KENYA: Sugar industry dying slow death

Published: 04/02/2018, 1:19:50 PM

At least six sugar companies are dying a slow and painful death chocked by KES60 billion (US$596.1 million) debt. The disappearance of sugarcane, their main raw material, has made resuscitation efforts by receiver managers fail to roar them back to life, according to Kenya's Standard newspaper.

Even as receiver managers and chief executive officers of the millers continue putting up a brave face in public, in private they know it is just a matter of days before they close down and never open again unless a miracle happens. Some are now crushing cane for just three days a week and shutting down until the next shipment arrives.

Government bailouts like the LES3.2 billion pumped into Mumias Sugar Company was gulped down without a burp, and the miller is back with a borrowing hand, hoping for a miracle from the taxpayer.

A privatisation plan seen by the Sunday Standard shows of the five millers now up for sale, Nzoia Sugar is the most indebted, and owes the state and Kenya Sugar Board KES28 billion. Most of the land owned by Nzoia has been charged to a bank, which it could sell off to recoup some debts.

According to the plan prepared by the acting chief executive officer of the privatisation Commission, Jacqueline Muindi, Muhoroni Sugar Company is indebted to the tune of KES8 billion, Miwani KES3 billion while Sony Sugar Company and Chemelil Sugar KES1 billion each.

Land is another contentious issue because some millers were built on communal land and the residents want to be compensated before it is sold.

"The issues on land are historical and therefore may not be resolved expeditiously while farmer issues would require immediate address through the privatisation process," Muindi says.

The debts are higher if you factor in what they owe farmers, staff, the Kenya Revenue Authority and other creditors. For example, the five millers owe the taxman KES10.8 billion in unpaid taxes and other creditors and suppliers are demanding at least KES3.5 billion.

Deputy President William Ruto says the government would write off KES89 billion owed by all sugar companies, to make them attractive to buyers. However, without a solid plan to develop cane for the millers, the write off may not help them turn a corner.

But these are just another in a series of promises made at political rallies that are never followed through, and when they do, they come a little too late. The elephant in the room has been the cost of production.

The average cost of producing one tonne of cane in Kenya is US$22.5 while that of the regions is as low as US$13 per tonne, almost double.

But as the clock continues ticking towards their collapse, the plan to sell them off continues to meet one obstacle after the next, in what has seen the little value that was left for strategic investors get eroded.

The plan is to sell a 51% stake in each of the five each public sector owned millers to a strategic investor. The remaining stake is to be shared with farmers, staff and the government will be left with some minority stakes in each of the millers.

The plan is to offload 24% to the farmers and employees through Out-growers and Employees Trusts and 25% to be retained by the government. There is a proposal to transfer part of this stake to county governments.

The sugar sub-sector provides income to about 250,000 small-scale farmers and supports approximately 6 million people and these are the people that will be some of the worst hit. Last week the privatisation commission was out in the field to try and prepare stakeholders for the privatisation that has stalled for over a decade.

Chemelil Sugar Company is majority owned by the Agricultural Development Corporation, which holds 96.21% shares while 1.42% is owned by the Development Bank of Kenya (DBK). The state owns 98.8% of South Nyanza Sugar Company Limited and the remaining is shared between Industrial & Commercial Development Corporation 0.7% and Industrial Development Bank (IDB) 0.3%.

The government owns 97.93% of Nzoia Sugar Company while while Fives Call Babcock (FCB) and IDB owns the remaining. Miwani Sugar Company Ltd and Muhoroni Sugar Company sugarare both under receivership.

The state owns 49% stake in Miwani while Muhoroni Sugar is owned by ADC, 16.9% and the Development Bank of Kenya (0.3%).

Mumias Sugar is not faring any better and may also be headed the same direction. Mumias just gulped the Sh3.2 billion bailout package from the government and stretched out its begging hand even longer. Now it needs at least Sh5 billion to resuscitate it. And this will not even be enough to secure it.

"The factory is partially stopped because we are waiting for cane to be delivered. It will be restarted when we get the right amount of cane," Mumias chief executive Nahashon Aseka said in an interview.

Its revival plan is facing a new hurdle after Ruto said declared that no further funds would be to it. "The Government has injected KES4 billion in MSC but the money appears to have gone to waste; we cannot continue ploughing funds into the milling firm until we have a turnaround plan for the company," he said.

A plan to raise additional capital through a rights issue was suspended after its value on the stock market was wiped out The miller owes farmers KES600 million and staff salary arrears of KES200million. Its wage bill is between KES30 million to KES40 millon per month.

Employees of Mumias Sugar have gone nine months without salary, some surviving on advances that are only their basic salaries given four times in the period. The company crushes cane four days a week and remains shut for the rest of the week. This has seen it rely on ethanol to cushion its operations from completing grinding to a halt. "Shortage of cane is not a new story for the company. But it is getting worse," Aseka says.

Its biggest mistake was to sell off the smaller milling plants to private millers that would have allowed it to crush smaller quantities of sugar to help it pass the difficult phase. Currently, the firm requires about 8,000 tonnes of cane a day before it can switch on its plant. This means that it has to harvest about 150 acres of cane per day.

It shelved a plan to have a rights issue after its value was eroded on the stock exchange. The story of Muhoroni is no different.

Almost 17 years after being placed under receivership, Muhoroni Sugar Company is yet to change. Engines of the firm which on its better days could crush 2,200 tonnes of cane per day, are today switched on and off intermittently, starved off raw materials.

Nashon Osieko, the General Manager at Muhoroni said the firm owed about KES9.3 billion by end of December. Noah Opiyo, an official of Kenya National Federation of Sugarcane Farmers in Muhoroni says the miller owes farmers KES169 million, pushing its debt to KES9.46 billion.