How top managers and farmers joined hands to loot parastatal

Years of cronyism, official blind eye to looting of farmers’ assets and a veil of monopoly that sneered at every rule in the book are responsible for plunging the State-owned Pyrethrum Board of Kenya (PBK) into oblivion, records show.

A forensic audit adopted by Parliament in February this year, internal audit records and communication between the board’s management and top government officials also suggest that the prosecuting arm of the government may have delayed corruption cases, tacitly abetting a decade-long plunder of the corporation’s resources

According to the records, corruption at PBK had by 2006 split its top management with one team opposed to every move that its managing director made.

Documents seen by Business Daily indicate that channels of corruption ran deeper and spanned tenures of many management teams with top officials dipping their hands into the tills of the parastatal, thus hurting an industry that supported more than 200,000 farmers and dominated the international pyrethrum extract market.

The forensic reports reveal that, for years, top managers would ignore government circulars, go against advice of the board and even fire junior employees who questioned unilateral decisions.

The forensic audit and the private consultants’ reports show that farmers are not entirely the innocent victims in the mismanagement that brought the organisation to its knees.

Some unscrupulous farmers colluded with corrupt factory officials to alter pyrethrin content of their flower deliveries, in the process receiving more money from the board than was due for them.
In pyrethrum farming, the higher the pyrethrin content of the flower delivered, the higher the pay.

Apart from the forensic report prepared by the Inspectorate of the State Corporations, the Private Public Development (PPD) consultants, a firm appointed earlier by PBK to help in preparing a three-year business plan that would turn around the once prestigious organisation, also made a report on the industry.

In the report handed to the government in June 2007, the PPD consultants said their review of the board’s operations had unearthed seven years of unbridled theft and falsification of accounting records by top management that led to huge losses.

It was mainly after reading the PPD report that the government would finally accept to intervene in the board’s debts through a 2007 budgetary allocation to settle farmers’ debts, which had swollen gradually since 2003.

However, in spite of the Sh863 million that the government carved out of the 2007/8 budget to help clear the accumulated debt, the corporation’s books indicate that yawning financing gap of at least Sh1 billion still exists, an additional cash that must be shouldered by taxpayers before normal operations resume.

According to a letter written to the Agriculture PS last year just after the disbursement of the last tranche of Sh863 million, PBK officials said Sh300 million of the additional cash would be used in settling the retrenchment package for the 162 employees laid off in August this year.

The retrenchment exercise was aimed at reducing the board’s annual wage bill from Sh250 million to only 60 million.

The board also said it needed Sh100 million for improving seeds and clonal material, Sh300 million for settling outstanding farmer’s debts, staff costs and creditors and another Sh300 million to cover operational costs during the one year transition period that the directors says it would need to return to profitability.

Under the Pyrethrum Act, the parastatal is the sole agency allowed to buy pyrethrum flowers from farmers, market and sell extract (pyrethrin).

But investigations by Business Daily indicate that many middlemen — among them local chemical manufacturers and agents of Chinese firms — have since emerged to cash in on the board’s inability to pay farmers promptly.

The chemical firms, most of them based in Nairobi, said they are aware of the restriction on the purchase and sale by the Act but were ready to face the law instead of seeing their businesses die as they await the rebound of PBK.

Business Daily also established that older farmers were reluctant to break the decades of bond with PBK.

“I sell 80kg of my flowers to the Chinese who pick them from farm gate with cash on delivery while PBK takes the remaining 70kg whose payment I normally treat as savings,” said Mr Mbugua Mbiu, a 71 year old pyrethrum farmer at Kinungi, Naivasha.

Up to 2003, pyrethrum was Kenya’s third principal export crop after coffee and tea with the country commanding an impressive 70 per cent of the world’s pyrethrin market.

At its Nakuru factories, lorry loads of pyrethrum flowers used to arrive from Kisii, Nyandarua, Limuru, Naivasha, Gilgil, Mau Narok, Molo and Subukia. Not anymore.

The crop has since disappeared from the country’s export radar and is no longer treated in the government’s economic surveys as a serious export commodity.

Unlike the old days when the board’s management would hold extensive field tours to promote crop’s growing in the fields, PBK’s management is besieged lot, forced to take cover from farmers and retrenched employees who are owed a fortune.

Up to 2003, the board used to receive hordes of foreign visitors looking for strategic stakes or competitors seeking to learn secretes for success.

Respected authority

“This organisation is respected as an authority in pyrethrum issues and entities from all over the world send us samples of insecticide to test here in Kenya because we have been a mark of quality for over 70 years,” PBK’s former managing director Mrs Pauline Sego told Business Daily in a 2007 interview.

Going through the PBK’s books, the deep financial troubles that the board is grappling with contrasts with its 1996 status when it could easily afford to put Sh1 billion in a fixed deposit account without hurting daily operations.

Between 1996 and 2006 the board and top managers flouted government regulations and procedures in running the affairs and tenders were awarded without following the procurement rules, says the report.