Why US firm wants Sh650m from Telkom
ICT and Digital Economy Cabinet Secretary Eliud Owalo speaks during a women's economic empowerment programme meeting in Kochia ward in Homa Bay County on October 21, 2023.
What you need to know:
- Telco has put a number of investments in the country on hold due to Sh4 billion debt and is unable to meet most of its obligations.
- Telkom (K) is in possession of critical security infrastructure used by different government agencies including the National Intelligence Service (NIS), Office of the President, State House, Ministry of Defence, Ministry of Interior. The military and Kenya Wildlife Service are also served by Telkom (K).
An ongoing dispute between Telkom Kenya and American Towers Corporation (ATC) has taken a new turn, with the ATC now demanding a down payment of Sh500 million and Sh150 million per month to reconnect the 246 mast sites that were disconnected seven months ago.
Telkom Kenya’s debt has also risen from Sh4 billion in May to Sh7.1 billion in October, and the amount is expected to rise further as the debt accrues interest at the rate of Sh300 million per month.
ATC Kenya chief executive officer Thomas Sonesson, while appearing before the Senate ICT committee, accused Telkom Kenya of breaching a contract it entered into in 2018. He also revealed that the telco has put a number of investments in the country on hold due to the debt and is currently unable to meet its obligations, including meeting operational costs.
Since January this year, the telco has been paying Sh50 million a month in Value Added Tax (VAT) to the Kenya Revenue Authority as a result of invoices sent to Telkom Kenya that were never paid.
“We have not been paid since January this year. This led to the event we decided to disconnect 900 of the 1,000 leases that we have with Telkom Kenya. When I send an invoice of Sh300 million linked to the leaseback to Telkom Kenya, there is a Sh50 million VAT that we are required to pay to Kenya Revenue Authority. It is a cash out for us that we are not getting paid but we are paying the VAT,” Mr Sonesson said.
Efforts to resolve the dispute have also proved futile for the past two years with Telkom Kenya insisting it is not able to pay the debt and it requires a strategic investor and clearance of pending bills by the government to put in place a payment plan for the debt.
Telkom Kenya CEO Mugo Kibati said the company is unable to meet the contractual agreements due to pending bills owed by the government agencies and is currently seeking a strategic investor to get the company out of the thin.
Mr Kibati also told the committee that Telkom Kenya has been lacking shareholder support since 2020 due to the failure of the merger between Telkom Kenya and Airtel. This made most of the shareholders to sell their shares in the telecommunications company with most of the investors shying away from investing in the company.
He added that should ATC Kenya turn on its masts, the company will be able to pay Sh40 million per month and make a workplan to pay Sh150 million per month.
“There are two areas of support. One is strategic and one is operational. We are looking for a partner who is willing to make the investments on an annual basis to develop the network that Telkom Kenya has been developing for the past six years. We also need payment of the money owed so that we can be able to meet the operational costs.” Mr Kibati said.
The feud has dragged in ICT Cabinet Secretary Eliud Owalo. Telkom (K) is in possession of critical security infrastructure used by different government agencies including the National Intelligence Service (NIS), Office of the President, State House, Ministry of Defence, Ministry of Interior. The military and Kenya Wildlife Service are also served by Telkom (K).
Offsetting debts
Mr Owalo told the committee chaired by Nandi Senator Samson Cherargei that his ministry will work with the National Treasury to release Sh2 billion owed to Telkom Kenya on condition that the money will go towards clearing debts owed to ATC.
“If there is a way that we would get the government agencies through the National Treasury to pay off what is owed to Telkom Kenya and have that money go directly to offset what is owed to ATC. A conditional release of the money that is owed to Telkom (K) that the. We are seeing what we can do as treasury to ensure that the national government offsets the debts it owes to Telkom Kenya incumbent that the money goes to offset the debt owed to ATC.” Mr Owalo told the committee.
The cabinet secretary also expressed concern over the disruption of government services due to the tussle between both companies.
“We do not want services to be disrupted. Telkom Kenya is in possession of critical infrastructure from a communications and security perspective that have a major impact on the economy,” he added.
Mr Cherargei said the KRA Commissioner General, the National Intelligence Service and National Treasury as well as the Attorney General will be summoned by the committee to map out strategies to resolve the impasse.
ATC Kenya acquired 715 towers from Telkom (K) at a cost of Sh22.43 billion in 2018 through a leaseback agreement. ATC Kenya later leased out part of the towers back to Telkom Kenya.
Telkom Kenya has, however, failed to honour payment plan for the lease. The leaseback agreement is expected to expire in 2028. For the past two years, efforts to resolve the dispute have proved futile.
ATC Kenya said out of the 6,000 contracts on mast sites that it has locally, 1,000 of them are with Telkom Kenya and that the company opted to turn off a total of 900 mast sites. The remaining 5,000 contracts are held by Safaricom, Jamii Telecommunications and other companies.
