Safaricom gets Sh7.5 billion payout for security network job

The Treasury has paid telecoms operator Safaricom Sh7.5 billion as initial instalment for the 2014 building of a digital security system in Nairobi and Mombasa.

Safaricom pocketed the money in November after the Treasury set it aside in a mini-budget, according to documents tabled in Parliament.

The payout is about half of the total Sh14.9 billion that Safaricom expects from the deal it struck with President Uhuru Kenyatta’s government.

The contract required Safaricom to instal CCTV cameras in Nairobi and Mombasa that transmit real time data to a central point at the police headquarters and to connect all police stations in the two cities to high-speed (4G) Internet.

Safaricom chief executive Bob Collymore said that the government had committed to pay the remaining Sh7.4 billion in quarterly instalments of Sh939 million from December 24.

“(First) payment was done on November 24. Next quarterly payment was due on December 24 and will continue until full amount is recovered,” Mr Collymore said.

The payout is a major coup for the telecom operator, which is East Africa’s most profitable company, setting it on course to booking another year of record profit.

Safaricom’s half-year profit to September already jumped 32.4 per cent to Sh23.9 billion and the payment is only expected to add impetus to second-half growth.

The Interior ministry in 2014 awarded Safaricom the tender to construct the communication and surveillance system for the National Police Service as a smart tool to battle crime in the wake of incessant terror attacks.

READ: Safaricom hands over CCTV system to police

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The project involved connecting 195 police stations in Nairobi and Mombasa to high-speed, fourth-generation network (4G) to ease communication.

Safaricom was also mandated to supply the police with radio communication devices (GSM walkie-talkies fitted with SIM cards and cameras) that can take pictures at crime scenes and send real-time data to the command centre for analysis.

The first phase of the surveillance system went live in May 2015 and Safaricom said it had trained more than 10,000 officers to operate and maintain the system.

The contract also involved installation of tamper-proof, high definition and ultra-high definition CCTV cameras in Mombasa and Nairobi that are connected to a national command and control centre.

Safaricom opted not to demand upfront payment and instead offered to set up the system and get re-imbursement for the contract.

It also offered to support the system through a managed service deal for five years.

The national surveillance, communication and control system links all security agencies — military and police — electronically, making it easy to share information and direct operations.

The government is banking on the system to avert and pre-empt attacks through the 24/7 surveillance.

However, the award of the contract initially ran into strong headwinds after MPs temporarily suspended it in June 2014, arguing that there was no competitive bidding.

The legislators later softened their stance after the Public Procurement Oversight Authority (PPOA) convinced them that due process was followed in the tender award.

Besides, the MPs had also raised concern over Safaricom’s technical capacity to roll out the highly sophisticated security system and the possible impact of the telecoms firm’s foreign ownership on Kenya’s national security.

The MPs had argued that the ownership structure posed a threat of infiltration and espionage and needed to be reviewed.

READ: MPs query CCTV system in Nairobi after Muchai killing

British telecoms operator Vodafone is Safaricom’s single-largest shareholder with a 40 per cent stake.

Safaricom has over the years posted heavy profits, making it the most valuable stock on the Nairobi Securities Exchange (NSE) based on its market capitalisation that currently stands at Sh781.2 billion.

Its latest half-year results show that revenues from non-voice business like mobile money transfer service, M-Pesa, data and SMS grew 31.7 per cent to Sh52.3 billion, accounting for 53.4 per cent of total revenues.

M-Pesa recorded a 30 per cent growth in total transaction values to Sh3.2 trillion in the review period, earning Safaricom Sh25.8 billion in commissions.

Safaricom has invested heavily in its 4G network, and has positioned the technology as a big contributor to customer growth in the next five years.

The telecoms firm is among the seven counters at the NSE that weathered 2016’s bear run and returned a share price gain. 

The counter closed the year at Sh19.50 a share last Friday, having gained 21.1 per cent in the past year.

Mr Collymore last Tuesday said that the Kenya Revenue Authority (KRA) had demanded its pound of flesh from the Sh14.9 billion payout, meaning the telecoms operator might cede a share of it to the taxman.

“There are issues around tax treatment by the KRA on some of it,” he said.

Kenya’s quest for a modern security surveillance system started in 2006, but has been beset by tendering hiccups that saw two Chinese firms, Huawei and ZTE, get involved in a protracted legal battle, leading to cancellation of the tender by the procurement watchdog.