Treasury paid Sh6bn Telkom cash without permission, MPs told
Former ICT Cabinet Secretary Joe Mucheru responds to queries when he appeared before the joint National Assembly committees on Finance and National Planning and Communication, Information and Innovation on Tuesday last week.
The Office of the Attorney-General (AG) has distanced itself from the deal that saw the government pay Sh6.2 billion to a foreign company to acquire Telkom Kenya Limited without the approval of the National Assembly.
This was revealed by Solicitor-General Shadrack Mose to a parliamentary committee investigating the payment. Mr Mose said the AG’s office did not approve the payment.
He testified before the joint National Assembly committees of Finance and National Planning, as well as Communication, Innovation and Information, that are investigating the transaction.
The revelations put former National Treasury Cabinet Secretary Ukur Yattani in a tight spot as his action contravened the Office of the Attorney-General Act, which states that government commitment to contracts above Sh2 billion must be approved by the AG’s office.
Solicitor-General is the principal assistant to the AG and the accounting officer of the State Law Office.
Mr Mose told the MPs that Mr Yattani wrote to the Attorney-General’s Office seeking the legal opinion on the payment. Mr Yattani was told to furnish the AG’s office with the documentation so as to form the basis for the drafting of the legal opinion approving the payment.
At the time, Mr Paul Kihara Kariuki was the Attorney-General.
Although Mr Mose says Treasury submitted documents in support of the request for the legal opinion, they “were not complete as they were not fully signed and dated by all the parties and the attestation was not complete.”
The documents that the AG’s office requested from Treasury included a signed and dated Deed of Variation between the Cabinet Secretary to the National Treasury on behalf of the government and Jamhuri Holdings Limited (JHL).
Others are the signed Escrow Agreement between JHL, the Government of Kenya and Anjarwalla and Khanna LLP of May 41, 2022 and a signed and dated Deed of Novation relating to the additional JHL loans between Telkom Kenya Limited, JHL and Treasury CS.
Helios wanted the government to take over and reimburse the shareholder loan injected by Helios of $51.2 million — $48.2 million as principal and $3 million in accrued interest, translating to about Sh6.2 billion, which the government paid.
In turn, Helios was ready to forgo the acquired shareholder loan that it took over from Orange Telkom of $239 million — $199 million as principal and $40 million in interest.
Helios Investors Chief Finance Officer Paul Cunningharm, when he appeared before the MPs last week, said JHL, where he is a director, is registered in Mauritius and was Helios’ Special Purpose Vehicle (SPV) in the Telkom transaction.
Mr Cunningharm also told the committee that “this offer is considered a good deal for the government considering that the total shareholder loan outstanding to Helios as at December 31, 2022, was Sh33 billion and the value of shares.”
But the AG demanded that Treasury provide a signed and dated Deed of Novation in respect of the loan agreement relating to the JHL-OREA shareholder loan of June 10, 2016, between Telkom Kenya, JHL and the Treasury CS. Treasury was also required to provide a signed and dated Deed of Termination of June 10, 2016 between Telkom Kenya, JHL,Helios Investors and the Treasury CS as well as the share transfer form between JHL and the Treasury CS.
Further, the Deed of Amendment and Restatement of Shareholders agreement was also required as well as additional shareholders agreement between the Government of Kenya, JHL, Helios Investors and the company dated June 10, 2016.
“In view of the foregoing, the Office of the Attorney-General and the department of justice protected the strategic assets owned by Telkom Kenya by providing legal advice on all documents and agreements and what needed to be done before their signature,” said Mr Mose.
The decision to have the government fully acquire Telkom Kenya Limited was made by the National Security Council (NSC) and approved by the Cabinet in 2022 according to government documents presented to parliament.
The documents show that the NSC decision was made on April 1, 2022 following a memorandum that was jointly signed by Mr Yattani and AG Kariuki. Following the NSC approval, the matter was taken to Cabinet for consideration. On May 10, 2022 the Cabinet ratified the decision of NSC that saw the government pay Helios Investors LLP, a London-based private equity firm, Sh6.2 billion to acquire 60 per cent shareholding in Telkom Kenya Limited on top of its 40 per cent shareholding.
The payment was, however, flagged by the two committees as they considered the supplementary budget I for the 2022/23 financial year. The Finance and National Planning Committee chaired by Molo MP Kuria Kimani flagged the request by Treasury, which it oversights, for the National Assembly to regularise the payment. The Communication, Innovation and Information Committee that is chaired by Dagoretti South MP John Kiaria questioned the payment as reflected in the supplementary budget estimates of Telkom Kenya that it oversights.
The funds were paid without the approval of the MPs and, through Article 223, Treasury was seeking the post facto approval of the National Assembly.
However, the two committees recommended to the Budget and Appropriations Committee (BAC) that the payment should not be regularised. The recommendation was upheld by the House, which sanctioned the two committees to investigate the manner in which the payment was made.
On May 9, 2022, a day before Cabinet approved the NSC decision and before the AG’s office had received the requested documentation from Treasury, then Head of Civil Service Joseph Kinyua wrote to PSs Dr Julius Muia (National Treasury) and Mr Torome (Planning) and then Solicitor-General Mr Ken Ogeto.
Mr Kinyua informed them of the then President’s decision on Mr Yattani’s brief to Cabinet on the status of Telkom Kenya Limited and the proposed exit of Helios/JHL from the telco.
However, Mr Mose told the committee that the AG signed the memorandum to the NSC and the Cabinet on condition that the approval of Telkom Kenya board was required for the transaction.
The AGs letter to Treasury demanded that Telkom board ascertain that the particulars of the memorandum regarding shareholding and shareholders loan are correct.
The Telkom board was also required to ascertain that the loan was indeed advanced to Telkom Kenya and that there is evidence “to that effect.”
The shareholders agreement provided for the exit of Helios/JHL through the exercise of a “put option” and that the conditions for exercising the “put option” as captured in the memo have been met.
Telkom Kenya was hived out of the Kenya Posts and Telecommunications Corporations that was established in 1999.
In 2007, the government, through a competitive process, sold 51 per cent of its shares in Telkom Kenya Limited to Orange East Africa limited (OrSEA), a subsidiary of France Telecom SA for $390 million.
However the company did not achieve sufficient revenues despite OrSEA’s investments and continued to post losses. The government’s shareholding would reduce to 30 per cent due to its failure to participate fully in the restructuring process that followed, involving debt write-offs and injection of equity capital.
In June 2016, Helios acquired 70 per cent of the Telkom shares from OrSEA through a special purpose vehicle — Jamhuri Holdings Limited. It was at this point that the Kenyan government increased its shareholding from 30 per cent to 40 per cent for a nominal consideration.
