Deal with Gijima may save state R2bn

Photo: Financial Mail

Deal between Department of Home Affairs and information technology group Gijima will potentially save the taxpayer more than R2bn.

WYNDHAM HARTLEY and THABANG MOKOPANELE

Published: 2011/03/08 06:28:24 AM

CAPE TOWN — A settlement between the Department of Home Affairs and information technology group Gijima will potentially save the taxpayer more than R2bn while also salvaging the Who Am I Online project, which would resume at almost the agreed 2008 contract price.


The Who Am I Online contract went to tender in 2007 and was signed a year later for a price of R2,1bn to cover a full upgrade of the department’s IT systems.


The project was cancelled a year ago when the price had astonishingly increased to R4,5bn.


It had become clear that Gijima could not complete some of the required work before the 2010 Soccer World Cup.


Home Affairs Minister Nkosazana Dlamini-Zuma told a news conference yesterday that the settlement agreement came after months of negotiation between the parties, who had avoided years of costly litigation should the matter have gone to court for resolution.


Ms Dlamini-Zuma said the original R2,1bn bid was for Gijima to deliver the re-engineering of the department’s IT systems in 2008.


"However, concerns over escalating project costs (which by 2010 had grown to R4,5 bn from the original R2,1 bn) and a lack of progress led the department to investigate the project early in 2010.


"In April 2010, the department notified Gijima as prime contractor — as well as IBM and HP (Hewlett- Packard), which had provided lease financing for the project — that it regarded the purported contract as invalid," said Ms Dlamini-Zuma.


This was disputed, hence the negotiations.


"In terms of the settlement agreements between the parties, the total final capital cost (excluding interest) of the items in the scope of this project, including expenditure to date of approximately R1,4 bn, is estimated to be approximately R2,27 bn.


"This is in line with the Treasury budget of R2,23 bn for the project, which was conditionally approved in 2009," said Ms Dlamini-Zuma.


The new figure was R2bn less than the escalated cost of R4,5bn.


Home affairs director-general Mkuseli Apleni explained that the government had paid R391m to date, including interest on leases of R945 m between Gijima and the department.


The revenue streams of these leases were purchased by IBM and Hewlett-Packard. These would be settled early at a cost of R815 m, saving the government about R234 m in capital and interest. IBM and Hewlett-Packard had agreed to such early settlement and Gijima had agreed to contribute R375m for future support and maintenance.


Gijima CEO Jonas Bogoshi said the settlement would result in Gijima reporting a loss of between 27,5c and 28,5c per share for the six months to December, which was "a big loss but not disastrous".


However, Gijima’s share price was down 7,2%, from 89c to 77c, by midday in Johannesburg yesterday.


"The expected impact will be felt in this financial period, but it is a one- off impact. The company remains cash-positive," Mr Bogoshi said.


Both the department and the company had agreed to shoulder blame for the delays in the project.


"We feel this was the best solution possible for both parties, as it is important to our relationship with government and our other clients. Gijima will continue to work closely with the Department of Home Affairs to deliver on this project," said Mr Bogoshi.