De la Rue now wants exclusive rights to print Kenya’s currency

De la Rue now wants exclusive rights to print Kenya's currency

By EastAfrican reporter

It has now emerged that British multinational currency manufacturer De La Rue International Plc is quietly negotiating a deal with the government to give it exclusive rights to print currency notes indefinitely without having to face other bidders.

The irony is that this will allow it to charge the government at rates almost three times higher than those it itself quoted to win a contract to supply new-generation bank notes incorporating a host of enhanced new security features — a deal that since appears to have been put on the backburner.

The story gets more convoluted. The reason given by Finance Minister Amos Kimunya for shelving the new-generation contract is that it must await the sealing of a joint venture between the government and the currency printer — itself purportedly to keep De la Rue from shutting down its Kenya plant, which it had threatened to do in order to service the new-generation contract from its more competitive plants overseas!

Documents seen by The EastAfrican show that senior Central Bank of Kenya technocrats came out strongly late last year to oppose an attempt by the British conglomerate to commit the government into an arrangement that was patently lopsided.

Apparently, the Treasury had in September last year directed the Central Bank of Kenya to negotiate a new agreement with the firm.

The Cabinet had only a few months earlier approved a proposal by the Treasury for a joint venture between the government and De La Rue Plc, where the government would purchase shares in the latter's local subsidiary De La Rue Currency and Security Print Ltd.

It was on these grounds that the Treasury directed the Central Bank to review the existing agreement, taking into account the plans for a joint venture.

But in a response to the proposal by De La Rue, a senior manager at the CBK, J.M. Gikonyo, wrote to the governor, Dr Njuguna Ndungu, to point out that what De La Rue was proposing was dead against Kenya's interests.

"The draft agreement prepared by De La Rue is one-sided and exposes the bank in many areas," he said in letter dated November 2, 2007.

He also took issue with the fact that Treasury was asking the bank to negotiate a new deal with De La Rue in spite of the fact that the CBK had an existing agreement and contract with the company to supply new-generation currency notes that had not been serviced.

"Treasury should formally instruct us that the government has — as a policy — decided that new-generation banknotes shall not be introduced," he stated, arguing that the two contracts could not be implemented concurrently.

The proposals by De La Rue were opposed on several other grounds. Senior bank staffers insisted that De La Rue should be made to provide Kenya with new-generation bank notes.

"In our view, the net effect of this proposal is that superior designs and enhanced security features negotiated by the bank and agreed by De La Rue for the stillborn new generation bank notes will be discarded by the parties," they said.

The senior staff of the bank also opposed a fixed-cost contract, arguing that what De La Rue wanted went against public interest as it expressly provides that the contract price shall escalate annually based on the UK Retail Price Index rate.

They also stated that as a public entity, the Central Bank of Kenya is under an obligation to procure goods and services under the Public Procurement and Disposal Act that prohibits single-sourcing in the manner proposed by De La Rue.

What happened thereafter is not clear. But hardly a week later, Finance Minister Amos Kimunya wrote to the Central Bank instructing them to treat the new-generation contract signed with De La Rue on May 4, 2006 as having been overtaken by events.

He reminded the CBK that the government was in the process of acquiring the local subsidiary of De La Rue and directed that pending completion of the joint-venture transaction incorporating a new long-term supply agreement with De La Rue, the CBK should continue the existing agreement with De La Rue to print current-generation bank notes.

The stage was thus set for negotiation of a contract with De La Rue under the terms that the British multinational had proposed.

The government is acquiring a 25 per cent stake in the Ruaraka-based De La Rue Currency & Security Print Ltd at an estimated cost of Ksh612 million ($9.13 million).

The deal was quietly approved by the Cabinet in May last year after Mr Kimunya tabled a proposal and without any public discussion.

It has turned out to be a controversial one, with critics wondering why the government had rushed to buy shares in a firm with which it has an existing contract — having only recently awarded it a $51 million currency-printing contract.

Also at issue is the fact that the government is committing the country to this multimillion-dollar deal without having conducted a due diligence on the company.

In May last year, De La Rue beat competitors from Austria, South Africa, France, Canada and the Netherlands to win a three-year contract to print 1.71 billion new-look bank notes at a cost of $51 million.
The price was almost three times lower than the price at which the company supplied notes to the government under the previous contract signed in 2003.

According to the plan, the new currency was to be issued beginning July this year. However, eight months later, the project is yet to roll out, with the result that De La Rue has been enjoying huge margins between the old contract and the competitively procured one — supplying currency notes on the old terms of the single-sourced contract through short-term contracts.

Between 1966 and 1985, Kenyan banknotes were printed by Bradbury & Wilkinson of the UK, which was later acquired by Thomas De La Rue & Company Ltd in 1986.

Since then, De La Rue International UK, which was renamed Thomas De La Rue & Co Ltd, has provided currency printing services to the Central Bank of Kenya.

De La Rue International of the UK is one of the oldest companies involved in the production of currencies for around 100 countries and a wide range of security printing services.

In 1992, the company established De La Rue Currency & Security Print in Nairobi as a subsidiary to operate a currency and security printing business in Kenya.

The Nairobi subsidiary, which is 100 per cent owned by De La Rue International, operates a modern factory complex based in Ruaraka.

It says its initial investment in the Kenyan operation was Ksh1.54 billion ($23 million) and that following an additional injection of Ksh910 million ($13.5 million) over the years, the total investment now stands at Ksh2.45 billion ($36.5 million)

It estimates the value of fixed assets at Ksh732 million ($10.9 million).

In January 1993, the company signed a 10-year contract to provide current printing services to the government of Kenya. The minimum order under the contract was to be for the supply of 170 million bank notes each year.

In 2002, following the expiry of the initial 10-year contract, the Central Bank of Kenya entered into a new 10-year contract with De La Rue.

But on coming to power, the Kibaki administration cancelled the contract to allow international competitive bidding.

Subsequently, the company was allowed temporary extensions to provide currency-printing services to the Central Bank of Kenya on short-term contracts.

It is not clear which of the parties — the government or De La Rue — made the first move.

But the official position is that the government had to move to acquire the 25 per cent stake in the company to pre-empt plans by De La Rue to close its Kenya operation.

 

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Jean-Louis Kayitenkore
Procurement Consultant
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