France Telecom moves toward recovering US$300M from Kenya

France Telecom has recorded a major victory in its quest to recover US$300 million from the Kenya government after alleged over payment for Telkom Kenya assets in 2007.

France Telecom received some diplomatic support from the French government when the Kenyan prime minister visited France last October, but the ceding of territory has been criticized by Kenyan technology analysts.

France Telecom claimed that it had inherited debts that were not disclosed during the privatization process, which affected its ability to compete against Safaricom, the dominant mobile player. The government did not deny or discredit allegations by France Telecom, signaling that some of the allegations were founded.

"France Telecom has been injecting working capital to Telkom Kenya without a corresponding response from the government of Kenya," said Bitange Ndemo, permanent secretary in the Ministry of Information and Communication this week, responding to industry analysts questioning the move.

In the agreement, France Telecom will get the 3G license free, as the government will cover the $10 million fee, and take over management and control of the government's 20 percent stake in the The East Africa Sub Marine System (TEAMS) fiber-optic cable.

The most controversial part of the agreement is the exclusive operational and maintenance contract for the national fiber-optic backbone, which covers the whole country and serves land-locked countries such as Uganda and Rwanda.

France Telecom complained that it inherited massive debts from the former monopoly, most notably $3.75 million owed to the Kenya Broadcasting Corporation and $862,500 owed to the Telkom Kenya pension fund. The government has agreed to pay the debts and release a further $2.18 million for services already provided in maintaining the national fiber-optic backbone.

Analysts question why the maintenance of the fiber-optic backbone had not been outsourced to ensure competition, while some felt that France Telecom paid too little for Telkom Kenya and the government should not yield more ground.

It is surprising that even after purchasing Telkom Kenya for "a song," the government is being asked to pay France Telecom an additional $300 million, said Shem Ochuodho, an independent telecoms consultant.

"Telkom Kenya was under-sold; it the same period, 70 percent of GhanaTel was sold to Vodacom for $900 million on a simple pro-rata basis. One would have thought Telkom Kenya would have fetched higher," added Ochuodho, who also contributed to the privatization debate in 2007.

However, the government has insisted that it has put in its equivalent investment and that the contract for operation and maintenance does not mean that France Telecom owns the fiber backbone "because it's more like a public road that can't be owned by anybody."