HomeBusiness DigestNetOne violates tender law in US$251m upgrade

NetOne violates tender law in US$251m upgrade

NETONE, Zimbabwe’s smallest mobile phone operator by subscriber base, could have violated sections of the State Procurement Act when it awarded a US$251 million network upgrade tender to Huawei Technologies without the nod of the State Procurement Board (SPB), businessdigest can reveal.

Report by Chris Muronzi

Investigations show that NetOne CEO Reward Kangai only wrote a letter to the SPB on July 16 2013, requesting approval to purchase equipment from Huawei Technologies on the pretext that only the Chinese firm was able to supply network upgrade equipment given that existing infrastructure was supplied by the same firm.

Experts say NetOne can go for an International Telecommunications’ Union (ITU) approved universal system that can be incorporated with other technologies.
This, the experts said, has the effect of drastically reducing costs and giving the company a wide range of suppliers.

“NetOne currently has two suppliers for its core network: Nokia Siemens Networks (formerly Siemens), who were awarded the initial tender for the supply of equipment to set up NetOne and the other, Huawei Technologies of China. It is not possible to upgrade equipment supplied by a vendor with effect from a different vendor,” Kangai wrote in his letter.

This comes as it emerged this week that NetOne was asked to get quotations from other Chinese companies, but ended up getting only one quotation from NEC, a Japanese firm and submitted this to SPB.

Sources said other top companies that have done similar projects and are also funded by China Exim Bank such as Alcatel-Lucent of Shanghai, China Communications Service Corporation Ltd, China Potevio Corporation, and ZTE Corporation, a company that has a Zimbabwean operation, were not approached by NetOne.

“Had NetOne also asked the China Exim Bank to assist in adjudication or floating of a tender in China this would have been possible. China Exim Bank would have anticipated that the Zimbabwe government would have done their own due diligence,” the source added.

“Given that China Exim Bank were funding the project, it is mind boggling why the tender was given to Huawei. The biggest question is why not invite ZTE, which is also based in Zimbabwe and owned by the Chinese government. Why then get alternative quotes from Japan and not Harare-based Chinese companies.”

Documents seen by businessdigest show that senior government officials such as secretary for Finance, William Manungo wrote a memo to his Transport, Communications and Infrastructural Development counterpart Munesu Munodawafa raising concern over project costs.

Manungo warned that the NetOne and Huawei tender had the potential to prejudice government of over US$120 million through inflated cost structures.

The official added that US$30 million to be deposited into an escrow account was not necessary as NetOne was a going concern and could fund itself.

“The documentation and bills of quantities includes items such as procurement of smart phones and tablets for resale to the public which are not related to the upgrading of the network,” Manungo said.

The official highlighted the need to balance between 2G, 3G, and 4G technology given the ever changing face of technology.

“Pricing of quantities appears to be excessive,” the official said. “Preliminary estimates indicate that around US$120 million could be realised in savings if correct costings are used.”

The official also proposed the setting up of an inter-ministerial committee of technical experts to evaluate the project proposal.

Other investigations show that former Transport, Communications and Infrastructural Development minister Nicholas Goche through Munodawafa approached then Finance minister Tendai Biti to submit a letter to China Exim Bank for a US$300 million loan for NetOne’s National Mobile Broadband (NMBB) project.

Munodawafa’s letter reads: “The price of the final BoQ has been further reduced to take into account issues raised by officials from the Ministry of Finance during an inter-Ministerial meeting held on the June 17 2013, which also included NetOne officials. Some of the key project components have either been scaled down or removed as a result, including base stations that have been reduced by half, removal of four wheel drive vehicles for project implementation and post project network operations and maintenance, solar powered base stations that were meant to serve as network coverage gap fillers, the online charging system, where NetOne will have to later expand the existing system to meet the increased subscribers to be connected.”

He defended NetOne’s decision to stick to outdated technology, saying globally mobile phone operators were still using the same technology by citing a Gartner and Ovum consultants 2011 report.
“According to Gartner & Ovum consultants analysis of 2011 top mobile phone operators, the percentage of subscribers still on 2G for China Mobile 73%, G2 in UK 64% and AT&T in the USA 63%. While 3G subscribers and data usage is increasing, voice and SMS on 2G still account for more than 60% of the revenues,” Munodawafa said.
Between 2011 and now, the numbers could be largely tilted in favour of latest technologies.

Initially, NetOne had claimed the funds would go into the purchase of 1336 2,75G base stations, 600 3G base stations, 300 4G base stations, upgrading of the Bulawayo MSC and packet Switch core, construction of 175 base station towers and blair toilets across the country, supply of 500 diesel generators to serve as stand-by power at base station sites, supply and installation, of third MSC in Harare and packet switch core, including building construction.

The company said the unit price for a base station tower per unit had come down by US$10 000 to US$170 000 offered by Huawei since the last US$45 million network upgrade in 2010.

Last month, businessman Tafadzwa Muguti sued SPB and NetOne at the administrative court to compel the two entities to issue a statement explaining the grounds and circumstances they used to justify the procurement method adopted for the awarding of a contract to Huawei in violation of sections of the Procurement Act.

Muguti wants local businesses to get an opportunity to take part in national projects.

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