West African licence tendering processes – a case to answer

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A recent gaggle of licensing decisions in West Africa demonstrate that all is not well with tendering processes in the sub-region. They have left the idea of supposedly independent regulatory decision on the sidelines and have been as transparent as mud. Russell Southwood lays out what went wrong and asks why these processes cannot be more open and fair.

First, let’s look at the evidence of recent licensing decisions that have been made in the sub-region:

Benin: In mid-August 2007, the Benin Government announced that Nigerian SNO Globacom had won a mobile licence for which it would pay FCFA33 billion. The Beninois Government has made much in its disputes with the telecoms sector of how decisions taken by the previous Government were taken incorrectly and improperly. Therefore it was somewhat strange that there was no public tender for this new licence and major international companies do not seem to have been approached about it. Instead, the tendering list consisted of two companies: a well-known and well-funded Nigerian operator and almost unknown Libyan company without operating experience. Faced with such a limited choice, there was really only one logical option.

The bidding process was launched on 3 August and concluded at a Council of Ministers on 10 August, allowing under seven days for any company to prepare a major bid and submit it.

Gambia: At the end of August 2007, Gambia’s Department of State for Communications and Information Technology announced that an almost unheard of Lebanese company Spectrum was buying a majority shareholding in the country’s incumbent Gamtel (and its mobile subsidiary Gamcel). The investor will not be directly managing the company but has appointed contract managers Detecon to carry out this task on its behalf.

There was no open tendering process and the regulator PURA was informed of the decision after it had been taken. Although the Government said it had “been reviewing various proposals for strategic partnership”, both the manner of its choosing and the final choice seem rather odd. The Government’s excuse was that the company was near bankruptcy and heavily indebted. However, since heavily indebted telco incumbents have been known to stagger forward for an almost unseemly number of years (witness Gabon Telecom or Telkom Kenya) this reason cannot surely be the whole story.

Senegal: After taking three years to reach the tendering stage, the Senegalese regulator ARPT announced the tendering process on 17 August and the deadline for receiving bids as 31 August, a mere 12 days later. There was no formal international tendering process and the bids were not opened publicly in front of the bidders.

Although the regulator is responsible for managing the process of the bid and its announcement, the decision is actually taken directly by the Government. The Government’s ICT Adviser was closely involved in the process of formulating the letting of the new licence. He also sits on the Board of the new entrant’s major competitor Sonatel (now trading as Orange), a circumstance that would be regarded as a conflict of interest in many other countries.

At least the field was a bit wider than in Benin. The winner Sudatel paid US$200 million and it bid against against 11 other competitors, including Kuwaiti-owned Celtel and Bintel of Saudia Arabia.

Ghana: The licensing process for a new mobile operator has not yet started but it is clear that the Government has all but promised Globacom that it will get its licence, provided it goes through due process. These assurances must in some part account for the confident pronouncements made by some of its local managers about obtaining the licence. We await with keen interest to see both how the process will be carried out and the name of the eventual winner. Perhaps there will be a surprise upset decision but we’re not putting money on it.

The cynics will say: why does this all matter? That’s how business is done in Africa. There are perhaps two good reasons for disagreeing with these siren voices. Firstly, the quality of bidders is important.

A little known company with not much operating experience may not invest as much as an organisation with wider experience of running operations across the continent. The under-funded licence operator may treat the licence simply as a cash cow and seek to strip the assets and cream off short-term profits. This is not to say that there are not major operators at whom the same accusations might be levelled but the major operators all have accountancy disclosure processes that make this kind of behaviour more transparent.

The second reason for caring is amply illustrated by the case of Benin. If the decisions are badly taken, then it only takes a successor Government to re-open those decisions for everything to begin to unravel. This is a political risk for companies and undermines the credibility of any Government seeking further foreign investment.

Strangely for a country so associated in the public mind with corruption, Nigeria set the benchmark for how things should be done with its first public auction of mobile licences and its regulator has gone on to tender for major licences in a largely open and transparent way. It can be done and there are good commercial and political reasons why it should be done.

CORRECTION: Contrary to reports in the Kenyan press that we picked up in last week's issue, Seacom has not pulled out of its east coast fibre project.