UK's De La Rue to compete for currency printing contracts

British bank note printer De La Rue will be subject to competitive bidding for the impending multi-billion shilling contract to print new Kenyan currency despite co-owning the Nairobi subsidiary with the government.

Treasury secretary Henry Rotich said the joint venture agreement that was signed yesterday had no exclusivity clauses for the British firm, which has printed Kenya’s bank notes for decades without going through the rigours of open bidding.

Mr Rotich said that all the concerns raised earlier about the Treasury’s buying of a 40 per cent stake in the security printing company had been addressed, making it unnecessary to take the process through Parliament.

He said the list of concerns addressed included the removal of a clause giving De La Rue exclusive 10-year printing contract with the Central Bank of Kenya (CBK) and the desired increase of the government’s stake in the firm from 25 per cent to 40 per cent.

The fact that the deal has not been taken back to Parliament for final approval has raised fears that the exclusivity clauses may be sneaked back.

“Although Parliament’s Public Accounts Committee report was not adopted by the House, the fundamental issues it raised, especially on the long-term contract and raising the stake to 40 per cent, have been addressed,” said Mr Rotich.

“We will separate the investment aspect from that of contracting. The central bank will be free to issue the currency printing contract to whoever they want through competitive bidding that adheres to public procurement laws. De La Rue can either win or lose those bids.”

It, however, remains to be seen whether the CBK will be willing to issue a printing contract to another firm when the government has such a significant stake in a locally based company in the same business.

The joint venture will see the government pay the UK firm £5 million (Sh658 million) for a 40 per cent stake in De La Rue Kenya EPZ Limited, which is the local subsidiary of De la Rue Currency and Security Printing.

The government will earn dividends from the revenue generated from regional and local printing contracts.

The Cabinet gave the go-ahead to sign the joint venture deal on July 28, effectively shutting out Parliament from scrutinising the deal before it was inked.

The Cabinet had in November 2014 introduced parliamentary scrutiny on the deal in response to the heat generated by public concerns that signing it would end up giving De la Rue the currency printing contract without competition.

In February 2015, a government-commissioned review by CBA Capital on the business practices of De La Rue in Kenya raised further issues around the business practices of the UK firm, especially on related company dealings which raise the risk of transfer pricing and profit shifting.

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The government will have two board members in the joint venture, including the chairman, who will be tasked with protecting the interests of the State in any deals.

“As is normal in all commercial transactions of this nature, related party transactions are shareholder reserved matters.

It is expected that if there was any agreements between the company and any other agencies of De La Rue, those would be reserved matters that we would have full view of, and we would look at them and clear them or address any issues of concern,” said Investment Secretary Esther Koimett.

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The Kenyan factory will be one of three primary currency printing sites for De La Rue, alongside the UK and Sri Lanka, in which regional printing contracts will be carried out.

The firm expects to make an investment totalling £15 million (Sh2 billion) in the three sites over the next two years in new printing machinery, which will allow it to take on higher security printing jobs, including passports.