Dubai-based businessman sues KBC for Sh49bn in contract row

A Dubai-based businessman has sued Kenya Broadcasting Corporation (KBC) for Sh49 billion over a failed TV channel and a collapsed digital migration partnership. The suit could bankrupt the state corporation or leave the taxpayer with a huge external bill.

Strangely, some former senior managers at KBC including former company secretary Hezekiel Oira have written witness statements supporting the billionaire’s suit.

Filed by Mr Ajay Sethi of Channel 2 group Corp, the arbitration is over the termination of a joint venture that was killed by KBC in March, 2009 ending what was supposed to be a 24-hour entertainment and sports channel. The state broadcaster is also accused of using information from a feasibility study carried on the digital television market by Channel 2 to launch a distribution platform together with China’s StarTimes.

In his statement, Mr Oira supports Mr Sethi and blames the KBC board of replacing a representative of the attorney-general’s office who had opposed the proposal to terminate the contract.

The arbitration papers are filed with London’s Lincoln’s Inn-based Essex Court Chambers. The firm specialises in commercial and financial litigation and arbitration.

Senior government officials mentioned in the suit papers include former Minister of Information and Broadcasting, Mutahi Kagwe (now Nyeri Senator), his Permanent Secretary Bitange Ndemo, former Tourism minister Morris Nzoro as well as former senior KBC officials.

KBC is also accused of entering into a pact with a third party company as part of the digital migration. While the third party company is not mentioned in the suit, KBC owns 40 per cent of Multichoice Kenya Limited which runs GoTV.

The company is 60 per cent owned by Multichoice Africa.

Similarly, KBC holds shares in Signet, one of the companies fully licensed to carry out broadcasting signal distribution, under the new digital platform. Signet has 17 digital signal distribution sites and carries about 38 broadcasters.

The first deal was signed after Mr Sethi invited KBC officials to Dubai in September, 2005 to see the operations of Ajman TV, which he owned. He said KBC liked the channels idea and that he and the state broadcaster were looking at the “bigger picture, towards the introduction of digital technology in Kenya.”

INCORPORATED COMPANY

After signing the agreement with KBC, dated September 20, 2005, Mr Sethi incorporated his company at the British Virgin Islands on September 29, 2005. It is not clear whether KBC entered into contract with a non-existent company.

Before he relocated to Dubai, Sethi, a graduate of Punjab University Chandigarh, was selling vehicle spare parts in Nairobi up to 1993 when he shifted to the Emirates and set up a new company: Unique Part Trading LLC with branches in Sharjah and Dubai. It is here that he took advantage of the property boom and became a real estate dealer. He then met the son of a top Bollywood actor, Shammi Kapoor, and they started a media business.

Mr Sethi now claims that KBC’s breach of their joint venture brought to an end his determination to venture into the East African market. KBC and Mr Sethi’s company had jointly incorporated Channel Two G Corporation (Africa) Limited to run the joint venture as per an agreement signed in May 2006 in which the Dubai company was to share revenue at the ration of 70:30. The joint venture was to end in August 2017.

According to the suit papers, KBC was supposed to provide some of the equipment, but some were found to be “inadequate”. As a result, the Dubai company obtained funds for the procurement of a new transmitter for Metro TV, staff, billboards and hired an advertising company.

In a letter dated March 2009, KBC said it terminated the venture because of programming and “poor financial performance”. But Mr Sethi says that this was caused by weak and unreliable signal.

“The joint venture company could not attract a sufficient audience to obtain, or keep, advertising revenue and contracts. Company staff became demoralised by their lack of success in selling advertising air-time,” says the papers. The joint venture had projected that by August 2017, it would have earned a profit of US$481.9 million (Sh48.2 billion).

Mr Oira says that if KBC now blames Mr Sethi for procuring programmes that were unsuitable for Kenya audience, “then the blame for this must lie squarely with KBC. My recollection is that the difficulties faced by Channel 2 at the time was not because of its programmes but because of a weak broadcast signal”.

MISREPRESENTING HIMSELF

While terminating the venture, KBC accused Mr Sethi of misrepresenting himself that he had “capabilities, competence, expertise and financial resources” to run the station.

“You have now sought to partner with a strategic partner by the name ETV of South Africa to manage the station without the consent of KBC,” said the letter of termination.

In June 2006 at Dubai’s Fairmont Hotel, one of Dubai’s luxury hotels, KBC and Mr Sethi’s Channel 2 held a press conference attended by Kenya’s then minister of Tourism Morris Dzoro and senior KBC officials after which a deal was struck, extended the agreement from five to 10 years with the digital migration component in mind.

At some point, KBC issued a public tender for the provision and installation of digital equipment for the Digital Terrestrial Television platform. Mr Oira, invited the Sethi group to tender too.

The tender was later awarded to China’s Star Times which entered a digital television memorandum of understanding with KBC, which Mr Sethi considers a breach of their agreement.

On its part, KBC argues that it was entitled to terminate the joint venture agreement after Mr Sethi failed to provide films and other programmes in sufficient quantity.

In a defence statement, KBC Company Secretary Paul Jilani says that Mr Sethi knew that Metro TV had a 1kw transmitter at Limuru station and that this was the transmitter KBC would provide. He says that the decision to install a new 5kW UHF transmitter to broadcast Channel 2 was not taken to comply with any agreement.

Although this was purchased by Mr Sethi, it is owned by KBC.

Mr Jilani says that Channel 2 was unable to attract advertising due to poor programmes which he says had negative impact on viewing figures.

“The claimant knew, or should have known, the nature of the signal by which Metro TV was broadcast,” says Jilani in his defence.

He said the amount demanded by Mr Sethi as compensation for loss and damage is grossly inflated.

“To put these figures in context, ITV, a long established free-to-air commercial digital TV generated profits of about US$300 million last year,” he said.