If Telkom Kenya is a 'junk corporation', why is there an uproar over its new services by its

competitors? What do they have to fear? How has Telkom Kenya managed to sign over

70,000 subscribers for its new fixed wireless service if it has indeed gone to the dogs ? Shouldn't sleeping dogs be left where they lie? Why wake a sleeping dog if TKL couldn't hope to compete against these titans that mint millions of dollars from Kenyans?

Surely we didn't expend billions of taxpayer funds so that we could hand taxpayer owned corporations to foreign entities on silver platters, or did we? TKL did not make profits for reasons attributed to fraud, pilferage of funds, gross mismanagement and the list that could go on and on. Do you have an argument supporting or endorsing the non prosecution of these actions as well as the negation of the need to attempt to recover and return these funds to where they rightfully belong? Can we at least locate where the missing Ksh 7bn is before we rush to sell this corporation? An extra 7bn or more in TKL's balance sheet would certainly up the price that ought to be offered.

Daily Nation

Friday, March 30, 2007

Page 38

Business

Financial figures for Telkom Kenya do not add up for the year ending June 30, 2005, the Controller and Auditor General has said. More than Sh7 billion has not be accounted for, said Ms P.N. Komora in a report tabled in Parliament yesterday. According to her, the accuracy of bank balances amounting to Sh58 million could not be verified.

It was also not possible to verify how overdraft balances of Sh73 million, letters of credit and bills of acceptances amounting to Sh432 million have been accounted for in the absence of adequate records and documentation.[...]

We know why there is no infrastructure on the ground, but could we focus on what TKL is doing currently in determining TKL's potential ? The reason there is no infrastructure on the ground is the aforementioned reasons in addition to a bloated workforce. That workforce has recently been trimmed down at considerable tax payer expense, TKL is making strides in turning around and additional tax payer funds have been provided for in the budget for this purpose. Is it too much to ask that TKL be given an opportunity given the recent progressive strides? Wouldn't TKL be more valuable if it were allowed to accumulate the gains of its new strategies and technologies?

" In short, the private sector's sweat, speed and effort (and the tax payer) are required to keep the institution alive "

Well said and rather accurate, indeed if these are the parties responsible for keeping TKL alive, shouldn't they have the preferential shot at gaining ownership of TKL ?

Jaindi Kisero recently wrote in an editorial:

"As it prepares for privatisation, Telkom Kenya will gobble billions of the tax
payers money. Under the budget of the ministry of finance is an allocation of
massive Sh 15 billion for Telkoms' tax arrears and Sh 2 billion for preparing
the parastatal for privatisation."

It is ridiculous that Ksh 17bn or US$ 255m will be pumped into TKL at tax payer expense only for foreigners (including a pariah foreign government) to walk in and buy the corporation for a song with taxpayers getting minimal shareholding in the corporation while bearing the burden of debt offloaded on them for generations to come. The belief that taxpayers will be alleviated of the misery of dragging an iron ball is a fallacy. Instead of the new foreign investors dragging the iron ball, the average Kenyan will be paying for generations to come to ensure that a foreign entity reaps a quick profit in the shortest amount of time possible at tax payer expense. It is only equitable that those condemned to dragging the iron ball have the opportunity to have something to show for their tax burden.

You cited results of the past 30 years, but didn't in fairness mention what TKL is doing today.

The national operators' new service, known as Telkom Wireless, will be launched using a CDMA 2000 platform purchased from Chinese company Huawei at a cost of US$22.6 million. The new investment is in a fibre and microwave backbone and has been rolled out across the country.
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How could a brand new national fibre and microwave backbone be worthless or junk? This is in addition to several other infrastructure investments including a $50m fiber optic cable between Nairobi and Mombasa.

You may have misunderstood the point on national security. For illustrative purposes, the next time Kenya has a serious diplomatic dispute with Libya (and it has in the past), Libya, if handed TKL on a silver platter, could potentially add pressure to the situation by disabling key telecommunication services which would have an adverse impact on the nation's national security. There are several issues of national security, that cannot be simply expounded on in a concise message but which are the basis world wide for limiting foreign ownership of national telephony entities.

There are many types of investors, there are long term investors who are in for the long haul. A short term investor for instance in Kenya Airways would have been very disappointed if they were looking for a quick gain at the time. TKL needs long term investors. Naturally such investors would be informed through a prospectus prior to an IPO. Anyone who jumps into an IPO without reading a prospectus is basically leaving all to chance and market hype.

Nobody disputes the fact that TKL's services are far from excellent let alone satisfactory. At least that is something all can agree on. Neither is anyone against the fact that TKL needs to be privatised or turned around, we just want it done correctly, equitably and transparently, the issues at hand just to reiterate are:

- TKL should be privatised using a model that allows maximum equity participation by the average Kenyan. The KQ model was cited purely to illustrate possible percentages that are equitable to all parties with a stake in the process.

- TKL should be sold at price that reflects an accurate and up to date independent valuation. The government should disclose without further delay the valuation it has arrived at of TKL and how it was arrived at. This is not a private asset for sale but rather a public asset so there is no need to have this shrouded in secrecy.

