Safaricom CEO, Bob Collymore 1. Introduction and Background Ellams Products Limited has been the sole supplier of Prepaid Recharge Vouchers to Safaricom up until 11 th September 2012 when Safaricom entered into a contract with a competitor, Sintel Security Print Solutions Limited ( Refer Appendix 1-Contract with Sintel ). The additional supplier was to enhance competition by driving down the cost of prepaid recharge vouchers and also be an alternative supplier (and reduce reliance on Ellams) as part of Safaricom’s business continuity plan.
There has been a previous case of conflict between Ellams and Sintel. The bone of contention then was a certain Mr. Devaraj Malarmesai Bagavan, a former production manager (2003 – 2007) at Ellams. Mr. Bagavan was deported from Kenya by the management of Ellams around June/July 2007 because he was alleged to have been looking for alternative employment, among other reasons. He was recalled back into the country by his current employer Sintel Security Print Solutions in late 2010. He became the production manager at Sintel Print Solutions which commenced operations in late 2011. In January 2012, the Immigration office is said to have cancelled his work permit without notice or reason and asked his current employer to buy him a ticket back to India within eight days. However, this order was never implemented and was challenged in court by Devaraj. Sintel Security Print Solutions was later enjoined in the suit ( Refer Appendix 2 - Investigation Report ).
Bipin Vohra, a director of Sintel Security Print Solutions Company Limited, reported several allegations alluding to preferential treatment that was being accorded by our Supply Chain departments to its sole competitor – Ellams Products Limited. These allegations are; That Ellams’ contract allows a variable price based on quantities ordered and is being used to their advantage unlike Sintel’s price which is fixed irrespective of quantities ordered. That an order to Ellams in Jan/Feb 2014 was cancelled and replaced with a similar one with higher prices. That Sintel was not invited for supply of sim packs yet 23 other firms including Ellams were invited. That Sintel was being denied access to certain members of EXCO including Peter Arina and as result are not able to air their grievances. Objectives We launched an investigation into these allegations. Our objectives were to determine the merits or demerits of these allegations. Detailed f indings Pricing in contracts 1 October 2012 to 30 September 2013 Sintel’s contract price is quoted in US dollars. For the purposes of comparison, we have used an average exchange rate of USD 1 = KES 85. The comparative prices charged by Ellams and Sintel between 1 October 2012 to 30 September 2013 are illustrated in table 1 below: Recharge Voucher denomination per batch Price ( S hs ) Sintel Ellams Bamba 5 200 350 Bamba 10 200 350 Bamba 20 500 875 Bamba 50 380 450 Bamba 100 152 180 RV 250 38 45 RV 500 42.5 50 RV 1000 43.75 67.5 F rom October 2013 Sintel’s contract price is quoted in US dollars. For the purposes of comparison, we have used an average exchange rate of USD 1 = KES 87. As per the respective contracts with Safaricom, the comparative unit prices (in KES) for both Sintel and Ellams as from October 2013 for recharge vouchers are illustrated in table 2 below: Recharge Voucher denomination per batch Sintel Ellams (graduated on quantity supplied per month ) 60M 100M 120M 140M Bamba 5 270 350 300 280 240 Bamba 10 270 350 300 280 240 Bamba 20 675 875 750 700 600 Bamba 50 460 450 440 440 420 Bamba 100 184 180 176 176 168 RV 250 46 45 44 44 42 RV 500 51.5 50 49 49 47.5 RV 1000 52.75 67.5 65 62.5 57.5 Ellams agreed price is graduated to decrease as the order quantity (volumes of PINs per month) increases. The prices