Treasury ignores MPs as it buys big stake in bank notes printer

The protracted negotiations over plans by the government to acquire a 40 per cent stake in the local subsidiary of the UK bank note printer De La Rue has taken a new turn after it emerged that contrary to a directive by the Cabinet two years ago, the deal will now proceed to conclusion without parliamentary scrutiny.

The revelation comes even as the clock ticks to the signing of a transaction that has been steeped in controversy from the time the idea of a joint venture with De La Rue was first proposed by former Finance minister Amos Kimunya in a Cabinet paper in May 2007.

On July 28, this year, a statement from State House said the Cabinet had given the Treasury the nod to sign the transaction documents and to conclude the transaction with the largest commercial bank note printer in the world.

However, the State House statement left out an important detail of the decisions which the Cabinet had made on this matter at the July 28 meeting. Details show that during that meeting, the Cabinet specifically directed the Treasury to shut out Parliament from scrutinising the transaction documents.

“Today’s Cabinet meeting approved the waiver of a Cabinet directive issued on November 27, 2014, for the transaction documents to be taken back to the National Assembly after cabinet approval,” said the President’s Chief of Staff Joseph Kinyua in a letter to the Treasury.

In effect, the July 28 Cabinet meeting had countermanded a directive made at a separate sitting — thereby setting the stage for conclusion of the controversial transaction.

It is understood that top executives of De La Rue will be flying in from London this week to sign a series of transaction documents and thus consummate the deal.

Under the deal, the government will pay the UK printer Sh750 million for a 40 per cent stake in the Ruaraka-based subsidiary.

It is, however, not clear why the Cabinet found it necessary and urgent to circumvent Parliament in the transaction.

On paper, the Cabinet said it was because the concerns raised by Parliament had since been taken care of.

But it is noteworthy that the National Assembly’s Public Accounts Committee (PAC) actually struck out the deal in 2013, charging that it was a scheme by the bank note printer to capture currency printing contracts exclusively and without having to face competition.

It is also noteworthy that at the point the PAC was pronouncing itself on the deal, the transaction documents included a condition by De La Rue tying the signing of the deal to an award to the currency printer of an exclusive 10-year bank note printing contract.

Although the recommendations by the PAC for cancellation of the joint venture deal were shot down on the floor of the House after intense lobbying by well-connected operatives and supporters of the joint venture deal, a Cabinet meeting held in November 2014, subsequently decided to introduce parliamentary scrutiny as one of the conditions to be met before the consummation of the transaction.

And, since Parliament had also demanded that due diligence to be conducted before the deal was sealed, the Treasury called in Commercial Bank of Africa’s investment banking arm, CBA Capital, to conduct a fresh due diligence on the Ruaraka-based plant.

Sensing strong opposition to the joint venture deal, especially to the idea of long-term exclusive contracts which were supposed to form part of the deal, De La Rue decided to beat a tactical retreat.

In a letter to Treasury secretary Henry Rotich in April 2014, the managing director of De La Rue, Mr Keith Brown, informed the minister that the board of the company had dropped the demand for a 10-year exclusive contract so as to allow the transaction to progress.

Yet having circumvented parliamentary scrutiny, courtesy of the July 28 Cabinet decision, De La Rue is now in a position to re-introduce exclusive contract arrangements through the transaction documents.

According to a draft shareholder’s agreement seen by the Business Daily, clauses have been introduced in the section dealing with non-competition which, if approved, will give the company exclusive rights to all security printing contracts for the government, including passport and national IDs.

This comes against the backdrop of a high-stakes battle for a massive contract for printing new generation notes that has been in abeyance for years.

With Kenya set in the next few months to replace all bank notes and as the country transits to new bank notes designed according to the prescription in the 2010 Constitution, the currency contract in the offing this time around will be humongous.

Article 231(4) of the Constitution provides that notes and coins issued by the Central Bank of Kenya shall not bear the portrait of any individual. The constitutional timeline for rolling out the new currency was August 17, 2015.

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