Treasury bought Sh6bn stake in Telkom 4 days to elections
Tuesday February 14 2023
The Treasury overruled the Controller of Budget and paid Sh6.09 billion to acquire a 60 percent stake in Telkom Kenya from a UK-based private equity fund, just four days before last year’s General Election.
Controller of Budget Margaret Nyakang’o says she refused to authorise the withdrawal of the billions to buy out Helios Investment Partners in Telkom Kenya in a deal that made the company fully State-owned.
The Treasury withdrew Sh6.09 billion on August 5, 2022 and paid Jamhuri Holdings Ltd, a Mauritius-based subsidiary of Helios in a trans action that lacked parliamentary approval.
The deal was closed in the last days of Uhuru Kenyatta’s presidency and came at the height of campaigns to succeed him by then Deputy President William Ruto and the opposition leader, Raila Odinga.
Dr Ruto won the August 9 presidential election race by a narrow margin of votes.
“I rejected some of the withdrawals including the Sh6,091,140,702 that was funding to cater for the exit of Helios Investment in Telkom Kenya Ltd. And this was in writing,” Dr Nyakang’o told Parliament’s Budget and Appropriations Committee (BAC).
The Controller of Budget must approve withdrawal of cash from the government’s main accounts and has powers to block access of funds suspected to breach the law.
Article 223 of the Constitution allows the Treasury to spend on emergencies without the approval of Parliament. The law demands that the Treasury table a mini-budget two months after withdrawing funds from the Consolidated Fund without the approval of MPs.
Besides the Telkom Kenya deal, the Treasury spent another Sh16 billion without the approval of Parliament in the weeks leading up to the inauguration of President Ruto.
It disbursed Sh810 million to State House, Sh2.2 billion for building the military research hospital, and Sh4.5 billion for the discontinued maize flour subsidy. Another Sh9.45 billion was allocated for road construction.
Dr Nyakang’o says the Treasury’s increased triggers of Article 223 undermines the legal requirement for public participation in the budget-making process.
“This Article of the Constitution is a bit vague and accounting officers are taking advantage to seek funds through Article 223 which should not be the case. The money withdrawn under Article 223 is not revenue from KRA but proceeds of borrowings including bonds which is compounding public debt,” Dr Nyakang’o said.
Dr Ruto’s coalition in Parliament has criticised the withdrawals done in Kenyatta’s last days.
“One of the most glaring issues is that in the days to the General Election, Sh22 billion was approved under Article 223. We will interrogate these payments, including the Sh6.09 billion paid out to Jamhuri Holdings Ltd, a Mauritius-based firm for Helios’ shareholding in Telkom Kenya,” said Ndindi Nyoro, the BAC chairperson.
The Helios deal marked a rare return of a privatised company to State ownership, derailing initial plans for the listing of Telkom Kenya at the Nairobi Securities Exchange (NSE) through an initial public offering (IPO).
France’s Orange bought a majority share in Telkom Kenya when it was privatised in 2007 but then sold its stake to London-based Helios Investment in 2015 for undisclosed fees.
At Sh6.09 billion, the deal values Telkom Kenya at Sh10 billion, equivalent to one percent of the nearly Sh1 trillion valuation of Safaricom—the dominant market leader.
A former Treasury official in Kenyatta’s government reckons that the State exercised its pre-emptive rights after Helios notified the government of its intention to exit Telkom. Pre-emptive rights are privileges extended to shareholders, giving them preference to buy the stake in the business should one of the owners opt to exit.
“We bought the shares because the government was afraid Helios was going to sell to an investor that did share the same vision with us in the turnaround of Telkom Kenya,” the official said earlier.
Telkom Kenya, which is Kenya’s third-biggest telecommunications company by users, has been losing subscribers in recent years. The operator’s mobile phone subscribers dropped from 4.23 million users in 2019 to 3.42 million in June, representing a 19.1 percent fall, in a period when its rivals, Airtel and Safaricom, gained customers.
The Sh6.09 billion that the State wired to Helios is part of the Sh23 billion that the Treasury spent with MPs’ approval between July and August.
Helios is the latest international operator to quit Kenya, where Safaricom, part-owned by Vodacom and Vodafone, has 67 percent of 36 million mobile users.
India’s Essar Telecom, Kuwait-owned Zain, and France’s Vivendi have exited Kenya over the past 20 years after failing to return profits in a market under the control of Safaricom.
—the region’s most profitable firm. They have faced an uphill task competing for subscribers with Safaricom, whose market share stood at 66 percent in June. Airtel had 26 percent of Kenya’s total mobile phone subscribers in June.
Safaricom’s competitors say the company enjoys a dominant position in the market, accounting for over 90 percent of revenues in areas such as voice calls and text messages.
The dominance has triggered the push to break Safaricom into separate telecoms and financial services businesses. Safaricom maintains it does not abuse its dominance or hinder competition.
Treasury sources reckon that Helios lost interest in Telkom after its merger with Airtel Kenya collapsed.
The operator in August 2020 said it was no longer looking to merge its business with Airtel, citing challenges of securing the required regulatory approvals for the deal.
The merger would have created a stronger challenger for Safaricom.