Muriuki/All, To understand why all the initiatives have failed needs a rather indepth look from day one. The Kencell licence was not without its own controversies and manipulation. These facts were well documented in the media. Kenya at the time turned away bids worth over $90m under very mysterious and unclear circumstances. There are several media articles that allude to this from the period including an indepth investigative report by Africa Confidential that details that happenings of that period. I quote some excerpts for context, the complete articles have key details involved in manipulation of the tender : ---------------------------------------------------------------------------- 24 September 1999 Africa Confidential Vol 40, No, 19 Phone sects "A major row is brewing over the political independence of the Communications Commission of Kenya, the regulatory body meant to oversee the privatisation of Kenya's beleaguered telecommunications sector. Companies bidding for the country's second cellular telephone operating licence, a business worth over US$ 50 million a year, are convinced that the Commission bowed to pressure from senior politicians by approving the disqualification of four serious contenders on spurious grounds." "Bidding for the second cellular phone licence attracted major international companies because it was seen as a big contract free from political favouritism. Bidders said they believed the government saw it as a test case for its commercial neutrality. So they were surprised when the KANU hierarchy homed in on the contract:" ---------------------------------------------------------------- 17 December 1999 Africa Confidential Vol 40 No 25 Sorry, wrong number "To enliven Kenya's official anti-corruption campaign comes the bizarre saga of the cellular telephone licences. The licence to operate a second cellular system was awarded last month to a consortium led by Vivendi, an ambitious French sewerage contractor, and Kenya's Sameer Investments. The Vivendi-Sameer consortium bid just US$55 million for its licence. Two competitors submitted bids, for $94 mn. and $120 mn. On the face of it, that cost the Treasury about $50 mn." "Vivendi has just paid $510 mn. for a second mobile phone operating licence in Egypt. Officials at the Communications Commission of Kenya had confidently predicted that their second cellular licence would raise at least $100 mn. Neguib Sawiri, Chairman of a rival bidder, Orascom, confronted the CCK chairman, Samuel Chepkong'a, at the public announcement: 'You have just rejected a bid of $94 mn. How can you throw away this kind of money?' This murky affair is a great embarrassment to the World Bank. Government officials repeatedly claim the tendering process was 'World Bank-monitored'" "Naikuni and his Minister, Wycliffe Musalia Mudavadi, have now set up a tribunal to investigate complaints, both from major companies eliminated in the early stages of the competition, such as Deutsche Telekom and Malaysia Telecom, and from five of the short-listed companies. The complainants hope the International Monetary Fund and World Bank will use their leverage over aid funds to insist that the pre-qualification and bidding rounds are re-run according to international competitive standards." ---------------------------------------------------------------------- The regulator's hand in some these issues cannot be ignored. Proper due diligence would reveal the credibility and capacity of some of the bidding entities. Indeed why would the regulator allow a bidder to proceed past prequalification, through all the bidding stages, even score higher than world renowned bidding entities that have been in operation since time immemorial and whose size of operations exceeds the country's GDP several times over, at a time when auditors of the caliber of Deloitte and Touché were seriously questioning its financial viability or when some of its publicly available financial reports indicated without a doubt that the entity was near bankruptcy? Unfortunately these are the issues that pass under the radar to both the Kenyan public and consumer. The regulator even went as far as appearing in an advertisement in a foreign newspaper at taxpayers expense in defense of the bidder who was eventually kicked out of that 3rd country. The same entity had been previously investigated a few years earlier by a treasury delegation and found to be financially incapable of participating in a prior tender. One has to wonder how the same entity would then get past a prequalification process with all these glaring red flags. One might argue the licence fees are too high. But how does one explain the success of tenders in other African countries, some of whose economies are comparable to the Kenyan economy in size, scope or population : - 2003: Sudan $130m for a 2nd GSM license - 2002: Algeria $737m for a 2nd GSM license - 2002: Tunisia $454m for a 2nd GSM license - Celtel $120m for a 