[kictanet] Kenya cancels SNO offer to Indian firm
Mike Theuri
mike.theuri at gmail.com
Tue Mar 20 20:48:50 EAT 2007
Muriuki/All,
To understand why all the initiatives have failed needs a rather indepth look
from day one.
The Kencell licence was not without its own controversies and manipulation.
These facts
were well documented in the media. Kenya at the time turned away bids worth over
$90m
under very mysterious and unclear circumstances. There are several media
articles that
allude to this from the period including an indepth investigative report by
Africa Confidential
that details that happenings of that period. I quote some excerpts for context,
the complete
articles have key details involved in manipulation of the tender :
----------------------------------------------------------------------------
24 September 1999 Africa Confidential Vol 40, No, 19
Phone sects
"A major row is brewing over the political independence of the Communications
Commission of Kenya, the regulatory body meant to oversee the privatisation
of Kenya's beleaguered telecommunications sector. Companies bidding for the
country's second cellular telephone operating licence, a business worth over
US$ 50 million a year, are convinced that the Commission bowed to pressure
from senior politicians by approving the disqualification of four serious
contenders on spurious grounds."
"Bidding for the second cellular phone licence attracted major international
companies because it was seen as a big contract free from political
favouritism. Bidders said they believed the government saw it as a test case
for its commercial neutrality. So they were surprised when the KANU hierarchy
homed in on the contract:"
----------------------------------------------------------------
17 December 1999 Africa Confidential Vol 40 No 25
Sorry, wrong number
"To enliven Kenya's official anti-corruption campaign comes the bizarre
saga of the cellular telephone licences. The licence to operate a second
cellular system was awarded last month to a consortium led by
Vivendi, an ambitious French sewerage contractor, and Kenya's
Sameer Investments. The Vivendi-Sameer consortium bid just US$55
million for its licence. Two competitors submitted bids, for $94 mn.
and $120 mn. On the face of it, that cost the Treasury about $50 mn."
"Vivendi has just paid $510 mn. for a second mobile phone operating
licence in Egypt. Officials at the Communications Commission of
Kenya had confidently predicted that their second cellular licence
would raise at least $100 mn. Neguib Sawiri, Chairman of a rival
bidder, Orascom, confronted the CCK chairman, Samuel Chepkong'a,
at the public announcement: 'You have just rejected a bid of $94 mn.
How can you throw away this kind of money?' This murky affair is a
great embarrassment to the World Bank. Government officials
repeatedly claim the tendering process was 'World Bank-monitored'"
"Naikuni and his Minister, Wycliffe Musalia Mudavadi, have now set up
a tribunal to investigate complaints, both from major companies eliminated
in the early stages of the competition, such as Deutsche Telekom and Malaysia
Telecom, and from five of the short-listed companies. The complainants hope
the International Monetary Fund and World Bank will use their
leverage over aid funds to insist that the pre-qualification and bidding
rounds are re-run according to international competitive standards."
----------------------------------------------------------------------
The regulator's hand in some these issues cannot be ignored. Proper due
diligence would
reveal the credibility and capacity of some of the bidding entities. Indeed why
would the
regulator allow a bidder to proceed past prequalification, through all the
bidding stages,
even score higher than world renowned bidding entities that have been in
operation
since time immemorial and whose size of operations exceeds the country's GDP
several
times over, at a time when auditors of the caliber of Deloitte and Touché were
seriously
questioning its financial viability or when some of its publicly available
financial reports
indicated without a doubt that the entity was near bankruptcy? Unfortunately
these are the
issues that pass under the radar to both the Kenyan public and consumer. The
regulator
even went as far as appearing in an advertisement in a foreign newspaper at
taxpayers
expense in defense of the bidder who was eventually kicked out of that 3rd
country. The
same entity had been previously investigated a few years earlier by a treasury
delegation
and found to be financially incapable of participating in a prior tender. One
has to wonder
how the same entity would then get past a prequalification process with all
these glaring
red flags.
One might argue the licence fees are too high. But how does one explain the
success of
tenders in other African countries, some of whose economies are comparable to
the Kenyan
economy in size, scope or population :
- 2003: Sudan $130m for a 2nd GSM license
- 2002: Algeria $737m for a 2nd GSM license
- 2002: Tunisia $454m for a 2nd GSM license
- Celtel $120m for a 35% in Tanzania Telecommunications Company Limited
- 2003: Egypt $333m for a GSM license
- 2007: Egypt $586m by Vodafone for a 3G license
- 2006: US$2.9bn for Egypt's 3rd mobile license by Etisalat.
