State moves to save Mumias Sugar

Up to 300 Mumias Sugar Company workers will be sent home as part of a Sh5 billion plan to revive the company.

Those to be sacked include top managers and half of the board of directors.

Kenya’s biggest sugar producer employs about 1,900 people but has been limping due to mismanagement.

In what could come as a relief to farmers and shareholders of the miller, the government agreed to release Sh1 billion with the balance being raised by shareholders.

Kenya National Federation of Farmers chief executive Francis Waswa welcomed the plan.

“It needed this kind of action from the government,” he told the Nation by phone.

Mr Waswa said the firm urgently requires good management to turn it around.

Deputy President William Ruto on Friday chaired a meeting that arrived at the strategy.

The meeting was attended by Treasury Principal Secretary Kamau Thuge, Mumias Board Chairman Dan Ameyo, chief executive Coutts Otolo and representatives of lenders.

“We have to take these measures so that farmers can be paid for their cane,” Mr Ruto said.

The deal will see a change in the entire top management.

Audit firm KPMG has been appointed to oversee the changes and to prepare the firm for a rights issue to raise Sh4 billion.

This comes just a day after farmers held violent demonstrations to evict the management.

The Treasury will release the Sh1 billion next week upon KPMG moving in to take charge of the turnaround.

The government is the majority shareholder.

In January, government gave the miller Sh500 million in a desperate attempt to boost its cash flow.

There were fears that lenders were planning to have the company placed under receivership.

YIELDED TO DEMANDS

It now means the government has yielded to demands by lenders who collectively are owed in excess of Sh5 billion.

Last year, the lenders Ecobank, KCB, CfC Stanbic, Barclays Bank, Commercial Bank of Africa and Proparco of France appointed KPMG to review the firm before a request to restructure its debts.

The review concluded that the company was still a viable business but needed a shake-up of its top management and board.

“Unless this is done, any debt restructuring plan put forward will not have credibility with lenders,” reads part of the report by KPMG.

A forensic audit carried out early last year at the request of the board revealed massive theft by previous managers.

The report revealed how employees exploited and profited from loopholes at the miller in what could be the reason why the once economic giant of western Kenya remains a shell of its former past.

The forensic report blames management teams under Dr Evans Kidero and Mr Peter Kebati of disregarding information from auditors that there existed abuses of procedure which needed fixing.

“We noted that Mumias Sugar Company’s internal auditors, external auditors and the board of directors consistently notified the management of non-adherence to policy and procedure and gave recommendations, which should have been acted upon,” reads the report.

Non-compliance with policies and suggested changes, said the KPMG report, exposed the miller to losses.

HUGE LOSSES

The company has been in the news for all the wrong reasons since the exit of current Nairobi governor Evans Kidero as managing director in 2012. It has consistently posted losses.

The turnaround strategy is thus the first bold move by the Jubilee administration to rescue Mumias Sugar Company and revive the hopes of millions who depend on it for their livelihoods.

In the half year to December 2014, the miller had a Sh1.5 billion loss. In the period, the company spent Sh3.4 billion on operations yet it only made Sh2.7 billion. In its 2013/14 full year results, Mumias posted a Sh2.71 billion loss.

Farmers and other stakeholders have been pleading with the government to step in. On Friday, it did just that.

In 2013, a lobby group called Western Development Association (WEDIA) petitioned Parliament to launch an inquest into the challenges facing the local sugar sector to save it from collapse.

The agriculture committee finalised the study but is yet to table the report to Parliament for debate amid reports that members of the committee had been compromised to alter it.

“It is clear that unless the government moves in to salvage Mumias and the sugar sector by extension, farmers and consumers stand to suffer the consequences,” WEDIA chairman, Joseph Barasa told the Nation.

Mr Barasa welcomed the rescue plan saying that the need for new blood to take charge was long overdue.

(EDITORIAL: Revive Mumias, but pursue the culprits)