How taxpayers lost Sh2 billion

By ALEX NDEGWA

Taxpayers lost Sh2 billion in an exploitative and suspicious money-printing contract entered by the Government and De La Rue through single sourcing.

Though the Government had the option of getting its currencies printed far much cheaply abroad, it curiously chose to give the order to the Ruaraka-based De La Rue. It did so ostensibly to protect 260 Kenyans who would have been rendered jobless if the high-security printing firm did not get this lifeline – albeit at a crushing cost to taxpayers. Details emerged how the taxpayer was paying more to sustain printing of currency way above market rates when a parliamentary committee probed the tendering for printing of local currency.

Central Bank of Kenya Governor Njuguna Ndung’u on Thursday admitted six interim orders for new currencies issued so far were costlier than the quotation for an open international tender cancelled in an unclear circumstances in 2006.

Parliamentary Accounts Committee Chairman Boni Khalwale and Abdi Nur Nassir when they visited De La Rue premises, Nairobi, on Wednesday. [PHOTO: BONIFACE OKENDO/STANDARD]

Prof Ndung’u tried to justify the additional cost to the taxpayer, saying it saved jobs at De La Rue, which would have been lost if production was done abroad.

But Parliament’s Public Accounts Committee questioned the rationale of paying the additional money to De La Rue – nearly three times more than competitive international market rates. The MPs say the concern over the 260 jobs was a cover-up for the plunder of public coffers by well-connected individuals.

PAC chairman Boni Khalwale explained the jobs were secure because De La Rue is involved in other ventures like printing security instruments for banks, which would not be affected if the money-printing offer were subjected to competitive bidding.

"You cannot hide behind jobs to justify the fleecing of taxpayers," Dr Khalwale said during a hearing at Parliament Buildings Thursday.

"Is the Sh2.13 billion loss equivalent to the job losses you are suggesting?" he asked Ndung’u.

"Even if you were to pay the 260 Kenyans Sh50, 000 to stay at home for a year it would translate to Sh780 million," added Bula MP Abdi Nuh.

Ndung’u defended the costly "stop gap" contracts saying: "You should consider what is the total welfare loss of exporting the 260 jobs." Khalwale said PAC would shield the employees, but it would not allow billions of shillings in taxpayers’ money to be lost under the guise of protecting in a private enterprise.

The Governor surprised PAC by saying he was in the dark about a contract for the acquisition of 40 per cent stake in De La Rue by the Government, which contains a restrictive clause. The clause grants the firm exclusive rights to print local currency for 10 years.

The international open tender returned a quotation of £31.5 million for the production of 1.7 billion pieces in Malta. This translated to £18.42 pounds (Sh2394) per 1,000 pieces, said Ndung’u.

However, the Government cancelled the tender and continued with expensive prices under a 2002 contract with De La Rue. Under these terms, CBK pays about £28.62 (Sh3, 720) per 1,000 pieces. This means CBK pays Sh1, 326 more per every 1,000 pieces of new currencies.

Inflated prices

The cumulative figure is higher given the enormous quantities involved, with independent calculations showing a loss of up to Sh3.3 billion.

PAC is probing claims that cancellation by National Rainbow Coalition Government of a 10-year contract in 2003, which would have run until December, this year, facilitated a scheme to siphon public funds through interim orders at inflated prices.

The Narc Government then argued the Kanu regime had single-sourced the contract. But the subsequent action to continue without a deal that benefits from economies of scale and the revocation of the competitive international tender in 2006 has raised doubts.

From 2003 to date CBK has issued six interim orders at the inflated prices. Ndung’u said the "stop gap" contracts though expensive are necessary to ensure the bank maintains adequate supply of currency.

CBK has spent close to Sh10 billion between June 2003 and July, last year, to have 2.6 billion pieces of currency notes printed.

Ndung’u has warned CBK could face a shortfall of currency before the General Election, which would require the issuance of another interim order for printing.

CBK recently invited Kenyans to submit proposals for new design of currencies, whose production officials say would take 21 months.

The short term contracts have continued since the cancellation of the international tender, which MPs contend would have allowed the Government to procure new currencies at cheaper rates.

Opposed the deal

Khalwale announced the committee would summon Cabinet minister Amos Kimunya and former CBK acting Governor Jacinta Mwatela. Kimunya is expected to shed light on contents of a letter he wrote on December 14, 2007, as Finance Minister suggesting De La Rue had agreed to termination of a contract and undertook not to claim damages.

In the letter Kimunya, wrote: "Let me know if I need to intervene on De La Rue", wordings the committee interpreted to mean there had been long before the contract was cancelled.

Ms Mwatela had in a letter to the Finance Minister on August 2006, expressed reservations on the design, manufacturing and supply of the new generation notes by De La Rue and asked for the cancellation of the contract.

ON Thursday, Khalwale told Ndung’u that Mwatela was edged out of CBK because she opposed the deal. "They removed Mwatela and put you there and you have been playing ball," Khalwale charged.

"You are wrong," Ndung’u replied, explaining the role of CBK governor is spelt out in law and the holder is independent. Asked why he had not stopped the costly transactions on taking over at CBK, Ndung’u responded: "Our constraints has been to secure adequate supply of currencies."

Ndung’u said CBK would review terms for currency printing after the Government concludes talks with De La Rue on acquisition of a 40 per cent stake in the firm.

Rangwe MP Martin Ogindo, however, said the deal between the Government and De La Rue had a restrictive clause that granted the firm an exclusive 10-year contract.

The governor surprised the committee with a declaration that CBK was not privy to such content. "We are not privy to the documents that you are alluding to," Ndung’u said. "We won’t be bound by a clause for a 10-year contract," he added.