New Deal Saves Telkom Kenya Buyout: Government pays out KS7 billion
The government has reached a deal with France Telecom over the privatisation of Telkom Kenya, saving a shaky partnership that has been tottering on the brink of collapse for close to three months.
France Telecom, which bought 51 per cent of the then State-owned Telkom Kenya for Sh26 billion in November 2007, threatened to withdraw its investment after it failed to trace assets that were in the books at the time of purchase.
The company also reportedly stumbled on supplier contracts it did not know about at the time of taking over the management of Telkom Kenya.On Wednesday, however, the two parties issued a joint statement saying they had resolved the outstanding shareholder issues.
"Both shareholders are now focused on enhancing their partnership for the benefit of their jointly owned company Telkom Kenya Ltd," said the statement signed by Treasury Permanent Secretary Joseph Kinyua and Michel Barré of Orange East Africa. While the statement did not give financial details of the agreement, the amount in dispute is big even by international standards.
Initially, France Telecom was seeking $385 million (Sh30 billion at current rates) from the Government of Kenya, but later raised the claim by $30 million (Sh2.4 billion), The EastAfrican reported in April, quoting sources familiar with the negotiations.
France Telecom, miffed by muted response from Kenya, demanded a refund of what it paid for the controlling stake in Telkom Kenya and sought to have taxpayers finance its business plan over the next five years with a cash injection of over $300 million (Sh24 billion).
After the acquisition jointly with Alcazar, Telkom launched the Orange mobile brand but has been struggling to find a footing in a market dominated by Safaricom and characterised by predatory competition from other small players like Zain and Essar's yu. It is said to have only about a million subscribers from an active market of 20 million.
The signal of the government climb-down appeared in the 2010/11 Budget estimates in which Sh7 billion was allocated to Treasury to settle pending bills owed to Telkom Kenya. Treasury and France Telecom said they are now focused on enhancing their partnership to grow the joint venture.