KTDA and tea factory dispute over contract to hurt farmers

A farmer picks tea on his farm in Makomboki, Murang’a County. [File, Standard]
Tea farmers affiliated to Kiru Tea Factory Company in Kiria–ini, Murang’a County are staring at uncertain future as the contract between the factory and the Kenya Tea Development Agency (KTDA) comes to an end.

With less than two months before the expiry of a 10-year management contract signed between KTDA and the tea factory in 2009, chances of renewal are slim.

At risk are the earnings of some 8,000 tea growers who deliver tea to the factory.

The farmers earned dividends from KTDA totaling to Sh40 million over the past five years.

At the centre of the dispute is the factory management’s demand for review of terms.

In a letter addressed to KTDA on September 18, 2017, the factory gave notice of intention to terminate the management agreement.

Negotiations

“The board of this company in its special board meeting held on September 11, 2017 at the factory premises noted that the management agreement dated July 9, 2009 is for a period of 10 years and shall determine on June 30, 2019 and resolved to notify the managing agent that the agreement shall determine as scheduled on June 30, 2019 and that the management service offered by KTDA MS to the company shall stand terminated forthwith,” the letter signed by Kiru Tea Factory chairman Chege Kirundi said.

“The company desires to commence negotiations at the earliest time possible for a new management agreement with KTDA Management Services Limited and KTDA Holdings Limited subject to KTDA meeting specific requirements,” reads the letter in part.

The factory management wants KTDA to provide a forensic audit report for the management period, a report from Competition Authority addressing the Authority’s dominance in the tea sector and have the factory and tea agency go to arbitration over their management agreement.

KTDA, in a rebuttal, stated that it would not consider the notice of termination, as the shareholders had not played a part in the decision.

According to Benson Millimo, the lead lawyer for the agency’s legal team, KTDA and Kiru’s relationship is vested in the Articles of Association of the company and only the shareholders can terminate it.

“The relationship between KTDA and Kiru is based on a management contract and Kiru provided for termination process. It cannot be terminated by the arbitrary decision of one board member,” KTDA’s legal representative said.

To divorce from KTDA, Mr Millimo said, shareholders must amend the Articles of Association.

“But as it is, without amending the company’s constitution the management agreement is self automatic that if it is not terminated and it reaches the expiry date it automatically renews itself for another 10 year period,” he said.

Mr Kirundi explained that their quest to renegotiate their contract, is pegged on KTDA reducing a Sh2.50 management fee that farmers pay for each kilogramme of tea delivered to the factory.

“We have reached a point where if they don’t negotiate in the next two months we shall have to exit. We have no choice because we gave them notice and never anticipated this stalemate,” Kirundi told The Standard on Sunday.

KTDA Director Peter Kanyago however declined to comment on the matter saying it was before court.

“The matter is in court and I wish not to make any comment so that I do not prejudice it,” Kanyago said yesterday.

According to documents filed in court, KTDA has guaranteed Sh378.7 million loans advanced to Kiru for infrastructure projects such as construction of a hydro power plant.

Farmers allied to the factory have also borrowed Sh68 million from Greenland Fedha Limited, a microfinance subsidiary of KTDA.

Alternative guarantees

KTDA Corporate Affairs Manager Ndiga Kithae said they marketed, managed production and logistics and provided financial facilities for investments that Kiru makes.

“If they severe ties with KTDA it means that they will no longer enjoy the marketing, loan guarantees and economies of scale in fertilisers. The factory has financial facilities guaranteed by KTDA if for whatever reason they are not within KTDA they have to get alternative guarantees for those facilities,” Kithae said.

Agriculture and Food Authority interim director Antony Muriithi confirmed that the two parties had not submitted an application for renewal but said it was unlikely the stalemate would persist.

“We have not seen any application to renew and once we do we will handle it at that point. Right now there is a dispute between the two parties and they have been engaging in court,” Mr Muriithi said.

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Kiru Tea Factory CompanyTea farmersKTDA