Businessman lifts lid on R11bn Telkom damages claim

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 16 Feb 2024
Phutuma Networks is fighting Telkom over a damages claim.
Phutuma Networks is fighting Telkom over a damages claim.

Businessman Dr Edward Scott’s company Phutuma Networks is pursuing an R11 billion damages claim lodged against Telkom over a tender awarded in 2007.

The founder and executive chairman believes if the telecommunications company is investigated by the Special Investigating Unit (SIU), as directed by president Cyril Ramaphosa, the unit will unearth the alleged irregularities in the awarding of the tender.

In 2022, Ramaphosa authorised a wide-ranging probe of possible maladministration in the disposal of Telkom’s assets – iWayAfrica, Africa Online Mauritius and Multi-Links Telecoms – during the telco’s sojourn in Africa.

Telkom argued that the directive to look into the company was motivated by Scott’s complaint about the awarding of the tender several years ago.

Scott, on the other hand, says he was a whistle-blower at the JSE-listed telecoms company.

According to the founding affidavit seen by ITWeb, the genesis of the allegations referred by the president to the SIU are complaints made by Scott about two tenders issued by Telkom in 2005 and 2007.

Phuthuma Networks is suing Telkom over a tender published in November 2007, for the outsourcing of Telkom's Telex and Gentex Services, and to provide a solution to support its maritime industry requirements.

It also instituted claims against the telco at the Competition Tribunal and communications regulator.

Strong denial

However, Telkom argues that neither of the tenders was awarded by the telco.

The Telex tender was cancelled in June 2009, with Telkom at the time citing irregularities with the tendering process.

The tender was eventually awarded to Network Telex, which Scott claims “kept requesting information from us” for the core service.

“This project was always being delayed until it became obvious that Telkom had actually appointed Network Telex without tender, then attempted a skewered tender process after Network Telex outsourced 80% of the work.

“Throughout the process, the CEO, board and management were kept informed as to what was going on.”

In an e-mailed statement to ITWeb today, Telkom says: “Telkom is defending the matter instituted by Dr Scott, and believes his claims have no merit. The claims have received the attention of various regulators, including but not limited to the Competition Commission, Competition Tribunal and ICASA [Independent Communications Authority of South Africa] with no adverse findings against Telkom.”

Telkom has been fighting to have the SIU not probe the company, arguing it is not a state institution and, therefore, the SIU cannot investigate it.

In July last year, the telco won its court case to have the investigation halted, before the SIU appealed the ruling.

In a turn of events, at the beginning of this year, the Registrar of the Pretoria High Court issued an order granting the SIU and Ramaphosa leave to appeal Telkom’s blocking of the investigation.

Responding to the latest development, Telkom says: “Regarding the SIU matter, Telkom has noted the High Court judgement granting the president and the SIU leave to appeal to the Supreme Court of Appeal.

“We remain confident in the merits of our original arguments, in particular that Telkom is not a state institution. While Telkom opposed the initial probe of the SIU, we respect and support the mandate of the SIU to combat maladministration in the public sector. Telkom reiterates that it remains committed to the highest standards of governance and ethical conduct.”

Telkom is majority state-owned, with the South African government owning 40.5% of the JSE-listed company.

Another 14.8% of the firm is owned by another state-owned company – the Public Investment Corporation – which is closely linked to the South African government.

The untouchables

Scott tells ITWeb that Telkom CEO Serame Taukobong has dismissed his claim as a legacy issue. However, Scott argues that the case “cannot simply go away”.

He adds that former CEO Sipho Maseko was aware of the claim but departed the company without reaching a settlement.

“The previous chair [Sello] Moloko and the new chair have been included in correspondence with the government, so nothing is new – they think they are untouchable,” he says.

“The total damages have always been R5.5 billion, but with the delays and court interests, they could possibly now amount to R11 billion.

“All the financial burden [for the claim] has been self-generated and one would think that instead of believing in persistent internal lies, accountable officers would have called a roundtable in an attempt to get the other side of the story.

“All legal advisors will state that their clients have a strong case because they are paid irrespective of the final outcome.”

Scott claims that after the squabble with Telkom, Phutuma Networks lost major clients, namely Vodacom SA, Vodacom Tanzania, Transtel and Siemens.

About the SIU probe, he concludes: “We will be going forward, as the evidence obtained is irrefutable regarding the tender fraud which management has been fully aware of unless the matter is settled. We have been the whistle-blower in this matter which even the judge referred to as serious content against Telkom.”