Why minister Nyagah was excited about the demise of giant farmers’ union

Former Minister for Cooperative, Development and Marketing Joseph Nyagah gestures during a Sacco societies regulatory authority stake holders sensitization workshop on March 15, 2010. PHOTO | LIZ MUTHONI | NATION MEDIA GROUP

What you need to know:

  • Some former directors think so, and they believe KPCU was deliberately allowed to grind to a halt so that its multi billion shilling assets could be up for grabs. That desire is not over yet.
  • This was a calculated move that was to lead to the death of KPCU. With the exodus of societies from KPCU, the miller lost nearly 70 per cent of funds mobilised through it.
  • In May 2009, KPCU contracted DCDM Ltd to carry out another audit into accounts with KCB to determine if the interest and charges levied conformed with the bank’s tariffs.

On Monday, January 4, 2010, the first working day after the New Year festivities, an Administration Police squad under the command of Mr Francis Gatheru took position at Kenya Planters Co-operative Union (KPCU) headquarters, Nairobi.

The aim was to help Kenya Commercial Bank (KCB) appointed receiver managers to take over the giant union. For the first time since its founding in 1937, KPCU was under receivership.

“It broke our hearts,” says the then KPCU Chairman Watson Kimathi Mutuerandu. “It was planned by Cabinet Minister Joseph Nyagah.”

And Mr Nyagah does not deny it.

“It is true. I organised for the police to help the receivers,” he says.

But did KCB put KPCU under receivership to forestall investigations into inconsistent loan entries in the bank’s books?

Some former directors think so, and they believe KPCU was deliberately allowed to grind to a halt so that its multi billion shilling assets could be up for grabs. That desire is not over yet.

After months of investigations, we have found that the collapse of KPCU and its receivership is a story of theft, choreographed shareholder meetings, political mischief and abuse of power.

Many players, working individually, as a group or as uninformed sloganeers helped push KPCU into its current state. Some chickened out when they were threatened with death.

NEW ENTITY

Banks too — KCB and Co-operative — share part of the blame, as does the then minister for Co-operatives Joseph Nyagah, who openly celebrated KPCU’s fall.
“I am delighted KCB has put it under receivership,” he said at a press conference.

What Mr Nyagah, never told journalists was that he had fallen out with KPCU board members after they resisted his move to have the organisation abandon its duo registration as a limited liability company and a co-operative union.

He also did not say that his ministry was on the verge of registering a new entity — Kenya Cooperative Coffee Exporters (KCCE) — to take over from KPCU once it went under.

“This was his hidden card throughout,” says Mr Mutuerandu. He had held several meetings with the minister.

Mr Nyagah wanted to implement a study by the European Union, which had recommended a reduction of KPCU board members from 15 to seven.

“It was fine to have such a huge board when KPCU was milling 140,000 tonnes annually. But it was now only doing 7,000 and there was a lot of idle capacity in the factories. My idea was to resuscitate KPCU from coma,” he says.

Mr Nyagah admits that he was the brains behind the formation of KCCE but denied having any interests.

“It is the cartels who continue to say that I have personal interests because I diluted their stake in the industry,” he says.

KCCE became the first beneficiary of a relapsed KPCU and it hired KPCU’s Sagana Mills, which was lying idle. “We have taken them to court to get back those mills,” says current KPCU Chairman Gatei Muiruri.

Shortly after the post-election violence of 2007/8 and the formation of a coalition government, Orange Democratic Movement’s Joseph Nyagah was picked to head the Co-operatives docket.

“I told Raila (Odinga) that this was the ministry I wanted. I wanted to correct previous mistakes in the co-operatives movement,” Mr Nyagah adds.

According to Mr Mutuerandu, during the minister’s first meeting with the KPCU board, he offered to assist it to recover bad debts. Then he made an astonishing demand; KPCU should decide if it wanted to be a limited liability company or a cooperative.

CRIPPLED ORGANISATION

“We told him that our shareholders, who were both private estate farmers and cooperative societies, needed time to address the issue,” recalls Mr Mutuerandu. “That was the end of the cordial relationship with the minister.”

What followed was the resignation of 10 senior KPCU managers, including MD Peter Kimani, which almost crippled the whole organisation.

While they cited poor governance and misunderstanding between them and the board, Parliament was told by Mr Nyagah that they just “resigned and absconded duty”.

But was there more to it?

“I believe they were incited by the minister to resign,” says Mr Mutuerandu without providing facts.

A few months later — May 2009 — the KPCU board of directors decided to meet the minister. “Surprisingly, he accused us of being anti-reform and uncooperative. He informed us that he had established KCCE to market coffee and that the institution would take over the business of KPCU,” says Mr Mutuerandu.

