Janet Ilunga and Brian Hatyoka
16 November 2009
THE impending privatization of Zambia Telecommunications Company (Zamtel) has continued to occupy top slot in public debate.
Politics, suspicions and allegations of corruption are flying about at the expense of the business interests of a telecommunications company that is technically insolvent. Analysts say with a new owner, the fortunes of Zamtel could turn around increasing its market share. Is opposition to privatisation based on past experience? Is it a case of fear of the unknown or at best mere politicking?
THERE has been growing speculation over the sale of the ailing State-owned Zambia Telecommunications Company (Zamtel) and from the various comments, it is becoming increasingly clear that there are two opinions among those opposed to the sale.
There are those who have expressed misgivings over the privatisation process in general who feel earlier privatisation of State-owned Enterprises (SOEs) has not yielded the desired results and does not guarantee any hope.
In the case of Zamtel, their fear is that privatisation, albeit partial, would threaten national security.
Then there are those who are suspicious and see as sinister, a Cabinet decision to sell the 51 to 75 per cent of Government's stake in Zamtel.
They even accuse Zambia Development Agency (ZDA), the body legally mandated to dispose of State enterprises, of collusion in "giving away" the Zamtel assets.
Their take is that ZDA's retention, as financial advisors, of RP Capital of Cayman Island - a firm whose selection to evaluate Zamtel assets was subject of tribunal proceedings - is suspicious.
Unfortunately, politics has taken centre-stage, completely overshadowing the fact that the privatisation of Zamtel has a long history to it and was deemed the only way to salvage a company that is technically insolvent.
A parliamentary committee on Communication, Transport, Works and Supply in January 2008 recommended that Zamtel should be restructured and recapitalised to find a lasting solution to the country's strategic asset.
Analysts predict that, once sold, Zamtel could change its fortunes and pose a serious threat to existing competitors - Zain and MTN.
With a new entrant, Zamtel could gain up to 19 per cent of the market share from the current four per cent and increase its mobile phone subscriber base to close to two million from a paltry 200,000 by 2015.
Zamtel is in dire need of recapitalisation. It has under-performed throughout its 40-year existence and is encumbered with liabilities amounting to more than $125 million. The company has annual operational deficit of $17 million and is heavily indebted to Government in unremitted taxes.
In contrast, Zain and MTN have amassed more than 3.5 million subscribers, contributing K14.4 trillion to the national treasury in the last five years.
Its bloated workforce is part of the reasons why the company has been insolvent.
But despite these truths, political rather than commercial considerations seem to be setting the agenda in discussions on Zamtel's privatisation programme.
Patriotic Front (PF) Kantanshi Member of Parliament and chairperson for industry Yamfwa Mukanga says Zamtel's cure lies in improving its management to increase the firm's efficiency
The opposition party is strongly opposed to privatisation and its policy is to nationalise some aspects of industry.
Reeling from the past experience of privatisation, economists seem to approach the sale of Zamtel with caution.
Economic analyst David Punabantu too subscribes to the notion of improving management by giving preference to Zambians. Privatisation should be considered as a last option.
"The question we must ask is, are we just selling something because certain management failed to use it (Zamtel) to its full capacity?" Mr Punabantu said.
"This challenge is not only about Zamtel but many other Government-owned entities that have not been capitalised by the treasury," says Lusaka economist Chibamba Kanyama.
He supports minority shareholding rather than an outright sale.
The private sector holds a different view, obviously owing to an experience that governments are normally not in a position to recapitalise their business concerns.
"Zamtel has to be privatised for many reasons," says Mark O'Donnell, chairperson for Union Gold Group of Companies.
Mr O'Donnell, who is former Zambia Association of Manufactures (ZAM) chairperson says, only the private sector can give Zamtel the necessary capital.
He reckons those opposing privatisation were short-sighted and self-serving because the exercise is the best for economic development.
Among the other demands in the ensuing debate, is the publication of the RP valuation on Zamtel.
Since the privatisation process spanning 17 years, the valuation report has always been a confidential document meant for Government's consumption. No one has seen the need to disclose the contents until the Zamtel privatisation debate began.
Now there are insinuations that ZDA cannot be trusted to handle the Zamtel transaction even with all the experience it has carried over from its fore-runner the Zambia Privatisation Agency (ZPA).
Background to privatization process
Privatisation, which has been a matter of policy of the Movement for Multiparty Democracy (MMD), began in earnest in 1992.
Since then, ZPA has overseen the transfer of assets in 260 units or more -as some were split into separate entities - into private hands. Of these, 149 were sold to Zambians through management buy-outs (MBOs), public floatation or directly to individuals and corporate bodies.
The gross value raised from these transactions, which has seen some of the most successful privatisations such as Zambia National Commercial Bank (Zanaco), was US$433 million, K40 billion, and South African Rand 28 million with the mining sector accounting for US$339 million.
Companies that were on the verge of collapse registered a dramatic rebound in a process that had a failure rate of only 10 per cent.
Outright failures include Eagle Travel, National Drum and Can Company, Kapiri Glass Company, Zambia Cashew and National Drug Company to mention a few, although some of these have re-opened under new ownership.
