The finance chief of state synthetic fuels giant Mossgas has been suspended after an investigation into a R250-million contract with Siemens Business Services, a local subsidiary of the German multinational.
Mike Gillatt was suspended last Thursday following an extensive forensic audit of the deal by outside auditors Nkonki Sizwe Ntsaluba. International private investigations firm Kroll has also helped in the probe.
Gillatt is facing a charge of negligence in getting Mossgas into the contract, which was described by one Mossgas insider as “a total disaster from day one”. Mossgas has since amalgamated with state oil exploration company Soekor to form PetroSA. Gillatt, who acted as Mossgas chief executive before the merger, remained chief financial officer of the new entity.
The contract, signed early in 2000, outsourced the entire Mossgas information technology function to a consortium led by Siemens Business Services. Mossgas’s IT assets were sold to the consortium for R1, and Mossgas was tied into buying IT services from the consortium for the next six years at a basic R250-million.
Siemens won the tender in November 1999 over PQ Africa and EDS, also shortlisted.
Siemens Business Services chief executive Robert Gogele this week denied there were problems with the contract: “Some people are just trying to make it a problem,” he told the Mail & Guardian, blaming rival empowerment companies, which he said were trying to get a slice of the multimillion-rand Mossgas IT procurement budget.
It appears the investigation into the contract began after a consultant appointed to assist with the outsourcing tender, Anver Barthis, argued strongly against giving the contract to Siemens, claiming it did not have the necessary experience.
Following the selection of Siemens in November 1999, Barthis wrote a report criticising the process. The report was handed to the Department of Mineral and Energy Affairs.
Gogele has accused Barthis of having an axe to grind, but questions have also been asked at the Mossgas board level for some time concerning the Siemens deal.
In August last year the law firm Qunta Ntsebeza, led by activist lawyer Christine Qunta, completed a due diligence study on large contracts into which both Mossgas and Soekor were tied.
This preceded the merger of Mossgas and Soekor.
Qunta’s report highlighted minor black empowerment concerns, but slammed the entire contract for being seriously skewed in favour of Siemens, to the detriment of Mossgas.
Qunta’s report criticised provisions in the contract, including that Mossgas would have to pay more than R30-million to extricate itself from the deal, while Siemens could do so for a fraction of that amount.
In spite of the high cost of Mossgas extricating itself, Qunta recommended that Mossgas either give notice and pay up or get Siemens to agree to renegotiate more favourable terms for the oil parastatal.
One well-placed Mossgas source this week charged that Siemens was “only interested in making money” and not in providing a proper level of service: “There has been less service for more money.”
He claimed no proper service level agreement was specified as part of the contract and that service levels had been unsatisfactory: “If you had a problem with a mission critical system and logged it on the help desk, it would take between eight and 24 hours for them to come back to you. We had a high level user committee which repeatedly raised problems with the service levels.”
Another insider said costs under Siemens have been “substantially more than the base costs” and that Siemens’ empowerment partner in the deals, a company called ECS, simply raked off a profit on the supply of Siemens equipment.
Gogele this week dismissed all these allegations. Siemens had offered its standard service level agreement and “we are working towards those levels”. He said Siemens had repeatedly offered to renegotiate the service agreement, but “to date they have not ever given us a proposal on what to change”, he said.
“If they [Mossgas/PetroSA] don’t stop making our name bad in the market we will have to take action — it’s hurting us.”
Gogele said he had never been shown the Qunta report, nor had his company been consulted when it was being drawn up. Allegations of skyrocketing costs were “nonsense”. He said plans by Mossgas/PetroSA to remove hardware buying from the terms of the contract would lead to increased costs and the penalty of R30-million-plus that PetroSA would have to pay if it wanted to cancel the contract without cause was reasonable in view of Siemens’s nvestment in the project.
The Barthis report is scathing of the management of the outsourcing process, claiming that “Mossgas executive management did not have a clear reason why they wanted to outsource. This was evident throughout the process.”
The report also claimed that “subjectivity did find its way into” the tender process in spite of intentions to the contrary, and that serious adjudication errors favoured Siemens.
While confirming the suspension of Gillatt, PetroSA has declined to comment, saying investigations were still under way.
Gillatt declined to comment, but it is understood he maintains the decision to outsource was correct and that he disputes the allegations against him. Gillatt, who oversaw the IT department as finance head, was seen as a champion of the outsourcing project.