After five years, two failed tenders and one court ruling, will 2012 be the year when everything comes together for Kenya's new tobacco and alcohol tax stamps?

It would certainly seem that way, now that the Kenya Revenue Authority (KRA) has announced that specifications for the stamps are ready and an international tender will be issued by end January. The new stamps, with enhanced security features, are planned to be on cigarettes, wine and spirits before the financial year-end in June.

This will come as welcome relief to the local cigarette and alcohol industry, which has been battling rampant smuggling and re-importation - the highest in East Africa - made worse by widespread counterfeiting of the current tax stamps.

The main users of the stamps are cigarette producers British American Tobacco (BAT) and Mastermind Tobacco, and wine and spirits makers East African Breweries (UDV subsidiary), Keroche Breweries and London Distillers.

BAT, with a turnover of Sh13.5 billion ($160m), accounts for about 80% of the Kenyan cigarette market, with most of the balance held by Mastermind. At least another Sh4 billion ($46.5m) is estimated to be untaxed.

Tax stamps have been used on cigarettes in Kenya since 2001 and on wine and spirits since 2007. They were initially produced by De La Rue - the printers of Kenya's currency - as well as Canadian Bank Note Company.

East v West in 1^st Tender

In 2008, Kenya floated its first tender for self-adhesive wine and spirits stamps, and it was then that De La Rue came face-to-face with an emerging Asian contender, Madras Security Printers of India. Madras bid slightly slower than De La Rue ... and won the contract.

De La Rue promptly challenged the decision, and the Kenyan High Court ruled in its favour on the grounds that KRA had, in particular, failed to grant De La Rue a 15% margin of preference as a local supplier in the financial evaluation of the bids. Although British, De La Rue has a printworks near Nairobi, which satisfied the court that it was local.

KRA opted to settle with De La Rue out of court, in 2010, and to subsequently refloat the tender. In the meantime, and despite the court ruling, KRA procured its alcohol stamps from Madras, in order to avoid running out of stock.

Only One Qualifier in Second Tender

KRA took advantage of the refloated tender to upgrade the stamps to include a secure track and trace system and to extend the tender to cigarettes as well as alcohol. The tender closed in September 2011 and six companies submitted their bids. However, only one technical bid qualified for consideration of an award - that of SICPA.

KRA found SICPA's solution to be the most feasible. It consisted of new security features, a hidden photo-magnetic band that could be swiped, and the relaying of real-time data to KRA's head office. Despite the enthusiasm, however, the tender was terminated in October 2011. 

In addition, although KRA's plan was to automate its excise tax collection process, using digital stamps, it has been forced to slow these plans down, because the internet infrastructure in Kenya is not reliable or fast enough to support such a process.

Says Mr John Njiraini, KRA's newly appointed Commissioner General, 'Our work plan envisages phased implementation with a paper stamp 'track and trace' solution being the immediate priority, followed by a 'digital stamping' solution within three years'.

And the 3^rd Tender?

So who will be lining up to bid the third time round?

Although Western companies have traditionally dominated the security printing business in Kenya, Asian firms have stepped up pressure with their lower costs.

Apart from Madras in India, a Pakistani parastatal organisation called Nadra has been printing Kenya passports since 2007, after bidding much lower than other companies such as De La Rue. So it will be interesting to see if Nadra also stakes its claim in the tax stamp business.

De La Rue has been in Kenya since 1994, where it prints the country's banknotes and other security documents. It is a regular participant in tenders, both as a local and international operator. Even though it has been at loggerheads with KRA since the Madras affair, it would be surprising if De La Rue does not make a bid for the new tender.

And what of SICPA? As it was the only company to qualify on technical grounds the last time round, will SICPA come back with a new bid that fits with KRA's financial constraints?

Whatever happens, KRA knows that this time the tender has got to succeed.