State was wrong to sell Telkom, Kinyua claims

Former Head of Public Service Dr Joseph Kinyua

Former Head of Public Service Dr Joseph Kinyua before the joint committee sitting of Committee on Communication, Information and Innovation and Committee on Finance and National Planning of the National Assembly at the County Hall Nairobi on April 20, 2023, investigating the acquisition of Telkom Kenya Limited by the Government of Kenya. 

Photo credit: Dennis Onsongo | Nation Media Group

Former Head of Civil Service Joseph Kinyua now says the government made a mistake in selling Telkom Kenya Limited to foreigners.

Dr Kinyua, who made the revelations yesterday before a joint sitting of the Finance and National Planning and the Communication, Innovation and Information Committees of the National Assembly, termed the telco a vital asset of national security significance.

He took issue with Treasury mandarins for rushing the payment of Sh6.2 billion to buy back the telco from Helios Investors LLP/Jamhuri Holding Limited (JHL) last year without the approval of the National Assembly yet it was not an emergency.

Dr Kinyua told the MPs that the acquisition of Telkom Kenya in September 2022 about 15 years after it was sold, was approved by the National Security Council (NSC). The Cabinet approved the money to be processed during the preparation of the budget for the 2022/23 financial year.

However, officials at the National Treasury paid the money y way of supplementary budget I for the 2022/23 financial year. Dr Kinyua said Telkom Kenya remains a strategic asset although he did not reveal whether there may have been any material breaches compromising the country’s national security.

“It was a question of ignorance. Our security people came to realise that we made a mistake,” Dr Kinyua told the MPs adding; “We should have been careful.”

Treasury was to release the funds and then seek approval from the National Assembly within two months of payment.

However, the payment was flagged by the two committees as they considered the supplementary budget for government agencies in their reports to the Budget and Appropriations Committee (BAC) of the House.

The House agreed with the BAC recommendations and declined to approve the request to approve the payment and commissioned the ongoing probe.

Telkom Kenya provides critical communication services to the Office of the President, State House, the Government Data Centre and the Ministries of Defence and Interior. There are also the National Police Service, Nyali and Mombasa landing stations, Parliament and other agencies.

“It is the security organs of this country that came and said that a decision should be made to have Telkom Kenya fully acquired so that it doesn’t become a matter of national concern,” Dr Kinyua told the MPs.

But Molo MP Kimani Kuria, who chairs the Finance and National Planning Committee, wondered why the telco was privatised.

“So, why did it take the government so long to realise the importance of Telkom Kenya to the country’s security?” he posed.

GoK frustrations

Documents presented before Parliament cite frustrations by the Government of Kenya as the reason Helios Investors LLP/JHL exited from Telkom Kenya in a process that started on April 1, 2022, and culminated in September 2022.

Asked by Mr Kuria about the economic sense of acquiring Telkom Kenya, Dr Kinyua said the business the telco gets from the government was enough to return it to profitability.

In 2007, the government made a decision to privatise the Telco by selling 51 per cent of its shares to Orange East Africa (OrEA) Limited, a subsidiary of France Telkom SA (FT), a move that was undertaken to turn around its performance and “put it on a path of profitability.”

But Telkom Kenya continued to perform poorly. It failed to generate sufficient revenue to cover even its operating costs, let alone the repayment amounts for the loans extended to it by the shareholders; the Government of Kenya and OrEA.

It was technically insolvent and the shareholders had two options — either to restructure its balance sheet or to voluntarily liquidate it.

In 2012, the shareholders chose to restructure the telco’s balance sheet, which was carrying debts to the shareholders of Sh50.9 billion — Sh44 billion owed to OrEA and Sh6.9 billion owed to the Government of Kenya.

OrEA wrote off Sh33.5 billion and converted the balance of Sh10.5 billion into equity with the government converting the Sh6.9 billion debt into equity.

This saw Telkom Kenya’s shareholding structure change to 70 per cent for OrEA and 30 per cent for the Government of Kenya. In 2016 OrEA decide to quit the company through the sale of its shares to Helios Investors LLP through Jamhuri Holding Limited (JHL).

The government’s approval of this sale was on condition that 10 per cent of OrEA shares be transferred to the Government of Kenya at a “peppercorn” price of Sh1, which increased the government’s shares to 40 per cent and Helios/JHL at 60 per cent.

By this time, Dr Kinyua told the committee, the government had realised its mistake and needed to increase its shareholding in the telco to gain a controlling interest.