Banks disown firm in Sh564m dispute with cereals board
Erad director Jacob Juma (centre) listens to a question from a member of the Public Investments Committee at Parliament Buildings on July 2, 2013. I&M and Dubai banks have denied being part of a conspiracy to defraud NCPB. Photo/Emma Nzioka
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I&M and Dubai banks said the bid and performance bonds issued to Erad Supplies and Contractors Limited were “invalid”.
I&M Bank executive director Sarit Raja Shah told the Public Investment Committee (PIC) that the lender issued Erad Supplies with a $1 million bid bond on condition that it would provide a stand-by Letter of Credit (SBLC) from a European or South African financial institution.
Dubai Bank chief finance officer Nick Kolia said that the lender did not receive a letter of credit to facilitate execution of a $932,000 bond.
A maize supplier used dubious guarantees to secure a contract with the National Cereals and Produce Board (NCPB) now at the heart of a Sh564 million legal tussle.
I&M and Dubai banks, which apparently drew the securities, said the bid and performance bonds issued to Erad Supplies and Contractors Limited were “invalid”.
I&M Bank executive director Sarit Raja Shah told the Public Investment Committee (PIC) that the lender issued Erad Supplies with a $1 million bid bond on condition that it would provide a stand-by Letter of Credit (SBLC) from a European or South African financial institution.
He said that the bond was issued on the strength of the financials of Kapu Kenya, a company which was in a joint venture with Erad Supplies.
Mr Shah said that Kapu Kenya, which deals in vehicle spare parts and tyre business on River Road in Nairobi, confirmed that it would secure the SBLC from Ropack International based in South Africa in order to guarantee the bid bond.
However, the company failed to provide the guarantee forcing the bid bond to be cancelled.
PIC chairman Adan Keynan took issue with I&M’s failure to inform NCPB that the bid bond for supply of 40,000 tonnes of maize was invalid.
“When we issue a conditional bid bond, the obligation is on the part of the procuring entity to establish whether the supplier had met the conditions before signing the contract,” said I&M chief legal officer Nina Madanguda.
Dubai Bank chief finance officer Nick Kolia said that the lender did not receive a letter of credit to facilitate execution of a $932,000 bond.
“According to the agreement Erad was to secure the letter of credit from NCPB and the board was to wire to us $1.9 million from its KCB account, which was not done,” Mr Kolia said.
He said that the bank issued the performance bond based on the personal guarantees of the three Erad directors — Jacob Juma, Grace Wakhungu Sarapei and John Waluke, the letter of offer, and the contract between Erad and NCPB.
However, Erad did not have an account with Dubai Bank and was issued with the performance bond 10 days before the contract was signed.
Both Dubai and I&M denied being part of a conspiracy to defraud NCPB.
Former Agriculture minister Kipruto Kirwa said that the government was to blame for failing to give the necessary instruments to Erad to proceed with importation.
“The Treasury kept on telling us that money would be released and we had roll overs for long. The government failed,” said Mr Kirwa.
Erad moved to court to sue NCPB for breach of contract. The company has already attached Sh297 million from the board’s bank accounts and is seeking to recover a balance of Sh267 million.