35% in Tanzania Telecommunications Company Limited - 2003: Egypt $333m for a GSM license - 2007: Egypt $586m by Vodafone for a 3G license - 2006: US$2.9bn for Egypt's 3rd mobile license by Etisalat. It might be argued that these are different economies, even if one for the extraordinary sake of argument could take 20% of those economies and use that as a yard stick, one can see that the license fees being paid or offered in Kenya are below par. It is easy to forget that the licences in question are 15 year licences. Indeed it easy to see how undervalued the telecom sector is when companies in Kenya are making profits that some fortune 500 companies in the western hemisphere would love to envy midway into the length of their 15 year licences. The regulator has a responsibility of vetting the local partners. It is not that the local shareholders do not have the capacity to pay for their shareholding. It is due to a failure to conduct thorough due diligence that such entities slip through only for the entities to fail to pay up at the end of the day. We recently read in the papers of an individual who had over $10m in a single account. There are capable and wealthy individuals and entities with the financial capacity or backing in Kenya some of whom have been part of other bidding consortia, whose derailment in the tendering process occurred under mysterious circumstances. The other but not entirely far fetched theory is that the entities which win these tenders are connected to powerful individuals who for whatever reason have the means to pay for the licence but do not wish to do so. For this, one would have to salute the regulator for not abdicating its fiduciary duty in ensuring that all licence fees due are fully paid for. The result of such tampering or non transparent processes is that the "big guns" will not touch Kenya with a long pole. How does one explain a student scoring higher for all practical purposes than their instructor ? In one such Kenyan bid, a much smaller entity that had previously and repeatedly co-opted the "big gun" entity in running several of its projects due to its expertise, suddenly in the eyes of the Kenyan regulator had scores that suggested that the big gun which is a pioneer and recognized authority in the industry was now a novice! Thus the lackluster response from big gun bidding entities whenever a tender is announced should not be seen as surprising. They can be forgiven for not engaging in what some view as a public relations exercise where the "winner" is already known long before the process is concluded. Indeed as stated the looser at the end of the day is the Kenyan taxpayer, consumer and citizens at large. The levels of foreign ownership in flag ship companies has reached alarming levels and when one considers the calls to abandon the requirements of local ownership without getting to the crux of the matter, it becomes a worrying matter to say the least. Who is really benefiting at the end of the day when profits earned by these companies end up in foreign coffers? What sense of corporate and national responsibility do these entities owe to Kenya citizens if all they view Kenyans as, is as a means to financial gain? Where is our sense of national belonging and esteem in running and founding our own entities ? Low licence fees deprive the exchequer of much needed revenue, at the same time previous tampering with tendering processes and the non-prosecution of those responsible for the same dampens investor confidence and turns away credible bidders from participating in international tenders advertised by the Kenya government. Why would one play with fire when it is clear that the time tested result is are burns incurred ? Mike Theuri ----- Original Message ----- From: "Muriuki Mureithi" <mureithi@summitstrategies.co.ke> To: "Mike Theuri" <mike.theuri@gmail.com> Sent: Tuesday, March 20, 2007 3:30 AM Subject: Re: [kictanet] [Fwd: [DigAfrica] Kenya cancels SNO offer to Indianfirm] Thanks Alice The government and indeed the country can easily be arm twisted because the focus is on the short term money considerations paid by the applicant but the loser is the country in terms of the long term build out of the network, quality and lower prices through competition After the current licensing failed in 1) 8 regional telecommunications 2) 2 trunking radio 3) SNO on two occasions 4) third cellular --- do we need to use the regime again? If we do the same thing the same way we get the same results. Our attempts apart from Kencell licence proves beyond doubt the need of a paradigm shift I am just wondering loudly how much it costs to go through such a licence process and how such a colossal loss is accounted for Finally, I expect that any new applicant will demand even more 'privileges' because the market is well taken up by competition. The incumbents had privileges of the huge market and three years of guaranteed market. TKL itself had a privileged