France Telecom in Threat to Quit Kenya

Telecoms

The first phase of negotiations between the Kenyan Government and France Telecom over Telkom Kenya have ended with France Telecom threatening to pull out if the matter is not resolved.

"The Frenchmen have made it clear that their future investment plans will be jeopardised if Telkom Kenya does not recover within one year," said a source familiar with the negotiations.

Such has been the secrecy surrounding the negotiations over the huge claim by France Telecom that top Treasury officials who are leading the negotiations on behalf of the government have not been willing to reveal to the press even mundane facts about the negotiations such as the law firm representing Kenya, the names of institutions participating or even the venue of the meetings.

France Telecom has claimed it is not able to trace some assets that were on the books of Telkom Kenya at the time it was acquiring a 51 per cent stake in the former parastatal from the government in December 2007. The State-owned firm, coming together with Alcazar, won the deal with an offer of the then Sh26.1 billion ($390 million).

The company has also based its claim on the grounds that it had come across supplier contracts it did not know about at the time of taking over the management of Telkom Kenya.

Kenya's position in the negotiations is that France Telecom was given ample time and opportunity to conduct a due diligence before committing to buy Telkom Kenya. It is understood that the former has expanded the scope of its claims against the Kenyan Government.

The firm is now not only demanding that it be refunded an amount that is equivalent to what it paid for a controlling stake of Telkom Kenya, but it also wants taxpayers to fund its business plan over the next five years with a cash injection of over $300 million (Sh23 billion at current exchange rates).

Sources familiar with the negotiations told our sister publication, The EastAfrican, that in addition to the original $385 million claim, France Telecom has lodged an additional claim of $30 million.

The massive size of the pending bill is itself bound to generate political undercurrents, considering that Parliament allowed the government to absorb nearly $1 billion (Sh77 billion) worth of Telkom Kenya debts to ready it for sale to the private sector.

In what now appears as an admission that France Telecom is unable to turn around Telkom in the face of Safaricom's market dominance, the company is calculating that it will need a capital injection of over Sh20 billion ($266 million) in the next three years to expand and improve its network. The government still owns 49 per cent of Telkom Kenya.

(Source: The Daily Nation)