Late last year, as part of a restructuring deal, the two owners of Telkom Kenya agreed to set aside some money to save the floundering company.
The Treasury and France Telecom had to pump money into Orange Kenya to keep it afloat. The debts were piling up fast, so they set the deadline at June 30.
But our Treasury is not particularly flush with cash and couldn’t make the full payment on time. France Telecom chipped in, raising its stake in the firm to 70 per cent as Treasury’s ownership fell by 10 percentage points to 30 per cent.
As the Treasury acclimatises to this new reality, Orange Kenya needs yet another bailout. Both sides must put up money to keep the enterprise at the door. If the government fails to stump up the money it will cede more of the company to FT. We are witnessing a slow bleeding out of government from Telkom Kenya.
There are a few issues you should have in mind reading this. Some of the debt was to subsidiaries of the main shareholder, FT. Last year Telkom’s debt stood at Sh51 billion, most of it is owed to FT and its satellites.
France Telecom has shown its desire to own Telkom Kenya since 2012, when it acquired Alcazar Capital, a firm that owned a stake in Telkom Kenya, for an undisclosed sum. Alcazar was part of the consortium alongside TF that sought to buy into Telkom and was set up a few weeks to the sale of Telkom Kenya to provide “advice” on the Kenyan market.
I don’t need to tell you why a Dubai-based company with no experience here and set up weeks to Telkom’s privatisation would seek to provide advice to FT concerning Kenya. It is interesting to note that the original “alcazar” was a palace-fortress built in the Iberian Peninsula by Moorish Kings. I wonder which politically connected kings were hiding behind this foreign-based fortress.
Those who seek to rip us off have a sense of humour, don’t they?. Now that the company was quietly bought out by FT, we might never know who owned Alcazar. I dare say Alcazar is Orange’s Mobitelea.
A lot of the debt by Telkom is the more expensive short-term type. This newspaper last month reported that the interest rates for short-term loans at Telkom Kenya have almost doubled in a year. The company is getting more expensive sources of money in order to placate its owners.
The whole enterprise is beginning to look like a scheme aimed at repatriating large amounts of money to Paris while the French send in executives and more debt in return.
Telkom Kenya is the modern-day parable on how not to privatise. It has been loaded up with debt then charged several million dollars as management fee. You could feel sorry for a government short of cash being squeezed out, until you recall earlier complaints by FT that the government overstated the assets of Telkom Kenya during the sale.
Some say the moves are orchestrated by FT to gain complete control of the company. Telkom Kenya’s telephony infrastructure is unequalled in the country. If the company was completely in the hands of FT, better management would probably occur. FT might even write off a few debts and the taxpayer would be cut out of the loop of losses.
Audited results indicate that worsening fortunes at Telkom do not seem to temper director’s fees. The management agreement with FT seems to calculate fees on revenues, not performance, so management fees are inversely related to the firm’s performance. According to the latest statistics from CCK, Orange has shed 19.7 per cent of its subscribers.
Other companies in the field are growing at its expense, yet the management fees have gone up.
Telkom Kenya’s accounts resemble those of a parastatal from the Kanu days. This is a relic of the pre-accountability era.
The dinosaur is unable to adopt fast enough to the coming ice age of competition. Even by standards of flat-footed monoliths, Telkom is doing badly.
Safaricom, Kenya’s poster child for success in business, used to be a fully owned subsidiary in Telkom’s parent company Kenya Posts and Telecommunication Limited. And, good people, Safaricom now makes more in a month than its former parent company does in a year.
The only hope for taxpayers is for the government to divest itself from this loss-making organisation and, hopefully, get a good price for it. It is time to cut our losses, swallow our pride and end government’s involvement in the telecommunication sector.
