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Tea farmer’s wrath: Is this KTDA’s last battle ground?

When Tirus Kanyago acquired interest in a tea brokerage firm despite being the chairman of Kenya Tea Development Agency, he was continuing a tradition where senior KTDA officials either doubled as brokers, or did business from within.

At the Mombasa tea auction, named the East African Tea Traders Association (EATTA), nobody raised any alarm despite the fact that the association is supposed to have brokers adhere to a code of conduct. After all, a trend had been set over the years where politicians and former KTDA officials were rewarded with brokerage licenses.

For instance, long-serving KTDA chairman, the late Stephen Imanyara, registered Centerline Limited, while the late Simeon Nyachae, when he was Agriculture minister, was rewarded with a licence for Choice Tea Brokers. One-time Tea Board of Kenya chairman, the late Eliud Mahihu, also had an interest in Venus Tea Brokers.

The incestuous relationship between KTDA and EATTA has been an open secret. Despite complaints from farmers about the cosy relationship and how it was affecting their earnings from tea, there was no structure within KTDA where such complaints could be registered.

The multi-billion-shilling tea industry was left in the hands of barons and brokers after the government walked out of the sector, thanks to a liberalisation policy that saw the assets of the former parastatal, the Kenya Tea Development Authority, handed free of charge to a new entity.

 

While KTDA claims to own the assets, the Cabinet Secretary for Agriculture, Mr Peter Munya, argues that KTDA is still a public entity since the parastatal was never privatised.

“The new assets by the agency were derived from farmer’s tea earnings. It is not a private company as some people purport it to be,” Mr Munya told a joint Senate committee during consideration of the Crops (Tea Industry) Regulations 2020.

This week, and in line with this thinking within the government, police officers barged into both the KTDA headquarters and the EATTA offices as the government moved in to start investigations on the orders of President Uhuru Kenyatta.

It is estimated that 70 per cent of KTDA’s assets were acquired when it was a parastatal and before June 2000, when the authority’s existence was extinguished through a gazette notice. After that the current association took over the assets, liabilities, obligations and mandates of the authority, including all its employees.

While the tea sector rakes in billions of shillings in foreign currency every year, farmers have been complaining of dwindling payments. Questions have also been raised on why the government abolished the regulatory body, Tea Board of Kenya, leaving the sector to the whims of an ineffective directorate.

Last year, despite opposition from KTDA and EATTA, Parliament finally passed Aaron Cheruiyot’s Tea Bill, thus giving the country new laws to govern the sector and revive the Tea Board of Kenya. A previous attempt by the Agriculture CS to gazette new regulations was thwarted by KTDA and EATTA, which got ex-parte orders to stop the implementation of the rules.

But after the President assented to the Tea Bill, the never-say-die KTDA and EATTA filed more cases to suspend various clauses that touched on both institutions. Another case was filed by Mungania Tea Factory, while the High Court in Embu “enjoined” 50 more tea factories as co-respondents.

 

That KTDA and EATTA had managed to box State House and the Ministry of Agriculture into a corner was now obvious. Mr Munya had to conduct rallies in tea growing areas as frustrations set in. His Tea Regulations 2020 had been set aside and the various clauses of the Tea Act suspended.

It now seemed that President Kenyatta had been left with one card — his Executive authority. On March 12, 2021, President Kenyatta issued the Executive Order No 2 of 2021 which not only ordered an audit on KTDA, but also an inquiry “into allegations of statutory and regulatory breaches.”

There was a reason for that.

“KTDA had perfected the use of ex-parte orders and nothing seemed to work,” says Irungu Nyakera, chairman of the Kenya Tea Sector Lobby, which has been pushing for reforms. So far, the courts have issued seven ex-parte orders targeting various aspects of the proposed reforms.

While issuing the Executive order, President Kenyatta also called for elections of directors of the various factories. These were to be conducted within 60 days and he directed the Cabinet Secretary for Interior, Dr Fred Matiang’i, and Mr Munya to ensure the “full implementation” of the Executive Order.

Tea Regulations

But these orders were also set aside by the High Court, with Justice Mrima arguing that the KTDA elections had been stopped in the former Mombasa Petition 87 of 2020. He also argued that the President’s Order contained issues that had been challenged in court under the Tea Regulations of 2020 and the Tea Act, 2020, which are yet to be determined.

KTDA lawyer Benson Millimo told the court that “the President has no iota of justification in law and or fact in seeking to interfere with (KTDA’s) lawful business, affairs and internal management.”

