House team calls for Sh39 billion debt waiver for five sugar factories

A parliamentary committee has proposed that over Sh39 billion debt owed to the government by five sugar companies lined up for privatisation be written off.

This, the MPs say, will help to fast track the revival of the factories and speed up privatisation.

The departmental committee on finance, planning and trade, in a report on the privatisation of nine state-owned corporations, called on Parliament to scrap excess debt from the books of sugar companies that are heavily indebted in excess of their total assets as part of privatisation plans.

Chemelil, South Nyanza, Nzoia and Miwani Sugar companies — the latter two are in receivership and are thus being run by the government — are indebted to the government directly and through the Kenya Sugar Board to the tune of Sh41 billion.

The firms had an outstanding debt of Sh59 billion as at December 2010, two months after the Cabinet considered and approved plans to privatise government controlled companies.

Divided proportionally

The committee, chaired by Nambale member of parliament Chris Okemo, says Sh33.8 billion of the money owed be divided proportionally between the government and the sugar board.

Another Sh5 billion, equivalent to the total assets value of Nzoia, Muhoroni and Miwani sugar companies, should be written off to facilitate reconstruction of sugar mills and allow the firms to acquire new equipment, the committee says.

“Sugar companies continue to labour under excess debt and are unable to invest and compete with sugar imports from the Comesa region and other countries, making it difficult for them to survive once tariff and quota privileges are removed,” the report states.

In 2010, sugar companies were given safeguards to protect them from competition up to March 2012. The grace period has further been extended by two years to March 2014 after the government made efforts to privatise the firms.

“Kenya has lost almost one year after the new extension, hence the need to expedite privatisation to avoid collapse of the companies, which would adversely affect the livelihood of people in the sugar growing areas,” indicates the Okemo-led committee.

However, Parliament in October approved a Sh11 billion investment plan in Miwani Sugar Company by South Africa-based Eaglefin Structured Finance Mauritius Ltd.

The company’s proposal to give 51 per cent of the revived sugar firm’s shares to cane farmers and out-grower societies was approved by the Agriculture, Livestock and Co-operatives committee led by Naivasha MP John Mututho.

KRA debt

The committee also recommends that Sh4 billion owed to the Kenya Revenue Authority (KRA) by the firms be waived.

It also proposes that Sh117.8 million in land rates and related penalties owed by Nzoia Sugar Company be written off to enable the firm to obtain title deeds for its nucleus estate.

The Sugar (Amendment) Act stipulates that cane farmers and out-growers hold a 51 per cent stake in all sugar companies to be privatised. The firm also wants to be allocated extra land for purchase, or on a long-term lease of at least 60 years.

The committee called for amendment of the Sugar Act to repeal the clause which requires that out-growers should hold 51 per cent stake of a privatised sugar company.

The Agriculture, Livestock, Fisheries and Food Authority Bill (ALFA) 2012, if approved by the next government, will abolish the Kenya Sugar Board, the Sugar Act and the Kenya Sugar Research Foundation.

Attracted criticism

The Bill has already attracted criticism from stakeholders, with many opposing the changes. Sugarcane farmers, millers and board directors say they were not consulted in drafting of Bill.

However, the committee recommends the formation of an “out-growers and employees investment trust” that will buy all shares set aside for them in the privatisation process. Farmers and employees will be allowed to trade the shares among themselves, the committee adds.

All these, the committee says, should be approved after all legislations affecting agriculture sector, and in particular the sugar segments, have been passed.