Queries emerge as De La Rue rushes to beat currency deal deadline
By BY EMMANUEL WERE | January 12th 2014
BY EMMANUEL WERE
KENYA: British currency printer De La Rue has boxed the Kenyan government into a corner to push through a partnership deal by next month.
The joint venture agreement, in which the Kenyan Government is to purchase a 40 per cent share in De La Rue’s local subsidiary, has dragged on since 2006 due to questions that rose about the deal.
The government is set to pay Sh713 million (£ 5 million) for the 40 per cent stake even as several questions remain unanswered about exactly what the Kenyan public is being subjected to.
There are still questions as to whether De La Rue has the capacity to handle the printing of the new currencies. Other questions include how the value of the government’s stake in the joint venter been arrived at the States fate in sharing of intellectual property rights in the deal.
It now seems De La Rue is in a hurry to push through the deal, with the currency printer keen to sign the agreement by March 31, 2014, according to communication between the company and the Investment Secretary Esther Koimett.
De La Rue proposes to terminate the offer to set up a Joint Venture if the deal is not concluded by June 30. Coincidentally, the Central Bank governor, Njuguna Ndung’u, has set a time line of negotiating and signing a contract by February 2014.
This is under the “worst case scenario”, which gives an allowance should any court case rise before another signing is done March 2015. In this case scenario the country should have a new currency by January 2016.
However, if things go according to plan, Prof Ndung’u has proposed that the negotiations and signing of the contract should be done in April 2014. This is if the country is to have a new set of currency notes by February 2015.
This means that either way De La Rue will have sealed the deal before the June 30 deadline. Prof Ndung’u though is facing the possibility of court action. This is as the anti corruption agency EACC moves to charge several top CBK officials over irregularly issued procurement deals.
CBK is the one in charge of printing of currency. Facing the prospect of losing the currency deal, De La Rue’s official have in the last three months gone to great lengths to try and meet with President Kenyatta and senior officials in the government to make sure that the joint venture agreement is reached “reasonably quickly to a conclusion”, according to letters seen by Weekend in Business.
In October 2013, Tim Cobbold, De La Rue’s global chief executive was in Washington to hold talks with Cabinet Secretary, National Treasury, Henry Rotich.
“Thank you (Mr Rotich) for taking time from your busy schedule to meet me in Washington. I was grateful for the opportunity to brief you personally on the proposed Joint Venture between the Government and De La Rue, which has been under consideration for some time,” read in part the letter dated October 25, 2013.
Cobbold then invited President Uhuru Kenyatta and Rotich to a meeting in Sri Lanka in November, where the Commonwealth Heads were to meet. President Uhuru skipped the Commonwealth meeting opting instead to attend the third Africa-Arab summit in Kuwait. Cobbold was keen on meeting with President Uhuru and Rotich in Sri Lanka because that is where De La Rue has a Joint Venture agreement with the government.
The Joint Venture with the Sri Lankan government is similar deal that it wants to enter with the Kenyan government. De La Rue has a 60 per cent stake and the Sri Lankan government has a 40 per cent stake in the joint venture.
“We would like to invite President Uhuru Kenyatta, and, of course, yourself (Rotich), if you are present at that meeting, to visit our joint venture there (Sri Lanka),” reads the letter from Cobbold, hoping that the President and Rotich would be in Sri Lanka for the Commonwealth Heads of Government meet.
“I hope that you would both be able to accept our invitation as it would provide an opportunity for you to judge for yourselves the relative benefits of the venture,” Cobbold said in the letter.
De La Rue has been very shrewd and persistent in pushing for the Joint Venture deal with the government, even going to the extent of touching on the emotional celebration of the Jubilee year.
“As we approach the climax of the Jubilee year, it would be my wish to seek audience with your President, to pledge, once again, our commitment to Kenya, to explain our investment strategy, which provides more jobs for Kenyans, and so express our thanks to the people of Kenya for the privilege of working alongside them,” from Cobbold to Rotich reads.
Barely a week after the De La Rue Chief Executive Cobbold sent the letter to Finance Cabinet Secretary; another executive from the company sent a letter to Esther Koimett, the investment secretary Treasury. Douglas Denham, Commercial Legal Director at De La Rue, in a letter dated November 4, 2013 urges the government to sign the Joint Venture Agreement during celebrations to mark Kenya’s celebration of 50 years of Independence during a “high profile event” arranged in London on December 3, 2013.
The event was to be graced by Amina Mohammed, Kenya’s Cabinet Secretary of Foreign Affairs. Prof Ndung’u, was to attend and so were the Cabinet Secretaries from various ministries.
“It has been suggested to us that this would be an ideal occasion to confirm we had reached an agreement on the terms of, or indeed to sign, the Joint Venture Agreements. We are happy to work to meet this deadline,” Denham, the commercial legal director said of the event in London. The signing of the Joint Venture agreement in London – its home turf - would mark a significant milestone for the British company which got the contract to print the currency in 1992.
Denham goes on further to imply that the deal is pretty much done with very little work left ahead of signing the agreement.
“We have further reviewed the terms of the agreements and, whilst we do not believe there needs to be significant work carried out to be in a position to sign by December 3, clearly it would take effort and focus by both teams to be in a position to do so,” reads the letter signed by Denham to Ms Koimett.
What should clearly trouble the Kenyan public is the tight timeline De La Rue is putting on the Government to go ahead with the joint venture agreement. First is that the deal be signed by March 2014, and if not signed by June 2014 the deal is terminated.
The second aspect is a proposal that the government pays for the second installment in the joint venture by September 30, 2014.
De La Rue then gives the government until the end of October 2014 to pay up.
If the Government does not pay up, De La Rue will charge an interest rate of the three-month sterling London Interbank Offered Rate (LIBOR) plus 2.5 per cent interest applicable from October 1, 2014.
The LIBOR is the rate at which banks in London borrow from each other. In order to ensure that the Joint Venture is concluded very fast smoothly De La Rue has dropped some of its demands.
It was reported in the local media that the British company is no longer pushing for a 10 - year contract to exclusively print Kenya’s currency notes. This has been a thorny issue since January 1993 when it signed a 10 – year contract with the government of President Moi.
But when former President Mwai Kibaki took office in 2003, the then Finance minister David Mwiraria cancelled the deal. Mwiraria advised CBK to open a fresh tender. In May 2006, De La Rue won the contract worth $51 million to print 1.7 billion pieces of new look bank notes.
But after De La Rue had been paid $25.5 million as a deposit the government changed its mind and decided to buy shares in the currency printer.
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