By Payton Mathau
Sometimes in mid-July, the Directorate of Criminal Investigations (DCI) informed managers of State broadcaster, Kenya Broadcasting Corporation, of an investigation it was undertaking regarding a reported case of abuse of office and misappropriation of funds.
A follow-up letter dated August 15 summoned former KBC managing director Waithaka Waihenya, acting managing director Paul Jilani, Finance manager, a Mr Momanyi, and two other staff members, Mrs P. Mogaka and Daniel Okoth, to record statements over abuse of office and misappropriation of funds. They were required to report to the DCI on August 21.
While the July 20 and August 15 letters paid more emphasis on the failure by KBC to remit statutory deductions, the rot at broadcaster could be deeper.
Documents the Nairobi Law Monthly has reviewed reveals egregiously inexplicable business decisions that have left the State broadcaster reeling in debt and unable to innovate and invest.
According to the documents, the State broadcaster gave up most, if not all, of its digital TV frequencies that had been assigned to its subsidiary, SIGNET, by the Communication Authority of Kenya (CA) to GoTV Kenya Ltd, and topped that up with a Sh5.7 billion shareholder’s loan and two sites in a deal that makes a mockery of the efforts to resuscitate the debt-ridden broadcaster.
The story begins sometime between 2013 up to 2015 when talks of the country moving from analogue to digital broadcasting were picking up.
MultiChoice Africa Ltd (MAL), the South African satellite pay-tv channel, perhaps fearing that the move to digital broadcasting was going to disrupt its near monopoly, wanted to start a low-end digital broadcasting venture to fight off competition.
With the good relations MultiChoice had built with KBC in the 1990s, when the South African broadcaster rode on KBC’s back to enter the Kenyan market almost at nil cost, they entered into another partnership for the establishment of GoTV Kenya Ltd (KBC Channel 2 Pay Television project).
The GoTV partnership agreement mirrors the 1990s agreement for MultiChoice Kenya Ltd in terms of ownership and financing model, with Kenyan taxpayers left to bear a huge financial burden. The shareholding is on a 60 to 40 percent basis, with MAL being the majority shareholder.
In the new venture, which was meant to fight off low-cost entrants like ADN, Bamba TV and Star Times, MAL reportedly loaned GoTV Kenya Limited Sh14.458 billion.
How the Sh14.459 billion figure was arrived at remains a mystery. Out of the amount, KBC owned 40 percent, or Sh5.78 billion, again to be paid off by dividends due to it from GoTV. In the new venture, the infrastructure to be rolled out consisted of 24 Digital TV Terrestrial transmitting sites around the country, of which three were existing KBC sites.
Insiders at the Ministry of ICT and KBC told NLM that had any done any due diligence been carried out, the figure would have been not more than Sh2 billion as the costs of infrastructural rollout at these sites, some Sh3.78 billion less than what KBC owes GoTV.
It means that the cost was inflated by a whopping Sh12 billion. Until KBC completes paying the shareholders loan due to GoTV, it means that it would not earn dividends. On the other hand, MAL’s position is not affected at all.
Meanwhile, government will continue to lose any and all taxes that would have been payable by GoTV Kenya Limited until the joint loan is fully paid up. Even if the venture was to make a profit of Sh1 billion annually, it would be a whopping 15 years before the venture would pay off this loan and start paying taxes on profit.
But this is not all. Our sources also disclosed that arising from the GoTV partnership agreement, KBC also surrendered its frequencies for Digital TV expansion to the venture.
A letter by Waihenya (Ref: KBC/MD/5/29/C) dated March 2, 2017, lists the 38 frequencies spread across the country that KBC was surrendering to GoTV Kenya. Three days earlier, on February 28, 2017, CAK had written to Waihenya (Ref: CA/MMS/BC/01 Vol. VI) taking note of “your consent allowing transfer of TV broadcasting frequencies initially assigned for use by SIGNET to be assigned to GoTV Kenya Ltd.”
“The Authority has in turn compiled the list of TV broadcast frequencies already deployed by GoTV Kenya Ltd in their DTT (digital terrestrial television) network and the same is being assigned to them in due course,” CAK director general Francis Wangusi stated in the letter.
Be that as it may, documents in our possession reveal that former Principal Secretary in the ministry of ICT Sammy Itemere had some time in or around August 2016 expressed concern over the partnership agreement between KBC and MAL for the establishment of GoTV Kenya Ltd, which he reportedly said were exploitative.
“We have held fruitful discussions with the Ministry of Information, Communication and Technology regarding the GoTV-KBC partnership,” Waihenya wrote in a letter to Stephen Isaboke, the regional director of MultiChoice Africa.
In the letter dated August 17, 2017, Waihenya passes on to Isaboke the former PS’ concerns over the partnership.
