{"id":21999,"date":"2015-12-21T00:19:19","date_gmt":"2015-12-21T00:19:19","guid":{"rendered":"https:\/\/new.igihe.com\/state-house-flew-cover-for-dangerous-cartel-that\/"},"modified":"2015-12-21T00:18:44","modified_gmt":"2015-12-21T00:18:44","slug":"state-house-flew-cover-for-dangerous-cartel-that","status":"publish","type":"post","link":"https:\/\/new.igihe.com\/english\/state-house-flew-cover-for-dangerous-cartel-that\/","title":{"rendered":"State House flew cover for dangerous cartel that plucked KPCU like chicken"},"content":{"rendered":"

{Even at its nethermost, the Kenya Planters Co-operative Union (KPCU) could access close to Sh1 billion ($9 million) from the Kenya Commercial Bank to ostensibly lend to farmers as advance payments for their unsold beans.
\n}<\/p>\n

While this was supposed to be the rule, it became the window for wayward directors and managers to lend cash to politically-correct individuals \u2014 even those who had not delivered coffee. It is still the biggest commercial fraud ever carried out in the history of the 83-year-old organisation. It meant that such advances had no collateral and only added to KPCU\u2019s burden.<\/p>\n

Inside KPCU, fictitious codes were created for purposes of securing funds from the bank while some advances were approved without going through the board. As a result, KPCU\u2019s non-performing loans spiralled out of control.<\/p>\n

At the Kenya Commercial Bank (KCB), then under chairman Alexander Kaminchia and General Manager Elijah arap Bii, collecting bad debts was not one of their strengths.<\/p>\n

KPCU directors took advantage of this, after all the bank was being mismanaged too. KCB directors and senior managers had taken huge unsecured and unserviced loans from the bank, and by 1999 the provision of these debts at KCB was put at Sh2 billion.<\/p>\n

The bank had a shady past after it was used, between April and July 1993, to make illegal Sh5.3 billion to Kamlesh Pattni\u2019s Goldenberg International.<\/p>\n

FINANCIAL PROBLEMS<\/p>\n

That was the kind of bank that KPCU was dealing with.<\/p>\n

After Mr Kaminichia and Mr Bii were removed in March 1998 by new Finance minister Simeon Nyachae, the new team led by former Cabinet minister Peter Nyakiamo started applying pressure on KPCU to pay up its debts. It could not.<\/p>\n

KPCU\u2019s financial problems are said to date back to 1992 when then Company Secretary Samuel Chepkonga and Managing Director JM Nyaga took a Sh150 million loan from Coffee Board for the organisation \u201cat the request of the government\u201d, according to the minutes.<\/p>\n

In December 1992, the government further \u201cadvanced\u201d KPCU another Sh125 million \u201cto pay farmers\u201d. This was during a period when President Moi and ruling party Kanu were fighting for political survival at the December 1992 multi-party elections.<\/p>\n

Its lobby groups \u2014 Youth for Kanu\u201992 and Operation Moi Wins \u2014 awash with unexplained cash were spending millions of shillings to buy defectors.<\/p>\n

\u201cThis money was never paid to farmers,\u201d says Mr Patrick Muiruri, a KPCU board member during that period. \u201cThere was nothing we could do.\u201d<\/p>\n

\u201cThe money never came to KPCU,\u201d says a former general manager who still fears being quoted on KPCU. \u201cI have been threatened with death so many times I don\u2019t want to speak on record.\u201d<\/p>\n

What happened to this Coffee Board loan money is not clear from KPCU records but minutes show that the KPCU board protested after Coffee Board deducted this money.<\/p>\n

The KPCU board claimed it had not been \u201cconsulted\u201d when Mr Chepkonga and Mr Nyaga took the loan. In those days, Coffee Board received all the money from coffee sales conducted at the Nairobi Coffee Exchange and deducted its marketing levies and other advances.<\/p>\n

Angry with the turn of events, KPCU board \u2014 or rather those who did not sit at the Coffee Board \u2014 threatened to close down the KPCU mills and thus deny Coffee Board any revenue.<\/p>\n

POWERFUL DIRECTORS<\/p>\n

It never happened since both organisations shared very powerful directors among them Pithon Mwangi, Chairman of Coffee Board and Abraham Mwangi of KPCU.<\/p>\n

