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How Sh6 billion Telkom deal was hatched in 6 days

Weeks after assuming office, Deputy President Rigathi Gachagua stunned Kenyans with claims that the outgoing administration stole billions of taxpayer funds.

“Two days before the elections, they tole Sh6 billion and pretended to sell some shares from Telkom,” said Gachagua.

“When they saw the election was not going their way, they carried money in sacks.”

The claims sparked a joint inquiry by Parliament’s Departmental Committee on Finance and National Planning and that of Communication Information and Innovation into the circumstances behind the nationalisation of Telkom Kenya.

A report on the parliamentary inquiry released last month lays bare the heights of impunity by high-ranking government officials that facilitated the irregular transaction and some of the beneficiaries of the Sh6 billion payout.

Parliament has also revealed that the transaction did not receive the full authorisation of Telkom Kenya’s board, Attorney General (AG), Controller of Budget (CoB), Competition Authority of Kenya or Communication Authority (CA), as required by law.

The deal was also suspect, not just because of its timing; it was also the first time a transaction of that nature was being conducted, in effect, the nationalisation of Telkom Kenya.

There is no legal framework in the country’s laws that provides for the government to re-acquire a formerly State-owned entity. According to the report, the Sh6 billion buyout of Helios Investment Partners was facilitated by four key letters from the National Treasury between July 25 and August 1, 2022.

On Thursday, July 28, the Director General of Accounting Services and Standards at the National Treasury Benard Ndungu, wrote to Controller of Budget Margaret Nyakang’o, asking her to process Sh6 billion to facilitate the exit of Helios Investment Partners.

Attached to Mr Ndungu’s requisition was a letter dated July 25, 2022, from former Treasury Principal Secretary (PS) Julius Muia addressed to his boss (Treasury Cabinet Secretary then) Ukur Yatani indicating that Jamhuri Holdings Ltd, Helios’ local subsidiary wished to exit and exercise its put option (a contract that gives its holder the right to sell a set number of equity shares at a set price before a certain expiration date).

This meant that the firm was giving the Kenyan government the first rights to purchase its 60 per cent shareholding in Telkom Kenya.

Muia stated that the National Security Council had approved Helios’ exit in April and that the Office of the President had proposed the payment be made through a three-year Treasury Bond.

The following Monday, August 1, 2022, a week before the General Elections, Ms Nyakang’o received a letter dated July 25, 2022, from CS Yatani, stating that the government does not issue personalised Treasury Bonds to specific individuals or companies and that the payment of $51.1 million (Sh6 billion) should be drawn directly from the exchequer.

Approve of withdrawal

Ms Nyakang’o requested a copy of the share purchase agreement and a copy of the approval from the CS National Treasury to approve the withdrawal and Treasury obliged on the same day.

“The OCOB (office of Controller of Budget) wrote to the PS National Treasury on August 2, 2022, noting the request and approving the withdrawal of funds,” explains the report. MS Nyakang’o told MPs that she acted in good faith and was unaware that one of the letters that was unprocedurally signed and purported to be from CS Yatani was forged.

According to the report, the National Treasury also ignored requests by the Attorney General, Telkom Kenya board and the Communication Authority for more documentation to help the agencies verify and approve the transaction.

The National Treasury wrote to the AG on August 17, 2022, 16 days after the CoB had approved the withdrawal of the funds from the exchequer, asking for its legal opinion on the transaction.

Legal opinion

The AG wrote back on August 30, 2022, noting that the documents submitted were incomplete, not fully signed and not dated by the respective parties. “However, by the date of submission by the Solicitor General, the National Treasury had not responded to the AG’s request to submit fully executed documents,” explains the report.

“Consequently, the Attorney General’s office had never issued the mandatory legal opinion on the transaction.”

The CA had several conditions that needed to be met for the transaction to proceed.

These included a commitment letter from the National Treasury on the settlement of Telkom Kenya’s Sh7.2 billion outstanding licence fee and a copy of the telco’s CR-12, the document indicating the firm’s shareholding structure. “The CA provided conditional approval for the JHL (Jamhuri Holdings Ltd) exit,” explains the report.

“These conditions had not been met.” Still, Yatani wrote to Telkom Kenya Chief Executive Mugo Kibati on August 19, 2022, stating that all necessary approvals including from the Cabinet, the AG, the CA and the Competition Authority had been obtained.

In October, the Cabinet moved to rescind the government’s Sh6 billion purchase of 60 per cent of Telkom Kenya and ordered that Helios Investment Partners refund the money. The Infrastructure Corporation of Africa LLC (ICA) of the United Arab Emirates has been named as the new majority shareholder.

The particulars of the deal and the bidding process however remain a mystery to regulators including the Competition Authority of Kenya, the CA and Parliamentary watchdogs. Several questions, however, remain unanswered in the parliamentary report.

These include; the identity of local shareholders of Jamhuri Holdings Ltd, the identity of the investment bank that received Sh117 million from the proceeds of the sale, the timing of the transaction even as Jamhuri Holdings CEO said could have been conducted after the 2022 polls.

The government’s blocking of the proposed merger between Telkom Kenya and Airtel Kenya on grounds of National Security has also been questioned.

Several experts have pointed out that government agencies at both the national and county levels already contract their ICT services from multiple telecommunication service providers. The report has recommended that criminal investigators should look into the trail of documents between the Treasury and other State agencies involved in the transaction.

“Owing to numerous inconsistencies in the letters authored by various parties with respect to the transaction, the Directorate of Criminal Investigation conducts a forensic audit of all the paper trails and documents with respect to the transaction to ascertain the authenticity of various documents and records and whether they might have been authored and prepared after the fact,” explains the committee in one of its recommendations.

Over the past year, Telkom Kenya customers have been a frustrated lot. From Rongo, Eldoret to Isiolo, a big section of the 2.5 million subscribers have faced difficulties with the network with many unable to make or receive phone calls or access their mobile internet, sometimes for days.

Data from the CA indicates that voice traffic on Telkom Kenya has dropped 80 per cent in the last one year from 458 million minutes per month to 93 million minutes. This is barely three per cent of the voice traffic per month reported by Airtel over the same period and less than 1.2 per cent that of market leader Safaricom.

Telkom Kenya continues to advertise voice and data promotional tariffs, even though subscribers in most of its network often cannot use these services due to network outages. This violates licence conditions set by CA requiring telecommunication service providers to maintain 99 per cent connectivity and have a redundancy provision in the event of an outage.

Telkom Kenya’s mobile money platform T-Kash which once employed 21,538 agents and recorded Sh65 million in transactions per month is also on its deathbed and now accounts for less than 0.1 per cent share of the market.

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