High Court to Look at Sale of ZAMTEL

Residents of Lusaka, the capital of Zambia, have been grumbling that since a Libyan state company took over the domestic phone company this summer, it is harder than ever to place a call.

To be fair, it’s early days for the Lap Green Network, the new owner, which is promising significant investment. In June, Lap Green — part of the Libyan sovereign wealth fund — bought 75 percent of Zamtel, the ailing Zambian telecommunications company, for $257 million.

But what was supposed to have been a simple privatization to replenish state coffers and place a decrepit company on a sound financial footing has degenerated into a nasty domestic feud over the sale process. Opposition figures, transparency advocates and some analysts argue that the transaction was cloaked in secrecy and riddled with irregularities.

“There appeared to be fundamental breaches of law, which the government decided to ignore,” said Goodwell Lungu, executive director of Transparency International in Zambia.

The issue has made its way to Zambia’s highest court, which plans to review the procedures after a tribunal and a lower court judge gave differing interpretations on whether the procedures used were legal.

The government and its advisers defend the sale, saying they found an innovative way to improve competition and turn around a failing company by passing the constraining hand of the World Bank and its protocols.

For analysts who follow Africa, however, the Zamtel deal is just the latest in a string of questionable telecommunications sales on the continent, as governments scramble to raise cash.

“The privatization of telecom companies in many African countries in recent years has been far from transparent, fraught with irregularities and dominated by opaque buyers,” said Ewan Sutherland, a telecommunications analyst in Brussels who has worked in Africa. “Zamtel appears to be a case in point.”

Other recent deals that have been questioned include the often-delayed sale of Nigerian Telecommunication; Vodafone’s purchase in 2008 of a 70 percent stake in Ghana Telecommunications, in which a government-appointed investigator later found the company had underpaid for its stake; and the flotation of Safaricom of Kenya, during which it emerged that a little-known firm called Mobitelea Ventures, registered in Guernsey, had been allowed to purchase 5 percent of the African mobile operator.

Zambia is a democracy, with an economy that has been performing strongly in recent years. The International Monetary Fund forecasts growth of 6.6 percent this year and the chief of the fund, Dominique Strauss-Kahn, recently praised President Rupiah B. Banda of Zambia for his “sound economic policies.”

President Banda, elected in 2008, has been keen to diversify the economy away from raw materials and bring in fresh revenue streams.

Like many other fixed-line telecommunications monopolies in Africa, Zamtel’s high overhead costs — mainly its staff of 2,340 — and its reliance on a creaky fixed-line network meant it was undercut by more nimble mobile operators, in this case Zain of Kuwait and MTN of South Africa, both of which have more subscribers and fewer employees.

By most accounts, Zamtel was on the verge of imploding this past summer, almost defaulting on its debts, including tens of millions to Chinese suppliers. In the year to March, it lost 104.8 billion kwacha, about $21.8 million, according to the government.

Against this backdrop and given the sale price, the Zambian government and its advisers say the state got a good deal.

The government formally announced its intention to privatize Zamtel in July 2009, having appointed a little-known London-based investment firm, R.P. Capital, as its adviser. R.P. has a holding company based in the Cayman Islands and has completed just one deal so far in Africa. It advised Nikanor — a cobalt and copper mining company with operations in neighboring Congo — in 2007 when the firm merged with Kantanga Mining, based in Bermuda and with operations in Congo.

In September 2009, the government invited tenders, and an initial field of eight international candidates was subsequently narrowed down to two: Unitel of Angola and Lap Green.

The Libyan group was chosen based on its offer of cash, the assumption of debts and its reinvestment commitment. The government retains a 25 percent stake, which it eventually plans to sell through an initial public offering, as well as a voice on the board.

But before the final sale, local activists argued that the government did not appear to be following the country’s rules on privatization, most notably by failing to follow guidelines for appointing an adviser.


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