Last Updated- Feb 13, 2009 12:35 - - 0 Comments


Can the GT/Vodafone deal be reviewed?

While in opposition, the National Democrat­ic Congress (NDC) served notice that it would review the deal that led to the government ceding 70 per cent of its stake in Ghana Telecom to UK based Vodafone when voted into office.

Charles Benoni Okine looks, at the deal and considers whether the NDC can carry out the review in good faith, now that it is in power.
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vodafone_gtGhana’s premier telecommunications company, Ghana Telecom (GT), has had a troubled past. Indeed, even though it was one of the priced state assets, it never enjoyed much state support.

Since the inception of the Fourth Republic, GT has had to contend with one controversy after another. Asked how he would describe the for­tunes of GT over the past 16 years, one commen­tator just remarked: “It has been one state compa­ny that has endured more pain.”

GT’s story has been truly remarkable. When the NDC was in government under the Jerry Rawlings regime, 30 per cent of the company was sold to Telekom Malaysia for approximately US$30 mil­lion.

Although Telekom Malaysia had the minority shares in GT, it was, in addition to what many perceived to be a juicy deal that had a gestation period of five years with an option for renewal, made to take over the board and management of the com­pany. The deal, no doubt, generated so much controversy, with the main opposi­tion party promising a review when voted into office!

But truth be told, the deal with Telecom Malaysia did not change the fortunes of the company. In actual fact, it was more of a management contract that saw the Malaysians making more money with so little investment in the company.

But the government of the day saw things differently. It was explained that the move was intended to mark the beginning of a major transformation of the finan­cially ailing and technically bankrupt GT to enable it to compete with the foreign giants in the industry such as the likes of Spacefon (now MTN) and Millicom, oper­ators of tiGO.

Unfortunately for the Malaysians, the contract was not renewed after the initial five-year term had ended, when a new regime took over the administration of the country. The New Patriotic Party (NPP) took over the administration of the coun­try at about the same time that the Malaysian deal had expired.

And read this slowly. While in opposi­tion, the NPP vehemently criticised the GT/Telecom Malaysia deal and vowed not to renew the contract when voted into office. This is indeed a case of history repeating itself.

In the end, the NPP government went in for a management contract with Telenol of Norway, another deal which raised many eyebrows but of which the ruling government maintained was the best for the country and the company as a whole.

The difference between the two deals (GT/Telekom Malaysia and GT/Telenol) was that the NDC managed to sell off part of the government stake for money, but the NPP did not and instead paid huge sums as contract value amounts to the Telenol “managers”.

The NPP government later negotiated with Telekom Malaysia to buy back the shares earlier sold to them so that the gov­ernment became the sole shareholder of GT.

How Vodafone entered the fray

At the latter part of last year, the gov­ernment went to Parliament to inform the august House about a deal with Voda­fone. The government was therefore seek­ing ratification so that it would be able to sell 70 per cent stake in GT to Vodafone for a total sum of approximately US$700 million.

The move also raised a lot of eye­ brows, especially with the opposition par­ties led by the present President of the Republic threatening to review the deal because it was perceived to be a bad one, which was not only in the best inter­est of the state, but also a “complete” give-away. In fact, the debates that fol­lowed led to the government asking for more money from Vodafone, eventually with the deal topping US$900 million. But the main opposition party was still not convinced.

It therefore, did not come as a surprise when shortly, after the minister designate for communications, Mr Haruna Iddrisu, was nominated by the President, in inter­views he granted to the media affirmed the likely position of the government in terms of what might happen to the GT/Vodafone deal.

The minister designate made it clear that the intention was not to abrogate the contract altogether, Put to ensure that Ghanaians had value for money. This is a classic way to describe a review.

Implications of a review

According to a professor of economics at the Connecticut State University in the United Slates of America, one would like to think that when a price is arrived at, it is the result of what one is willing to pay and what one is willing to accept.

“Indeed, this is the reason why one uses experts in trying to determine the ‘fair’ price.”

But “if some material information was withheld from one party, then of course the party who suffers can cry foul and ask for a review”.

“If the review leads to the discovery of some underhandedness on the part of some Ghanaians involved in the sale or on the part of Vodafone, then the present government may have the right to punish, or ask for the price to be re-negotiated or even abrogate the sale agreement”, he argued.

He also thinks that if everything was above board, then any attempt to review, with a view to setting a new price sends the message that Ghana cannot be trusted to honour its commitments arrived at in a fair and open manner.

The market counts on (participants, individuals, businesses and governments) honouring their commitments. The risk assigned to countries such as Ghana is a signal to potential lenders and people or businesses contemplating doing business ­in the country of the risk they face.

When a country unilaterally decides to review an agreement; it sends a deterrent message to private investors. Political stability and good governance are important factors in assigning risks to countries and in influencing the flow of foreign direct investment (FDI).

“If [there are] some shenanigans which led to the undervaluation of GT, then we do not have good governance; and cred­it rating agencies will take note of that and consequently downgrade the country”, Dr Samuel K. Andoh said.

He noted that if everything was done by the book but the past government just made an error, then what can simply be done is to swallow it as part of the price to pay for growing up and create a mechanism that will not allow that to happen again.

“I have difficulty with the argument that GT is a national strategic asset and, that its sale was not in the national interest”, Dr Andoh said.

“What is so strategic about a country owning a telecoms company? One can argue that the price at which it was sold was not fair but that does not mean that the government should own it”, he added.

He further argued that there is nothing inherently desirable about the govern­ment owning a telecoms company, especially when the company is not being run efficiently and needs to be recapitalised every now and then.

The same argument, he said, was probably what made for the demise of Ghana Airways and the Black Star Line. To him why should tax payers subsidise a business which can be run by the private sector at a profit.

The Government of South Africa for example owns only 38.9 per cent of Telkom SA albeit it is the majority share­holder.

Mr Kwamena Essil Adjaye, an eco­nomic consultant, also shared a few thoughts about the deal and the threat of a review.

To him, there is nothing wrong should the present government decide to review the deal.

He said there is a clause in the con­tract, which gave room for some aspects of the deal to be changed, but also indi­cated that a review would depend on what the present government perceives to be against the national interest.

Mr Adjaye said it was only important to ensure that the review is not done only to reverse what the previous government did for the sake of it but that there must be concrete evidence and reasons for that action to be carried out.

The VALCO deal was reviewed when the last government thought there were anomalies that were not in the country’s interest, it was reversed and therefore, the  same could be done to this deal, he added

The thinking at GT

The employees of GT strongly back the deal because to them, it was a perfect move for the company and the nation as a whole. They, including the government at the time, were of the view that the com­pany needed to be saved from bankruptcy or else everybody will lose in the end.

The threat of a review has, therefore, sent some shivers down the spine of some of the staff but they remain resolute and confident about the deal and believe the government would not do anything to send wrong signals to the international community.

They are of the view that if there should be anything at all, portions of the contract could be looked at and anomalies cor­rected.

Conclusion

Ghana has since the last couple of decades been vigorously searching for Foreign Direct Investments (FDls) to boost the economy and to help provide jobs for the people.

It will therefore be unfortunate for any government to do what would drive such investors out when at the same time they need them to help turn the economy around.

As earlier pointed out by the economic analysts, every contract is subject to review, irrespective of which government entered into that agreement on behalf of the nation. However, any such reviews must be done in the best interest of the country and in such a way that would not betray the trust of investors who have good intentions and enter into a contract in good faith.

In the end, it should be a win-win situ­ation for all parties and so there is the need for the government to tread cau­tiously so that its actions are not seen as uncomplimentary and a deterrent to the investors the country much yearns for.

Source: GB

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