It makes no sense at all to sell Panpaper for a paltry Sh900m

An agreement for the purchase of the company is said to have already been negotiated.

Wednesday March 2 2016

By JAINDI KISERO
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I do not agree that the best way to revive the troubled Panpaper is to sell what was once the largest paper maker in East Africa to a timber merchant for a song.

I have it on good authority that the National Treasury and the Ministry of Industrialisation are about to flog the company to the Rai Group at a price of Sh900 million.

As a matter of fact, an agreement for the purchase of the company has already been negotiated.

Should it not be obvious to everyone that in seeking to purchase Panpaper, the only value proposition for the Rai Group in the whole deal is the forest licence from the Kenya Forest Service?

Does it really make sense to put a long-term forest licence into the hands of a timber merchant?

Who is going to monitor the arrangement to make sure that timber harvested from government forests at concessionary prices for paper manufacturing is not diverted to the timber business?

Has this agreement been properly negotiated in regard to issues of conflict of interest?

TOO MANY CONCESSIONS

In my view, the government has, in the negotiations to sell Panpaper, bent over backwards to give the Rai Group too many concessions.

For instance, the parties have agreed that the share and purchase agreement will not be signed until the following conditions have been met:

First, that the application for the Kenya Forest Service licence by Panpaper be approved.

Second, that the National Land Commission issue titles to all untitled properties belonging to Panpaper.

Third, that all title documents owned by the company be transferred to the Rai Group.

Clearly, the buyers have their eyes set on Panpaper’s land and property.

In retrospect, the taxpayer has, in the name of trying to revive Panpaper, borne a huge burden only for the company to end up being sold to a timber merchant.

In 2012, the government gave out a whopping Sh2 billion to the Ministry of Industrialisation to revive the plant.

The money was deposited in a special account and ring-fenced against being spent by the ministry on any other activity.

More millions were released for trial production runs to keep the plant running and operational and to prevent the machines from rusting from disuse.

We have spent billions to revive a company that we are now about to sell for a paltry Sh900 million?

VAT REFUNDS

We must also not forget that the government, in the name of reviving Panpaper, signed away hundreds of millions of shillings in VAT refunds that Panpaper owed the Kenya Revenue Authority.

In addition, the government signed an agreement in which it transferred all the debts owed by Panpaper to short-term lenders.

On top of it all, the government paid Panpaper’s short-term lenders a total of Sh400 million in cash so as to get this pesky lot of creditors out of the way.

At one point, the government mooted a plan to buy the company from the long-term lenders, restructure it, and turn it around into a fully fledged parastatal operating under the Industrialisation Ministry.

As a matter of fact, in July 2013, the Treasury and the Office of the Attorney-General even went to the extent of incorporating a new government-owned company by the name Webuye Paper Mills Ltd, which was to take over the assets of the company from long-term lenders.

Is a paper plant in the image of Panpaper commercially viable? Is it possible to produce paper competitively?

SPECIAL ECONOMIC ZONE

I do not know, but I think that considering the billions of shillings in public resources that have been poured into reviving the company, we should, instead of selling Panpaper to a timber merchant, be thinking outside the box and use the vast land it owns in Webuye to set up industrial parks and a special economic zone.

Indeed, Webuye town is an attractive location for an industrial park.

There is adequate land, a railway siding, a good road network, and proximity to Kenya’ largest trading partner - Uganda.

And we now have the legal framework for special economic zones.

Last year, Parliament finally passed a law to create not only a new authority to run special economic zones, but a framework for setting up incentives for investors, including tax holidays, exemptions from customs and excise duties, and a raft of financial incentives.

We could make Webuye the first trans-boundary special economic zone in Africa.

If anything, the National Environment Management Authority has previously expressed concern about the company’s pollution of the environment.

The Mount Elgon County Council raised concerns about the sustainable harvesting of trees from the forest.

Selling Panpaper to a timber merchant just does not make sense. Period.

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