Investigation into City’s R1.3 billion acquisition of Broadband Network
10 March 2017
Yesterday, at a Mayoral Committee meeting, a decision was approved to institute an independent forensic investigation into the City’s decision to purchase a 900km fibre broadband network at a cost of R1.3 billion. This was done through the creation of a Municipal Owned Entity (MOE), the Metropolitan Trade Company (MTC), which possessed no viable business plan nor had requisite capacity to run a broadband operation of this size.
It must be stated from the outset that the decision to institute this investigation will in no way impact the City’s existing free Wi-Fi programme and our intentions to expand it.
I have discussed this investigation with the MTC Board Chairperson and there is appreciation for the steps the City is taking. The Chairperson also indicated that the Board has been requesting an investigation of this nature for some time, to no avail.
The aim of the Johannesburg Broadband Network Project was to provide access to broadband services which would improve the City’s service delivery, realise ICT cost related savings for the City and grant communities and businesses across Johannesburg with more affordable access to internet. Despite the astronomical cost, few of these benefits have been realised necessitating a thorough investigation of the decision.
Under the initial agreement, the City would have paid an annual fee for the building and operation of the network. After 15 years we would have taken over ownership of the network.
Importantly, the initial agreement entered into by the City would have come with minimal risk and maintained the City’s financial stability. Instead, the City chose to buy out the agreement at a cost of R1.3 billion, without any viable business plans and placing the City’s financial stability at risk.
Given this context, interrogating the reasons for this decision is at the heart of this investigation.
The tender for the construction of a broadbrand network and ICT infrastructure was originally awarded on 19 December 2008. On 31 July 2014, the City terminated the agreement so as to operate the network itself through the MTC.
On commencing operations on 30 September 2015, the MTC ended the 2015/16 financial year with a net loss of R54 million.
Currently, the MTC continues to function with no viable business plan. Indeed, the Auditor General, in his most recent report, raised a number of serious concerns with regard to the financial performance of the MTC.
I have also instructed the City’s management to use our on-going process for the reintegration of MOEs as a platform for –
- interrogating the business of the MTC, including subjecting it to the above forensic investigation;
- determining the financial sustainability of the MTC and its return-on-investment;
- presenting a situational analysis for the dissolution of the MTC, should it be found to be unviable;
- potentially presenting a business case for the continual existence of the MTC as a service provider to the City’s operations and community; and
- exploring alternate models which the City can employ to deliver broadband services to its operations and community. This should be informed by a benchmarking exercise which reflects on international and local trends of broadband service provision.
The astronomical losses made in the administration of this project are yet again an indictment on financial management in the City and this cannot be allowed to continue. When the City is facing enormous challenges with a massive infrastructure and service delivery backlogs, one has to question the decision to spend R1.3 billion on such an adventure.
Statement issued by Cllr Herman Mashaba, Executive Mayor, City of Johannesburg, 10 March 2017
