Value for money analysis of the Kelni/GVG contract and the Digital Vice President of the Year 2019.

An International Monetary Fund (IMF) team visited Accra in the first quarter of this year and conducted assessment for the combined 7th and 8th reviews of Ghana’s economic reform program supported by an Extended Credit Facility. The team discovered very worrying phenomena as far as domestic revenue mobilization of the NPP Government is concerned. The team established that in excess of Four Billion Ghana Cedis, (GHC 4 Billion) was wasted in 2018 alone by the Government on poorly and fraudulently managed tax exemption regime. This estimations excludes revenue that is lost due to a similar poorly and fraudulently structured framework in the Telecommunication sub sector of the Economy-the Almighty Kelni/GVG scandal. Paradoxically, however, the vice president who doubles as the head of the economic management Team has redefined his role and now being credited as the digital champion of the country even when a full minister of communication exists. In recognition of his digital ambassadorial role, the Veep was awarded as a digital champion, Interestingly, the list of digital projects mentioned as basis for his award failed to highlight one of the most expensive and fraudulent digital project-The Kelni/GVG project. How could such a huge project escape the award committee and the Vice President? The facts below provide some basis of the deliberate omission of this all important project:

The telecommunications ecosystem of Ghana is regulated by the National Communications Authority (NCA) under the mandate derived from the National Communications Authority Act, 2008 (Act 769). The Electronic Communications (Amendment) Act, 2009 (ACT 786) introduced the minimum rate for international incoming traffic at $0.19 per minute. Under this Act, government is entitled to $0.06 out the minimum rate charged by Mobile Network Operators MNOs, while $0.013 is to be retained by the Mobile Network Operators (MNOs).

The Ghana Revenue Authority (GRA) is responsible for the collection of all taxes in Ghana including Value Added Tax (VAT) and the Communications Service Tax (CST). The GRA is mandated under the Communications Service Tax (Amendment) Act, 2013 (Act 864) to collaborate with the NCA through the Common Monitoring Platform (CMP) for the purposes of collecting taxes (6% of CST) due government under this Act.

The Mobile Network Operators (MNOs) are licensed by the NCA to provide telecommunications services in Ghana. These MNOs have various revenue streams which are of interest to the Government of Ghana (GOG). The traditional revenue streams of the MNOs, include the following;

• Prepaid revenue stream— generated mainly by the scratch card.
• Post-paid revenue stream---generated by the customers who access various telecom services before payment and are largely corporate.
• Domestic Interconnect revenue stream—generated by national interconnect charge.
• International incoming revenue stream---generated by international incoming calls charge.

However, without any form of monitoring and through a system of self-reporting of revenues generated by the MNOs, government still collect huge amount of money.

Below is a table showing the CST (6%) collected by government at zero cost from (January to September 2017).

Source: NCA Quarterly Statistical Bulletin 2017
From the table above, government could collect GHc 307,672,015.95 million for nine months for 2017 without any form of monitoring. For any value for money justification, there should be an indication this figure is likely to increase by 500% attributable to the operationalization of the Common Monitoring Platform (CMP). Unfortunately, this is not the case for this KELNI/GVG contract.

The CMP is to monitor revenues which accrues to government under Act 864 (6% CST) and Act 786 ($0.06 of $0.19). It is evident that revenue generated from mobile money transaction does not fall under the purview of neither the NCA nor the Ministry of Communication. It is therefore not surprising that the scandalous Kelni/GVG project has failed to include mobile money transactions in the scope of coverage of the project despite continuous payment by the government to the service provider for such non-existent services.

It is also scandalous to note that Government has continuously paid the 189million dollars to the company in spite of the fact that they have not been able to initiate any live monitoring activity since the inception of the program. This implies that the Telecos continue to self-report whilst government pay monies to the private company for doing nothing. In the perspective of value for money analysis, nothing is added to our revenue from these sources after the implementation of the project. We now have to remove a chunk of what we use to earn before the project to pay the private company for bringing nothing in addition.

