Telkom Kenya has disclosed that it made a Ksh. 300 Million loss while running the National Optic Fibre Backbone Infrastructure (NOFBI) on behalf of the national government.

According to the telco, the loss arose due to the fact that the cable’s revenues stood at Ksh. 1.7 Billion whereas the operating and management cost were Ksh. 2 Billion thus leaving them with a deficit of Ksh. 300 Million

For those not in the know, NOFBI which is one of the Vision 2030 projects was aimed at ensuring connectivity in all the 47 counties of Kenya. The target was to ease communication across counties as well as improve government service delivery to its citizens for example the issuance of national identity cards, passports as well as registration of birth and death certificates. Current clients on NOFBI other than GoK includes Safaricom, Telkom, Jamii Telecommunications Limited (JTL), KENNET and Wananchi.

The NOFBI project was done in two phases with Phase 1 getting completed in 2009. The fibre backbone passed through 58 towns in 35 counties across the country with 4,300 kilometers of cable. This provided access points in most of the district headquarters and some border towns. Phase 2 commenced in 2014 and is currently ongoing with about 900 Km of fibre laid against a target of 1,600 Km.

Back in 2010, Telkom Kenya was contracted by the Ministry of Information, Communication and Technology (MoICT) to offer Operational and Management services (O&M) for the NOFBI cable. According to the contract, the O&M cost was to be charged at Ksh. 20.3 Million on a monthly basis.

However, according to the telco, by 2013, MoICT was facing significant challenges in meeting the O&M costs and as such sought to revise the terms of the original contract. The new terms were applied retrospectively, from June 1, 2011, for a period of five years, which ended on May 31, 2016.

The revised contract gave Telkom the additional responsibility of commercializing the Cable under a profit-share arrangement with the Ministry. This revised scope, over and above operation and maintenance, now included customer acquisition. Additionally, Telkom, was to first recover its operational costs, and thereafter split the net profit earned with the Ministry on a 50-50 basis.  The rates applied for the Cable’s commercialization were provided by the MoICT.

When the contract ended in May 2016, Telkom dutifully pursued the renewal of the contract by the MoICT. However, they did not get any feedback from the Ministry on the matter despite their numerous attempts. As such, Telkom made a decision to continue operating and managing the Cable as a means of ensuring continuity of service provision to the infrastructure’s customers in as much as they were making losses. This was due to the fact that they were fully cognizant of the need for seamless connectivity to the Ministries, State Departments, and Agencies offering critical National and Economic Security services to the country, through NOFBI. Despite this, Telkom continued to provide connectivity to Government offices without billing them with the usage of the cable accruing a value of Ksh. 1.4 Billion.

Recently the telco was invited by the Parliament Accounts Committee (PAC) to shed light on issues concerning the management of NOFBI which arose from the Auditor General’s report for the financial year 2017/2018.

During its submission, the telco indicated that that had all users of the Cable – specifically Government users – paid up for their connectivity usage, Telkom would have collected a total of KSh3.1 billion, out of which it would have recovered its O&M costs currently standing at KSh2 billion. Telkom would have realised a surplus of KSh1.1 billion, to be shared with the MoICT, as per the profit-share arrangement

It also stated that the  rates applied for the Cable’s commercialization were heavily subsidized in an effort to deepen the penetration of the digital economy across the country. Apparently, NOFBI costs $ 23.43, per pair, per kilometre, per month against an industry/market rate of about $44, per pair, per kilometre, per month.  Also, these rates as well as the O&M costs have never been changed since 2011 by MoICT and as such are no longer reflective of evolving economic dynamics. Basically the cable has been charging almost half the cost of what the competition is charging, no wonder they were making losses.

Additionally the telco indicated that it had continued to incur losses as a result of regular damage and cuts to the Cable, due to civil works, vandalism and road construction of which it bore the full cost of repair, with no support from the Government Agencies or the entities responsible for the damage.

Telkom CEO Mugo Kibati, had this to say, “Telkom remains confident that it shall still have a key and unique role to play, having successfully complemented NOFBI’s infrastructure with about 3,500 kilometres of its own fibre, given O&M support, as well as its robust expertise over the years, thereby ensuring continued service provision to the Cable’s customers.”