Quietly tell French firm to stop burdening Kenyan taxpayers

According to a story in the current issue of our sister paper, The EastAfrican, France Telecom, which acquired a 51 per cent stake of Telkom Kenya following privatisation of the firm in December 2007, has kicked up a storm in government circles with the sensational claim that it is unable to trace some of the assets that were on the books of the former parastatal at the time it was put on sale.

One of the largest telecommunications operators in Europe, the French company has demanded compensation running into millions of US dollars — amounts almost equal to what it paid for the 51 per cent stake.

The government should politely tell the French company that taxpayers in this country are not prepared to incur more costs on this transaction.

Indeed, no single transaction has cost the taxpayer as much money as the privatisation of Telkom. The government had to pay billions to prepare and make the sale of 51 per cent of Telkom Kenya shares a viable proposition.

Without a doubt, this was the most expensive transaction in the history of privatisation in this country. Consider the following. First, the International Finance Corporation (IFC), which was retained by the government as transaction advisors on this deal, was paid a whopping Sh291 million for the services.

Secondly, the government had to pay the Communications Commission of Kenya Sh3.4 billion ($55 million) to enable Telkom Kenya to acquire a mobile cellular licence, ostensibly to make the parastatal more attractive to prospective buyers.

Billions owed by Telkom Kenya to the Kenya Revenue Authority in tax arrears had to be repaid to make the privatisation deal happen.

Fixed-line wireless infrastructure and assets that had just been built by the Chinese on the government’s behalf — the so-called CDMA network — had to be transferred to the privatised firm to make the deal happen.

And, billions of shillings had to be pumped into the Telkom’s employee pension fund to cure a massive hole that was revealed as a result of an actuarial audit conducted by Alexander Forbes Financial Services.

Several state-guaranteed supplier credits and loans had to be expunged from the books of the company to sweeten the deal and make the company more attractive to the suitors.

THE SOCIAL COST OF THE TRANSACtion was even higher. No single privatisation transaction has added to the unemployment situation in this country as the sale of 51 per cent shares of Telkom Kenya to private interests. By the time preparations for privatisation was starting in 2005, the parastatal was one of the largest employers in Kenya, with a total work force of 17,480. Today, the company has less than 5,000 employees.

The political consequences of sending such large numbers of people to the streets — in a context of a debilitating unemployment — was simply grave for the State. The argument is made that many former employees of Telkom were absorbed by the modern and nimbler telecommunications operators which cropped up in the wake of the dismantling of the monopolistic situation Telkom Kenya used to command.

Yet the truth of the matter is that just like the old-fashioned large parastatals of its ilk, Telkom Kenya served a key role in the country’s labour market, namely, one of the biggest absorbers of unskilled labour and school leavers.

According to a skills audit by audit firm, PKF Consortium, in 2005, the organisation had more watchmen in its work force complement than even the largest security companies in the country. The report found that Telkom had employed 1,009 watchmen, 1, 115 messengers, 1,028 porters, 1,438 telephone operators, 612 drivers and 897 clerks.

All these workers had to be sent home under retrenchment programmes, which were paid for by the taxpayer. The advisers told us that Telkom had no chance of surviving in a liberalised telecommunications sector with such large numbers of unskilled labour it its workforce.
While justifiable from an economic standpoint, the successive retrenchments, which Telkom Kenya has had to implement, have had the effect of adding to job losses and social misery.

We cannot accept to pay a heavier price. After all, and according to the original plan, the French should have by now been preparing to take Telkom Kenya to the Nairobi Stock Exchange.

At $390 million, France Telecom’s bid for Telkom Kenya was way too aggressive. It was over and above what the closest rivals, Telkom South Africa and Reliance of India by nearly $100 million.

It is unfair to turn around two years later to make a huge claim on the taxpayer. It had ample time to conduct due diligence on what it was buying.

jkisero@ke.nationmedia.com