Treasury Bought Sh6bn Stake in Telkom 4 Days to Elections

Just four days before the general election of last year, the Treasury defied the Controller of Budget and paid Sh6.09 billion to buy a 60 percent stake in Telkom Kenya from a UK-based private equity fund.

According to Controller of Budget Margaret Nyakang’o, she declined to approve the withdrawal of the billions necessary to completely state-own Telkom Kenya by acquiring Helios Investment Partners.

On August 5, 2022, the Treasury withdrew Sh6.09 billion and paid Jamhuri Holdings Ltd, a Helios subsidiary located in Mauritius, in a trans move that lacked parliamentary authority.

The agreement was reached during Uhuru Kenyatta’s final days in office and during the height of the campaigns by Raila Odinga, the head of the opposition, and then-Vice President William Ruto to succeed him.

The presidential election on August 9 was won by Dr. Ruto by a small number of votes.

“I rejected some of the withdrawals including the Sh6,091,140,702 that was funding to cater for the exit of Helios Investment in Telkom Kenya Ltd. And this was in writing,” Dr Nyakang’o told Parliament’s Budget and Appropriations Committee (BAC).

Cash withdrawals from the government’s primary accounts require the Controller of Budget’s approval, and he or she has the authority to prevent access to monies that may be used in violation of the law.

The Treasury is permitted to make emergency purchases under Article 223 of the Constitution without the consent of Parliament. The Treasury is required by law to present a mini-budget two months after taking money out of the Consolidated Fund without MP consent.

In addition to the Telkom Kenya agreement, the Treasury also spent an additional Sh16 billion in the weeks preceding President Ruto’s inauguration without getting permission from Parliament.

It gave the State House Sh810 million, the military research hospital Sh2.2 billion in construction costs, and the abandoned maize flour subsidy Sh4.5 billion. Road construction received an additional allocation of Sh9.45 billion.

According to Dr. Nyakang’o, the Treasury’s expanded use of Article 223 triggers weakens the legislative necessity for public input during the budgeting process.

“This Article of the Constitution is a bit vague and accounting officers are taking advantage to seek funds through Article 223 which should not be the case. The money withdrawn under Article 223 is not revenue from KRA but proceeds of borrowings including bonds which is compounding public debt,” Dr Nyakang’o said.

Dr Ruto’s coalition in Parliament has criticised the withdrawals done in Kenyatta’s last days.

“One of the most glaring issues is that in the days to the General Election, Sh22 billion was approved under Article 223. We will interrogate these payments, including the Sh6.09 billion paid out to Jamhuri Holdings Ltd, a Mauritius-based firm for Helios’ shareholding in Telkom Kenya,” said Ndindi Nyoro, the BAC chairperson.

Initial preparations for Telkom Kenya to list at the Nairobi Securities Exchange (NSE) through an initial public offering were derailed by the Helios agreement, which marked an unusual return of a privatized business to State ownership (IPO).

When Telkom Kenya was privatized in 2007, France’s Orange purchased the bulk of the company’s shares. However, in 2015, for an undisclosed sum, Orange sold its interest to London’s Helios Investment.

At Sh6.09 billion, the transaction values Telkom Kenya at Sh10 billion, or 1% of Safaricom’s estimated market value of over Sh1 trillion.

According to a former Treasury official in Kenyatta’s administration, the State used its right of first refusal when Helios informed the government of its plan to leave Telkom. In the event that one of the owners decides to leave the company, shareholders are granted privileges that provide them the first opportunity to purchase a part in the company.

“We bought the shares because the government was afraid Helios was going to sell to an investor that did share the same vision with us in the turnaround of Telkom Kenya,” the official said earlier.

The third-largest telecoms provider in Kenya by users, Telkom Kenya, has been losing consumers recently. In a month when its competitors, Airtel and Safaricom, saw customer growth, the operator’s mobile phone subscribers fell from 4.23 million users in 2019 to 3.42 million in June, a 19.1 percent decline.

A portion of the Sh23 billion that the Treasury spent with the MPs’ consent between July and August includes the Sh6.09 billion that the State wired to Helios.

The most recent foreign operator to leave Kenya is Helios, where Safaricom, which is owned in part by Vodacom and Vodafone, controls 67 percent of the country’s 36 million mobile subscribers.

In the previous 20 years, Essar Telecom of India, Zain of Kuwait, and Vivendi of France have all left Kenya after failing to earn a profit in a market controlled by Safaricom, the most lucrative company in the area. They have had a difficult time gaining members because Safaricom has a 66 percent market share as of June. In June, Airtel had 26% of all mobile phone subscribers in Kenya.

According to Safaricom’s rivals, the corporation controls over 90% of the market’s sales in segments including voice calls and text messaging, giving it a strong position in the industry.

The attempt to divide Safaricom into distinct financial services and telecom businesses has been sparked by the company’s dominance. Safaricom asserts that it doesn’t abuse its hegemony or suppress competition.

Following the failure of Telkom’s merger with Airtel Kenya, according to Treasury sources, Helios lost interest in the company.

The operator announced in August 2020 that it was no longer considering a merger with Airtel, citing difficulties in obtaining the necessary regulatory clearances for the transaction.

With the merger, Safaricom would have faced a more formidable rival.