Coffee Board was no better. From 1992, when it became a playground for Kanu carpetbaggers, it started going through its own problems \u2014 thanks to opaque financial dealings.<\/p>\n

While it operated a record 32 bank accounts in 12 banks, Coffee Board never presented audited accounts to Parliament after 1992 and there was \u201clack of bank reconciliation statements and refusal to prepare them\u201d for the next 10 years, according to a statement by Agriculture minister Bonaya Godana dated June 2002.<\/p>\n

At the heart of this mischief at Coffee Board was the powerful Nandi District Kanu chairman Ezekiel Barngetuny, whose links with State House were well known. He was a long-serving Coffee Board member.<\/p>\n

\u201cI think Barngetuny was put there to enable directors have access to State House. He was very close to Moi,\u201d says a former KPCU General Manager.<\/p>\n

As a result, industry insiders say, Coffee Board became a rogue body and continued to sell farmers\u2019 coffee and withhold payments while KPCU continued to take money from banks and loan to co-operative societies and plantation farmers who never repaid.<\/p>\n

It also continued to deliver milled beans to Coffee Board which would not pay either after the auction. It never accounted for \u201ccoffee sweepings\u201d (spilt beans in warehouses) worth hundreds of millions of shillings which was supposed to be passed over to the farmers. A corrupt circus was put in place between KPCU and Coffee Board where the farmer was the end loser.<\/p>\n

WEALTHY BARONS<\/p>\n

With all these, a false narrative emerged: KPCU was doing badly because it could not get a marketing license from Coffee Board. To outsiders, the two bodies seemed to be at loggerheads and that was what the media seemed to concentrate on.<\/p>\n

But with Murang\u2019a-born Abraham Mwangi and Murang\u2019a-born Pithon Mwangi sitting at the helm of these two organisations, KPCU was being sabotaged from within by wealthy coffee barons who wished to buy its multi-billion assets for a song \u2013 or sell to politically-correct individuals.<\/p>\n

\u201cIt was not to their advantage to have KPCU get a marketing license. Their interest was to rake in millions of shillings from sales,\u201d says a former board member of Coffee Board.<\/p>\n

The sinking – and personal disagreements- within KPCU board never stopped and by November 1997, a report prepared by Gill and Johnson observed that the organisation had an accumulated deficit of Sh708 million and its liabilities exceeded assets by Sh181 million.<\/p>\n

What that meant was that KPCU was walking dead. Its survival now depended on its financiers and Coffee Board which was deliberately not remitting KPCU\u2019s money. What was not known was that even Coffee Board could not get the Sh600 million that was due to the farmers. Its coffers were milked dry too.<\/p>\n

Every time both organisations faced criticism from outside, the separate boards would constitute probe committees and task forces. Coffee Board had between 1992 and 2002 established 11 such probe committees: \u201cThese\u201d, according to last Kanu Agriculture minister the late Bonaya Godana in a statement, \u201cconsisted of most of the members of the board for purposes of manoeuvring decisions of the Board and also earning extra allowances for participants\u201d.<\/p>\n

BORROWED FROM MOI<\/p>\n

Mr Abraham Mwangi used to do the same at KPCU. To save himself from the wrath of farmers, he always engineered the formation of probe committees to look at the problems facing the organisation in particular and coffee industry in general. What many farmers never knew was that this was a ruse; a style borrowed from President Moi every time he faced a crisis.<\/p>\n

One such probe was started in 1997 and was led by Mr Mwangi\u2019s business partner and politician Zachariah Gakunju. In essence, Mr Mwangi was probing himself via a probe committee \u201cinitiated by farmers\u201d.<\/p>\n

\u201cEvery time Mwangi wanted to achieve something, he initiated a probe headed by his own supporters,\u201d says an insider.<\/p>\n

Ironically, farmers always bought into this lie and voted blindly every time these pseudo-probe teams tabled their reports.<\/p>\n

\u201cAfter staying at KPCU for years, I came to pity the poor farmers. They could be bribed to vote for things they did not understand,\u201d says a former KPCU general manager.<\/p>\n

