South Africa: Home Affairs Ends GijimaAst Contract

Mergers, Acquisitions and Financial Results

GijimaAst, the company majority owned by an African National Congress (ANC) financial backer, Robert Gumede, said last week that the Department of Home Affairs had "unexpectedly" cancelled a multibillion-rand information technology contract.

This is the second IT contract the department has cancelled in seven months and highlights the problems it has had in curtailing corruption and in securing South Africa’s identity and other documents. Last year the UK imposed visas because South African passports were deemed too insecure.

 In an announcement to shareholders, GijimaAst said it had received a letter from the department after the close of business on Tuesday contending "that the contract is invalid".

Department spokesman Ronnie Mamoepa declined to comment on GijimaAst's statement. The tender for a system dubbed Who Am I Online was awarded to a consortium led by GijimaAst in 2008. Other members of the consortium included biometric identity management company Daon, as well as IBM and Siemens.

The cost of the tender escalated to R2.5bn from R1.9bn. The project seeks to integrate the department's operating systems, and eliminate the manual and paper-based systems for visas, passports and identity document applications.

GijimaAst said last week that the tender was valid and "enforceable", and the department's claim was "therefore completely unexpected". The tender has been surrounded by controversy since it was awarded as there were allegations of irregularities during the adjudication process.

The allegations were denied by GijimaAst and the State Information Technology Agency (Sita), the department responsible for adjudicating the government's technology tenders. Eyebrows were also raised when Jonas Bogoshi left Sita to join GijimaAST as CEO just before the tender was awarded.

Gumede reportedly pledged R10m to the ANC in 2008 in the run-up to last year's elections.

The price of shares in GijimaAst dropped about 25% soon after the announcement yesterday and the stock closed 11% weaker at 109c. The company said that if the contract was cancelled, it would have a material effect on its earnings as it represented 15% of total revenue. The company's revenue for the six months to December was R1.44bn.

GijimaAst warned that should the department persist in disputing the validity of the contract, it would consider seeking a declaratory order from the High Court affirming the validity of the contract. "There has previously been no suggestion from the Department of Home Affairs that the contract is not valid and enforceable," it said.

GijimaAst's legal team hoped to discuss the matter with the department to resolve any differences regarding the contract, it said. In September last year the department cancelled another technology tender that would have resulted in green identity books being replaced by smart cards.

The tender was withdrawn because important information relating to the tender - including the name of the company that was the preferred bidder - was leaked by Sita.