The cancelled contract that hit NCPB hard

By ISAIAH LUCHELI

NAIROBI, KENYA: This year has been one of the most challenging for the National Cereals and Produce Board (NCPB) after a breach of contract led to the auctioning of its movable assets, paralysing its operations.

Erad Suppliers and General Contractors that had sued the State corporation over a cancelled contract and was awarded over Sh300 million following arbitration had also sought to sell the board’s permanent assets after failing to recover the money from the sale of movable assets.

However, NCPB was saved from imminent collapse after the Court of Appeal halted the auction of land, silos and buildings in order to offset the debt, which had accrued interest and stood at Sh500 million.

The staggering debt threatening to cripple the state corporation can be traced way back to 2004/2005 drought that hit the country and Erad was one of the four companies awarded the tender to supply maize.

At the time, the ravaging hunger was declared a national disaster as the country had a shortage of over 6 million bags of maize and the ministry of Agriculture vide letter reference number MOA/LMD/F.10/9A Volume IV/39 dated July 19, 2004, instructed cereals to purchase 2 million bags of maize for famine relief and strategic grain reserve.

The directors of Erad said they had sued the board for breach of contract and disclosed that they had purchased maize in South Africa and stored it there as they waited for a letter of credit from the Government before shipment but was never issued.

Letter of Credit is an acceptable mode of payment for international trade, especially commodity trading, and is meant to facilitate the suppliers in the loading and shipping of the goods.

 “The Government breached the contract when it failed to issue Erad with a letter of credit and went ahead to terminated the contract despite the company having issued a performance bond of Sh73 million and purchased the maize,” said Jacob Juma, the managing director of Erad.

Juma explained that Erad had complied with all the contract requirements but the Government had unilaterally terminated the contract and attempts to negotiate with Government officials before the matter was filed in court failed.

The court battle between the supplier and the board led to the delay in the supply of subsidised fertiliser to farmers and also put the country’s grain strategic reserve on the line.

Former permanent secretaries (PSs) in the ministries of Special Programme, the Treasury and Agriculture faced the Parliamentary Investment Committee (PIC) and explained the circumstances leading to the cancellation of the contract between the board and Erad.

The four former PSs were put to task to explain under what circumstance the Treasury issued Letters of Credit (LC) to four companies out of the five that had won the tender to supply the maize.

Erad was one of the five companies that had been contracted to supply the maize but the Treasury failed to issue the company with the LC.

The four former permernent secretaries – Dr Romano Kiome (Agriculture), Mr Joseph Kinyua (Finance) and both Andrew Mondo and Maalim Mahboub (Special Programmes) were trustees of NCPB at the time.

According to the then minister of Agriculture Minister Kipruto Kirwa, funding for the importation of the maize was projected at Sh4.8 billion out of which Sh3.4 billion was meant for opening letters of credit.

In the latest development, Erad has filed application at the commercial court seeking to sell over 26 grain storage facilities in Nairobi, Nakuru, Kisumu, Eldoret and Moi’s Bridge over the debt.

In a sworn affidavit, a director of Erad Grace Sarapay Wakhungu submitted that the firm had received Sh297,386,505 and was yet to receive Sh255,290,877 which had accrued interest at the rate of 12 per cent from December 18, 2012 and NCPB now owed the company Sh264,864,285.

However, NCPB has moved to the Court of Appeal where it has obtained orders maintaining the status quo, which has effectively blocked Erad from selling the board’s property.