in the table marked in red indicate the price levels at which Ellams’ is more expensive than Sintel’s. Mon t hly effec tive prices We carried out an analysis of the monthly order prices for the two suppliers for the last one year as detailed in table 3 below. The instances where Ellams’ price was lower are highlighted in green. Month Description Price ( S hs ) Difference ( Shs ) Ellams Sintel May-13 BAMBA 10 Batch 1000 350 204.71 145.29 May-13 BAMBA 20 (10-in-1) Batch 2500 875 511.78 363.22 May-13 BAMBA 50 Batch 1000 450 388.98 61.02 May-13 Recharge Voucher 250 Batch 100 45 38.90 6.10 May-13 Recharge Voucher 500 Batch 50 50 43.50 6.50 May-13 Recharge Voucher 1000 Batch 25 67.5 44.78 22.72 July-13 BAMBA 10 Batch 1000 350 204.71 145.29 July-13 BAMBA 20 (10-in-1) Batch 2500 875 511.78 363.22 July-13 BAMBA 50 Batch 1000 450 388.98 61.02 July-13 BAMBA 100 Batch 400 180 155.59 24.41 July-13 Recharge Voucher 250 Batch 100 45 38.90 6.10 July-13 Recharge Voucher 500 Batch 50 50 43.50 6.50 July-13 Recharge Voucher 1000 Batch 25 67.5 44.78 22.72 August-13 BAMBA 10 Batch 1000 350 204.71 145.29 August-13 BAMBA 20 (10-in-1) Batch 2500 875 511.78 363.22 August-13 BAMBA 50 Batch 1000 450 388.98 61.02 August-13 BAMBA 100 Batch 400 180 155.59 24.41 August-13 Recharge Voucher 250 Batch 100 45 38.90 6.10 August-13 Recharge Voucher 500 Batch 50 50 43.50 6.50 August-13 Recharge Voucher 1000 Batch 25 67.5 44.78 22.72 October-13 BAMBA 5 Batch 1000 300 270 30 October-13 BAMBA 10 Batch 1000 300 269.70 30.30 October-13 BAMBA 20 (10-in-1) Batch 2500 750 674.25 75.75 October-13 BAMBA 50 Batch 1000 439.45 461.10 -21.65 October-13 BAMBA 100 Batch 400 175.8 184.44 -8.64 October-13 Recharge Voucher 250 Batch 100 44 46.11 -2.11 October-13 Recharge Voucher 500 Batch 50 49 51.33 -2.33 October-13 Recharge Voucher 1000 Batch 25 65 52.85 12.15 November-13 BAMBA 5 Batch 1000 300 165.42 134.58 November-13 BAMBA 10 Batch 1000 300 221.24 78.76 November-13 BAMBA 20 (10-in-1) Batch 2500 750 522.75 227.25 November-13 BAMBA 50 Batch 1000 440 404.61 35.39 November-13 BAMBA 100 Batch 400 176 150.77 25.23 November-13 Recharge Voucher 250 Batch 100 44 39.21 4.79 November-13 Recharge Voucher 500 Batch 50 49 42.47 6.53 November-13 Recharge Voucher 1000 Batch 25 65 7.98 57.02 January-14 BAMBA 5 Batch 1000 350 269.70 80.3 January-14 BAMBA 10 Batch 1000 300 269.70 30.30 January-14 BAMBA 20 (10-in-1) Batch 2500 750 674.25 75.75 January-14 BAMBA 50 Batch 1000 440 461.10 -21.10 January-14 BAMBA 100 Batch 400 176 184.44 -8.44 January-14 Recharge Voucher 250 Batch 100 44 46.11 -2.11 January-14 Recharge Voucher 500 Batch 50 49 51.33 -2.33 January-14 Recharge Voucher 1000 Batch 25 65 52.75 12.25 April-14 BAMBA 10 Batch 1000 280 269.70 10.30 April-14 BAMBA 20 (10-in-1) Batch 2500 700 674.25 25.75 April-14 BAMBA 50 Batch 1000 440 461.10 -21.1 April-14 BAMBA 100 Batch 400 176 184.44 -8.44 April-14 Recharge Voucher 250 Batch 100 44 46.11 -2.11 April-14 Recharge Voucher 500 Batch 50 49 51.33 -2.33 April-14 Recharge Voucher 1000 Batch 25 62.5 52.85 9.65 Generally, Ellams has been charging a higher price than Sintel upto August 2013. For instance for the RV 1000, Sintel price is lower than that that of Ellams at whatever quantities ordered. Potential Savings We computed the potential savings to Safaricom if the orders to Ellam were instead given out to Sintel at the average prices for the respective months. From our computation, Safaricom could have saved Shs 26,318,867.45 since October 2013. The details are contained in the table 4 below: Month Recharge Voucher Difference in Price ( Shs ) Qty ordered from Ellams ( Shs ) Potential savings ( Shs ) October-13 BAMBA 5 Batch 1000 30.30 1,200 36,360.00 October-13 BAMBA 10 Batch 1000 30.30 70,700 2,142,210.00 October-13 BAMBA 20 (10-in-1) Batch 2500 75.75 