The PS, Waihenya states in the letter, wanted five issues regarding the partnership clarified thus: the cost of co-location, frequency acquisition and maintenance for the (24) sites; a concern that dividends from GoTV would be used to pay off the shareholders loan; how the Sh5.7 billion loan held by KBC was arrived at; and clarity on whether KBC would get preferential or ordinary shares. Finally, the PS wanted to know if the Sh5.7 billion is denominated in US dollars, and whether the Kenyan shilling depreciation had been factored in.
These concerns by themselves mean that even the PS and the Ministry of ICT by extension could have been in the dark over the partnership agreement between KBC and MultiChoice. This begs the question of how a State corporation could have entered into such a partnership without the knowledge and understanding of its parent ministry.
In a response that was passed on to Itemere, Isaboke’s response was that “terrestrial broadcasting is capital intensive and requires investment in infrastructure and related equipment.”
“MAL financed both the infrastructure and the set-top boxes. The amounts loaned to GoTV by MAL up to March 2015 is Sh14.459 billion as indicated in the Share Purchase and Shareholders agreement. The Sh5.7 billion is the 40 percent share of the loans in line with the proposed shareholding.” His response does not indicate how the Sh14.459 was arrived at but generally talks of infrastructure and set-top boxes.
In terms of the type of shares KBC would get, Isaboke said the State broadcaster is entitled to 40 percent of the 1,499 ordinary shares (that is 600 ordinary shares) valued at Sh20 each and a further 40 per cent of 123,000 preferential shares (translating to 492,000 preferential shares) issued at Sh100 each. The documents, however, indicate that the PS was not fully satisfied and directed a fresh due diligence.
“Your letter Ref. KBC/MD/5/29C dated September 19, 2016, on the above subject matter, refers. This is to request you to have a fresh due diligence carried out by a reputable audit firm with a view to getting the actual benefits and costs of this partnership. Please treat this as extremely urgent,” the former PS wrote to Waihenya on November 2, 2016.
Handwritten notes show that KBC proposed that the audit’s Terms of Reference be done jointly with MultiChoice.
The audit was to be undertaken by PKF Consultants. On July 26, 2017, as the audit was being done, a nervous Isaboke emailed Waihenya about the audit with the subject ‘GoTV: PKF Consultants’.
“Hi mkubwa, what is the progress of the PKF Consultants on the GoTV Kenya DD (due diligence)? Can we see their draft prior to the final doc to ensure the correct facts and info have been captured? For example, GoTV has recently been granted a self-provisioning license by CAK – we need to ensure the facts are all reflected,” the email reads.
The GoTV partnership is the second such major venture between KBC and the pan-African satellite broadcaster.
KBC, most certainly in collusion with then KANU government operatives, in the 1990s signed a lopsided agreement with MAL which gave the latter a window to enter the previously closed media market in Kenya.
They registered an entity, MultiChoice Kenya Ltd, in which MAL held 60 percent shareholding while KBC had the remaining 40 percent.
On the face of it, all looked well and for a country which still had a closed media industry, the entry of the South African giant offered variety and quality for a population which had for decades had to do with low quality and State-steered programming.
However, as the saying goes, the devil was in the detail. Since KBC did not have the money to pay up for its 40 percent shareholding, an agreement was struck where the State broadcaster would, at the time surrender an unknown number of UHF TV frequencies in Kisumu, Nairobi and Mombasa.
Even after surrendering the frequencies, KBC still had a balance which was financed through a “shareholders loan”.
Because of the loan that KBC remained saddled with, it meant that for years the State broadcaster could not earn dividends which went on to pay for its loan.
The partnership’s economic value to taxpayers, therefore, remained under question. Moreover, the cost of acquiring the UHF frequencies unexplained and it means the MAL may have entered the Kenyan market without spending a cent on frequency licences. KBC only cleared the loan in the 2000s after the venture moved to satellite Direct-to-Home PayTV (DSTV).
It is the same model that was used in the GoTV venture where KBC gives up its frequencies and still remains with a loan to pay through the dividends it would have earned.
KBC has for years been unable to meet its financial obligations. Some of the issues currently under investigations by the DCI shows that as at July 30, 2018, KBC owed eight cooperative societies Sh48.85 million in unremitted deductions. The cooperatives are Hazina, Ardhi, Mtangazaji, Shirika, Harambee, UKulima, Magereza and Sauti Saccos. Furthermore, as of July 30, 2018, KBC had not remitted Sh320,590.16 to 11 insurance companies.
The State broadcaster also owes the Kenya Revenue Authority (KRA) Sh225.872 million in unpaid Pay as You Earn since January 2016. Similarly, KBC has not remitted Sh764 million in employee pension.
Other debts KBC owes are Sh6.4 million Shauri Moyo house rent from September 2014 and Sh4.5 million pension arrears on collective bargaining agreement. These could just be the tip of the iceberg as KBC has also been having trouble paying land rates to Nairobi County government among others.
Auditor General Edward Ouko, in a report to the National Assembly for the year ending June 2015, declared the broadcaster technically insolvent. (