Secret Treasury-France Telecom talks over Telkom

The first phase of negotiations over the $385 million claim France Telecom has slapped on the government of Kenya has ended in Nairobi amid total secrecy and even as it emerges that the French have now informed the government that they may pull out from Telkom Kenya if the matter is not resolved.

“The Frenchmen have made it clear that their future investment plans will be jeopardised if Telkom Kenya does not recover within one year,” said a source familiar with the negotiations.

In a bare-knuckle negotiating strategy that is not typical between foreign investors and their sovereign hosts in Africa, it is understood that France Telecom has expanded the scope of its claims against the Kenya government.

The firm is now not only demanding that it be refunded an amount that is equivalent to what it paid for a controlling stake in the struggling telco, but it also wants taxpayers to fund its business plan over the next five years with a cash injection of over $300 million.

Sources familiar with the negotiations told The EastAfrican that in addition to the original $385 million claim, France Telecom has lodged an additional claim of $30 million.

This is based on the grounds that a multimillion shilling supplier contract that Telkom Kenya’s management signed with Rapid Communications was done hardly weeks before the French took over.

This denied France Telecom a chance to negotiate a deal under whose terms it would inherit future debts.

This high stakes dispute is likely to leave the government saddled with a massive pending bill — with the tab now running up to $680 million — to be absorbed through the national debt, with the potential of disrupting government spending plans in major ways.

Indeed, the massive size of the pending bill is itself bound to generate political undercurrents, considering that two and a half years ago, parliament allowed the government to absorb nearly $1 billion worth of Telkom Kenya debts to ready it for sale to the private sector.

Now with these demands, which amount to reversing the privatisation of Telkom Kenya, the Treasury could soon be embroiled in a political storm with parliament.

The French firm has also launched a scathing attack on its rival Safaricom, demanding that its market dominance be whittled down and sweetheart regulatory favours be withdraw, for example by dropping the $25 million fee for 3G licenses to give other players such as itself, Zain and Essar room to make money in Kenya’s highly competitive mobile phone market.

Apparently, the French have been quietly lobbying the government to improve the competitive environment, which they say is skewed in favour of Safaricom.

The Frenchmen have complained that high inter-connect charges prevent consumers from switching between networks as happens in more modern markets.

In a recent interview with The EastAfrican, Michael Joseph, chief executive of Safaricom, dismissed France Telecom’s claims, questioning the firm’s business savvy.

“Before they came to Kenya, they must have studied the market and seen that we were market leaders then as we are today. What has changed?” asked Mr Joseph, adding, “Nobody forced them to come here, they paid more than everyone else. They knew the environment. We should not be taken down because they are not successful.”