How Kenatco was driven into receivership – and parked for twenty years

Saturday June 25 2016

Kenatco had the newest Mercedes Benz cars in its fleet. PHOTO | FILE | NATION MEDIA GROUP

Kenatco had the newest Mercedes Benz cars in its fleet. PHOTO | FILE | NATION MEDIA GROUP 

By JOHN KAMAU
More by this Author

It is now 20 years since Kenatco Taxis was driven into receivership over a Sh17 million loan. It is still there—perhaps unable to pay, perhaps accruing more debts.

Kenatco is the sorry story of a government snatching a private company, in fact a cooperative, and rather than turning it around, it drove it into receivership.

Started by little-known businessman Simon Peter Mbacia, who became its first general manager, the Kenya National Transport Co-operative Society, as it was named in 1965, was the first transport business society in Kenya.

Its aim was to take on the giant transport firm locally known as Overseas Trading Company, or simply OTC, a British company that pioneered bus transport in Nairobi in 1930s after it introduced a fleet of 13 buses on 12 city routes before expanding to other towns.

The Kenatco pioneers had a big dream. So big, that they not only wanted to go into the haulage business, but also to buy some tourism boats and a plane to serve the local tourism market.

When it made its first application in October 1965, it applied to operate 82 buses on various routes and submitted the details to the licensing board. But the government only gave it a TLB licence no 6314, issued on August 25, 1965, to operate two vehicles on the Nairobi-Gilgil-Nyahururu route and two vehicles on the Nairobi-Namanga route. It also allowed all Kenatco vehicles the right “to operate on all routes within Kenya on a coordinated timetable” according to records. It was additionally given a “B Carriers’ licence” issued to carriers of commercial goods.

It was a good start for Mr Mbacia, who toured various towns recruiting shareholders. Within no time, he had 2,028 members. Mr Mbacia, according to some records, had targeted that by the end of 1965, his company would have 155 vehicles on the road, comprising 49 taxis, 62 buses, and 44 lorries.

First, he acquired a petrol station along Kenyatta Avenue, next to Nairobi’s Kipande House, and leased a petrol station along Racecourse Road in the city.

But four months later, and after the society had invested in several trucks, the Class B licence was withdrawn in December 1965 leaving the founders in limbo. No reason was given.t its first anniversary, Mr Mbacia complained loudly about the problems they were facing: “Since the company’s inception, we have been applying for loans to boost our business but we have not received any satisfactory reply from the minister concerned and this puts us in a very desperate position”.

The company had a plan to buy a plane and a number of boats to operate in Mombasa.

In June 1966, its applications for a road licence for all its buses were deferred. The reason? Nobody knows to date. That meant that technically Kenatco could not operate its buses and could not repay the loans it had taken from several commercial banks. It was the first known sabotage of an indigenous company.

In three months, October 1966, the government announced that the company had been unable to repay its debts and had thus been nationalised. The first opponent of the nationalisation of Kenatco was Oginga Odinga’s Kenya Peoples Union (KPU). “The government should nationalise Kenya Bus Service or OTC” said Zephaniah Anyieni, KPU’s assistant secretary-general.

A new company owned 90 per cent by the government through the Industrial Credit Development Corporation (ICDC) and 10 per cent by previous shareholders was incorporated. It was to be known as Kenatco Transport Company. Soon, the shareholders were edged out.

Had the shareholders read the 1915 Book of Fables by Horace Scudder and the story titled The Arab and His Camel they would have resisted this takeover by learning the moral of this story which is: “It is a wise rule to resist the beginnings of evil.” But the Kenatco shareholders, all their naivety notwithstanding, were like the frog in the boiling water—cooked very slowly without realising.

Although the then Minister of Commerce and Industry, Mwai Kibaki argued in Parliament that the take-over of Kenatco was done in good faith to ostensibly “protect the public’s faith in co-operatives” there were murmurs inside Parliament that it had been taken over to protect foreign transport companies which were being threatened by the new kid on the block. These were two British companies: Kenya Bus Services, which had a monopoly on Nairobi routes and the OTC, which commanded the major Nairobi up-country routes and Mombasa. Its OTC bus stage in Nairobi was always a beehive of activity.

The new Kenatco was given to a new chairman, Kenneth Matiba, then a Permanent Secretary in the Ministry of Commerce. Although, he was supposed to grow it into a national transport parastatal, he first sold all the buses he had inherited from the original shareholder. He sold some to Akamba Bus Service, and others to Twarka Transport, Kiambu transport and Ruaraka Bus Service; claiming they were too old.

To his credit, he bought some new vehicles and a 1968 advert for an executive officer indicates that Kenatco had more than 200 vehicles: Lorries, buses, mini-buses and hire cars. It was all within the dreams of its founders. Actually, in February 1968 when Swedish Prime Minister Tage Erlander visited Kenya, the government asked Kenatco to provide him with a car. On the previous day, Kenatco had received a fleet of new Mercedes 200s and video footage shows him and Vice-President Moi entering a Kenatco car with the registration KKZ 797. The company had come of age with its limousines.

NEW CHAIRMAN

In July, 1968, Kenatco got a new chairman, J. G. Kibe, then a Permanent Secretary Ministry of Commerce, to replace Matiba. Up to 1968, the success of Kenatco was attributed to Matiba. He expanded its fleet of self-drive cars and vehicles hired in Mombasa could be returned in Nairobi and vice versa.

With the exit of Matiba, the government also hired Peter Arthur Spencer, a former government bureaucrat whose position had been Africanised at the Ministry of Home Affairs to become the general manager. It was him who did the unthinkable and closed down the two petrol station businesses owned by Kenatco. That was mistake number one, for any transport company. In October 9, 1969, the government decided to abandon the passenger bus business – in yet another goof – thanks to Mr Spencer’s advice. The new buses had run for only one year!