captive market for 118 years. Cheers Muriuki Mureithi --------------------------------------- Summit Strategies Ltd - ICT Consultancy & Research in Eastern & Central African markets Contacts : Tel +254 (20) 3875824 , Cell + 254 (722) 520090, email: mureithi@summitstrategies.co.ke alternate email : muriuki.mureithi@gmail.com -----Original Message----- From: kictanet-bounces+mureithi=summitstrategies.co.ke@kictanet.or.ke [mailto:kictanet-bounces+mureithi=summitstrategies.co.ke@kictanet.or.ke] On Behalf Of alice Sent: 20 March 2007 08:45 To: mureithi@summitstrategies.co.ke Subject: [kictanet] [Fwd: [DigAfrica] Kenya cancels SNO offer to Indian firm] They demanded one "too many" privileges Kenya cancels SNO offer to Indian firm By A STAFF WRITER Investigations by The East-African have revealed that Kenya cancelled negotiations with Reliance Communications of India - the company that had been negotiating with the government for a licence to operate both fixed-line and mobile services - because the Indians demanded "too many" privileges. Just a day before the deadline within which the Indian company was asked to formally submit its application, the president of the company, Punit Garg, wrote to the government making demands that were way outside the condition of the tender. According to informed sources, the privileges Reliance wanted were in three sets - namely duties, relaxation of rules for listing of its local subsidiaries on the Nairobi Stock Exchange, and a commitment to share infrastructure from existing mobile companies. With respect to duties, the Indian company wanted the following. First, zero import duties on import of telecommunications infrastructure and equipment; zero import duties on new and used handsets and zero value-added tax. The privileges requested with respect to listing requirements were not only excessive but were of the type that the government could only give at the risk of bending the rules governing capital markets. First, the Indian company wanted the government to give it a commitment that it would allow any local subsidiaries it formed to go to the market to raise money on the Nairobi Stock Exchange regardless of whether or not the company met the requirements for listing. The Indian investor suggested that the local subsidiary it intended to create be listed on the basis of compliance of the parent company in India. Secondly, it wanted the government to permit the listing of at least 10 per cent of the equity of the SNO on the Nairobi Stock Exchange. Thirdly, it asked that the government allow dual listing of the company that it intended to establish in Kenya. On the sharing of infrastructure, the Indian investors wanted assurances on the sharing of towers, co- location of equipment for interconnection and long distance networks. The company argued that duplication of infrastructure in telecommunications networks was costly. The Indian investor further argued that only a harmonised system can ensure ready availability at regulated cost-based tariffs. Reliance also said that it was not willing to put in an application without these assurances and privileges. It is understood that on receiving the demands, a meeting of the board of the Communications Commission of Kenya was hurriedly convened at which the regulator formally announced the cancellation of negotiations with the Indians and the decision to tender afresh. The government will now be hoping that Vtel of Dubai, who had offered to pay a whopping $169 million for the licence, will still want to come and invest in Kenya. Kenya's telecommunications industry is changing rapidly. The two mobile players - Safaricom and Celtel - continue to maintain a stranglehold in a market that more or less operates like a duopoly. Currently, it is estimated that Safaricom has around 75 per cent of the market and Celtel 25 per cent. Both companies have recently been licensed to operate international gateways. Kenya tried unsuccessfully to auction an SNO licence in 2003. In May last year, the CCK put out an international tender for the licence. The successful bidder, Vtel Ltd, was consequently invited to take up the offer but failed to do so following disagreements with its local partners. In accordance with the tender regulations, the offer was subsequently withdrawn and extended to Reliance Communications, the second highest bidders. Upon receipt of the invitation by CCK, Reliance Communication confirmed that they would take up the offer and requested more time to enable them to comply with the various formalities. The CCK board agreed to the request by the Indian investors and granted an extension of the application deadline to March 15 this year. By the expiry of the set deadline of 4.00 pm on Friday last week, the Indian investors had not made a formal application for the licence. http://www.nationmedia.com/eastafrican/current/News/News19030715.htm <http://www.nationmedia.com/eastafrican/current/News/News19030715.htm>