In mid-2007, the Cooperatives ministry had facilitated a study, through the EU, on restructuring of KPCU. It is this study that wanted KPCU to abandon its dual status — which Mr Nyagah was pursuing, as KPCU resisted.

With a hostile minister, Mr Mutuerandu and his board were treading on a dangerous path. They had inherited political debts, confusion and historical problems.

Most of the board members hardly understood what the original war was about — while those with inside knowledge were tired of the circus. KPCU was on the verge of collapse.

“They never understood which toe they were stepping on. They blindly drove,” says a source who was privy to KPCU’s management and once received death threats.

COMMISSION AGENT

KPCU’s fall and looting was slow-motioned, implemented with precision and backed by policy. Nobody seemed to realise the gravity of the damage being done.

It all started in 1992 when World Bank-funded Second Coffee Improvement Programme (SCIP II) was rolled out through the Co-operative Bank.

Coffee societies were ordered to appoint the bank as their commission agent to qualify for the funding. It meant that the societies’ coffee payments would now be handled by the bank.

This was a calculated move that was to lead to the death of KPCU. With the exodus of societies from KPCU, the miller lost nearly 70 per cent of funds mobilised through it.

Secondly, the Coffee Board of Kenya allowed farmers to appoint other commission agents and millers, leading to exposure of borrowings that farmers had obtained from KPCU.

Some of the new commission agents were companies bankrolled by the Coffee Board and rogue KPCU directors.

Even the Coffee Board, which was supposed to regulate the market, awarded itself a commission agent licence. It ignored a requirement that prohibited farmers from changing commission agency before receiving ‘No Objection’ letter from the retiring agent.

It also failed to put any mechanisms in place to facilitate recovery of KPCU money. With these dynamics, KPCU — the largest commission agent and miller — lost hundreds of millions of shillings. By 1996, the debts reached Sh1.2 billion and the sustained sabotage of KPCU from within and outside continued.

KPCU directors who offered an alternative voice were edged out.

ZERO CHANCE

That same year, the Coffee Board allowed growers indebted to KPCU to split their farms and form different limited liability companies, which were issued with separate licences. That way, they managed to legally continue selling their coffee. Alas! KPCU was unable to recover debts from the other entities!

Also in 1996, the Coffee Board issued parallel licences to farmers indebted to KPCU in order to disguise deliveries from such farms. These were mainly large-scale politically-correct farms. That way, KPCU had zero chance of collecting its debts.

It is this state of affairs that the Mutuerandu group walked into when it was elected.

They had hoped to make a difference but their efforts collapsed in January 2008 when senior managers abruptly left. After meeting, the KPCU board hired Deloitte to carry out a forensic audit to determine if the managers were involved in any fraudulent deals.

They gave the audit firm the financial details of the organisation and paid Sh2.5 million for it. They never submitted the report and returned as receiver managers. KPCU reported the matter to Icpak on November 16, 2009, accusing them of conflict of interest.

To its credit, the Mutuerandu group managed to obtain new credit facilities from KCB and continued to service loans, from proceeds of the little coffee it was milling.

Unfortunately, Mr Mutuerandu and Co still could not collect the historical debts due to the Coffee Board’s reluctance to help. Again, there was little goodwill from the government since some senior politicians owed KPCU millions of shillings.

In May 2009, KPCU contracted DCDM Ltd to carry out another audit into accounts with KCB to determine if the interest and charges levied conformed with the bank’s tariffs.

MISSING BANK STATEMENTS

The former KPCU chairman thinks it was this audit that made the bank panic, pushing the giant union into receivership.

The need arose from the high bank balances that never seemed to come down despite the loans being serviced.

DCDM found that several bank statements were missing and had never been supplied. The bank also said in a letter dated July 24, 2009 the letters were not available.

The audit revealed disputable and questionable entries, according to an affidavit filed in court to challenge the receivership.

“There have been several instances in the loan account where some cheque deposits were banked and the loan balance remained the same,” said the affidavit signed by KPCU’s finance manager. All this time, the KPCU board had one fear.

“If KPCU was put under receivership, it would be sold at the value of debts,” says Mr Mutuerandu.

The government, through Agriculture PS Romano Kiome, called a KPCU management meeting on November 6, 2009.

“It was surprising to find the KCB team in the PS’s office and it turned out that Mr Kiome and the bank wanted to arm-twist KPCU directors to resign and hand over the institution to KCB, the receivers and the government,” recalls Mutuerandu who attended the meeting.