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Thursday, July 3, 2008

MPs pass vote of no-confidence against Kimunya - as details of other dirtier, fishy and corrupt deals emerge

From East African

Kenyan Parliament has passed a vote of no-confidence against rougue and corrupt Finance minister Amos Kimunya (above: pictured) over his role in the controversial sale of the Grand Regency Hotel.

This means the President can (should) sack him or appoint a commission of inquiry into his conduct. However, the President is not bound by law to take any action against the minister. But Mr Kimunya can choose to resign as minister or await the President’s decision. This is just the first scandle.

Fresh details have emerged of how Finance Minister Amos Kimunya, in a Cabinet paper he tabled at a meeting in May last year, sought to justify a joint venture with the local subsidiary of British currency printer De La Rue Security Company Ltd.

In the paper, a copy of which has been seen by The EastAfrican, Mr Kimunya argued with some vehemence that Kenya needed to secure a strategic long-term relationship with De La Rue.

Such a stable relationship with De La Rue, he argued, would encourage the company to invest in new technology and materials and thereby boost the quality of the currency......Continues Below


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3. Britain, Tony Blair and Mugabe are to blame for Zimbabwe’s woes.
4. How to get rid of Robert Mugabe

As it turned out, that Cabinet paper is what set the stage for the derailment and final cancellation of $51 million contract under which Kenya was to acquire new generation tamper proof bank notes, now the subject of a row in parliament where the minister is accused of having acted imprudently.

Under the contract, Kenya was to acquire the new generation notes at far more competitive prices than in the existing contract.

In a statement he made to parliament last week, Mr Kimunya argued that the country did not lose any money by cancelling the contract for new generation bank notes.

Opinion is, however, unanimous — including among technical staff of the Central Bank of Kenya — that the country would have saved billions of shilling had it opted for the second-generation bank notes.

Indeed, the tender for the banknotes was the first to be competitively procured in the country’s history.

Until that tender was floated, De La Rue had been supplying Kenya with bank notes under 10-year, opaquely procured deals handed to it without any competition.

Available documents show how a former head of legal affairs at the CBK, J.M.Gikonyo, had in a letter to Central Bank Governor Prof Njuguna Ndungu questioned the whole arrangement.

“It is not clear why the joint venture has to bind Kenya to continue with the existing generation banknotes, which are more expensive compared with the new generation banknotes,” he said in the letter.

The letter continued: “The international tender demonstrated that international procurement of bank notes through competitive tendering is able to provide the bank with bank notes at lower prices.”

De La Rue’s first contract with Kenya was an exclusive 10-year contract signed in January 1993.

It was a lucrative deal that committed Kenya to a minimum order of 170 million bank notes in a year. The notes were to be produced in De La Rue’s Ruaraka factory.

In December 2002, just a few days before the new administration of President Mwai Kibaki took the reins of power, Del La Rue hurriedly signed another 10-year agreement.

The date on the contract was December 5, 2002. It was to come into effect on January 1, 2003.

In March 2003, then minister for finance David Mwiraria wrote to the former governor of the Central Bank of Kenya directing him to cancel the contract with De La Rue.

The minister gave three reasons: First, that the contract was single-sourced. Second, that the contract period was extended to 10 years instead of the normal five years. Third, that since the contract became effective on January 1, 2003, when the new government was in power, the Narc government should have been consulted.

Consequently, the government decided to float an initial tender for the new generation bank notes in which several international currency printers participated.

In May 2006, De La Rue emerged the winner in the competitive bid and was contracted to print 1.71 billion pieces of the new generation bank notes at a cost of $51 million.

The plan was that the bank notes were to be issued beginning, July 2007.

This background explains why the derailment of implementation of the contract for the second-generation bank notes was clearly a step backwards in efforts by the government to bring transparency to the procurement of bank notes.

In the Cabinet paper, Mr Kimunya stated that De La Rue’s Ruaraka plant did not have the technology to manufacture the new look notes and that the company had all along planned to produce the new look bank notes in plants located in Europe.

He said De La Rue was planning to close the Kenya plant because the advent of the new generation notes would render it redundant.

Thus, once the Cabinet paper was passed, the death of the new generation bank notes contract was a foregone conclusion because, having committed itself into purchasing 25 per cent shares in the Ruaraka plant, the government was now going to be compelled to make sure that it did not close down.

Following the Cabinet approval, negotiations for the joint venture were set in motion. The Treasury put out advertisements inviting transaction advisers. Consequently, CBA Capital Partners Ltd were appointed to advise the government on the deal.

In the meantime, a parallel process was set in motion to negotiate another long-term currency production agreement between the Central Bank of Kenya and De La Rue.

On September 28, 2007 , the Treasury wrote to the Central Bank requesting it to review a draft long-term currency production agreement.

The Central Bank was informed that De La Rue was keen on making the new agreement an integral component of the proposed joint-venture agreement.

In the draft deal, De La Rue proposed, “The bank shall purchase all its bank notes requirements from the De La Rue factory in Ruaraka.”

When the draft currency agreement was presented to the top management of the Central Bank for review, it was met with stiff opposition.

“We are opposed to a situation whereby the bank enters into the currency production agreement with an entity [the Ruaraka facility] which regrettably may continue to use old technology,” they said in a letter signed by Mr Gikonyo.

Last week, Mr Kimunya opposed the new generation bank notes, arguing that the concept of a new currency note had been comprehensively dissected and addressed by the Central Bank.

The minister also said the new-look notes were abandoned because the Central Bank would have had problems storing the old bank notes.

It is noteworthy that this was the first time Mr Kimunya was advancing these arguments. In the Cabinet paper where he presented a long narrative on how the currency contract had been handled, the minister did not oppose the new notes — suggesting that what he said in parliament was an after thought.

The only reason he gave for the delay in the implementation of the contract was that “ the government considered it imprudent to have a new generation currency in an election year.”

He said the government had directed the Central Bank to delay the commencement of the contract to January this year.

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