By 1997, the KPCU coffee debts stood at Sh1.2 billion.<\/p>\n

It was this 1997 committee\u2019s report which recommended the removal of several managers \u2013 privy to the dark secrets of the organisation. A newcomer to the coffee wars Ruth Wangari Mwaniki, the company secretary, was given the task to implement the probe committee\u2019s recommendation.<\/p>\n

Ms Mwaniki was intrepid, albeit na\u00efve, and thought she would make a difference. But that way, she stood at the cash till where barons were raking in money.<\/p>\n

ROTTEN STRUCTURE<\/p>\n

Although in February 2001 she was promoted to become the General Manager, at a time when the all-powerful Mwangi was ill and had relinquished his position as KPCU chairman, Ms Mwaniki did not make any headway. After all, the structure was rotten.<\/p>\n

A 1989 law graduate from the University of Nairobi, Ms Mwaniki took over at a time when KPCU was going through intense competition from three licensed millers and the cartel networks had entrenched themselves within the industry.<\/p>\n

The pressure to carry out reforms in the public sector had increased since Mr Moi was finishing his last term. Her proposals to rectify the industry were at odds with the cartels.<\/p>\n

\u201cI think she was a bit young and na\u00efve about the depth of KPCU problems and the interests at play,\u201d says a source.<\/p>\n

With pressure from the new KCB management to pay up the debts, some KPCU board members then did the unthinkable. They approached a Mauritius company Associated Consultants and incorporated Kahawa Credit International Limited.<\/p>\n

This new company was registered in Port Louis, certificate no. C31043 on April 22, 1999, and then in Nairobi as a foreign company (Reg. No. F.41\/99).<\/p>\n

The aim of the company, with a registered office at 5th Floor of KPCU\u2019s Wakulima House, was to buy the KPCU debts under a repurchase agreement, according to May 2000 minutes.<\/p>\n

Debt buying is a multi-billion dollar business where companies pay a low percentage of the face value of the debt and take off with the balance.<\/p>\n

So did KPCU form a company to buy its own debts? How much of the KPCU debts were sold to this company? Former insiders say that the deal brought via Mr Abraham Mwangi flopped.<\/p>\n

UNDER PRESSURE<\/p>\n

The registration of Kahawa Credit came at a time Coffee Board was also refusing to pay $299,859 to KPCU with the regulator only admitting owing $64,595. With poor record keeping at both organisations, it will never be known what happened.<\/p>\n

It was during this period that the Moi government was under pressure from the opposition-led Coffee and Tea Parliamentary Association (Cotepa) to reform the sector.<\/p>\n

Although then Minister Bonaya Godana had managed to put in place a new Coffee Act 2001, the coffee marketing cartels led by Mr Abraham Mwangi panicked fearing that they would lose their marketing and dealer licences.<\/p>\n

They lobbied and won. The reforms promised by Mr Godana allowed coffee millers to register different marketing companies with different directors.<\/p>\n

By denying KPCU a chance to have a marketing monopoly \u2014 since it was owned by farmers \u2014 the government naively supported the coffee barons desire to bring down a body that was standing between them and the multi-billion coffee industry.<\/p>\n

In the dying years of Kanu regime, everyone thought that the new Narc administration under President Mwai Kibaki would offer a solution.<\/p>\n

\u201cWe had almost managed to bring down these cartels but the Narc regime sabotaged everything,\u201d said Mr Njehu Gatabaki, the man who had led a nationwide campaign to rectify the wrongs within the coffee industry.<\/p>\n

BROUGHT HOPES<\/p>\n

The appointment of Mr Kipruto arap Kirwa as Kibaki\u2019s agriculture minister had brought hopes that the previous mistakes would be undone. \u201cWhat we found was that some of Kibaki\u2019s close friends were coffee barons too,\u201d says Mr Gatabaki.<\/p>\n

Inside KPCU, some officials complained to Mr Kirwa that companies associated with Ms Mwaniki\u2019s relatives were doing business with the organisation. He demanded an answer and the chairman, Mr Stephen Kirubi, wrote saying the \u201cCEO has never interfered with the procument of goods\u2026the three companies alleged to be associated with CEO have been roughly paid Sh13 million against KPCU\u2019s total expenditure of Sh114 million. There is no justification therefore to claim that the companies were favoured,\u201d wrote Mr Kirubi. The matter was also investigated by Kenya Anti-Corruption Commission but nothing came out of it.<\/p>\n