There are four active MNOs in telecommunication industry in Ghana comprising MTN, Airtel/Tigo, Vodafone and Glo. Mobile voice subscription at the end of the third quarter stood at 37.4m (130.9%) subscribers indicative of market saturation. At the end of the third quarter, domestic mobile voice traffic increased by 12.17% to 16.17 billion minutes. This by implication means that without any form of monitoring for three quarters in 2017, these were the total number of minutes as declared by the MNOs through self-reporting. Any reasonable value for money analysis would have indicated that the CMP was likely to increase traffic by a certain percentage and subsequently a value placed on this expected traffic to make an informed decision. However, this potential increase in traffic volumes resulting from CMP should be net off with about 3% average organic growth in the market.

The second challenge is even if the CMP can obtain this traffic through live monitoring, the value of each traffic varies for MNO to MNO based on promotions, discount zones, peak period and the status of a customer. Therefore, blanket analysis based on the volume of traffic may be misleading. However, raw data obtained by the CMP through live monitoring would still be handicapped in terms of how much the traffic generated is worth.

Another consideration for value for money analysis would be to examine each revenue steam of the MNOs and whether the CMP is the appropriate panacea to maximizing government revenue under Act 864 and Act 786.The ensuing analysis would determine whether the expected additional revenue is worth pursuing since the self-reporting regime still guaranteed some revenues generated under Act 864 and Act 786

Firstly, prepaid constitute on average about 80% of the traditional revenue stream of the MNOs. The value of the prepaid revenue goes through three channels which include; the scratch card, loading the scratch card and the actual usage. At each stage in the process, the value of the scratch card will not be same because of the following reasons;

• If user loads a GHC20 scratch card and given a 100% bonus, then immediately the value becomes GHC40 with its corresponding minutes.
• The load scratch which was supposed to be for instance 40 minutes is now 80 minutes.
• Now the actual usage at the end of the month may be 80 minutes as would have been captured by the CMP.

From the above this 80 minutes depending on the rate of ON NET or OFF NET traffic would be used erroneously as if there was increase in value of the revenue stream, when in fact there is none. This means that CMP intended live monitoring is a façade and what is required is tracking the production of scratch cards for actual value of such transactions. With this current arrangement of the CMP, the NCA would still have to depend on the MNOs determine the value of the traffic captured making the $1.5m monthly payment to KELNI/GVG unconscionable.

Secondly, the postpaid revenue constitutes about 2% of the total revenue of MNOs. This is very easy to track because bills are prepared monthly and sent to customers who are largely corporate. These payments may be captured by the corporate entities making shielding of information regarding this revenue extremely difficult. This is too insignificant to qualify any value money justification for such unconscionable payments.

Thirdly, domestic interconnect revenue is also about 8% of the total revenue. The MNOs on monthly basis do reconciliation among themselves before settlement is done provided the traffic variation is 1% in line with practice within the telecom ecosystem. In addition, all the MNOs have corresponding incoming and outgoing calls for verification. Also, if the ICH goes live, this data would be available for free to both the NCA and GRA. Therefore, without the slightest hesitation there is absolutely no need to monitor this OFF-NET traffic.

Fourthly, international incoming traffic revenue which is the focus of Act 786 is about 5% of MNOs traditional revenue streams. According to the NCA third quarterly bulletin international incoming voice traffic has shown a decreasing trend for the last five quarters

(2% monthly average). International incoming traffic decreased by 9.09% quarter on quarter from 128.2 million minutes to 116.5 million minutes in the third quarter of 2017.

This is crucial because had the current data available before government signed the KELNI/GVG contract. From the figures, above, the average monthly traffic is about 41 million minutes. These were self-reporting figures by MNOs without any form of monitoring since Subah and Afriwave were barred from tax revenue and revenue assurance respectively.

Below is a table showing International Incoming traffic and revenue collected government under Act 786.

Source: NCA Quarterly Statistical Bulletin 2017
From the table above, government could collect about $22m through a self-reporting regime by the MNOs at zero cost to the state. This revenue is the main driver of the CMP particularly for NCA. For the CMP to even make a reasonable value for money justification, traffic must increase 1000% through live monitoring which is practically impossible.

From the above analysis, there can be no justification to use $189m of Ghana’s tax payers’ money in the name of just trying to implement Act 864 without any corresponding reasonable value for money justification. There is therefore every basis to conclude that this Kelni/GVG project is a fraud and a clear conduit for the siphoning of state resources for private gain. You can also now see why this project was not mentioned as one of the digital interventions of the Veep for which he was made the Digital champion of Ghana.

Dr. Mu-Awia Zakaria
Executive Director
Institute of Social Research and Development
Accra.