31,240 2,366,430.00 October-13 BAMBA 50 Batch 1000 -21.65 54,100 (1,171,510.00) October-13 BAMBA 100 Batch 400 -8.64 50,000 (432,000.00) October-13 Recharge Voucher 250 Batch 100 -2.11 3,210 (6,773.10) October-13 Recharge Voucher 500 Batch 50 -2.33 4,700 (10,951.00) October-13 Recharge Voucher 1000 Batch 25 12.15 5,200 63,167.00 Total 2 , 986 , 932.9 0 November-13 BAMBA 5 Batch 1000 134.58 280 37,682.12 November-13 BAMBA 10 Batch 1000 78.76 67,500 5,316,036.98 November-13 BAMBA 20 (10-in-1) Batch 2500 227.25 43,640 9,917,336.54 November-13 BAMBA 50 Batch 1000 35.39 41,400 1,465,166.22 November-13 BAMBA 100 Batch 400 25.23 33,750 851,485.85 November-13 Recharge Voucher 250 Batch 100 4.79 4,205 20,125.10 November-13 Recharge Voucher 500 Batch 50 6.53 4,700 30,687.38 November-13 Recharge Voucher 1000 Batch 25 57.02 5,930 338,149.36 Total 17,976,669.55 January-14 BAMBA 5 Batch 1000 January-14 BAMBA 10 Batch 1000 30.30 64,000 1,939,200.00 January-14 BAMBA 20 (10-in-1) Batch 2500 75.75 36,800 2,787,600.00 January-14 BAMBA 50 Batch 1000 -21.10 22,500 (474,750.00) January-14 BAMBA 100 Batch 400 -8.44 12,500 (105,500.00) January-14 Recharge Voucher 250 Batch 100 -2.11 2,000 (4,220.00) January-14 Recharge Voucher 500 Batch 50 -2.33 4,000 (9,320.00) January-14 Recharge Voucher 1000 Batch 25 12.15 4,000 48,600.00 Total 4 , 181 , 610 .00 April-14 BAMBA 10 Batch 1000 10.30 128,000 1,318,400.00 April-14 BAMBA 20 (10-in-1) Batch 2500 25.75 67,200 1,730,400.00 April-14 BAMBA 50 Batch 1000 -21.10 72,500 (1,529,750.00) April-14 BAMBA 100 Batch 400 -8.44 50,000 (422,000.00) April-14 Recharge Voucher 250 Batch 100 -2.11 5,000 (10,550.00) April-14 Recharge Voucher 500 Batch 50 -2.33 4,000 (9,320.00) April-14 Recharge Voucher 1000 Batch 25 9.65 10,000 96,475.00 Total 1,173,655.00 Grand Total 26 , 318 , 867.45 Incorrect price applied on Ellams’ orders. As per the contract, Ellams’ agreed price is graduated to decrease as the order quantities (volumes of PINs per month) increase. We noted instances where the price applied was either above or below and as a result, Safaricom paid an extra Kshs 12M. The details are illustrated in table 5 below: Month Airtime denomination Q uan t it y ordered (batches) Price used f o r Order ( S hs ) C ontract price ( S hs ) Am oun t under/ overpaid ( S hs ) Nov-13
PO 164911 and 164912 BAMBA 5 Batch 1000 280 300 350 (14,000) BAMBA 20 (10-in-1) Batch 2500 43,640 750 700 2,182,000 BAMBA 50 Batch 1000 41,400 440 450 (414,000) BAMBA 100 Batch 400 33,750 176 180 (135,000) Recharge Voucher 250 Batch 100 4,205 44 45 (4,205) Recharge Voucher 500 Batch 50 4,700 49 50 (4,700) Recharge Voucher 1000 Batch 25 5,930 65 67.5 (14,825) Jan-14
PO 167733 BAMBA 50 Batch 1000 22,500 440 450 (225,000) BAMBA 100 Batch 400 12,500 176 180 (50,000) Recharge Voucher 250 Batch 100 2,000 44 45 (2,000) Recharge Voucher 500 Batch 50 4,000 49 50 (4,000) Recharge Voucher 1000 Batch 25 4,000 65 67.5 (10,000) April-14
PO 172818 and 172845 BAMBA 10 Batch 1000 128,000 280 240 5,120,000 BAMBA 20 (10-in-1) Batch 2500 67,200 700 600 6,720,000 BAMBA 100 Batch 400 50,000 176 180 (200,000) Recharge Voucher 250 Batch 100 5,000 44 45 (5,000) Recharge Voucher 500 Batch 50 4,000 49 50 (4,000) Recharge Voucher 1000 Batch 25 10,000 62.5 67.5 (50,000) Total 12,885,270 Orders ratio In the Contract Renewal for the supply of Secure Pre-paid Vouchers and other Material signed 5 Dec 2012 ( Refer to Appendix 3 ), it was argued that Sintel did not have capacity to deliver all Safaricom’s requirements. It further stated that Sintel were importing 2 more machines to make a total of 5 to have a capacity of 7-8 million PINs per day……therefore Safaricom could drastically reduce reliance on Ellams to optimize cost. It was proposed that the following order ratio in Table 6 should be applied.
