Court blocks Treasury’s Sh2 billion licence fee on Airtel

Residents of Kisumu at an Airtel shop in Kisumu. [Collins Oduor, Standard]

Kenya’s second-largest mobile service provider Airtel Kenya has won a landmark case against the Government, saving the Indian-based telco more than Sh2 billion in hefty licence fees.

This follows a decision by the High Court to quash a demand for licence fees by the National Treasury through the Communications Authority of Kenya (CA) following the 2014 exit of Eassar’s yuMobile from the Kenyan market.

The deal was valued at about $100 million (Sh10.3 billion) and saw Airtel acquire the 2.7 million yuMobile subscribers at a cost of $6.9 million (Sh710 million) while Safaricom took up the frequency and phone masts.

According to Airtel, CA had promised to merge its operating licence with that of yuMobile, with the deal granting Airtel a lease to operate in the country until January 2025.

A few months later, however, CA wrote to Airtel demanding that the telco pay up Sh2 billion to renew its operating spectrum licence.

CA said the National Treasury had insisted the Sh2 billion payment be made since licence fees were a matter of public revenue and only Treasury could grant waivers.

Yesterday, however, the High Court sided with Airtel, arguing that the National Treasury erred in demanding the fees despite an existing agreement between the telco and CA.

“The Treasury has no power to direct the respondent on how to carry out its mandate,” said Justice George Odunga in his ruling. “By permitting the Treasury to do so, I find that the respondent did abdicate its duty.”

The court further said that the need to raise revenue was not justification for CA and Treasury to flout an agreement made with Airtel.

“The respondent’s decision to demand the applicant pay $20 million… though attractive in terms of enhanced public revenue and perhaps for the zeal of meeting annual tax targets, I find is not such an overriding interest for the reasons set out in this judgement,” said Odunga.

The ruling is a big win for Airtel, which recently indicated that it is mulling a strategic decision on its loss-making East African subsidiaries. 

Technically insolvent

In August, Airtel Kenya posted its financial information that showed current liabilities at Sh55 billion against Sh9.7 billion in current assets as at December 2016, making the company’s local operations technically insolvent.

Data from CA indicates that Airtel’s market share shrunk three per cent in the last quarter, with total subscribers standing at 6.1 million as at June 30, 2017.