EASSy parties in disconnect over end of the beginning– negotiations continue

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The road to concluding the agreements leading to the implementation of EASSy was unlike the project’s name never going to be easy. There are 23 Governments that NEPAD’s e-Africa Commission is trying to get to sign a protocol called Policy and Regulatory Framework for NEPAD ICT Broadband Infrastructure. Many of those countries have one or more parties already involved in the EASSy consortium. In addition, there are the DFIs (like the World Bank) and beyond them commercial financial institutions that might seek to get involved. And outside of this rather crowded “magic circle” are a range of potential small and medium sized investors waiting on the sidelines for the dust to finally settle before coming forward. Russell Southwood seeks to untangle where things have go to so far.

At the end of August 2006, the Governments involved in the EASSy project and the inland backbone required to make it a success met in Kigali in order to sign up to a Protocol designed to act as the policy framework for all of this work. Seven Countries - Tanzania, Uganda, Rwanda, Lesotho, Malawi, Madagascar and (significantly) South Africa signed. The lack of signature from other Governments (with the exception of Kenya) is explained by those who organised the meeting as being due to non-availability of the relevant Ministers.

Someone close to the process told us:”We’re getting positive feedback from some but there are difficulties from others.” Djibouti, Ethiopia and Sudan may fall into the latter category. Ministers attending agreed to chase their neighbours and more signatories will be in place by the end of November. If informal estimates are correct, there will be a total of ten by the end of this month and 20 by the end of November. The countries involved are mainly those that are members of SADC and COMESA.

Although progress will made on getting the Protocol signed by a larger number of countries, there remain simmering (and sometimes open) disagreements from three different directions. The Kenyan Government refused to sign the Protocol and has announced that it will support the building of a separate cable, more of which in a moment.

Telkom SA keeps threatening to pull out its contribution and in doing so has created a fairly public linkage between the South African Government’s treatment of SAT3 and its willingness to invest in EASSy. Back in July the Department of Communications was gung-ho to declare the SAT3 landing station “an essential national facility”. More recently a Government Minister said it may not be necessary to do this as EASSy would provide competition for SAT3. (The ability of some South Africans not to think beyond their borders provides plentiful jaw-dropping moments for the rest of the continent. What about everyone else connected to SAT3?)

If South Africa has signed the Protocol it would be hard to endure the loss of face of not having Telkom participate. The Government still has enough clout and shareholding to push it to do so. But in those quid pro quo moments that make these kinds of things happen it looks like the South African Government has agreed to take its eye off the SAT3 ball. If this is the case, it may yet come to regret it.

The third simmering disagreement is with the DFI’s and the existing EASSy consortium members who will be signing their own cheques rather than waiting for the money to arrive from donors.

And it is here that Telkom SA’s frequent bleating has some merit. Both of these sets of parties are arguing privately that the Protocol puts in place a range of conditions that raise the bar so high for private participation as to make it impossible or unlikely. Added to which there remain significant differences over the interpretation of how the hybrid SPV will function. This is hardly surprising as many of the key issues have yet to be settled.

Some of the disagreements are focused around the following issues:

- The Protocol clearly sets out that the return on investment from EASSy will be regulated. The IGA is supposed to set this figure. As another party to the process told us:”There have been no actual discussions on the (RoI) figure that I’m aware of. Although there has been the idea of putting in a framing methodology.” Without a figure, it’s hard to see how an external investor can decide or not whether to become involved.

- There are significant differences remaining as to how the hybrid SPV will operate. The Protocol envisages a more central position for its SPV within the hybrid SPV whereas the EASSy consortium members who will remain outside of the NEPAD sponsored SPV are looking for reasons why they should get involved in the controlling entity. The cynical might say they are still looking for competitive advantage but they have a point when they worry that the controlling entity is liable to Government “capture”.

- The process through which shareholders are chosen to participate continues to strike a false note for those wanting to see more rather than less competition. In particular, international operators need to be approved by the IGA. The Protocol signers want the entity to reflect Africa’s ownership of this “strategic heights” asset. It is as one source close to the process told us:”The Governments have added two bureaucratic layers to the process and it introduces the possibility of “friends” of Governments getting special favours.”

Nevertheless there is a feeling amongst the different parties that these gaps can be closed if the Joint Task Force that convened the Nairobi meeting that agreed the hybrid SPV is re-convened as it acts as a link between the various parties. Without it, there is the danger of a disconnect occurring.

This leaves the falling-out with the Kenyan Government. How has it occurred? The understandable part of the Kenyan Government’s reluctance to sign is a perhaps disbelieving attitude that the many and various parties will get a deal done. To this must be added how the East African sub-region feels about South Africa. The reality of the regional politics mean that article 18 of the Protocol will ensure that South Africa will attend a coronation for its role as Chair of the body and NEPAD is seen as a South African Government vehicle. Close relationships between key parties have already raised eyebrows privately.

So the Kenyan Government’s separate play is a way of putting the Protocol signatories on notice that they must act fast and seek to sort out outstanding issues. Meanwhile it will parallel-track its own connection to Fujairah as a form of insurance, claiming it will raise money from the local Stock Exchange. Whether the Stock Exchange has the capacity to raise this kind of money or wants to has yet to be tested and may take as long to get to as EASSy itself. There is no sign yet of Telkom Kenya pulling out of EASSy so this each way bet is in place for the moment and at least it feels it will have some control over the process.

Meanwhile in two weeks time Flag Telecoms will be in Kenya to meet with KDN about its proposals and the backers it has got together. It is not hard to envisage a situation in which KDN and the Government agree that whoever manages to get the project off the ground will go ahead. KDN remains committed to providing the cheapest available capacity.

The next three months will be “make-or-break” for the EASSy project as both Governments and existing backers seek to convince external investors that this might be a project that’s well worth investing in.