The Directorate of Criminal Investigations (DCI) has this morning summoned five top officials of Kenya Tea Development Agency (KTDA) over misappropriation of funds.
They include CEO Lerionika Tiampati, head of procurement and logistics Brown Kanampiu, GM-Audit Lincolin Munyao, finance director Simon Rugut and company secretary John Omanga.
The five have been accused of conspiracy to defraud the agency.
DCI in a letter signed by an officer Obadia Kuria, said he is convinced the five are connected to the offence.
“I Obadia Kuria a police officer attached to the DCI headquarters, serious crimes Unit and Cybercrime investigations, is investigating a case of conspiracy to defraud. I have reasons to believe that you Lerionka Tiampati is connected to the offence or has information, which can assist me in my investigations,” said the summons.
So what’s happening at KTDA? When President Uhuru Kenyatta promised to reform KTDA in January, he must have heard enough reports on the rot at KTDA.
With the summons of Top KTDA managers by DCI officers, it is evident that President Kenyatta is out to bring sanity in a sector that that brought the country Sh117 billion in export earnings and Sh22 billion in local sales after producing 458 million kilograms of black tea and which accounted for 7.6 per cent of global tea production in 2019.
It’s said that KTDA directors have been find of awarding their own companies contracts to supply farmers with gunny bags and machinery.
It’s also reported that billions of shillings have been stashed in personal accounts in various banks and that real estate projects have been built with farmers’ money.
According to Kamau Ngotho, here is what went wrong in KTDA that has forced the government to intervene.
One, the liberalisation of the tea sector, when it was hoped that other management agents would emerge to compete with KTDA. But KTDA and its barons ensured that no such competitor arose and they worked with cartels in the ministry of Agriculture to frustrate any reforms.
Number two, some of the politicians who were ostensibly leading the “reforms” process were also involved in the tea trade and as conflict of interest, corruption and survival set it, the new KTDA inherited all the bad manners of the previous authority.
Thus, what emerged, and by design, was a super agency lording over farmers’ factories and which had more say that the regulator, The Tea Directorate.
That is what happens when reforms are spearheaded by interested parties and where KTDA mandarins were the consultants to the final policy.
As Munya will find out, if he hasn’t, Kenya has far too many tea brokers. Actually, before 1987, all the tea sales were made by only three brokers.
Things went awkwardly wrong when former KTDA chairman the late Stephen Mugambi Imanyara and his predecessor Eustace Karanja decided to open their own brokerage known as Centerline Ltd.
That was the origin of the insider trading. Mugambi was the sole transporter of KTDA tea and the king of insider trading. He is the same man who used to own Imenti House in Nairobi.
Then President Daniel Moi was brought into the mix with his son-in-law Stephen Kositany and they registered Bixon Ltd.
From there on, politicians lined up at the East African Tea Trade Association (EATTA), a body that controls the tea trade in eastern Africa at the Mombasa auction, and the then regulatory authority, the then corrupt and inept State-run Tea Board of Kenya and got licences.
It is an open secret that the tea business was a cash cow for politicians and insiders in the agriculture sector.
That matter was even raised in 1999 by Githunguri MP Njehu Gatabaki when he told Parliament: “The problem with KTDA is that everybody, from the senior officer to the lowest officer, deals in the business of selling, marketing and procurement of tea services … Tea brokerage is controlled by the who is who in Kenya. The President is a tea broker, Hon (Nicholas) Biwott is a tea broker and former minister for Finance, Mr Simeon Nyachae, is also a tea broker … when shall we in this country distinguish between vested interest and public interest?”
It has taken many years to have Munya take on these interests and Kenyans hope that he will not be intimidated by the barons.
Another problem that has set in is corruption at the factory level, where the KTDA-approved directors have taken advantage of the two-broker policy and get kickbacks from brokers to secure deals for them.
This policy was introduced during Peter Kanyago’s tenure as KTDA chairman and it has brought confusion into the sector.
Brokers who cannot pay have lost business as a result and if investigations are carried out, you will see how some brokerages, all of a sudden, gained clients.
The last time I checked, Norman Wilson’s African Tea Brokers, founded in 1905, had only two KTDA factories to their side while Thomson Lyolds, with a broker known as Combrok, and which used to command the brokerage sector, has been pushed out of KTDA factories.
What farmers do not know is that the money paid to the directors as kickbacks will be recovered from their produce. It is that simple.
While brokers are supposed to be self-regulating, the governance problem has yet to be tackled by EATTA, which has a Rules, Regulations and Auction System committee.
But even EATTA admits, and I have seen the correspondence to the brokers, that all was not well.
The CS is right when he says that EATTA runs a “dysfunctional and inefficient tea auction system characterised by lack of transparency, accountability and competition; and prone to manipulation, capture, insider trading and cartelisation by value-chain players leading to ineffective price discovery, low prices and poor earnings to tea farmers”.
Nobody could have put it much better. “The structural character of the tea auction in Mombasa in terms of management, governance and decision-making processes is that it is a club where all value-chain players that have a direct commercial interest in the outcome of the auction process run the auction.
“This is a serious conflict of interest that predisposes the auction process to capture by vested interests, insider trading, price-fixing and other malpractices,” said Munya when he launched the new reform measures.
It is these cartels who make sure that sales are not done at the auction but through private treaties — some of them brokered at the KTDA office in Dubai.
It is this “opaque and non-transparent” sales that are being targeted by Munya and for another reason.
“This process is further catalysed by a generous credit facility of between 30 to 120 days given by KTDA to buyers without any requirement to provide any guarantees for the teas bought. As a consequence, buyers interested in Kenyan tea do not have any commercial incentives to compete and push tea prices at the auction because of the opportunity to negotiate a sale by private treaty with KTDA outside the auction, sometimes at below the auction prices.”
Why should KTDA subject produce from poor farmers to such? What wrong have the farmers done to warrant all these?
Munya has found what we had all along said: “Due to lack of transparency and accountability in the way KTDA executes sale by private treaty, the process gives unfettered discretion to KTDA officials and is therefore a fertile ground for rent-seeking and other governance transgressions at the expense of small-scale tea growers.”
Our fears are that tea was walking the same path that coffee farmers had walked before and now poverty and helplessness reign in the former coffee-growing areas.
Munya has noticed the same: “These challenges, if not addressed, have the potential to recreate the problems faced by the coffee sector over two decades ago that led to neglect and/or abandonment of coffee bushes by farmers and the prevailing low coffee production in the country.”
KTDA Holdings has used a lot of farmers’ money to set up entities that continue to take advantage of the poor — rather than help them minimise costs.
You only need to look at GreenFedha, which loans money to farmers at exorbitant interest rates.
More so, KTDA charges farmers a lot of money as management fees and they have had nowhere to complain.
After all, the factories rely on legal advise from KTDA and they share the same company secretary!
Munya is in order when he accuses KTDA of “imposing exorbitant, exploitive and grossly opportunistic fees on smallholder tea growers. To demonstrate the exploitive and exorbitant nature of this fee, KTDA-managed tea factories currently sell between 180,000 and 200,000 million kilogrammes of tea from over 600,000 smallholder tea growers annually.
“At an average price of about $3.5 per kg, tea belonging to these smallholder growers handled by KTDA under the management agreement generate a value of between Sh60 billion and Sh70 billion annually. At a management fee of 2.5 per cent of the value of tea sales for management services, KTDA Holdings and its subsidiaries gobble up between Sh1.6 and Sh2 billion every year as fees. I consider this fee onerous and unjustifiable.”