Telkom Kenya called out for earning Sh1.7bn on expired licence

Telkom Kenya has been put on the spot for collecting up to Sh1.7 billion from customers using a State-owned fibre optic network without a licence.

A report tabled in Parliament shows that the telecoms firm continued to operate the National Optic Fibre Backbone (Nofbi) -- which provides telecommunications connectivity in all the 47 counties -- despite its permit to do so having expired in 2016.

The document further says that Telkom Kenya had also failed to surrender to the government half of the profits raised from data service providers using the fibre optic network as stated in the lapsed contract.

Section 75(1) of the Public Finance Management Act (PMFA) demands that all receivers of national government revenue raised from income tax,excise tax, value added tax (VAT) and other duties obtain mandatory written permission from the Cabinet Secretary in-charge of the National Treasury.

The government, through the ICT ministry, contracted Telkom Kenya in February 2010 to offer operations and management services for Nobfi. In the deal, the telecoms firm was to undertake minor repairs on the network for a monthly payment of Sh20.3 million.

The contract was subsequently amended in 2013 but its effective date backdated to June 2011 to provide for a revenue share arrangement. The five-year contract expired in 2016, with ICT ministry yet to renew it.

Telkom Kenya chief executive Mugo Kibati confirmed that the firm had no permit to collect revenue from users of the Nofbi as required by law.

“Telkom Kenya has neither been designated as a receiver of government revenue by the CS of National Treasury nor does it collect any revenues as per provisions of neither any law nor regulations,” he said in a brief to the National Assembly’s Public Accounts Committee (PAC) committee.

“Nonetheless, Telkom indeed bills and collects revenues from use of Nofbi on behalf of the Ministry of ICT.”

Telkom Kenya is majority owned (60 percent) by the UK-based private equity firm Helios Investment Partners while the government shareholding is 40 percent.

ICT Principal Secretary Jerome Oluoch claimed he was not aware of the revenue collections by Telkom Kenya until the matter was brought to his attention by the PAC.

“There is no form of revenue reflecting in our books arising from TKL (Telkom Kenya). I got interest on this contract when PAC raised the matter when we appeared,” he said.

In the lapsed contract, Telkom Kenya was allowed to provide operation and maintenance services, recover costs from realised revenues and split the net profits with the ICT ministry on a 50-50 basis.

The ministry set the customer rate card whereby Telkom Kenya, Safaricom #ticker:SCOM and Mwananchi Communications would each pay $23.44 for using the Nofbi while Jamii Telecom and Kennet would part with $19.5 and $22.5, respectively.

Telkom Kenya said it would have netted a total revenue of Sh3.1 billion from the fibre optic network had the government been billed Sh1.4 billion for usage. This would have resulted in a net profit of Sh1.1 billion.

“With a 50/50 split, the government share would have been Sh0.55 billion. Government savings of Sh1.4 billion under the current management would be 250 percent more than the Sh0.55 billion profit,” Mr Kibati said.

Telkom Kenya said it had so far incurred operation and maintenance costs totalling Sh2 billion, resulting in a net loss of Sh0.3 billion.

The Nofbi project, which was implemented in two phases, aims to ease communication across counties as well as improve government service delivery to the citizens such as processing applications for national identity cards, passports and registration of birth and death certificates.

Chinese firm Huawei Technologies was contracted by the ICT ministry to build both phases of the Nofbi infrastructure project.

The first phase of the project kicked off in 2007 while the second began seven years later.

Phase 1 of the project was completed in 2009 and established a national backbone infrastructure with access points in most of the district headquarters and some border towns. It passes through 58 towns in 35 counties across Kenya with 4,300 km cable.

The second phase of the Nofbi project was to further increase the coverage and safety protection of the existing transmission network to enable the 47 county governments to form an efficient network with the central government.