Telkom Kenya debts threaten to derail strategic deal

Telkom Kenya defaulted on its Sh4 billion payment to ATC Kenya under their Master Lease Agreement for a tower sale and leaseback transaction struck in 2018. [File, Standard]

Telkom Kenya's creditors want the government to facilitate the repayment of billions of shillings in debt that the State-owned telecommunications firm owes them before a new strategic investor is allowed to come on board.

This comes even as the firm is in the midst of negotiations to strike a deal that will give it a new lease of life.

However, the telco's debts are proving to be a stumbling block, with infrastructure firm American Tower Company (ATC) the latest to demand payment of part of a Sh4 billion debt arising from a transaction dating back five years.

"Telkom Kenya has informed us that they want to be operational to attract investors," said ATC Kenya CEO Thomas Sonesson.

"So, we have given them a proposal to pay at least Sh650 million plus Sh150 million in the following two months so that we can reconnect them to their infrastructure."

Mr Sonesson was giving submissions to the Senate ICT Committee that is looking into the affairs of Telkom Kenya.

In the past few months, subscribers on the Telkom Kenya network have been unable to make calls, receive text messages and access the mobile money platform T-Kash after ATC switched off several of its towers leased to Telkom.

Defaulted on debt

This came after Telkom Kenya defaulted on its Sh4 billion payment to ATC Kenya under their Master Lease Agreement for a tower sale and leaseback transaction struck in 2018.

Sonesson also told the committee that Telkom Kenya continues to deny his firm access to lease sites, violating lease terms and preventing them from restoring connectivity.

Last year, Telkom was nationalised in a controversial Sh6 billion deal struck days after the general elections that saw the government pay out majority shareholders Helios Investment Partners.

Following a parliamentary inquiry into the transaction, Telkom Kenya Managing Director Eddy Njoroge told MPs that the telco was in the red with various creditors to the tune of at least Sh40 billion.

"There was a $51 million (Sh7.1 billion) loan that Helios had put in from 2016 when they came into Telkom and there is another $199 million (Sh27.8 billion) that is legacy debt from the days of France Orange Telkom and an additional $40 million (Sh5.6 billion) in interest payments on that legacy debt," Mr Njoroge said.

Telecommunications regulator, Communications Authority of Kenya (CA), said during the inquiry that Telkom Kenya owes Sh7.2 billion money to the regulator as well as other service providers.

This includes a Sh1.2 billion debt owed to Safaricom for costs incurred in the provision of various services including interconnection, co-location and fibre services.

The debt dates back more than a decade, and emerged as one of the stumbling blocks to Telkom Kenya and Airtel Kenya's merger in 2019.

Data from the CA indicates that Telkom Kenya's subscribers fell from 4.4million in 2019 to 4 million last year.

Scaled back

The firm further scaled back investments in mobile money and data in anticipation of the 2020 merger with Airtel Kenya that fell through at the last minute.

The firm is currently seeking a new strategic investor that will pump in billions into the business to allow it to compete with the existing players and fund its growth strategy.

Telkom Kenya says it has informed all its major business partners of this strategic process and its benefit to them.

"We continue to engage with each of them to ensure that an amicable way forward can be arrived at with respect to any outstanding matters or concerns that they may have," said the firm in a statement shared with Financial Standard.

"Telkom has and continues to engage with the American Tower Company over payment obligations for services rendered under a Master Site License Agreement.

"Telkom remains intent on arriving at an agreeable way forward with ATC for the mid-term, parallel to the ongoing investor transition, with the support of the relevant line state departments."

Data from CA indicates Telkom closed down more than 500 T-Kash agents in the first three months of 2020, with the number of T-Kash subscribers falling 30 per cent to 13,333.

In 2019, telecoms infrastructure firm Eaton Towers shut down 70 of Telkom Kenya's base stations for a week for the firm's failure to pay hundreds of millions of shillings in leasing fees.

The firm's subscribers in the affected regions were unable to call, text, send money or browse the internet for the entire week before the CA stepped in and ordered Eaton Towers to restore services in the affected areas after Telkom Kenya paid 30 per cent of the debt.

For Telkom Kenya, the chickens are coming home to roost after the firm in 2013 signed a lease agreement with Eaton Towers and again in 2018 sold off 723 others to ATC.

The Senate ICT Committee said Telkom Kenya's indebtedness requires an urgent solution since the firm hosts critical telecommunication infrastructure that is of national security.

Make submissions

"This is a very serious issue which needs to be handled tactfully," said Senator Shakilla Mohamed, a member of the ICT Committee.

"Most importantly, we need to see the contract between ATC Kenya and Telkom Kenya so that we can determine who breached the agreement."

The committee resolved to invite Telkom Kenya, the Cabinet Secretary for ICT and Digital Economy, Competition Authority of Kenya, and the Attorney General to make their submissions on the matter.

Earlier this month, High Court Judge John Chigiti dismissed a case filed by the Teleposta Pension Scheme Trust against a Sh13.9 billion award by the Retirement Appeals Tribunal to former employees of Telkom Kenya.

In the 12-year legal battle, Teleposta Pension Scheme was seeking to compel Telkom Kenya to pay billions of shillings in retirement dues for employees retrenched in 2006 following a restructuring at the telco.

To date, Telkom Kenya remains the sponsoring entity for the Teleposta Pensions Scheme and Providient Fund, a closed pension scheme established in 1997 by the then Kenya Posts and Telecommunications Corporation.

Data from the latest financial reports indicate that in 2021 the fund paid out Sh66 million in pensions, a 14 per cent drop from the Sh77 million paid out in 2021.

The fund's current balance stands at Sh1.18 billion, with investment incomes of Sh117 million in 2021 largely on Treasury bonds and dividend incomes.

Last month, the court ruled that the Ministry of Sports, Culture and Heritage owes Telkom Kenya Sh15 billion as compensation for acquiring a 90-acre piece of land on Ngong Road belonging to the telco.

The land was initially earmarked for the construction of the Posta Sports Complex more than two decades ago.

However, Telkom Kenya says it has never been compensated for the compulsory aqcuisition made through the Ministry of Public Service, Youth and Gender Affairs.