It might be argued that these are different economies, even if one for the
extraordinary
sake of argument could take 20% of those economies and use that as a yard
stick, one
can see that the license fees being paid or offered in Kenya are below par.
It is easy to forget that the licences in question are 15 year licences. Indeed
it easy to
see how undervalued the telecom sector is when companies in Kenya are making
profits
that some fortune 500 companies in the western hemisphere would love to envy
midway
into the length of their 15 year licences.
The regulator has a responsibility of vetting the local partners. It is not that
the local
shareholders do not have the capacity to pay for their shareholding. It is due
to a failure
to conduct thorough due diligence that such entities slip through only for the
entities to
fail to pay up at the end of the day. We recently read in the papers of an
individual who
had over $10m in a single account. There are capable and wealthy individuals and
entities
with the financial capacity or backing in Kenya some of whom have been part of
other
bidding consortia, whose derailment in the tendering process occurred under
mysterious
circumstances. The other but not entirely far fetched theory is that the
entities which win
these tenders are connected to powerful individuals who for whatever reason have
the
means to pay for the licence but do not wish to do so. For this, one would have
to salute
the regulator for not abdicating its fiduciary duty in ensuring that all licence
fees due are
fully paid for.
The result of such tampering or non transparent processes is that the "big guns"
will not
touch Kenya with a long pole. How does one explain a student scoring higher for
all
practical purposes than their instructor ? In one such Kenyan bid, a much
smaller entity
that had previously and repeatedly co-opted the "big gun" entity in running
several of its
projects due to its expertise, suddenly in the eyes of the Kenyan regulator had
scores that
suggested that the big gun which is a pioneer and recognized authority in the
industry was
now a novice! Thus the lackluster response from big gun bidding entities
whenever a
tender is announced should not be seen as surprising. They can be forgiven for
not
engaging in what some view as a public relations exercise where the "winner" is
already
known long before the process is concluded.
Indeed as stated the looser at the end of the day is the Kenyan taxpayer,
consumer
and citizens at large. The levels of foreign ownership in flag ship companies
has reached
alarming levels and when one considers the calls to abandon the requirements of
local
ownership without getting to the crux of the matter, it becomes a worrying
matter to say the
least. Who is really benefiting at the end of the day when profits earned by
these
companies end up in foreign coffers? What sense of corporate and national
responsibility
do these entities owe to Kenya citizens if all they view Kenyans as, is as a
means to
financial gain? Where is our sense of national belonging and esteem in running
and
founding our own entities ?
Low licence fees deprive the exchequer of much needed revenue, at the same time
previous tampering with tendering processes and the non-prosecution of those
responsible
for the same dampens investor confidence and turns away credible bidders from
participating
in international tenders advertised by the Kenya government. Why would one play
with fire
when it is clear that the time tested result is are burns incurred ?
Mike Theuri
----- Original Message -----
From: "Muriuki Mureithi" <mureithi at summitstrategies.co.ke>
To: "Mike Theuri" <mike.theuri at gmail.com>
Sent: Tuesday, March 20, 2007 3:30 AM
Subject: Re: [kictanet] [Fwd: [DigAfrica] Kenya cancels SNO offer to Indianfirm]
Thanks Alice
The government and indeed the country can easily be arm twisted because the
focus is on the short term money considerations paid by the applicant but
the loser is the country in terms of the long term build out of the
network, quality and lower prices through competition
After the current licensing failed in 1) 8 regional telecommunications 2) 2
trunking radio 3) SNO on two occasions 4) third cellular --- do we need to
use the regime again?
If we do the same thing the same way we get the same results. Our attempts
apart from Kencell licence proves beyond doubt the need of a paradigm shift
I am just wondering loudly how much it costs to go through such a licence
process and how such a colossal loss is accounted for
Finally, I expect that any new applicant will demand even more 'privileges'
because the market is well taken up by competition. The incumbents had
privileges of the huge market and three years of guaranteed market. TKL
itself had a privileged captive market for 118 years.
