Poor governance and crooked procurement practices may be the cause of the sudden and unexpected departure of Broadband Infraco CEO Dave Smith, calling into question the future of the already faltering state entity.
Andrew Mthembu, chairman of the Broadband Infraco board, yesterday announced Smith's resignation, effective immediately, without citing a reason for the surprise exit.
“The board is liaising with the shareholders to put in place the necessary transitional arrangements until the appointment of a new CEO is finalised,” stated Mthembu.
However, in the same statement, Mthembu noted: “The discussions with the shareholders will also address some of the interventions necessitated by the internal audit report.”
Earlier this month, a revealing Deloitte audit report surfaced, exposing shortcomings relating to internal control processes in the company's procurement and contract management environments.
The state-owned entity (SOE) has conceded that the findings of the report are correct and are under investigation.
WWW Strategy MD Steven Ambrose has slammed the situation at the SOE, noting it is the complete lack of accountability prevalent in most government agencies, despite the good intentions of public servants, which will lead to Infraco's demise.
“The telecommunications business is too competitive and far too fluid to suit the style of administration necessary to ensure good governance in the context of a governmental operation,” he states.
“The debacle at Infraco highlights this; by the time a new CEO is appointed and the company stabilised, technology and the market will have moved on, and more good public money will be wasted chasing a noble, but improbable desire of driving down the costs of telecommunication, and connecting the unconnected,” opines Ambrose.
Self-funded?
Infraco was formed about five years ago, when government combined Eskom and Transnet's ICT infrastructure, with the aim of providing a backbone that would aid in reducing the costs of communication in SA.
So far, Broadband Infraco has received a total of R724.1 million for its establishment and operational costs between the 2007/8 and the current financial years. This is part of a total of R11.8 billion paid out to state-owned enterprises by the Department of Public Enterprises during the same time frame.
According to National Treasury's National Estimates of Expenditure, R347.1 million was transferred to Broadband Infraco in the 2009/10 and current financial year, which is set to end at the end of next month.
According to a treasury official, Broadband Infraco is expected to be self-funding from now. Between 2006/7 and 2010/11, government funded the expansion of the company's national long-distance network and its participation in the West Coast submarine cable system.
“It is not only highly unlikely that Infraco will become self-funding, it is also highly probable that its losses will continue to mount, and its services become increasingly outmoded, as it struggles with management and operational issues,” argues Ambrose.
He believes that the only viable future for the embattled SOE lies in its privatisation.
Private future
Infraco is highly unlikely to attract the required talent needed to manage the process in meeting its mandate, notes Ambrose, and will in all probability need a complete rethink of its mandate and objectives within a year.
“Government will finally have to fold Infraco into Telkom or Sentech, both of which hardly have stellar records, in order to curb losses and make the best of the infrastructure the taxpayer has paid well over market-related amounts for,” he maintains.
Ambrose believes the only way Infraco could possibly survive as an independent self-funding company would be to fully privatise it. The state should sell the entity to another operator which can utilise the infrastructure appropriately.
“Infraco has enormous intrinsic asset value currently, and the best government could do is cash in, sell the organisation, and use the funds unlocked for other more critical infrastructure such as electricity,” advises Ambrose.
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