Privatisation of SALCAB – the hard facts

Amin Kef Sesay: Sierra Leone Telegraph: 14 September 2020:

After running the Sierra Leone Cable (SALCAB) – an agency that controls the country’s internet gateway for over a year, without realising much returns and plunging the institution in huge debt, the agency closed its financial year 2017 with a negative cash flow of Le327 million.

SALCAB’s situation worsened in 2018 with a liability of Le9.7 billion as a result of repayment of loans from banks, vendor payment for spare parts and related items which resulted in huge exposure of the institution, with serious risk of going into administration if Government does not inject huge capital to salvage the company.

Looking at the country’s dire economic circumstances, the Director-General – Ishmael Kebbay, in consultation with the Board of Directors decided that the only way to keep SALCAB running is to privatise it.

A private investor will be charged with the responsibility of network operations and maintenance of the submarine fibre optic network and the landing station including supply chain planning, equipment, spares and capital expenditure as well as related network expansion, upgrade and contingency plan and service delivery.

The private company will take responsibility for sales, marketing and new product development,   account management, billing and collection, with a 24/7 contract centre, the creation of ethical business climate in the country that attract more investment into the sector.

This privatisation proposal was approved by the Board and Management of SALCAB. Request for selective bidding and an Expression Of Interest (EOI) was sent to the National Public Procurement Authority (NPPA) on 27th January, 2020 for vetting. A response was received from NPPA on 29th January, 2020.

The NPPA did not approve request to undertake selective or restrictive procurement, but instead recommended an open tender process.

After EOI Expression had been advertised and an open tender begun by SALCAB, the Minister of Information and Communications, Mohamed Rado Swarray stepped in “to protect the country’s interest”.

Mr Swarray ordered that all processes in respect of the privatisation of SALCAB to be put on hold to ensure that the correct procedure was followed. The Minister of Information was highly concerned about entrusting the whole operations of SALCAB to a private entity, saying it has the potential to compromise national security.

Growing misconceptions now overshadow SALCAB while on the threshold of privatisation and unbundling.  At a press conference held at the Ministry of Information and Communications, Mr Swarray said that  SALCAB was not for sale.

The Minister however confirmed that SALCAB would be unbundled to ensure operational effectiveness and efficiency.

Because of widespread misunderstanding and misconceptions about SALCAB’s unbundling, Minister Swarray, last week, appeared before the Parliamentary Committee on Transparency and Accountability where he explained the unbundling process.

The Minister told parliamentarians that the unbundling of SALCAB was in the country’s interest.

When the privatisation idea came up, Minister Swarray however, insisted on upholding the State’s interest by ensuring that Government handles SALCAB’s security aspect while a private company  manages the commercial operations.

The letter dated 19th August, 2019 sought an approval from NPPA so that it could commence the bid process for the transformation of SALCAB into a private entity.

“We are proposing a business model that will allow SALCAB outsource the operations of the sub-marine fiber-optic network to a third party via lease operation model,” the letter reads. It further states that the entity to whom SALCAB will be leased bears the cost of operation, maintenance, administrative, and commercial cost of the landing station while giving SALCAB a monthly fixed revenue.

Sierra Leone, the letter says, will not have any operational cost exposure to the network including related capital expenditure, equipment, spares, service recovery among others.

Should the arrangement go as planned, the third party will absorb the existing SALCAB staff to drive network, sales and marketing.

As SALCAB stands on the threshold of unbundling, various sectors of society are less satisfied with the project.

Under the new arrangement, SALCAB will recalibrate its business model towards its open access terrestrial fibre optic network with a mix of a passive network for backhaul transmission and distribution.

It will be solely responsible for backhaul transmission and distribution, connecting national cities and towns as well as supporting operators to transport a large amount of data cheaper and faster. It will mainly focus on real fibre network operations at the other end of the spectrum.

In a subsequent correspondence dated 14th January, 2020, Mr Kebbay strengthens the case for SALCAB’s privatisation.

“The Public-Private Partnership model employed for operating SALCAB was a slippery-slope for Government of Sierra Leone. The operators were not meeting their High Operating Expense (OPEX) obligation to operate the facility. They were only soughting after the direct benefit of extracting bandwidth while the facility almost perished,” the letter alleged.

The 14th January application requested NPPA for a ‘No Objection’ to undertake selective or restrictive consultancy services procedures for outsourcing the operations of SALCAB.

In its reply, NPPA did not grant the management of SALCAB their request for selective or restrictive method of procurement, as the exigency of the service does not meet the requirement stated in Section 41(1) of the Public Procurement Act.

Apart from its failure to meet its OPEX obligation, the correspondence also indicates that the company has not been profitable, adding that it is at a breakeven point to sustain its operational expenses. The cashflow, it says, is very weak to undertake any significant capital expenditure.

Weak revenue collection, high debt exposure of over $6.7 million, running of SALCAB as a not-for-profit entity by the previous administration and difficulty of talent acquisition in the public sector were part of the case for privatisation and unbundling of SALCAB.

SALCAB was operated under a Public-Private Partnership model from 2011 to 2013 which did not benefit the institution.

Between 2013 and 2014, Government of Sierra Leone through the Ministry of Information and Communications, revoked the equity of private individuals and refunded the capital contributed per share of the private partners. Government took full control of the facility whose landing station it has been operating from 2014 to date.

Despite Government taking the lead to set the stage for the stimulation of the country’s digital economy, it needs to protect its investment by employing the right business model that will pay-off associated liabilities and earn a return on investment.

Document seen by this author shows that SALCAB is expanding too thin and horizontal through the in-sourcing, operations,  maintenance and commercialisation of the submarine optical and terrestrial networks.

It also shows that SALCAB has not been profitable since its formation and operation under the PPP model up to a point Government took full control of the station facility.

2 Comments

  1. I cannot agree more with Abraham government should not be running businesses and thought that the privatisation commission was meant to be transforming these failed institutions to the private sector. Sierratel for instance has been a pit hole for money for years but still kept on whilst Africell is a profitable.

  2. When governments venture in to the cooperate world on behalf of its citizens,and managed correctly it will work. But 9 out of 10 they always get their fingers burnt. And they turn out to be a monumental failure. The reality is governments should never be in the business of running a business. It should be left to the business experts in that particular field to partner with the government to make a success of it.The majority shares goes to the private enterprise. And government take a minority share of the said company. So if push comes to shove, the government will step in.

    The role of government should be to monitor, not to take the lead role. The French and German governments are good at it when it comes to state industries that are too big to fail. Renault the car maker is just an example. If there are lessons to be drawn for both public and private enterprises wanting to operate in Sierra Leone, this government haven’t created the conducive environment for these companies to excel. China Kingho’s corruption deal, and now SALCAB. Both these companies operate in different spheres. But they share one thing in common, government officials interference and corruption.

    For Kingho, corrupt government officials’ failure to assess the company’s assets, and its sustainability in terms of market value as they claim to be. SALCAB,a national treasure that corrupt government ministers think they can run without involving private enterprise. The trouble with our corrupt politicians, anywhere they think they can make a quick buck, is open season. They will shut the doors to all well meaning investors. Never mind the impact on the country and its poor suffering people. Until and unless we find a way how government tenders are awarded to well meaning cooperate entities, instead of awarding tenders to anyone who pays the highest bribe, even if they are not fit to run a company, our country will always pick up the tab. May God bless Sierra leone.

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