Last week, relations between a French company and the Kenyan government appeared to be heading into turmoil after the a recent rumors that Orange plans to leave of the Kenyan telecommunication market. The Kenyan government and France Telecom jointly own the business under the Orange Brand. Orange Uganda’s fate has already been cleared from the ‘closure state’ with an official group statement but we have not yet seen any from their counterparts in Kenya.
THE FIRST BLOW
According to the Daily Nation, Orange was sent a notice from the Cabinet Secretary for Information and Communications, Dr Fred Matiang’i, informing them of the government’s intention to terminate the remunerative Optic Fiber deal under which Telkom Kenya manages a state-owned national fiber network on behalf of the government. Part if the letter read:
“I propose to terminate the contract on substantial public interest concerns and the future of ICT in Kenya,”
From day one, Orange has been drawing a lot of revenues from the deal by leasing capacity to operators of data services, including competing mobile companies.
PROBLEM NUMBER TWO
The Daily nation further reports that relations between the Kenyan government and the French partner have not been even-tempered lately, especially after the national assembly started investigating the controversy surrounding a December 2012 transaction that climaxed with reduction of the government shares reduced from 49 to 30 per cent.
These two factors have inevitably forced the Kenyan government to take a fresh look at its relations with the partner.
Not only Orange is planning an exist, it was also rumored that Essar of India, that owns the brand YU, was also leaving the country, so the government has been forced into pondering the implications of these two new developments and what they mean for the telecom industry in Kenya—hence leaving unanswered questions for the future flow of new investment in this sector.
Al indications show that the French investor will close shop by end of the year leaving the two partners sizing each other, both sides battling to ensure that they leave the marriage at an advantage.
THE CONTRACTUAL BLOCKAGE
The agreement between the Government and the Shareholders allows them to exit after five years, there is however a contractual blockage that only allows them to exit only after they bring on board an investor of the same or superior financial muscle. Report further disclose that the French investor is currently keeping business going on minimum funding and activity till the end of year when they exit.
This all comes after the company went ahead to cancel a 15-year multi million-dollar deal made in June last year with the UK towers company— Eaton Towers. Where Eaton, had to build 39 base stations and charged a $21 million to Telkom Kenya.
ORANGE MADE A KSH 9.1 BILLION LOSS LAST YEAR
Things have not been rosy for Orange Kenya, which last year made a loss of Sh9.1 billion and annual revenues dipped to Sh9.4 billion. As a consequence, capital and reserves have gone down from Sh16.6 billion — when the balance sheet of the company was restructured in 2012 — to Sh7.5 billion in December 2013.
At a recent board meeting, it was resolved that the company should approach the two shareholders for nearly Sh11.9 billion to pay a loan owed to the France Telecom’s subsidiary, Orange East Africa. In addition, the company has asked shareholders to provide Sh2.3 billion to finance its operations in the second quarter of the year.
But whether the French will successfully manage to bring in a new investor to take over Telkom Kenya remains to be seen.