De La Rue drops demand for10-year contract as price of joint venture
De La Rue offices in Ruaraka, Kenya. The British currency printer has dropped a demand to be given a 10-year contract to exclusively print Kenya’s currency notes as a prerequisite to forming a joint venture with the government. Photo/FILE
What you need to know:
De La Rue said in a brief seen by The EastAfrican that in view of the expected sharp rise in demand for bank notes within the East African Community under the planned single currency regime, its board has reversed the decision to make a 10-year contract a precondition of entering into the joint venture.
The Kenya government is to purchase a 40 per cent share in the British company’s local subsidiary, in a deal whose negotiations have dragged on since 2006.
Decision by De La Rue to step down on its demand is expected to reduce opposition from critics of the joint venture — mainly MPs and civil society –– who had argued that the British firm was keen on locking out rivals from the lucrative currency printing business by insisting on a 10-year exclusive contract.
British currency printer De La Rue has dropped a demand to be given a 10-year contract to exclusively print Kenya’s currency notes as a prerequisite to forming a joint venture with the government.
De La Rue said in a brief seen by The EastAfrican that in view of the expected sharp rise in demand for bank notes within the East African Community under the planned single currency regime, its board has reversed the decision to make a 10-year contract a precondition of entering into the joint venture.
The Kenya government is to purchase a 40 per cent share in the British company’s local subsidiary, in a deal whose negotiations have dragged on since 2006.
Treasury Cabinet Secretary Henry Rotich said on Friday a memo had been forwarded to the Cabinet last month seeking approval for the establishment of the joint venture.
“Yes, I have heard that they have dropped the precondition. But that was part of the negotiations. What we are focusing on now is to have the transaction first approved by Cabinet before we can deal with the finer details of the whole deal,” said Mr Rotich.
The decision by De La Rue to step down on its demand is expected to reduce opposition from critics of the joint venture — mainly MPs and civil society –– who had argued that the British firm was keen on locking out rivals from the lucrative currency printing business by insisting on a 10-year exclusive contract.
“I can confirm that De La Rue has done all we can to address any issues that have been preventing the joint venture agreement from being concluded,” said Rob Hutchison, De La Rue’s head of communications.
“We believe that there is now a compelling argument for the joint venture to be given the go-ahead and we believe it also has the support of the governor at the Central Bank,” said Mr Hutchison.
In May last year, De La Rue had said it would close its local subsidiary if the Kenya government did not grant it exclusive rights to print currency
The firm had told the parliamentary Public Accounts Committee, which was investigating the 10-year exclusive contract, that its business would be unprofitable if it were denied the currency printing deal. The CBK has said in the past that it would not guarantee the firm the business of printing Kenya’s currency.
The joint venture arrangement was first approved by Cabinet in 2011, but the two parties are yet to consummate the deal. The proposed arrangement has been at the centre of protracted administrative wrangles within the government, parliament and the courts.
In late 2011, Attorney-General Githu Muigai, in a legal opinion, recommended that the deal be held back pending resolution of two court cases filed by members of civil society challenging the transaction.
The two cases pending before the High Court of Kenya claim breach of the right of access to information and the lack of public participation in the process.
With the change of heart by De La Rue, the brief shows, the UK firm says it will make the proposed joint venture the centre of currency production for the EAC ahead of the start of the 10-year countdown to the bloc’s single currency, following the signing of the Monetary Union Protocol in late 2013.
The firm is positioning itself for the business of printing the EAC single currency.
Data from the currency printer show the approximate annual supply to Kenya over the past five years has been 500 million banknotes. Under an EAC single currency, the firm says, the required volume of notes across the region including South Sudan would increase from 1.9 billion a year to around 2.4 billion notes per year by 2018.
Under the joint venture, the GoK will earn 40 per cent of the profits from the De La Rue Kenya factory, on top of what the Nairobi-based factory claims it currently returns to the Kenyan economy in terms of employment and economic linkages — an estimated Ksh1.3 billion ($15.29 million) per year.
The British firm has had a monopoly of printing Kenya’s currency since January 1993, when it signed a 10-year contract with the government of former president Daniel arap Moi.
Proponents of the venture argue that having a fully fledged banknote printing facility based within the EAC will mean a short transit distance from the factory to the vault, reducing the security risks of shipping and the large cost of air freight.
Again, it would make it easier for banks to call for small amounts of cash at a time rather than making bulk shipments of currency from another part of the world, as it is the arrangement currently.
De La Rue argues that the Nairobi facility, under a joint venture, can be used to export currency to over 30 other countries.
EPZ licence
However, the status of the second precondition for the venture set by the British firm is not clear. De La Rue was pushing to have the government grant it an export processing zone licence with liberal tax privileges.
The firm, in its submissions, said it has experience of joint ventures with other countries, for example in Sri Lanka (where the company has a 60/40 arrangement as proposed in Kenya).
De La Rue has been angling for government contracts across the region.
In Rwanda, the government in February contracted the British firm to produce new generation national identity cards designed to hold more personal data for easy identification and transactions.
The new cards will be loaded with details of one’s driving licence, health insurance, bank account, pension number and passport number, among other things.
Local subsidiary
The project, which is expected to commence late this year, is part of an $18 million deal between De La Rue and government signed in 2008.
According to the Cabinet paper that approved the deal in 2011, the government was supposed to pay $7.8 million for the 40 per cent stake in De La Rue’s local subsidiary.
The paper also said that the money was to be paid in two instalments, Ksh200 million ($2.3 million) in the 2011/2012 financial year, and the balance in the 2012/2013 financial year.
In December 2002, following the expiry of the initial 10-year contract, the Central Bank of Kenya entered into a new 10-year contract with the British company. When President Mwai Kibaki came to power, the contract with De La Rue was cancelled by former finance minister David Mwiraria.
The new minister ordered the Central Bank of Kenya to float an open tender. In May 2006, De La Rue won a three-year contract under an open tender to print 1.17 billion pieces of new-look banknotes at a cost of $51 million.
The new generation banknotes were to be issued beginning July 2007. The contract for the new generation notes was later cancelled by the Treasury even after De La Rue had been paid $25.5 million as a deposit.
The reason given was that the government had decided to purchase shares in De La Rue’s local subsidiary.