Cheers
Muriuki Mureithi
---------------------------------------
Summit Strategies Ltd -
ICT Consultancy & Research in Eastern & Central African markets
Contacts : Tel +254 (20) 3875824 , Cell + 254 (722) 520090,
email: mureithi at summitstrategies.co.ke
alternate email : muriuki.mureithi at gmail.com
-----Original Message-----
From: kictanet-bounces+mureithi=summitstrategies.co.ke at kictanet.or.ke
[mailto:kictanet-bounces+mureithi=summitstrategies.co.ke at kictanet.or.ke] On
Behalf Of alice
Sent: 20 March 2007 08:45
To: mureithi at summitstrategies.co.ke
Subject: [kictanet] [Fwd: [DigAfrica] Kenya cancels SNO offer to Indian
firm]
They demanded one "too many" privileges
Kenya cancels SNO offer to Indian firm
By A STAFF WRITER
Investigations by The East-African have revealed that Kenya cancelled
negotiations with Reliance Communications of India - the company that
had been negotiating with the government for a licence to operate
both fixed-line and mobile services - because the Indians
demanded "too many" privileges.
Just a day before the deadline within which the Indian company was
asked to formally submit its application, the president of the
company, Punit Garg, wrote to the government making demands that were
way outside the condition of the tender. According to informed
sources, the privileges Reliance wanted were in three sets - namely
duties, relaxation of rules for listing of its local subsidiaries on
the Nairobi Stock Exchange, and a commitment to share infrastructure
from existing mobile companies.
With respect to duties, the Indian company wanted the following.
First, zero import duties on import of telecommunications
infrastructure and equipment; zero import duties on new and used
handsets and zero value-added tax.
The privileges requested with respect to listing requirements were
not only excessive but were of the type that the government could
only give at the risk of bending the rules governing capital markets.
First, the Indian company wanted the government to give it a
commitment that it would allow any local subsidiaries it formed to go
to the market to raise money on the Nairobi Stock Exchange regardless
of whether or not the company met the requirements for listing.
The Indian investor suggested that the local subsidiary it intended
to create be listed on the basis of compliance of the parent company
in India.
Secondly, it wanted the government to permit the listing of at least
10 per cent of the equity of the SNO on the Nairobi Stock Exchange.
Thirdly, it asked that the government allow dual listing of the
company that it intended to establish in Kenya.
On the sharing of infrastructure, the Indian investors wanted
assurances on the sharing of towers, co- location of equipment for
interconnection and long distance networks.
The company argued that duplication of infrastructure in
telecommunications networks was costly. The Indian investor further
argued that only a harmonised system can ensure ready availability at
regulated cost-based tariffs.
Reliance also said that it was not willing to put in an application
without these assurances and privileges.
It is understood that on receiving the demands, a meeting of the
board of the Communications Commission of Kenya was hurriedly
convened at which the regulator formally announced the cancellation
of negotiations with the Indians and the decision to tender afresh.
The government will now be hoping that Vtel of Dubai, who had offered
to pay a whopping $169 million for the licence, will still want to
come and invest in Kenya.
Kenya's telecommunications industry is changing rapidly. The two
mobile players - Safaricom and Celtel - continue to maintain a
stranglehold in a market that more or less operates like a duopoly.
Currently, it is estimated that Safaricom has around 75 per cent of
the market and Celtel 25 per cent.
Both companies have recently been licensed to operate international
gateways.
Kenya tried unsuccessfully to auction an SNO licence in 2003. In May
last year, the CCK put out an international tender for the licence.
The successful bidder, Vtel Ltd, was consequently invited to take up
the offer but failed to do so following disagreements with its local
partners.
In accordance with the tender regulations, the offer was subsequently
withdrawn and extended to Reliance Communications, the second highest
bidders. Upon receipt of the invitation by CCK, Reliance
Communication confirmed that they would take up the offer and
requested more time to enable them to comply with the various
formalities.
The CCK board agreed to the request by the Indian investors and
granted an extension of the application deadline to March 15 this
year.
By the expiry of the set deadline of 4.00 pm on Friday last week, the
Indian investors had not made a formal application for the licence.
http://www.nationmedia.com/eastafrican/current/News/News19030715.htm
<http://www.nationmedia.com/eastafrican/current/News/News19030715.htm>
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