamie Mthembu. When asked if Moneyweb could see a copy of the letter Broadband Infraco said “…. It would not be appropriate”.

All this would make sense if it was not for the Deloitte audit report, finding that:  

• The commercial unit did not follow Broadband Infraco’s procurement policy;
• Contracts were concluded without the commercial unit’s knowledge and involvement;

• Contracts were renewed outside of the contract management process;

• There was a lack of evidence that appropriate procurement procedures were followed in the “conclusion, renewal, and termination of the contracts”;

• There was inaccurate contract management reporting, due to incomplete, invalid and inaccurate information from the register, such as terminated contracts not removed from the register;

• There was no clear communication between the end user departments and the commercial unit in terms of contract management, thus [the] end user at times made contractual decisions that change the terms of contracts (ie, modifications, extensions) without knowledge of the commercial unit.

It would also make sense if the audit report did not find that bid evaluation committee members did not declare whether or not they have a vested interest in any of the bids received as captured in the bids register list.

The report states that such non-compliance meant that:

• The involvement of officials who were or are also involved in the invitations and evaluation of the bids may lead these officials to being bias towards certain bidders, which may compromise the objectivity of the evaluators;
• Could lead to the results of the tender process being discredited or may not appear to be fair, equitable, transparent and competitive;
• Could lead to Broadband Infraco not being compliant with relevant supply chain related legislations and regulations including the Public Finance Management Act and Treasury regulations.

Tumi Magasa – Non-executive director

Magasa, Broadband Infraco’s non-executive director and an executive director at the local-arm of China’s ZTE Corporation, owns a 12.8% direct stake in ZTE South Africa. For its part according to Broadband Infraco’s 2010 annual report, ZTE SA was awarded R15.5m worth of business last year. Once again Moneyweb understands that Magasa acquired his stake in ZTE SA through 8 Mile Investments back in May 2007.

8 Mile Investments acquired a 32% stake in ZTE SA through an empowerment scheme. Again despite Magasa having been appointed to the board in 2007, and thus having acquired his shareholding prior to 2010 his interest in ZTE SA was only revealed in the 2010 annual report. As with Mthembu, Thamie Mthembu said it, “has an approved code of ethics policy that requires all board members and stakeholders of the company to declare their interests annually and the declaration of interest register, which is held by the company secretary, is updated prior to every board and board subcommittee meeting. 

“All members of the board of Broadband Infraco have complied with this policy and declared all their interests. This includes Mr Magasa’s interest in ZTE Corporation as is confirmed on page 71 of our Annual Report for 2010”.

Furthermore, Thamie Mthembu added that “non-executive board members are not involved in any manner in the normal operations or commercial procurement activities of Broadband Infraco.  This is the responsibility of executive management.  As such, no board members are involved, in any capacity whatsoever, in any commercial procurement adjudication processes.  This was done by the Commercial Procurement Department of Broadband Infraco.

“When the outcome of the particular adjudication process and the request for approval of the recommended contract with ZTE Corporation was submitted to the tender and procurement sub-committee of the board for consideration, Mr Magasa recused himself from attending the said meeting.  Mr Magasa also recused himself from the board meeting when the final approval decision was made”.

Cornelis Groesbeek – Non-executive director

Groesbeek’s company, Scalos Investment Consulting, in which he is a sole shareholder, was awarded R1.5m worth of business by Broadband Infraco, according to the 2010 annual report. Interestingly, according to the audit report, Scalos’s contract was among five contracts which were renewed/modified/extended by the commercial manager. When the auditors asked for proof that the contract was awarded correctly they were told the following documents had disappeared: “a motivational letter by the end user or minutes of the bid adjudication meeting where the decision to renew or extend the contract was approved”.   

When asked for comment Thamie Mthembu gave the same response as he did for Mthembu (chairman) and Magasa.

When Moneyweb asked Public Enterprises Minister Malusi Gigaba if he would condone three members of Broadband Infraco’s board having shares in companies which were awarded contracts by Broadband Infraco he responded: “As a general rule the minister expects that contracts of this nature be governed by standard governance regulations and practices common in commerce and industry in respect of disclosure and, would not expect deviation from these standards.”

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Source: Moneyweb