Kenya:Investors query Internet cable’s tight schedule

October 15, 2007 • Mobile and Telecoms

Private investors who want to buy a stake in Kenya’s premier high-speed Internet link have six weeks to do so, project consultants have said.

The announcement which was made during an investors briefing last Friday drew immediate reaction from some of the potential investors who dismissed the timeline as too ambitious.

Standard Chartered Bank, the lead consultant and financial arranger for the government-backed undersea fibre optic cable — the East Africa Marine Systems (TEAMs) — said it had set November 30 as the date by which the investors should have committed to being part of the project and signed the Non-Disclosure Agreement (NDA).

Mr Ambrose Ruayooka, the acting Commissioner for Information Technology of Uganda, however, described the timeline as too tight for governments in neighbouring states to lobby investors in their countries into buying a stake in the project.

Mr Ruayooka who represented the Uganda government at the meeting said while the prospects are exciting, investors needed more time to prepare.
“We support any initiative that will provide our citiz ens with affordable bandwidth,” he said.

Mr Ruayooka said the Uganda government had decided to support TEAMs whose prospects are more promising in terms of delivery instead of the East Africa Submarine Cable system (EASSy) which has yet to take off.

“EASSy has been here for the last three years but appears to be making little progress,” he said. We have as a result deciced to lobby the private sector to invest in TEAMs,” he said.

Eric Muthi the managing director of Popote Wireless said the private sector needed additional briefing before they can commit to the project.

He said the investors needed to know, for example, where they will take any excess capacity they may have in the event there is no pent up demand for the cable in neighbouring countries yet to lay backhaul systems.

“Though the situation is not bad in Kenya, the market must extend beyond the national borders,” said Mr Muthi.

Besides, potential investors are also querying the financing brief given by the arranger.

“We need to know more about debt financing, right now I have only heard about Equity financing. Given the minimum amount of money that every investor is supposed to commit to the project, we need more options,” Mr Muthi said.

Mr Vasco Vitorio, the project manager and export finance head at StanChart said investors must chip in a minimum of $5 million entitling them to 13 STMI based on the initial capacity and estimated total project cost.

Shareholders will have the option to place any excess capacity back to a pool for resale and to reclaim the same in the event that their circumstances changed, he said.

The pool will be administered by a sales and marketing committee appointed by shareholders under the Construction and Management Agreement (C&MA). Pricing will be determined by shareholders who can re-sell capacity bilaterally or by the pool managers.

Mr Vitorio said shareholders will be free to choose onward connectivity providers up to Mombasa and from Fujairah onwards without any restriction.

Onward connectivity has been among the sticking points that investors wanted addressed before committing to the project.

More than 50 per cent of the total financing for the project has been met.

Kenya government has committed to taking up 40 per cent of the total financing obligations while Etisalat, a United Arab Emirates telecommunication company, has taken up 15 per cent.

Construction of the 4,887 kilometre cable is expected to commence in December and be completed in May 2009. It will have a maximum capacity of 640 Gbps, although the initial capacity will be 40 Gbps.

Alcatel-Lucent, French company, won the tender to construct the cable beating its other rivals, Tyco telecommunication of America , NEC, Huawei and Fujistu, all of China.

It will construct the cable at Sh5.6 billion although the total cost will be Sh 7.8 billion. Some of the other money went into cost of marine survey, professional costs for the lead arranger and costs of acquiring landing rights.

The cable will connect Mombasa with Fujairah and link it with others ; it is expected the cost of high speed bandwidth will be $ 500 compared to the current satellite rates which range between $ 7000 to 75,000.



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