5 March 2018

East Africa: Conflict Over Payment Delays Project to Link Stockmarkets

The East African Community Secretariat has rejected arbitration over non-payment of $777,649 to the contractor of the regional capital markets infrastructure project that has failed to take off in time, raising its implementation costs by $1.8 million.

This means regional investors will have to wait longer to start buying and selling shares of companies located in different EAC countries without going through different brokers.

Pakistan-based Infotech Private Ltd had been contracted to provide software linking the trading platforms of the Nairobi Securities Exchange (NSE), Uganda Securities Exchange (USE), Dar es Salaam Securities Exchange (DSE) and Rwanda Stock Exchange (RSE) to enable them to run as a single market in real time.

The EastAfrican has learnt that the Pakistan-based Infotech Private Ltd withdrew its services from the project effective November 2016 after the EAC Secretariat disputed the payment on grounds that testing of the project to sanction the working of the capital market infrastructure (CMI) project.

In its defence, Infotech argued that it was entitled to partial payment for the work it had done because the testing of the system had been delayed by vendors of the EAC partner states trading systems, who were not co-operating to provide the interface to link their systems and the CMI.

As a result Infotech demanded partial payment for the work done before it could re-commit its staff back to the CMI implementation process.

Hurdles

The project failed to take off due to lack of integration between CMI software and the trading systems of the participating member states --Uganda, Tanzania, Rwanda and Burundi.

Kenya pulled out of this project in 2015, citing irregularities in the procurement of the software.

It demanded cancellation of the contract, saying that Infotech's software was not compatible with the Nairobi Securities Exchange (NSE), a concern that was not considered by the Secretariat.

During the EAC Council of Ministers meeting in Kampala on February 20, the ministers were informed that Infotech had served EAC Secretariat with a notice of intention to commence arbitration over the non-payment of its dues after losing in the initial adjudication process last year.

Legal risks

The EastAfrican further learnt that the EAC Secretariat has had several conference calls with the vendor and written to the firm asking not to proceed with the arbitration process but instead develop a work plan to set the stage for completion of the remaining work.

According to the EAC Council of Ministers' report, negotiations are still ongoing between the Secretariat, Infotech and the partner states with a view to agreeing on a work plan, renew the contract of the vendor that expired in February 2016 and finalise the implementation of the project by September this year.

"Owing to the absence of the interface facilities between the CMI system and the depositories in partner state stock exchanges stakeholders have been unable to carry out the necessary User Acceptance Testing (UAT)," reads the report.

"This has resulted in serious delays in completing milestone four of the CMI Implementation work plan and poses a serious risk to the Community in terms of legal litigations.

"To avoid the incidental legal risks, there is a need for the relevant stakeholders to work closely with the Secretariat and InfoTech Private Ltd to facilitate the interface and help InfoTech Private Ltd to deliver a real-time system to the Community as envisaged in the CMI Contract." added the report.

The relevant stakeholders include the Dar es Salaam Stock Exchange (DSE) and the Uganda Securities Exchange (USE) with their Vendor, STT and the Bank of the Republic of Burundi and the National Bank of Rwanda with their Vendor, CMA Small Systems.

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