Court orders yu owner to pay Airtel Sh474m rental debt over leased sites

Commercial Court judge Daniel Musinga has ordered Essar Telkom Kenya to pay rival operator Bharti Airtel a lease debt of Sh474 million, pending the resolution of a site sharing contract by an arbitrator.

The dispute arose after Airtel took Essar to court for non-payment of the leasing fees, but the latter raised a counter claim of $23 million (Sh2 billion) on grounds that failures on the sites had hampered its operations.

Justice Musinga last week ordered Essar to settle the Sh476 million leasing debt and declined a plea from the telecoms operator that the unpaid fees be set off with its alleged counter-claim of Sh2 billion.

The judge, however, restrained Bharti Airtel from switching off or tampering with Essar’s equipment at its sites until the dispute between the two Indian companies is determined by the arbiter. Essar was also ordered to continue meeting future lease obligations of the Site Leasing Agreement (SLA) they inked in 2009.

Site leasing is a unique concept of sharing network facilities among mobile telecommunication operators and in Kenya it is emerging on the radar of the operators keen to cut costs.

The price war in Kenya’s telecommunications market, which cut tariffs by half in the mobile phone sector in 2010, has prompted the operators to keep a lid on costs with outsourcing emerging as a key strategy

Bharti leased some 300 sites to Essar for the installation of its equipment and was expected to be paid $10.6 million (Sh900 million) as annual rental charge, which was to be paid quarterly in advance for the duration of the lease.

Bharti’s director of legal affairs Alice King’ori said in a sworn affidavit that Essar’s counter claim remained a legal claim and “unless and until admitted or proved, is no more than a hope for money.”

She added: ‘’Series of meetings held and emails exchanged to resolve the issues raised by Essar failed to meet its financial obligations of paying the full rent quarterly in advance.” She told Justice Musinga through lawyer Allen Gichuhi that Essar had been in default since September last year but acknowledged the firm had paid $1 million (Sh85 million) last July after having filed the suit against Bharti.

Essar is heavily dependent on Bharti’s sites for the transmission and maintenance of its entire GSM network in Kenya.

Justice Musinga failed to agree with Essar’s argument that Bharti contravened the terms of the SLA agreement, arguing that such issues will be handled in the arbitration process. He noted that there were payments that were subject to the agreement which Essar had not paid its rival despite acknowledging the debt.