01 Mar 2021

 

Telkom’s Position on the National Optice Fibre Backbone Infrastructure (NOFBI) Inquiry by the Public Accounts Committee (PAC)

 

Nairobi, Monday, March 1, 2021

 

Telkom was invited by the Public Accounts Committee (PAC) to respond to questions, with respect to the management of the National Optic Fibre Backbone Infrastructure (NOFBI), arising from the Auditor General’s report for the financial year 2017/2018.  

  

In 2010, Telkom was contracted by the Ministry of ICT (MoICT) to offer Operational and Management services (O&M) for the NOFBI cable, a project that aimed to provide connectivity across all the 47 counties of Kenya. The O&M cost was to be charged at KSh 20.3 Million, monthly.

 

In 2013, the MoICT revised the terms of the original contract, and was applied retrospectively, June 1, 2011, for a period of 5 years ending May 31, 2016. This contract gave Telkom the additional responsibility of commercialising the Cable under a profit-share arrangement with the Ministry. This revised scope, over and above the O&M, now included customer acquisition. Additionally, Telkom, was to first recover its operational costs, and thereafter split the net amount with the Ministry on a 50-50 basis. It is important to note that the rates applied for the Cable’s commercialisation were provided by the MoICT. 

  

At the lapse of the contract in May 2016, Telkom pursued renewal of the contract by the MoICT. With no guidance forthcoming from the Ministry on the matter, and despite numerous but fruitless efforts to obtain renewal, Telkom continued to operate and manage the Cable, to ensure continuity of service provision to the infrastructure’s customers, fully cognisant of the Ministries, State Departments, and Agencies, offering critical  National and Economic Security services to the country, through NOFBI. Morever, the 4,300 kilometre NOFBI Cable is further complemented by Telkom’s own infrastructure to the tune of 3,496.9 kilometres of linear distance.

 

Notably, and correctly so, the rates applied for the Cable’s commercialisation were subsidised to deepen the penetration of the digital economy across the country. In addition, these rates as well as the O&M costs have never been varied and as such are no longer reflective of evolving economic dymanics. During this time, we have witnessed the building of other cables that proceeded to offer similar services as NOFBI. However, these cables charge their services at market rates and as a result have been able to make steady profits and meet their O&M costs. Despite all these dynamics, Telkom, has continued to faithfully operate and maintain the NOFBI Cable, and meet all other contractual obligations within the MoICT’s contract,  one that we remain uniquely equipped to manage.

 

Telkom has operated the Cable at a loss, due to the market dynamics and contractual limitations in force. Further losses continue to be incurred as a result of  regular damage and cuts to the Cable, due to civil works, vandalism and road construction.  Moreover, Telkom continues to bear the full cost of repair for this destruction, with no support from the Government Agencies or entities responsible for the damage.

    

In 2019, the ICT Authority (ICTA) – an agency under the ambit of the MoICT - and Telkom, conducted a joint audit of the Cable. ICTA has finally initiated a handover process of the Cable, thereby providing the clarity that Telkom has been seeking all along i.e. the legal renewal of the contract or be advised on the process that would ensure a smooth handover of the Cable. ICTA’s participation and leadership in this handover process is therefore welcome. This is a handover process of the Cable, contrary to assertions by sections of the media that have mispresented the same to be a means of contract renewal.

 

Media reports have also stated that Telkom “has collected up to KSh 1.7 Billion from non-government customers using the Cable.” Arising from these reports, we find it prudent to make public, the terms of the contractual engagement with the MoICT.

 

We confirm that the Cable’s revenues stood at KSh 1.7 Billion, versus O&M costs of KSh 2 Billion. Telkom has therefore incurred a loss of KSh 300 Million. At the same time, Telkom has availed connectivity using the Cable to Government offices offering critical services. Telkom does not bill government, whose usage of the Cable accrued a financial value of KSh. 1.4 Billion, while Telkom continues to shoulder the O&M losses. During our submisisons to the PAC, we went further to explain that had all users of the Cable – specifically Government users - paid up for their connecvity usage, Telkom would have collected at total of KSh 3.1 Billion, out of which it would have recovered its O&M costs currently standing at KSh 2 Billion. Telkom would have realised a surplus of KSh 1.1 Billion, to be shared with the MoICT, as per the profit-share arrangement.

 

Telkom acknowledges and appreciates the impact that infrastructure such as  NOFBI, as well Telkom’s own Cable, has on the Kenyan economy, with respect to the provision of critical government services, and access to information, taking into account the accelerated digital transformation, fueled by the pandemic. As a home-grown and customer-obssessed Technology company, the only thing that could have been done by any responsible actor was to ensure that there was no disruption to service provision at all, as we sought clarity on the way forward from MoICT. It is our hope that all stakeholders will ensure Kenyans continue to get value from such investments, through the implementation of sustainable policy frameworks.

 

ICTA and the Ministry are now working on the regularisation of the Cable’s management, a process that we have been ardently seeking. Telkom remains confident that we shall still have a key and unique role to play, having successfully complemented NOFBI’s infrastructure with about 3,500 kilometres of our own fibre, given O&M support, as well as our robust expertise over the years, thereby ensuring continued service provision to the Cable’s customers.

 

As the regularisation of the Cable progresses, Telkom also continues to firmly focus on its strategic direction announced in August 2020, under our new Service Delivery Units: Digital, Consumer and Digital Financial Services. We are also excited about our identified areas for further investment and growth this year, that being our fibre infrastructure, and our vast GSM Networks, all these leading to an enhanced service provision and better customer experience.

 

Mugo KIBATI

Chief Executive Officer

 

Ends…/