National Treasury economic secretary Geoffrey Mwau speaks during the conference on Government Support Mechanisms (GSM) for Private Public Partnerships hosted by the ministry and the World Bank in Nairobi on Wednesday. Photo/Salaton Njau
What you need to know:
State to lose grip on loss-making firm as further cash injection not forthcoming.
The State’s shareholding in Telkom Kenya is set to drop permanently to 30 per cent following a decision by the Treasury not to allocate any money to the firm, which is jointly owned by the government and France Telecom.
The dilution of Treasury’s stake means the government will have less clout in the management of the loss-making company, and also a smaller claim on its prime land, buildings and telecommunication equipment located around the country.
“No money has been allocated for Telkom Kenya. But going forward, the Cabinet will consider the matter and make a decision,” said economic secretary Geoffrey Mwau in response to media queries.
The Treasury was supposed to contribute Sh2.4 billion at the end of this month as its share of a rights issue called to address Telkom Kenya’s financial difficulties.
Successive shareholder cash calls have seen the Treasury’s ownership in Telkom Kenya drop from 49 per cent in 2007 when France Telecom bought a majority stake in the firm to the current levels.
Mr Mwau spoke on the sidelines of a World Bank meeting in Nairobi to discuss the framework for public private partnerships for infrastructure development.
Telkom Kenya has consistently requested for cash from the government contrary to the plan six years ago when it was privatised to stop being a drain on national resources.
Last December, the Treasury gave a Sh2.5 billion shareholder loan to Telkom Kenya and also wrote off other loans given to the company. The firm reportedly made a loss of Sh14 billion in the year ending December 31, 2012.
Early this week, the Press officer at France Telecom Tom Wright said the Kenya government had not yet committed itself to pay the amount though it still had some time to do so.
“The GoK is yet to wire the money. However, the June 30 deadline is not yet over. If it pays then their stake will rise to 40 per cent but if they don’t the status quo will remain,” Mr Wright told the Business Daily.
The National Treasury’s stake in Telkom Kenya dropped to 30 per cent in December after the government only paid up Sh2.5 billion of the Sh4.9 billion it was expected to inject into the firm to retain its shareholding.
The government cited a tight budget due to lower-than-targeted revenue collection and high expenditure demands resulting from rising public service wage bill and the allocations to the county governments.
In the latest request, Telkom Kenya management has asked for more than Sh13 billion from shareholders, namely the government and France Telecom. There seems to be reluctance at the highest levels in government to inject more cash into the ailing firm.
The Treasury has in the past said any cash injection would be linked to availability of resources as well as Telkom Kenya’s ability to reduce its losses.
When the government only gave Sh2.5 billion last December, France Telecom injected Sh5.1 billion into Telkom Kenya, thereby raising its stake to 70 per cent, effectively removing the company from the parastatals list.
“The Cabinet also approved the proposed recapitalisation and balance sheet restructuring of Telkom Kenya Limited by converting into equity all the shareholder loans provided to Telkom Kenya by the government,” said the brief from State House last November.
It added that “in exchange, France Telkom will write off the balance of its shareholder loans. This will enable Telkom Kenya to be properly capitalised and regain competitiveness in the market.”
Telkom Kenya has borrowed Sh48 billion in shareholder loans since 2007.
All its loans, including those from commercial banks, have been costing it nearly Sh10 billion in interest payments, which is more than the Sh9.2 million revenue the company made in 2012.
France Telecom bought a 51 per cent stake in Telkom Kenya in December 2007 for Sh27 billion with the brief of turning around the loss-making firm.
