AfriCOG: Privatisation of both Safaricom and Telkom Kenya raises transparency, disclosure issues

Cover of AfriCOG's "DELIBERATE LOOPHOLES" report.
Cover of AfriCOG’s “DELIBERATE LOOPHOLES” report.

The media has recently been awash with stories – here’s an example – of the alleged irregular transfer of Telkom Kenya’s shares by France Telecom during the period just before the March 4, 2013 General Elections in Kenya.

But now, it emerges that the issue of irregular of shares is not unique to Telkom Kenya as even Safaricom has a similar concern to address.

According to a new report by the African Centre of Open Governance (AfriCOG), titled “DELIBERATE LOOPHOLES: Transparency Lessons from the Privatisation of Telkom and Safaricom,” the privatisation of both Safaricom and Telkom “raise grave issues of transparency and disclosure, which should be examined in the interests of protecting planned similar exercises from suffering the same defects.”

Below are excerpts from the report including the Summary and Recommendations:


Key Probity Concerns

Briefly, the privatisation of both Telkom Kenya Ltd and Safaricom Ltd raises troubling probity issues that will inevitably impact on public confidence in upcoming IPOs:-

1. They occurred outside the Privatisation Act, which was passed, and received presidential assent, in 2005. The final steps of the privatisation processes were carried out with astounding speed, outside the law and in complete disregard of the recommendations of parliament’s Public Investments Committee (PIC). Even now, the law is yet to be fully operationalised as the Privatisation Appeals Tribunal has not been set up.

2. The then Minister for Finance delayed gazetting the Privatisation Commission until December 20, 2007. Even then, he only did so because of a pending case in court seeking orders to compel him to do so.

3. The sale of Safaricom shares was carried out against the express recommendation of the parliamentary Public Investments Committee (PIC). The Committee’s inquiries into the ownership transactions surrounding the mobile telephone company had found these dealings to be fraught with irregularities. Specifically, the PIC found that the 10% shareholding of Telkom Kenya Limited that was transferred to Mobitelea Ventures Limited was done irregularly, without the consent of Treasury and that of the parent ministry. The PIC recommended that further investigations be made, locally and abroad, including investigations by Britain’s Serious Fraud Office (SFO), and that the Initial Public Offer (IPO) of Safaricom Limited be suspended until such time when the investigations into the transfer of Safaricom’s shares to Vodafone PLC and Mobitelea were completed.

4. The Privatisation Commission became effective on January 1, 2008, when the sale of Telkom Kenya had already been concluded, and the privatisation of Safaricom Limited was at an irreversibly advanced stage. The Privatisation Appeals Tribunal, the statutory disputes resolution mechanism that deals with complaints over government divestiture, is still not in place.

5. The final stages of the sale of Telkom Kenya and the privatisation of Safaricom Limited occurred in great haste and under circumstances that were less than transparent. 6. The privatisation of the two companies changed the design of ownership of the telecommunications sector in Kenya. The sale placed the two largest companies in the sector out of the reach of parliamentary oversight and scrutiny at a time when there were grave concerns about how their ownership changed hands over a nine-year period.


1. The consortium that never was

Among the key failures are the partial disclosures made by Telkom’s purchaser, France Telecom in December 2007. On the face of it, the Kenya Government sold 51 per cent of its stake in the country’s only fixed line telecommunications company to a consortium of foreign companies for Kshs 26 billion. As part of the sale agreement, the government took up Telkom’s debts and its shareholding of Safaricom before the sale. However, it turned out upon sale that France Telecom was not representing a consortium and that its only partner is Alcazar Capital, a Dubai-based company.

2. Lack of clarity about market valuation of Telkom Kenya Limited

The government further transferred Telkom’s 60 per cent shareholding in Safaricom Ltd to the Treasury. The sale effectively put the market value of Telkom Kenya, without counting the value of its ownership of Safaricom, at KES 50.98 billion. Although an International Finance Corporation (IFC) valuation of Telkom Kenya is believed to have been used as the basis of this transaction, it has not been made public. 

3. Shadowy shareholders in Safaricom

Safaricom is 40 per cent owned by Vodafone Kenya Ltd, who until recently was 87.5 per cent owned by

Vodafone UK and 12.5 per cent by the Mobitelea Ventures. Mobitelea’s real owners are undisclosed and were hidden behind two nominee firms Guernsey-registered Mercator Nominees Ltd and Mercator Trustees Ltd. The directors are named as Anson Ltd and Cabot Ltd, based in Anguilla and Antigua. This has been a lingering query: the stake was acquired at the beginning of 2000, during Daniel arap Moi’s presidency. Although the nature of the shareholding was never resolved, the government of Kenya went ahead to sell 25 per cent of its 60 per cent shareholding through an IPO. Documents obtained by the Guardian Newspaper show that Mobitelea was registered in Guernsey on June 18, 1999 – several months after Vodafone had struck a preliminary deal with the Kenyan government.  Safaricom is now 35 per cent owned by the Government of Kenya following the IPO. The company issued 10 billion new shares and offered them for sale to the public at KES 5 each.


In order to pre-empt systemic failures observed in the privatisation of Telkom Kenya and Safaricom, the following steps need to be urgently taken:

1. Take action on the recommendations of the Public Investments Committee

There is need to create a mechanism that triggers action and sanctions against those who defy the recommendations of parliamentary committees such as the Public Accounts and Public Investments Committees. The parliamentary Public Investments Committee’s (PIC) recommendation that the

Safaricom IPO be put on hold until the ownership of the company had been resolved, was egregiously ignored. For future transactions the provisions of the Fiscal Management Act relating to imposition of personal sanctions on officials should be exercised in the event of non-compliance. 

2. Hold to account those responsible for implementing recommendations of the PIC

Parliament needs to strengthen its own internal mechanism for holding to account those who bear responsibility for implementing its recommendations. The PIC Report recommended that certain individuals be barred from holding public office because of their conduct with regard to the transfer of Safaricom’s shareholding. No action has been taken on this recommendation to date. Also, a very pointed recommendation was made to the Kenya Anti-Corruption Commission (KACC) to investigate the loss of the 10 per cent public shareholding in Safaricom and report back to Parliament in a specified time frame. The KACC’s Annual Reports of 2007, 2008, 2009 and 2010 are silent on this PIC recommendation. It is not clear whether an investigation was undertaken by the KACC or a report made.

3. Fully operationalise the Privatisation Act

The Privatisation Act should be brought into full operation, complete with the installation of a Privatisation Appeals Tribunal to oversee all government divestiture and ensure it is always above board.

4. Strengthen the transparency provisions of the Privatisation Act

The opacity surrounding the privatisation of these two corporations indicates that the transparency provisions of the Act are weak. It is clear that there is too much room for executive discretion in the

privatisation process.

5. Strengthen the regulatory capacity of the Capital Markets Authority

The Capital Markets Authority Act needs to be revised to strengthen the institutional capacities of the Authority to function as an efficient and effective regulator of capital markets. In particular, disclosure rules and regulations must compel the disclosure of both nominal and

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