- Judicial action to rectify the pilferage of TKL's coffers needs to be undertaken. This might be wishful thinking considering no major prosecution of corruption cases in the country has taken place to date.

- Which independent parties with the requisite expertise and experience are advising the government on this transaction?

- Has the government considered a BOT arrangement ie Build - Operate - Transfer ? This would ensure that the investor gets a return on investment but ultimately TKL remains Kenyan owned in the long run ?

These processes including the Safaricom IPO should not be rushed purely on the sole basis that an election is looming in the coming months.

PS You cited the following examples to name a few which on checking the facts turned out to mismatch the situation they were cited for :

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Alitalia - A public notification was announced on January 2007. The buyer must acquire at least 30.1% of Alitalia, must guarantee the airline's 18,000 jobs, domestic routes, and the Italian identity of the Alitalia brand, according to the tender document published on the Treasury Web site. Italy has invited bids for at least 30.1% of Alitalia's shares, to be submitted by Jan. 29, 2007. [It is not evident that Alitalia is being sold for a song, neither is a controlling percentage being sold either, it is premature to make a comparison where a process has not concluded ]

Telkom SA - Telkom is a semi-privatised, 39% state-owned company. Government sold 30 per cent of Telkom to a US-Malaysian consortium. As part of the service agreement, government required Telkom to roll out 1,9 million new phones to disadvantaged areas. In the three years since then, the price of local calls, which the poor use, has risen by 35 per cent in real terms, while international calls (used by businesses and the rich) have fallen by 40 per cent in real terms. The local call increases have led to disconnections that have almost matched the roll out of new lines. After accounting for disconnections, the reality is that there was a bigger roll out of new lines before Telkom was privatised than after. South Africa privatized it's state utility Telkom by selling a 30% stake to a consortium from the United States and Malaysia for $1.261 billion. [It is not evident that Telekom SA was sold for a song, neither is a significant percentage being sold either to single investor, in addition it underwent a successful IPO that allowed the general public a stake in the company even then the average South African did not benefit in regards to better access to services]

Kenya Railways - Kenya Railways was not sold, rather it was concessioned, why don't we concession TKL if service provision and development of the infrastructure is the main objective ?

Eurotunnel - Privatisation did not save Eurotunnel from going virtually bankrupt.

Amtrak - Has never been privatised. Amtrak is a quasi-governmental agency; all of its preferred stock is owned by the federal government. The members of its board of directors are appointed by the President of the United States, and are subject to confirmation by the United States Senate. Some common stock is held by the private railroads that transferred their passenger service to Amtrak in 1971. Though Amtrak stock does not pay dividends and is not routinely traded, a small number of private investors have purchased Amtrak stock from its original owners. The United States obviously recognizes the national interest in the ownership of this critical service.

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On 7/17/07, Kyai Mullei <mullei@gmail.com> wrote:

Mike - some good points.

I have a few comments on the issues of national security as a reason why Telkom shouldn't be sold for pennies. Frankly, I find the argument slightly myopic. As you reiterated, Telkom Kenya (like most parastatals including national banks) are technically insolvent. These are dead corporations that depend on sutained periodic government (tax payer) bailouts to continue providing sub standard and expensive services.

The current situation is that (thirty years on) there is no infrastructure on the ground to speak of. 98% of the country is not covered by our 'national' provider. A few digital exchanges in the Nairobi and Mombasa environs just doesn't cut it. And we all know that the only reason Telkom Kenya has any cash to roll out any of these new services is through bank loans the collateral of which are govt. shares in Safaricom. In short, the private sector's sweat, speed and effort (and the tax payer) are required to keep the institution alive.

In my view, the faster we sell these insutitutions off, the cheaper it will be for us in the long run. I would hope that any Kenyan investor willing to buy Telkom Kenya shares would be doing it purely on speculation grounds - in the hope that the liscences etc. could be sold to a serious provider for more money in the future (In fact, this is exactly what the foreign investors are doing). The privatization of Telkom Kenya and Kenya Airways cannot be compared. The latter had working planes and landing rights that could be turned profit-making. For the average Kenyan investor, Telkom Kenya has nothing worth buying.

The world over, the notion that national firms - telecommunications, aviation, etc. (relics of the 70s when economists and national planners wrongly thought centralized economies were key for development) - are key to national security, and therefore should belong to the public, has been turned on its head. Just look at Alitalia, Vargas, SA Telkom, Amtrack, Kenya Railways, Eurotunnel. All considered critical to national security, all of which are nothing more loss-making iron balls dragged along by the exchequers (taxpayers) in their respective countries.

I can't see how an institution that is a consistent drain on the exchequer would be critical to national security. Lets admit it. If sound communication provision is critical to national security, mobile providers have given me that - more extensively (see safaricom/celtel network coverage) and faster (in the last 6 years) and cheaper (the wireless rates i pay while high do not come close to the price of repeated bailouts in my name) than the Telkom Kenya has ever been able to.

If someone else has the money and patience to by the piece of telephony junk in my back yard and turn it into something, please do so fast, and i'll sell it for exactly what its worth...pennies. The longer I wait, the less my junk will be worth. In the meantime, i'll save my money to invest in more sound privatizations the future - perhaps the Safaricom IPO.

Regards

Kyai