We analysed the monthly quantities ordered from the two suppliers as shown in the table 7 below: Sintel Ellam s Sintel Ellam s Sign off May-13 177,970,000 94,210,000 65% 35% Approved ratio was 65%-35% Jul-13 154,060,000 107,340,000 59% 41% Approved ratio was 61%-39% Aug-13 211,950,000 88,560,000 71% 29% Approved ratio was 60%-40% Oct-13 222,286,000 224,786,000 50% 50% Approved ratio was 50%-50% Nov-13 314,116,500 232,583,750 57% 43% Approved ratio was 50%-50% Jan-14 184,315,000 184,000,000 50% 50% Approved ratio was 50%-50% Apr-14 260,407,500 389,450,000 40% 60% Approved ratio was 40%-60% Sintel’s April 2014 order was done in March 2014 We noted that the quantities were as per the sign off, except for August 2013 and November 2013. In August this is as a result of Ellam’s order of 147,560,000 PINs was partly cancelled while in November 2013, there is a PO number 164301 which was issued to Sintel at prices 6 times lower. This particular PO was conspicuously missing from the list of PO presented by Sintel in their protest documents. This order was also over and above the quantity that was approved for the month of November 2013 in the sign offs.
We also analysed the ratio of total orders placed for the last one year (May 2013 to Apr 2014) and the monthly average order per denomination as detailed in the table 8 below: Recharge Voucher Denomination Monthly Average Quantity % ge BAMBA 5 Batch 1000 354,286 2,480,000 0% BAMBA 10 Batch 1000 130,528,571 913,700,000 32% BAMBA 20 (10-in-1) Batch 2500 184,285,714 1,290,000,000 45% BAMBA 50 Batch 1000 71,650,000 501,550,000 18% BAMBA 100 Batch 400 18,494,286 129,460,000 5% Recharge Voucher 250 Batch 100 640,214 4,481,500 0% Recharge Voucher 500 Batch 50 418,214 2,927,500 0% Recharge Voucher 1000 Batch 25 362,250 2,535,750 0% Total 406,733,536 2,847,134,750 100% Bamba 10, 20 and 50 are the highly ordered denominations accounting for 95% of the quantities ordered. Delivery We compared the quantities ordered vis-à-vis quantities delivered as contained in table 9 below: Month Q ty Ordered Qty Delivered Qty undelivered Ellams Sintel Ellams Sintel Ellams Sintel May-13 94,210,000 177,970,000 94,210,000 177,970,000 0 0 Jul-13 107,340,000 154,060,000 107,340,000 154,060,000 0 0 13-Aug 88,560,000 211,950,000 88,560,000 211,950,000 0 0 13-Oct 224,786,000 222,286,000 224,786,000 222,286,000 0 0 13-Nov 232,583,750 314,116,500 232,443,750 313,891,500 140,000 225,000 Jan-14 184,000,000 184,315,000 183,940,000 181,540,000 60,000 2,775,000 Apr-14 389,450,000 260,407,500 166,175,000 141,447,500 223,275,000 118,960,000 Alleged c ancelled order in January 2014 We found only one Ellams order (PO 167733) in January 2014 and it was not cancelled.
We noted two cancelled orders done on 2 nd April 2014(PO 172301 & 172303) which were re-done again on 9 th April 2014(PO 172818 & 172845). The additional orders were done at an additional cost of Kshs 13,756,000 as contained in table 10 below: Airtime Denomination Initial Value PO 172301 & 172303 ( Shs ) Revised Value PO 172818 & 172845 ( Shs ) Additional cost ( Shs ) Bamba 10 30,720,000 35,840,000 5,120,000 Bamba 20 40,320,000 47,040,000 6,720,000 Bamba 50 30,450,000 31,900,000 1,450,000 Bamba 100 8,400,000 8,800,000 400,000 RV 250 210,000 220,000 10,000 RV 500 190,000 196,000 6,000 RV 1000 575,000 625,000 50,000 Total 110,865,000 124,621,000 13,756,000 Sintel not invited to tender for supply of simpacks Sintel alleges that it was not invited to tender for the supply of SIM Card packaging. Sintel were not prequalified for supply of SIM packs. Sintel was finding it difficult to air these allegations to members of EXCO The fact that these allegations have finally been received and are now being investigated waters down this allegation. Draft Report - Sintel_210514 by Cyprian Nyakundi on Scribd