By this time, KPCU already had crippling debts and board minutes show desperate efforts to negotiate with KCB to regularise the borrowing facilities. The board had in 2001 noted that KPCU was in a \u201cserious financial position\u201d and had only three options: \u201cserious and aggressive debt collection, restructuring of banking facilities and sale of idle assets\u201d.<\/p>\n

RECORDS FALSIFIED<\/p>\n

Although it had been part of KPCU\u2019s problems, KCB in March 2001 letter put KPCU \u201con notice\u201d in a letter signed by Mr Daniel Iriga, then relationship manager with a threat: Unless arrears are cleared\u2026we will call up the entire debt and cancel the limits of your overdraft accounts.\u201d<\/p>\n

That year, according to records, KPCU reported a loss of Sh484 million. KCB was in more of a mess.<\/p>\n

Records were also falsified and in 2002, the audit firm of Waithaka Kiarie and Mbaya Company was under investigation by the Institute of Certified Public Accountants for failing to qualify the accounts of the giant miller.<\/p>\n

If a company\u2019s accounts are qualified by its auditors it means they doubt that the picture of the company\u2019s activities presented is true, complete and fair. Media reports also indicated that two separate audits had been done. This was later denied by KPCU.<\/p>\n

But still, it could not pay the KCB debts. The expected fall was coming sooner than later.<\/p>\n

\"\"<\/figure>\n

Source:Daily Nation:[State House flew cover for dangerous cartel that plucked KPCU like chicken->http:\/\/www.nation.co.ke\/news\/The-looting-of-KPCU\/-\/1056\/3004340\/-\/6o4yaxz\/-\/index.html]<\/p>\n","protected":false},"excerpt":{"rendered":"

{Even at its nethermost, the Kenya Planters Co-operative Union (KPCU) could access close to Sh1 billion ($9 million) from the Kenya Commercial Bank to ostensibly lend to farmers as advance payments for their unsold beans. } While this was supposed to be the rule, it became the window for wayward directors and managers to lend […]<\/p>\n","protected":false},"author":3,"featured_media":2000070983,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[99],"byline":[2461],"hashtag":[],"class_list":["post-21999","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-greatlakesnews","byline-daily-nation"],"bylines":[{"id":2461,"name":"Daily Nation","slug":"daily-nation","description":"","image":{"id":0,"url":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&f=y&r=g","alt":"Default avatar","title":"Default avatar","caption":"","mime_type":"image\/jpeg","sizes":[]},"user_id":null}],"contributors":[{"id":2461,"name":"Daily Nation","slug":"daily-nation","description":"","image":{"id":0,"url":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&f=y&r=g","alt":"Default avatar","title":"Default avatar","caption":"","mime_type":"image\/jpeg","sizes":[]},"user_id":null}],"featured_image":{"id":2000070983,"url":"https:\/\/en-images.igihe.com\/IMG\/logo\/arton21999.jpg","alt":"","caption":"","mime_type":"image\/jpeg","width":0,"height":0,"sizes":{"thumbnail":{"url":"https:\/\/en-images.igihe.com\/IMG\/logo\/arton21999.jpg","width":1,"height":1},"medium":{"url":"https:\/\/en-images.igihe.com\/IMG\/logo\/arton21999.jpg","width":1,"height":1},"medium_large":{"url":"https:\/\/en-images.igihe.com\/IMG\/logo\/arton21999.jpg","width":1,"height":1},"large":{"url":"https:\/\/en-images.igihe.com\/IMG\/logo\/arton21999.jpg","width":1,"height":1},"full":{"url":"https:\/\/en-images.igihe.com\/IMG\/logo\/arton21999.jpg","width":0,"height":0}}},"_links":{"self":[{"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/posts\/21999","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/comments?post=21999"}],"version-history":[{"count":0,"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/posts\/21999\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/media\/2000070983"}],"wp:attachment":[{"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/media?parent=21999"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/categories?post=21999"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/tags?post=21999"},{"taxonomy":"byline","embeddable":true,"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/byline?post=21999"},{"taxonomy":"hashtag","embeddable":true,"href":"https:\/\/new.igihe.com\/english\/wp-json\/wp\/v2\/hashtag?post=21999"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}