France Telecom targets fibre network in assets claim talks

France Telecom has raised the stakes in its bid to recover assets it says went missing after it took over Telkom Kenya with a demand that the government – its partner in the company – cedes its interest in the national optic fibre backbone to pay for the loss.

The French firm, which bought a controlling stake in national telecom operator Telkom Kenya, is said to have made the demand during last week’s shareholder meeting called to discuss the missing assets, debts and fresh investments into the business.

The meeting was convened a week after our sister publication, the East African reported that France Telecom had tabled before the government a $385 million bill in lieu of assets that were in Telkom Kenya’s books at the time it was up for sale but cannot be traced.

The National Optic Fibre Backbone Initiative (NOFBI) is a $60 million (Sh4.4 billion) government-owned terrestrial fibre network, whose construction was financed by the Communications Commission of Kenya but is being managed on its behalf by Telkom Kenya.

Information permanent secretary Bitange Ndemo said the government could not even discuss the matter because NOFBI was not part of TelKom’s assets.

“NOFBI is a national highway that cannot be ceded to an individual or company,” he said.

It is not clear whether France Telecom’s claim is based on an understanding that the network was part of TKL assets or is just being seen as a possible easy solution to the assets claim impasse.

“It is not possible for us to even negotiate such a claim because there is no legal framework to do so,” a source who is privy to the negotiations said, adding that the law is clear as to how the government can dispose of public assets.

Differences between France Telkom, which owns a 51 per cent stake in Telkom Kenya and the government, which has a 49 per cent interest in the firm have deepened in recent months following claims that some of the company’s assets had disappeared after the sale.

France Telecom has also been pushing the government to inject new capital as agreed in an earlier memorandum of understanding between the shareholders and to help settle an estimated Sh1.2 billion in unpaid phone bills that public institutions and state agencies owe the company.

Dr Ndemo said the government had agreed to help settle the bills but had to vet each claim before taking action.

“The government is ready to assist in the recovery but it has to do the reconciliations first,” he said.

People familiar with the negotiations told the Business Daily that shareholder differences at Telkom Kenya have taken a diplomatic twist and were part of the agenda of a Monday meeting between France Telecom President Didier Lombard and Prime Minister Raila Odinga, who is in Paris on an official visit.

France Telecom is expected to seek Mr Odinga’s intervention in the numerous challenges it has been facing in Kenya since it paid $26 billion for a controlling stake in Telkom Kenya three years ago.

NOFBI is the most comprehensive terrestrial fibre optic network in Kenya covering a total of 4,233 kilometres whose construction was done in phases through contracts awarded to ZTE, Huwaei and Sagem.

Early last year the government extended the management of NOFBI after it had put a tender looking for a company to manage the infrastructure on behalf of the government.

Telkom Kenya has been managing NOFBI since it was built four years ago and was left in the care of the national telecoms operator after it was privatized.

Dr Ndemo said the government had extended the management contract with Telkom last year as it tackles teething operational challenges that had not been considered during its design.

These include finding a framework that would enable private operators to link into the system – a move that is seen as bearing the potential to add user value.

Telkom Kenya chief executive Michael Ghossein said France Telecom hopes to close its talks with the government on the challenges it is facing in Kenya during the Monday meeting.

“We hope that the prime minister and the FT president will reach some compromise on the outstanding issues,” said Mr Ghossein.

Mr Odinga will be accompanied at the talks by infrastructure specialists from his office, senior Treasury and Ministry of Information officials.

France Telecom declined to comment on this story.

The communications person at the French firm Tom Wright said he had nothing to add on the said bid by his company to take control of the fibre optic network.

France Telecom has been fighting a protracted publicity battle in the local media following claims that it had threatened to pull out of Kenya should its talks with the government on asset valuation, debt settlement and investment fail.

Mr Ghossein agreed that the Nairobi meeting had discussed a wide range of issues but maintained that at stake are shareholder matters on which he lacks authority to comment.

“The ongoing shareholder discussions with the Government of Kenya concerning the share purchase agreement are part of the normal process for any important acquisition, and especially one in which the acquired company is undergoing a profound transformation,” he said. “The discussions will in no way affect our service delivery and the day-to-day operations of Telkom Kenya.”