Challenges of Public Procurement Management

Many countries consider banknotes printing (procurement of the legal tender) to be so strategic that they have established fully owned currency and security printing presses. Is global partnership still the way to go?

 Jaindi Kisero of Nationmedia.com wrote in Daily Nation published on Tuesday, June 24, 2014. His article was titled “Forget a joint venture with currency printer: Let us just go international”. I have it on good authority that the British currency printer, De La Rue International, has just made a fresh bid to reopen the joint venture negotiations it has been conducting with the government for the last seven years.

Under the deal, the government was to purchase 40 per cent shares in De La Rue’s Ruaraka-based local subsidiary at a price of Sh600 million.

And, there was a deal-breaker. The currency printer insisted the deal could only go through if the government agreed to grant it a 10-year exclusive currency printing contract.

But the board of the British company has now decided to drop that condition. However, I think the government should not re-open negotiations until after conducting a comprehensive feasibility study to determine the financial and economic benefits of the joint venture for Kenya.

The truth is that we went into negotiations with these guys without conducting a proper study on the costs and benefits. And why do we want to buy into a company when the declared policy of the government right now is to roll back State involvement in commercial ventures?

We have enough evidence from history that joint ventures have been used by multinationals as a tool, not only for extracting privileges and guarantees from the State, but also to shield them from competitors.

If we are taking a strategic decision to allow the government to have a say in the printing of the country’s currency, then why can’t we just buy majority shares of the Ruaraka factory? After all, De La Rue, had initially indicated they were considering shutting it down.

What is stopping us from putting up a fully government-owned currency printing plant? As a matter of fact, many countries consider banknote printing to be so strategic that they have established fully owned currency and security printing presses.

 Shrouded In Controversy

In dropping the demand for a 10-year exclusive contract, De La Rue has just changed tactics. What the British company wants, in reality, is a relationship with the State that will put it in the inside lane vis-a-vis its competitors when it comes to battling for the lucrative banknote contracts.

We don’t need this joint venture. Instead, the government should move quickly and float an international tender for banknotes.

For the first time, let’s have some transparency in the procurement of banknote printing. Indeed, the contract in Kenya has been shrouded in controversy since 2003.

We have not procured banknotes through an open international competitive tender since the Central Bank of Kenya was established in 1966.

In 2003, on taking power, the administration of President Mwai Kibaki cancelled such a contract with De La Rue International, citing irregularities in the manner it had been awarded by former President Moi’s administration.

Consequently, and for the first time in the country’s history, President Kibaki’s administration floated an international tender for banknotes in 2006. That competitive tender drove down prices way below those the Moi regime had been granting De La Rue.

But as it turned out, that competitive contract did not see the light of day. Instead, the government decided to negotiate the joint venture deal with De La Rue.

Just us the negotiations were about to be concluded, the Public Accounts Committee of Parliament initiated investigations into the deal. The Public Investments Committee also waded in. The negotiations with De La Rue were not concluded.

The world over, currency-printing contracts tend to generate controversy and corruption allegations.

The other day, the Vice-President of Argentina, Mr Amado Bouduo, appeared in court accused of using shell companies and secret middlemen to gain control of the company that was given a contract to print the country’s banknotes.

In Australia, in 2010, the currency printer, Securency International, which is half owned by the Central Bank of Australia, was investigated by authorities after it was accused of paying $50 million to middlemen in a number of corruption-prone developing countries to win lucrative tenders.

We must embrace tenets of good corporate governace, that is transparency in the banknote procurement process.

 Mr Jaindi Kisero can be reached through jkisero@ke.nationmedia.com

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