[Kictanet] Fw: Issue 315: EASSy members agree to hybrid SPV and KDN still going ahead

[alice at apc.org]

> Top Story from Balancing Act
>
> TOP STORY: EASSY MEMBERS AGREE TO HYBRID SPV AND KDN STILL GOING AHEAD
> _____________________________________________________________________
>
> The trio of parties involved in getting the EASSy project of the ground – 
> African Governments, external funders (DFIs in the jargon) and last but 
> not least the EASSy consortium members have agreed that the project will 
> go forward using a Hybrid Special Purpose Vehicle (SPV). An exhausting 
> 3-day all-stakeholder meeting in Nairobi produced the breakthrough but 
> many of the difficult details have yet to be sorted out. But KDN’s Kai 
> Wulff is going ahead with a rival project and looks like a man with more 
> than one option should he choose to change his mind. Russell Southwood 
> tries to make sense of the latest twists and turns in this East African 
> fibre saga.
>
> The Nairobi meeting was the first time that all of the parties had sat 
> down together to discuss substantive issues and although the going proved 
> to be hard, when the Chair asked if anyone was against the hybrid SPV, 
> answer came there none.
>
> The hybrid SPV model is being backed by the DFIs that include: the World 
> Bank, the European Investment Bank, the Development Bank of South Africa, 
> the African Development Bank, the Agence Française de Développement (and 
> its private sector finance arm PROPARCO) and KfW Entwicklungsbank (German 
> Development Bank).
>
> So what is the hybrid SPV? If you go to our web site you will be able to 
> see an organisational chart showing how it will be organised. In essence 
> there will be two sets of companies:
>
> 1. the EASSy SPV that will receive support from the World Bank that will 
> in turn support what we might call the Higher SPV (H-SPV)
> 2. The Higher SPV that will receive investment from all those 
> organisations investing directly and that will not be subject to the Open 
> Access requirements placed upon the EASSy SPV.
>
> Since part of the EASSy SPV’s purpose is to offer the lowest possible 
> prices, its decision on pricing will set the benchmark against which those 
> not in the EASSy SPV will have to set their prices as setting a higher 
> price will not be an option.
>
> The EASSy SPV will be open to all of the existing EASSy consortium 
> signatories plus all of those parties that got left out in the formation 
> of the original project. It should therefore include entities like 
> UbuntuNet, the university bandwidth consortium. Everyone is still 
> insisting that international licences will be required to participate and 
> this may yet create a hurdle for some parties.
>
> The consensus on the hybrid SPV structure seems to have made everyone’s 
> position much more fluid and according to Laurent Besancon, Senior 
> Regulatory Specialist, Global ICT Department, World Bank who has been 
> closely involved with the negotiations from the DFI side:”Quite a large 
> number of companies will join the EASSy SPV and the more that join, the 
> lower the financing costs will be and therefore the lower the final price 
> of the bandwidth.”
>
> It has to be said that it is currently quite hard to see the incentive to 
> remain outside of the EASSy SPV unless you are an organisation 
> “forward-buying” extremely large amounts of bandwidth or that you imagine 
> your presence on the Board of the H-SPV will grant you some form of 
> control not otherwise available through the EASSy SPV.
>
> Because it has taken a long time to reach agreement on the hybrid SPV, 
> none of the tricky details about corporate governance and pricing have yet 
> been resolved. Obviously the EASSy SPV and the direct investors into the 
> H-SPV will nominate representatives to the Board of the H-SPV but how this 
> will be achieved and what level of representation is assured for each 
> group has not yet been settled.
>
> The discussion to settle this issue will be tricky as the EASSy SPV needs 
> to ensure that Open Access principles and low pricing are achieved and the 
> private sector members will want to ensure that the entity is run 
> commercially. And it would not be beyond the bounds of imagination that 
> one or two of the direct investors outside of the EASSy SPV will try and 
> undermine in subtle ways the consensus achieved on a “low price, high 
> volume” approach. For example, will those with landing stations get a 
> special position at the table as in the current EASSy structure? At 
> present there are apparently 4-5 landing station parties in the EASSy SPV 
> so the issue may not be clear cut.
>
> The EASSy SPV’s Open Access position is underwritten by the DFIs but what 
> if one or more of them was to decide that their work was done after five 
> years and to sell out to another external investor? None of the details of 
> the financing package are clear and yet it will be the balance between 
> grants, soft loan funding and commercial funding that will ultimately 
> settle the outcome of the final price of the bandwidth. The DFI package is 
> worth US$170 million. The last budget announced by NEPAD was US$280 
> million and this included $10 million working capital and $30-40 million 
> to build or upgrade existing landing stations.
>
> The DFIs say they are working hard to clarify the funding package issues 
> and to produce the funding to pay for the expertise to get the “i”s dotted 
> and the “t”s crossed.
>
> There is still no clarity on pricing. The principle is that the bandwidth 
> will be as cheap as possible and that there will be a “step-down” after 
> the initial five-year period. It appears from what is known that the 
> bandwidth will be in the range that has already been quoted by various 
> people associated with the EASSy consortium (see previous News Updates).
>
> A Task Force has been set up representing the three main parties involved 
> and it will be this group that will have to try and overcome “the devil in 
> the details”.
>
> A certain frisson was caused last week by the news that several countries 
> (including Burundi) had signed the CNMA but we are assured that this was 
> simply to allow the release of monies to get the equipment acquisition 
> moving for the capital project ahead. According to the World Bank’s 
> Besancon:”We’ve had reassurances that the CNMA will be amended to reflect 
> the Task Force and EASSy SPV input. The signing of the CNMA helps keep the 
> momentum moving forward from Nairobi.”
>
> Meanwhile KDN’s CEO Kai Wulff is still sounding bullish about its project 
> to sign with Flag to connect Mombasa to a Yemen branch of the Falcon 
> cable:”We are definitely going ahead. There are enough people willing to 
> listen to a better and cheaper proposal. But whatever happens I will 
> simply go with whatever is the cheapest option and I’m not going to be 
> delayed by anything.” The company is believed to have a “let-out” clause 
> on the Flag deal and could make the move back to EASSy if the price is 
> right.
>
> Wulff stressed that whilst he would compete in all other arenas in the 
> field of international bandwidth he was simply trying to make the cheapest 
> bandwidth available to everybody:”KDN’s motivation is that we’re looking 
> for the best and cheapest option that will help the development of the ICT 
> sector in the region and through that the development of the whole 
>  region.”
>
> Regional press reports say that the company is in negotiations with 
> Safaricom, Telkom and Celtel Kenya and ISPs.
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