In addition, companies often wrongly associated with privatisation failure such as Zambia Airways, Livingstone Motor Assemblies or Colgate Palmolive collapsed under State ownership or in private hands.
Zamtel sale and where it all began
In the case of Zamtel, then called Post and Telecommunications Company (PTC) was listed in tranche four along with Zaffico, Maamba Collieries (still under privatisation), Ndola Lime and Zambia Detonators.
In 1994, a decision was made to split PTC into two entities - Zamtel and Zampost.
But like all other SOEs, Zamtel faced serious financial difficulties which prompted Cabinet to decide on a minority share offer of up to 20 per cent in 1998.
The offer failed, largely because the 20 per cent shareholding and the continued presence of Government with a majority controlling interest was unattractive to a private sector that was expected to recapitalise the company.
This is not strange because minority shareholding has failed elsewhere such as Tanzania Telecommunications Company (TTCL).
In 2002, Government shelved plans to privatise Zamtel, opting to instead commercialise but this did not work out either, as the company's performance continued to decline.
And in 2008 that was when the Parliamentary committee on Communication, Transport, Works and Supply sounded the warning about Zamtel's insolvency.
The ministries of Finance and National Planning and Commerce, Trade and Industry (under which ZDA falls) augmented by thje Ministry of Communications and Transport came up with the following options:
-Change of management and recapitalisation, but this was not feasible, as the treasury had no resources,
-Retain the status quo but that would have led to liquidation and would not have been in national interest,
-Public floatation but this was not viable, given the poor financial position of the company,
-Management contract, also not feasible as it would not raise the requisite capital,
-Unbundling of assets, there was a danger of some assets being abandoned resulting in massive job losses,
-Strategic partner to restructure, inject fresh capital and bring new technology into the ailing company. This was found to be the most suitable, hence the decision to sell up to 75 per cent shares.
BECAUSE of the nature of investment elsewhere, African governments are also floating between 51 and 75 per cent of their shareholding e.g Telkom Kenya, Societe des Telecommunication du Mali (Sotelma), Safaricom and Ghana Telecom.
The RP Capital Factor
Undoubtedly, the selection of RP Capital has been a hot issue and was contested for allegedly being in breach of the Ministerial and Parliamentary Code of Conduct Act but a tribunal headed by Justice Judge Dennis Chirwa ruled otherwise.
The tribunal opined instead the ministry's failure to seek advice from the Attorney General amounted to a breach of the Constitution but this ruling was overturned by the High Court. The decision of the High Court is currently being challenged in the Supreme Court.
Nevertheless, ZDA has opted to retain RP Capital as financial advisors in the Zamtel transaction for obvious reasons.
It makes commercial and logical sense to retain a company that has successfully delivered to Government on the valuation of Zamtel, the basis on which Cabinet decided the best mode to divest its shares.
Furthermore by virtue of the valuation, RP Capital has a detailed understanding of Zamtel, the Zambian telecommunications market and the privatisation process.
It must be stated clearly that the case, which is before the court, relates to the Ministerial Code of Conduct, a minister's responsibilities, and the Constitution and not the performance of RP Capital. And therefore does not impact the conclusions of the valuation and neither does it impact the rationale for deciding to privatise the company.
So far, eight companies out of 30 have pre-qualified and these will be invited to participate in the due diligence process up to December 23, 2009.
These include Orascom Telecom Holdings S.A.E/Telecel Globe Limited of Egypt, Altimo Holdings/Vimpelcom of Russia, Libyan LAP Greencom Limited/LAP Green Networks and Portugal's Portugal Telecom, SGPS S.A.
Other bidders are Telkom SA Limited of South Africa, UNITEL of Angola and two of India's telecommunications giants Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited (MTNL).
Hopefully, the successful bidder will be announced in the first quarter of 2010.
As financial advisors, RP Capital are now expected to engage legal advisors and appoint an independent negotiating team as provided by law.
Engagement of experts is normal procedure. ZDA has todate engaged more than 60 international consulting firms and qualified experts to undertake various privatisation tasks just like RP Capital.
For instance, United Party for National Development (UPND) president Hakainde Hichilema presided over 20 companies.
Among them Rainbow Lodge, Mosi-oa-Tunya Hotel which was sold to Sun International (He was subsequently appointed chairman of Sun Hotels), Hotel Intercontinental Lusaka, Zambia Consolidated Copper Mines (ZCCM) non-core assets, Kagem Mining, Kapiri Glass Products, Mansa Milling.
There have been concerns about Mwembeshi Earth Station, Zamtel's international gateway facility that allows the company to provide international voice and data connectivity for the whole country and for other voice operators like Zain and MTN.
The partial sale of Zamtel shares does not change the status of the earth station because it will still be Zamtel's international gateway facility.
The final decision will be made by ZDA who will in turn give Government the turn to sign the agreement.
That Zamtel has enormous potential is no doubt but it has not been able to fully utilise that ability. The privatisation of Zamtel should not be seen as being about money but finding a strategic partner to help the company maximise its potential.
Zamtel needs a partner that has the telecommunication market experience, financial strength and long-term strategy for Zambia.
The lesser the politics surrounding the Zamtel sale, the easier it will be to make a good commercial decision that will serve the greater interests.
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