De La Rue’s new licence to print money, while laughing all the way to the bank

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Employees at a currency printing firm. The De La Rue deal is just awaiting signatures. Photo/FILE

Employees at a currency printing firm. The De La Rue deal is just awaiting signatures. Photo/FILE 


Posted  Monday, April 4   2011 at  00:00

British currency printer De La Rue International has almost concluded negotiating a deal that if approved will grant it exclusive rights to produce Kenya’s currency notes for the next 10 years.

Sources say that two local legal firms contracted by the parties to draft agreements have completed the work and that the deal is now merely awaiting signatures.

The negotiations, which are shrouded in secrecy, have been going on for more than three years.

But what is emerging now is that although the stated objective of the negotiations was to set the stage for a joint venture deal where the government would purchase a 40 per cent stake in the De La Rue’s local subsidiary, located in Nairobi’s Ruaraka Estate, what is under discussion is an arrangement that will give De La Rue exclusive currency contracts.

Lawyers close to the transaction have intimated that De La Rue has insisted on an arrangement where the share and purchase agreement can only be signed after the simultaneous signing by the Central Bank of Kenya of a currency printing contract for 10 years.

Another condition is that the government must grant De La Rue an Export Processing Zone licence that comes with liberal privileges, including exemptions from VAT and Customs duty on imported inputs and equipment, income taxes, stamp duties and withholding taxes on payments to non-residents.

Apparently, the parties have agreed that De La Rue’s local business is to be transferred to a completely new company co-owned by the government and De La Rue on a 60:40 basis under the management of a five-member board — three directors from De la Rue and the remaining representing the government.

Indeed, at issue are complex negotiations involving simultaneous signing of multiple agreements including a joint venture agreement, a business transfer agreement, a share purchase agreement, a know-how agreement and a pricing agreement.

The parties are also negotiating articles and memoranda for the proposed venture.

Last week, Investment Secretary Esther Koimet, who is leading the negotiations on behalf of the government, refuted claims in the press that the deal was about to be concluded.

In a conversation with The EastAfrican, she said the transaction will have to be approved by the Cabinet before it is implemented.

Clearly, this is going to be one of those rare occasions where a transaction that has progressed to the level of engaging and paying transaction advisers for in excess of three year — besides hiring lawyers to draft legal agreements — is taken back to the Cabinet.

The usual practice is that the Cabinet deals with broad policy approvals.

Still, these latest developments have added a new twist to the shenanigans that have been playing out for the past five years.

Indeed, the big issue surrounding the joint venture negotiations is that they have served to deny the Central Bank of Kenya the opportunity to enjoy not only more competitive prices but also new generation notes that had been negotiated under a competitively tendered project in 2006.

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