Uncertainty surrounds the future of Vodacom Congo

Uncertainty surrounds the future of South Africa's mobile operator Vodacom in the Democratic Republic of Congo, following disagreements on a joint venture with Congolese Wireless Network.

The matter has now been taken for arbitration in Brussels. Areas of disagreements include a US$484 million capital injection by Vodacom Group and the possible liquidation of the joint venture, Vodacom Congo. If the operation in Congo is closed, Vodacom's plans to be a major player in Africa's mobile market will suffer a serious setback for the second time.

Vodacom Group abandoned its joint venture with Vodacom Zambia over a spectrum dispute with the Communications Authority of Zambia seven years ago. Over the past few years, Vodacom's operations in DRC have not been very profitable and have contributed less to the company's annual total earnings.

However, Vodacom Group still believes that Vodacom Congo has the potential to grow and is hopeful that the arbitration will bring a positive result. Vodacom Group own 51 percent stake in Vodacom Congo. Vodacom Group has operations in Tanzania, Mozambique, Lesotho and Swaziland and has been pushing for further investment in Africa.

Congo Wireless Network is, however, proposing a liquidation or sell-off to a third party of its Vodacom Congo stake as the means of ending the dispute, which Vodacom Congo is rejecting.

Over the past two years, Vodacom Group and Congo Wireless Network failed to amend the original joint venture agreement signed in 2001. The amendment would have included how funding for Vodacom Congo will be raised. The original agreement included a clause stating that any shareholder unable to meet capital calls to raise funds could be diluted either through the sale of shares to another or to a third party. However, for the capital call to succeed, both sides have to agree to contribute cash.

"Vodacom has closed doors to a solution but we will continue fighting to protect our rights," Congo Wireless Network Chairman Alieu Conteh told reporters after a meeting with Vodacom officials last week.

Confrontation between the two companies started a few months ago after Vodacom proposed a capital inject of $484 million, which automatically would have diluted Congo Wireless Network shares in Vodacom Congo. Congo Wireless Network objected to the cash injection by Vodacom and instead accused Vodacom of fraud and abuse of trust, mainly because of a loan that allegedly resulted in Congo Wireless Network incurring inflated interest and fees.

Congo Wireless Network then demanded that Vodacom pay back more than $166 million in interest and fees paid to Vodacom. The Vodacom Group, however, insists it provided over $340 million to the joint venture at commercial rates that were agreed to by Congo Wireless Network.

Congo Wireless Network said Vodacom Congo accumulated loses of $92 million in the 2008-2009 financial year and $219 million in 2009-2010 financial year ending February. Congo Wireless Network is now proposing the liquidation or sell-off to a third party of Vodacom Congo, which Vodacom Group is rejecting.