Coffee giant agrees to pay Sh643m debt owed to KCB

By Nicholas Waitathu

The Kenya Planters’ Co-operative Union (KPCU) Interim board under receivership has agreed to pay debts it owes the Kenya Commercial Bank (KCB).

Under a deal, the two parties have agreed that KPCU will pay a reduced amount of the total debt the bank has been demanding.

KPCU was placed under receivership over a Sh643 million debt by KCB. KCB in late 2009 appointed Deloitte & Touche Consulting Firm as the receiver managers.

Interim board chairman William Gatei confirmed at a press conference yesterday at Wakulima House that an agreement has been reached between the KPCU and KCB management teams.

The deal, which is part of an ambitious business plan to turn around the giant union, requires farmers’ approval at a special general meeting to be held at the KPCU Dandora milling plant. At the same time, Gatei hinted that KPCU has clinched a lucrative deal with an international commodity trading company, but would not disclose details before the matter is presented to the farmers.  He said the State is willing to inject Sh1.2billion to revive the company.

“We have inked a deal with an international commodity trade organisation from Singapore.  The company will help us export internationally as we have outlined in a new business model,” he said. 

The company will assist farmers with financial as well as technical support, especially in reorganising its warehouses to meet international standards.

resume business

Gatei exuded confidence that once farmers agree to the ideas, KPCU will resume business.

 “We have negotiated for an out-of-court settlement with KCB. The agreement with the bank will enable us pay a reduced amount of the debt,” Gatei stated.

Last year, the government facilitated the election of an interim board to help work out a new revival plan. 

The board was mandated to work with the bank to liquidate the debt with a view to putting the institution back into the coffee business. 

Parliament’s Departmental Committee on Agriculture, Livestock and Cooperatives last year demanded that government inject a bail-out package of Sh1.2 billion to enable the institution repackage itself.

It was to implement a business plan that focuses on revival of the coffee industry  and better earnings for farmers.

A key component of the new business model, Gatei said, is the introduction of a warehouse receipt system, in which farmers will be issued with receipts that they can later use to borrow money from the bank.

Gatei added, “We will only ask farmers for a sample of their coffee and  issue them with receipts.” A similar system is being used in the maize industry.

The sale of coffee locally is currently dominated by international coffee companies. Many organisations have been blamed for manipulating prices at the Nairobi Coffee Exchange.

Gatei said the Singaporean commodity trading company is willing to partner with KPCU but only if the receivership is lifted.

The company, which he declined to name, is willing to clear the debts so that the company can resume coffee trading.

“Our focus is to resume coffee business; we are the pioneers of that in this country. We understand the game is very tight at the moment but our endowed infrastructure gives us an added advantage,” he said.

Presidential directive

Former President Mwai Kibaki in September 2011 announced a rescue plan and directed three line ministries - Finance, Agriculture and Cooperative - to work out a rescue plan immediately. The President was conforming to a budgetary allocation of Sh700 million in 2011/12 to salvage the miller.

The farmers’ institution is owned by over 700,000 small-scale farmers represented by over 300 co-operatives and about 2,000 estate farmers owning small, medium and large-scale farms.