In the Executive Order, the President also asked Attorney-General Kihara Kariuki to inquire into “potential price and auction manipulation, abuse of dominance, insider trading, wastefulness and breach of directors’ fiduciary duties”. The inquiry will also look at “any other… malfeasance within KTDA”.

If President Kenyatta had expected KTDA to go without a fight, he was shocked. KTDA went to court. It wasn’t the first time, and certainly not the last. Last year in Parliament KTDA was accused of using courtrooms to frustrate farmers, and of using millions of shillings to fight cases and, later, billing the farmers.

In August 2020, KTDA had hoped to conduct elections for the various tea factories under its management, and before the President Kenyatta assented to the Tea Bill. But AG Kariuki successfully asked the High Court to suspend the elections. Also, a Nyeri lawyer, Patrick Ngunjiri, enjoined several farmers to oppose the KTDA-run elections and pushed for independent elections.

The argument was that since tea factories are registered as limited liability companies and shareholders have a right to conduct their elections and file returns, there was fear that the Registrar of Companies could penalise the farmers’ entities if they did not conduct elections as provided for in the Companies Act.

It now appears that the tea farmers have used a clause in the Companies Act to demand for a special general meeting and elect new directors in various counties. The government has also moved to recognise the new directors and changed the tea factories’ directorships — in what amounts to a grassroots coup against the KTDA barons. How far KTDA will fight these newly elected directors for the various factories remains to be seen, although it seems to have lost its hold on the running of factories.

Also of great importance is the fact that KTDA had done away with the one-grower, one-vote mantra, leaving thousands of farmers with no say on the elections of directors. While the Tea Act seeks to rectify this anomaly, KTDA has been pushing for its suspension and had hoped to conduct the polls last year before the Tea Bill was signed into law.

Legal backing

The problem was that for years the KTDA company secretary also doubled as the company secretary for the tea factories. Thus, if the tea factory directors desired to discuss KTDA as an agent, they had to rely on KTDA to provide the legal backing. At the moment, the factories have hired new company secretaries, leaving the KTDA-appointed company secretary with no say.

But it was the raid this week at the KTDA headquarters and EATTA that caught the officials by surprise. In the Executive Order, President Kenyatta had lamented that the setting of tea prices in Kenya “remains an opaque and exclusionary process that is sharply dissimilar from the process in other comparative jurisdictions.” This has been blamed on EATTA, which runs the auction house.

Another observation by the President was that “KTDA’s network of subsidiaries, which includes offshore subsidiaries, are locked in inherent conflicts of interest and are also misaligned with the interest of tea farmers.”

The President ordered “immediate remedial measures to ensure that each of the subsidiaries of KTDA has separate governance structures, and that the profits from each of the subsidiaries is reflected in farmers’ incomes.”

While the inquiry will look at the activities of KTDA subsidiaries, including KTDA Management Services, Chai Trading Company, Kenya Tea Packers, Majani Insurance Brokers, Greenland Fedha, The Tea Machinery and Engineering Company, KTDA Power Company and the Dubai-based KTDA DMCC, sources say it will also target senior company officials who will be tasked to account for their wealth.

While discussing the Tea Bill, many MPS argued that the House erred by leaving the tea sector and all the assets of former Kenya Tea Development Authority parastatal under the control of a private company.

Tea brokers

The appointment of tea brokers at the factory level had seen corrupt tendencies creep into the sector, and brokers have claimed that factory directors usually demanded kickbacks to sign new contracts. Also, there have been claims of price fixing at the Mombasa auction, and where tea was sold directly to the buyers.

Part of the KTDA argument is that the new laws will eat into the management fee charged to the farmer and so it will have to pay its employees.

Previously, KTDA employees were paid by farmers, not from the management fee. It has also been argued that KTDA has been holding the factories to ransom by using its finance muscle to keep its contracts running by guaranteeing loans to factories. Previously, Treasury used to guarantee the loans via Kenya Tea Development Authority.

On Tuesday, KTDA released a statement saying “it has nothing to hide regarding its operations, financial transactions and business.”

“KTDA Group specifically states that it is a law-abiding institution, and as long as the proper and legal procedures are followed, it will abide by the same,” it said.

On its part, EATTA described the raid on its offices by the Directorate of Criminal Investigations as “an affront to EATTA’s rights as a private entity”. Managing Director Edward Mudibo threatened to “seek compensation for any monetary loss.”

As farmers now move to take over the running of the tea sector, it remains to be seen how far the government will help them in wrestling with the giant KTDA and the barons who seem eager to resist change. – nation.co.ke