STATE-OWNED mobile phone operator NetOne, currently rocked by a series of scandals, was ripped off about US$100 million in a controversial multi-million-dollar equipment deal with a Chinese technology firm Huawei. The rip-off was through inflated cost structures stemming from management failures and rampant corrupt activities, prompting government to engage a private evaluator to re-assess the deal, the Zimbabwe Independent has established.
By Bernard Mpofu
Bilateral relations between Harare and Beijing came under the spotlight after a consultant commissioned by government revealed that the publicly-underwritten US$218 million equipment deal signed nearly four years ago was overpriced, resulting in government losing millions in taxpayers’ funds.
In 2012, government partnered Huawei in rolling out NetOne’s National Mobile Broadband (NMBB) project as competition in the telecoms sector intensified on the back of massive growth in data and overlay services. Information gathered shows that the deal was mired in dodgy activities and corruption resulting in the overpricing of equipment.
After the NMBB project was undertaken, a contract to facilitate the loan approval process with China Exim Bank was initially signed at the value of US$298 million. Dodgy activities started being exposed after the initial equipment order was given to Huawei’s competitor who then went to submit its own invoice to the Ministry of Finance, reducing the quotation by up to US$100 million.
The Finance Ministry, according to official documents seen by the Independent, asked the then Ministry of Transport, Communications and Infrastructural Development, then headed by Nicholas Goche, to reduce the cost of the project. The cost was later reduced by US$80 million to US$218 million after some of the equipment was removed from the project.
Following complaints that the project did not go to tender and was overpriced, government, through the Ministry of Information Communication Technology, last year engaged a South African-based IT and energy consultant firm, Megawatt Energy, to re-evaluate the deal and renegotiate the pricing structure in line international market standards.
Business executives familiar with the developments said government agreed to engage Megawatt on condition that Huawei would pay it a 10% success fee if the study proved that the equipment was overvalued plus a US$1 million consultancy fee. Megawatt, executives said, had initially demanded 20% success fee.
Documents seen by the Independent show initially Huawei was non-committal to the arrangement citing possible conflict of interest by a former boss of Huawei rival, ZTE, who is now heading Megawatt. Xiaodong Li,From
now in charge of Megawatt, was the ZTE Africa branch vice-president before joining the company.
“The parties then agreed that aside from institutional rivalry existed between Huawei and ZTE, Mr Li who is now in private practice, had the competence and capacity to undertake the review. The ICT minister (Supa Mandiwanzira) also assured Huawei that government was only seeking to receive from Huawei a fair price consideration under the loan facility,” one executive said.
According to a letter written by Megawatt to Mandiwanzira, findings in the pricing analysis of the NetOne-Huawei NMBB contract recommended that Huawei should revise the initial offer price of US$218 954 843 to about US$140 million.
“As detailed in the report, it is our finding that the pricing as stated in the proposed contract was in excess of market norms and in fact at a considerable premium to similar contracts Huawei has completed with other clients within the recent past. The report is based on sampling the key high-value items that account for the bulk of the contract. Our analysis indicates premiums ranging between 50% premium to as much as five times the price offered to other clients by the supplier,” Li said in a letter dated April 24, 2015.
“It is on this basis that it is our considered opinion that the ministry and NetOne would be fully justified in requesting Huawei to revise the offer price US$218 954 843. It is our assessment that the true price should be in the range of US$120-US$140 million.”
Following the investigation, Ministry of ICT officials together with NetOne, Huawei and Megawatt executives met in Harare in October last year to resolve the matter. Huawei Zimbabwe’s boss Albert Yang agreed that there was a need for a review. He said his company had concluded that it should refund NetOne through US$30 million worth of equipment. Initially Huawei wanted to refund only US$15 million when real prejudiced, according to the Megawatt investigation report, could be at least US$98 million if the contract was US$120 million.
During the meeting, Mandiwanzira expressed concern that failure to resolve the issue amicably could affect the cordial relations between Zimbabwe and China, the second largest economy.
“The minister further advised the parties that given the sensitive nature of relations between Zimbabwe and China, any indications of a scandal would jeopardise the reputation of Huawei and NetOne, and would definitely be a cause for action against NetOne management for dereliction of duty,” another executive who attended the meeting said.
After completion of the process, Huawei wrote to Mandiwanzira raising concerns over the involvement of Li in the exercise.
“Huawei would like to co-operate with the NMBB price contract review after receiving your letter dated May 21 2015 on a ‘Without Prejudice’ basis. However, after some investigations, Huawei found that the Megawatt Energy CEO is formerly President of Huawei’s competitor in southern Africa,” Yang said in a letter dated June 22 2015.
Executives say government is currently negotiating with Megawatt to check whether or not the US$30 worth of equipment Huawei undertook to supply as compensation was operational or relevant to NetOne’s expansion programme.
Last month, NetOne’s board of directors ordered a forensic audit into the affairs of the country’s second largest mobile phone operator amid a series of scandals rocking the state-owned telecoms firm.
NetOne CEO Reward Kangai has been suspended for three months as the operator conducts a forensic audit following widespread corruption allegations.