Now AG office blocks De La Rue currency deal

The Office of the Attorney General has blocked De La Rue plc of the United Kingdom from concluding a controversial joint venture deal in which the Kenya government is to purchase a 40 per cent share in the British company’s local subsidiary in exchange for a 10-year exclusive currency printing contract with the Central Bank of Kenya.

The proposed joint venture is a high-stakes affair — in part because the deal is believed to have powerful supporters in the corridors of power, and also because of the sheer size of the banknote printing contract in Kenya.

For instance, between May 2006 and October 2010, Kenya ordered 900 million bank notes from De La Rue’s local plant — all in the form of short-term contracts awarded without competitive bidding.

De La Rue’s prices varied according to specific bank notes, the most of expensive being the Ksh1,000 note printed at a price of $53.7 per 1,000 notes.

Approved by the Cabinet last year, the proposed joint venture has elicited widespread opposition from civil society and parliament, with critics charging that it is a ploy to allow the British currency printer to lock out its competitors from participating in banknote printing contracts in Kenya.

The latest prominent voice to speak out against the deal is that of former governor of the Central Bank of Kenya, Micah Cheserem, who last month, argued that Kenya’s interests would be served better if the country purchased bank notes through international competitive bidding.

But such has been the support for the deal with the corridors of power that despite loud opposition from parliament and notwithstanding the fact that two legal suits by members of civil society challenging the transaction are pending in the High Court of Kenya, De La Rue and the Treasury have been pressing ahead, quietly working on formally sealing the deal.

By late December 2011, the negotiating teams had drafted all the necessary agreements, copies of which were then sent to the Office of the Attorney General for scrutiny and approval.

The manner in which the Office of the Attorney handled the draft agreements was not without drama.

In a case of one hand not knowing what the other was doing, Deputy Solicitor General Dorcas Achapa, passed the agreement, signalling that the Office of the Attorney General had scrutinised the agreements and approved them, thus giving the Treasury the go-ahead to consummate the deal with De La Rue. Achapa’s letter to the Treasury was dated December 21.

The ink on that letter had not dried when the following day, another officer from the Office of the Attorney General fired off a letter directing the Treasury to hold the signing of the agreements in abeyance until after the outcome of the court cases.

“This will avoid the government being seen as acting with impunity and (being) disrespectful of the court process,” said the letter signed by Senior Deputy Solicitor General Muthoni Likimani.

Four separate agreements must be signed by the parties before the deal can be consummated: A joint venture agreement; a business transfer agreement; a share sale and purchase agreement; and a shareholders agreement.

The two cases pending before the High Court of Kenya claim breach of the right of access to information and the lack of public participation in the process.

While it remains to be seen how the saga will play out, the secretive De La Rue is likely to find itself permanently under public scrutiny.
According to the Cabinet paper that approved the deal, the government was supposed to pay $7.8 million for the 40 per cent stake in De La Rue’s local subsidiary.

The paper also says that the money is to be paid in two instalments, Ksh200 million ($2.3 million) in the current financial year, and the balance in the next financial year.

The government must meet two conditions before the deal is sealed.

First, the Central Bank of Kenya must enter into a 10-year banknote printing agreement to come into force immediately after the signing of the share and purchase agreement.

Second, Kenya must grant De La Rue a new export processing zones licence with liberal tax privileges.

The order by the AG’s office is a major setback to De La Rue’s plans. The parties had gone to the extent of setting March 31 as the target date for completion of the precedents conditions.

The British firm has had a monopoly of printing Kenya’s currency since January 1993 when it signed a 10-year contract with the government of former president Daniel arap Moi.

The minimum order under the contract was for the supply of 170 million pieces of banknotes each year.

In December 2002, following the expiry of the initial 10-year contract, the Central Bank of Kenya entered into a new 10-year contract with the British company.

When President Mwai Kibaki came to power, the contract with De La Rue was cancelled by former finance minister David Mwiraria.
The new minister ordered the Central Bank of Kenya to float an open tender.

Three-year contract

In May 2006, De La Rue won a three-year contract under an open tender to print 1.17 billion pieces of new look bank notes at a cost of $51 million.

The new generation bank notes were to be issued beginning July 2007.

The contract for the new generation notes was later cancelled by the Treasury even after De La Rue was paid $25.5 million as a deposit.

The excuse was that the government had decided to purchase shares in De La Rue’s local subsidiary.

Negotiations to buy into De La Rue have dragged on since 2006. In the meantime, De La Rue has been enjoying opaquely procured short-term contracts.

The novel idea of new generation banknotes procured through competitive bidding appears to have been completely abandoned.