Altron Nexus loses multi-billion Tshwane broadband project

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Altron Nexus has lost the court battle launched by the City of Tshwane over the city's multibillion-rand broadband project.

The City of Tshwane subjected the multibillion-rand broadband contract to judicial review after discovering what it says were serious irregularities, which "taint the legality of the deal".

Altron Nexus holds a jointly controlled interest in Thobela Telecoms, a special purpose vehicle (SPV) through which the City of Tshwane (COT) contracted for the procurement and installation of a fibre broadband network in 2016.

In a statement to shareholders today, Altron says: “The board wishes to inform shareholders that judgement was handed down in the Gauteng High Court in Pretoria relating to the application brought by the City of Tshwane to review and set aside the tender and award of the Altron Nexus/City of Tshwane Municipal Broadband Network contract.”

The SENS statement adds: “Altron Nexus has assessed the status of this matter and reasonably estimates the exposure of the business to amount to between R40 million and R60 million. This takes into account provisions taken against its claim against the SPV due to the uncertainties with regard to the legal challenge brought by COT and the options available, including repossession and redeployment of equipment supplied to date.”

The incumbent administration in Tshwane, led by the Democratic Alliance, instituted an investigation into the procurement process of the deal after the auditor-general (AG) found the contract to be irregular.

The AG's report also determined the value of the contract at R2.73 billion.

Solly Msimanga, who led the administration at the time, contended that “the broadband contract and its procurement are riddled with irregularities and non-compliance".

"What we have discovered are serious irregularities which we believe taint the legality of the broadband deal. Crucial information was also withheld from councillors who voted on the project in April 2016."

In the statement, Altron Nexus confirms the case.

“The matter relates to a dispute between the SPV and COT over the latter’s allegations that the tender award process was unlawful due to the internal processes and procedure at the COT not having been followed correctly. Subsequent to being awarded, the project was put on hold by COT, pending the outcome of the court case.”

Further, Altron says: “The court’s decision on 16 July 2019 was to set aside the awarding of the contract on the basis of internal processes not having been followed by the COT in the awarding of the tender; in the decision of the municipal council to approve the terms and sign-off of the build, operate and transfer agreement entered into between COT and the SPV; and the waiver by COT of the fulfilment of suspensive conditions precedent relating to the BOT agreement.”

Before the broadband tender was approved, National Treasury raised concerns about the project in February 2017.

In April 2016, city officials had put forward a request to the council to approve the contract for broadband roll-out for a period of 18 years, which includes three years to build the network and 15 years to operate it.

In terms of the request, the council was asked to approve the off-take amount of R278 million inclusive per annum for a period of 18 years. During the build period, the off-take amount will be paid pro-rata in line with the services made available from the network, said the city. The off-take may increase if the city procures additional services not covered by the current agreement.

The off-take amount was constituted as R153 million per annum, reprioritised from the current operational budget of the ICT department, and another R43 million taken from the budgets of the three departments, namely: ICT, metro police and electricity.

The city said it would fund the shortfall of R82 million per annum required from the 2016/17 financial year as follows: R40 million in the financial year 2016/17, increased by another R42 million in the next financial year.

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