Altron unit heads to court over Tshwane broadband

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Altron and the City of Tshwane are heading to the North Gauteng High Court today.
Altron and the City of Tshwane are heading to the North Gauteng High Court today.

Altron subsidiary, Altech Radio Holdings (ARH), and the City of Tshwane are heading to court today in a battle over the city's multibillion-rand broadband project.

ARH holds a jointly controlled interest in Thobela Telecoms (TT), a special purpose vehicle through which the City of Tshwane (COT) contracted for the procurement and installation of a fibre broadband network in 2016. Altron-owned ARH was then contracted by TT to complete the implementation of the city's broadband project.

As part of the Altron group's results for the year ended 28 February, released earlier this month, the group said ARH is still owed R265 million by TT for the project, which was put on hold last year by the city.

ITWeb reported in September 2017 that the city had decided to subject the broadband contract to judicial review after discovering "serious irregularities" which it believed tainted the legality of the deal. It asked the High Court to set aside the Tshwane broadband contract with Thobela Telecoms, entered into by the previous ANC-led administration.

The incumbent administration, led by the DA's Solly Msimanga, instituted an investigation into the procurement process of the deal after the auditor-general found the contract, valued at R2.73 billion, to be irregular. Before the broadband tender was approved, National Treasury raised concerns about the project in February 2016.

In April 2016, city officials 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. The deal was subsequently approved and the contract awarded to Thobela Telecoms.

Tshwane's broadband project aims to bring down the cost of government, promote and support e-government initiatives like eTshwane, generate new revenue streams, and improve service delivery and government responsiveness.

Recovering costs

"As the matter of the broadband project is currently before the High Court of South Africa, Gauteng division, Pretoria, we cannot make any comments at this time. The matter is set down for hearing on 22 May," Zipporah Maubane, Altron group executive for marketing, PR and communications, told ITWeb in response to further questions on the matter.

However, Altron acting CFO Tim Jacobs said at the group's results presentation in Johannesburg on 10 May that Altron believes the R265 million could be recuperated.

"We have not provided against this debtor; the reason for that is that we have a number of settlement options available to us and a court date set for 22 May and we believe this amount is recoverable," Jacobs said.

"Internal legal counsel, as well as management's external legal representatives, has been continuously involved in the legal dispute with COT on behalf of ARH, TT and the other partners. There are currently settlement discussions between COT, TT and ARH in an attempt to reach a conclusion on the matter and recover the outstanding balance," Altron said at the time.

The groups will now meet in the North Gauteng High Court in Pretoria to try find a solution to the dispute but Altron's management believes the possibility of the city's review application succeeding "is remote".

Possible outcomes

During the results presentation, COO Andrew Holden said Altron has been actively engaging with the city over the last six months and there are a few options on the table to settle the dispute.

"Option one is to carry on with the contract as awarded two years ago. Option two is to hand over the build as it is now, with a couple of tweaks: so far we have built 38 sites for the city so we could hand over the contract and they will pay for what they have received so far.

"The last option on the table is to call it quits on the contract and then they pay us out on standing time and enrichment etc," he said.

"Obviously our driver would be to continue with the contract either in its current scope or a slightly reduced scope. The second one is interesting as well, to hand over the network like it is but it will be a dark network, so the fibre will be unlit, but the city will be able to take the network and put it out to RFP [request for proposal] again and to follow the path on that.

"The worst case for all of us will be if they try to can the contract and we deal with enrichment and what was delivered, etc, because effectively you get no value. I think that is the worst case for the city, worst case for us and worst case for Tshwane. But in all three cases the debt is covered so we are not too exposed to the debt side," Holden explained.

ARH saw revenue improve by 2% in the last financial year to almost R1.2 billion, but earnings before interest, tax, depreciation and amortisation dropped by 5% to R80 million compared to the prior period. The results were negatively impacted by the challenges relating to the Tshwane contract.

Altron, however, believes its strategy of diversifying the business' product suite to include broadband products and services continues to yield significant opportunities.

"When you look at opportunities for the group, broadband and the amount of pipeline and activity in the general market both in South Africa and also further north into Africa is significant," Holden added.

Altron has already won other contracts in this area. In February, ARH was appointed by the Limpopo provincial government, through Limpopo Connexion, to roll out a broadband network in the province. The first phase, which will cost R585 million, will see ICT connectivity provided to government departments, municipalities, businesses and households across the province over a three-year period.

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