Mr Spencer said that he wanted to concentrate on long routes such as Zambia where it was hauling copper to the port of Dar es Salaam. “Our primary job is to move goods at the most economical price and with the maximum efficiency,” he said. The man who approved this sale was Commerce and Industry Minister James Osogo.

But the scandal was that the largely new buses were sold to a company, Ivory Safaris, associated with Mr Spencer while the Kenyatta Avenue Petrol Station was sold to Avis, an American-owned firm that was looking for an entry into the rent-a-car business.

There was uproar in Parliament over the saga and the matter reached State House. “Many delegations have been sent to see the Minister for Commerce and Industry and also another delegation was sent to see His Excellency (President Jomo Kenyatta) on this particular matter, because the public is so annoyed by what the government is doing,” Embakasi MP, Mwangi Karungaru told the House.

What was not known publicly was that to run Kenatco, the government had hired 19 expatriates too, led by Mr Spencer, who owned another industrial area-based company, Lowland Wood Company, which was selling spare parts to the firm. “Not only that, some people who have been rejected in other government statutory boards have now been employed by Kenatco,” said Mr Karungaru.

The MP was referring to Mr Spencer’s stint at the ministry of Home Affairs.

Parliament was told that the aim of selling the Kenatco buses was to make sure that Kenya Bus Services would have the necessary opportunity to operate buses in all parts of the country.
Although the minister admitted that a “lot of bad things” had happened at Kenatco, Parliament was told by Nakuru MP Mark Mwithaga that the minister was speaking “humbly because he knows how guilty his men are” in running down Kenatco.

That was Kenatco’s fall number two.

The haulage business boomed, though. Kenatco lorries would leave Nairobi to the Zambian towns of Ndola, Lusaka, Kitwe and Mufuliira—via Tanzania.

In 1969, Kenatco hired Jack Howell to be the manager in charge of the Zambian services. Operating from the Mombasa office, he built a solid transport company and a fleet of more than 60 lorries for the Zambian route.

The Zambian economy was booming then as the price of copper rose in the world market. Zambia was then classified as a middle-income country with one of the highest GDPs in Africa. By this time, it was the largest producer of copper in the developing world and the third largest producer in the world after the United States and the former USSR, with production at 12.2 per cent of total world production.

Kenatco was the official road transporter, taking majority of import goods such as lubricating oils and bitumen and paper packaging materials.

Kenatco’s other rent-a-car business was flourishing with the entry of American businessman Winston Morrow, who was described by The New York Times as an “amateur lumberjack”. He was allowed to inject 55,000 pounds to form a joint Kenatco-Avis rent-a-car business.

That business was given to a new company Kenatco Rent-A-Car, which was expected to have 150 cars by end of 1969. The main Kenatco was to restrict itself to road haulage and town taxi business.

In the 1970s, Kenatco got two new general managers, John Gitao and Chris Kirubi. The haulage business grew and the taxi business flourished—with the Mercedes Benz as the symbol of Kenatco.

BUSINESS COLLAPSE

Then in 1977, Tanzania closed its border with Kenya and the Zambian business collapsed. This time Kenatco had invested in refrigerator trucks that ferried meat, butter and pork to Zambia from the Kenya Meat Commission. “It was time to look elsewhere for business,” Mr Kirubi told me last Friday. “I negotiated with Ugandans to transport their coffee under police guard since most of it sent through the railway was always stolen.”

It was the time for coffee boom and Uganda was sending thousands of tonnes of coffee to the port of Mombasa. But the safety of the Kenatco coffee haulage was tested by two MPs Muhuri Muchiri and Mwangi Gachago who stole coffee from one of Mr Kirubi’s lorries. “I had to have them jailed to save the business,” he says. “I also vowed that I would not transport coffee without police escort.”

Mr Kirubi says he is angry because people blame him for the collapse of Kenatco. “Go and look at the records. I left a very healthy balance sheet, 50 Mercedes Benz saloon cars and 25 Mercedes trucks. We also had big contracts,” he says.

It was problematic business. Trucks would break down in remote places and it would take two weeks before services reached there.

Drivers would also sell cargo and disappear, even under Mr Kirubi’s watch.

It was, however, the arrival of Yuda Komora from the Ministry of Tourism in the 1980s that saw the first dent on Kenatco’s rise.

“He allowed people to do magendo, using Kenatco vehicles,” alleges Mr Kirubi. “I warned him not to allow people to mess the company but he never listened to me.”

Soon, Kenatco was put on receivership in October 1983, unable to pay its loans. But before it was put under receivership, a new company, Kenatco Taxis was incorporated to run the taxi business wing which was still profitable.

The receivers were accused of selling Kenatco business for a song to allow politically correct companies to take its place.

Kenatco, the long haulage business, had died, taking the route taken by the bus company.

While the taxi business thrived, it also became a cash cow for bigwigs in government. It took loans from the National Bank of Kenya, then a politically run bank, and never paid. In 1996, unable to pay Sh17 million, it was also put under receivership.

On Thursday, we called ICDC and spoke to Joseph Mwaura, the manager, to appraise us on why a company should be in receivership for 20 years. The much he could tell us was that it was the receiver manager, John Ndungu, who had the information on the future of Kenatco Taxis.

We called Mr Ndungu’s office. His office would not share his number with us, and neither did he call us back. The last official records on Kenatco Taxis tabled in Parliament some 8 years ago showed that the company’s loan had grown to more than Sh300 million from the original Sh17 million.

They have abandoned the flagship Mercedes for Toyotas.

So much for a company that wanted to be the ultimate transport king in the region.

John Kamau is the Daily Nation's acting editor for investigations and special projects; [email protected]; @johnkamau1.