Telkom’s millions-of-rands problem

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The company faces legal claims due to alleged tender irregularities.

JOHANNESBURG - Telkom (JSE:TKG) faces hundreds of millions of rand, probably exceeding a billion in legal claims by service providers due to alleged tender irregularities at the company.

Telkom has admitted that it was facing potentially damaging substantial legal claims, but referred Moneyweb to a part of its annual report, which frankly and unambiguously deals with these issues.

Telkom concedes that it could be required to pay substantial penalties in damages, which could adversely have a material impact on its revenues.

"Telkom may need to spend substantial amounts defending these claims even if Telkom was ultimately successful. And If Telkom were to lose these or future legal and arbitration, Telkom could be prohibited from engaging in certain business activities and could be required to pay substantial penalties in damages, which could cause Telkom's revenue to decline and a have a material adverse impact on the business and financial condition."

Telkom adds that it may be required to fund any penalties or damages from cash flows or drawings "on our credit facilities, which cause Telkom's indebtedness to increase."

However, Telkom has declined to comment on precisely how much it is being sued for.

A company called Phuthuma Networks alone is suing Telkom for R500m. Phuthuma alleges Telkom acted corruptly and dishonestly in awarding a R1.5bn tender to Network Telex. The tender was for the outsourcing of the e-telegram, Telex and Gentex services to support the maritime industry and the SA Post Office.

The other claim is by Maredi Telecom, which served a notice on Telkom, Ericsson SA and Telsaf Data in January 2009.

The matter relates to a tender published by Telkom for the supply of point -to-point split mount microwave equipment.

Maredi, Telsaf, Ericsson and a fourth company Mobax, were short-listed. The tender was awarded by Telkom to Telsaf and Ericsson.

Maredi applied for a court order, with a court date set for February 3, 2009, requesting that the court prevent Telkom from entering into a contract with Ericsson and Telsaf or either party and from ordering goods or services from Ericsson and Telsaf pursuant to the tender.

Maredi also requested an order that the court review and set aside the award of the tender to Telsaf and Ericsson or either of the aforementioned parties, and refer the tender back to Telkom in order for Telkom to reconsider its awards.

Maredi alleged that there were certain irregularities in the tender process in that Telkom did not follow fair procedure by failing to comply with its own mandatory procedural requirements, that Telkom acted arbitrarily and in bad faith, that Telkom was biased in favour of Ericsson and that Ericsson should have been disqualified as it failed to meet Telkom's critical criteria as set out in the tender.

Maredi's application was dismissed with costs on February 20 2009. However, Maredi is proceeding with a review application in the ordinary course and Telkom is opposing the application.

"Telkom is not currently able to predict when these disputes may be resolved or the amount that Telkom may eventually be required to pay," admits Telkom in its annual report.

*Sipho Ngcobo is former deputy editor of Business Report and ex-managing editor of Enterprise Magazine. He was one of the original team members of Business Day when the paper was launched in May 1985. He was a correspondent at international news agency Dow Jones where he reported on markets and companies in the early 1990s. He has also written for such publications as the Sunday Times, the World Paper in Boston and was employed by the New York Times Group in the US between 1989 an 1991.

Write to Sipho Ngcobo: sipho@moneyweb.co.za