Western Kenya needs Mumias Sugar Company; please don’t allow it to die
What you need to know:
- If Mumias, the largest sugar producer in the country and the biggest employer in western Kenya, is allowed to collapse, the impact on the economy of that region will be disastrous.
- The notion that State-owned sugar companies are an unworkable model is a big lie. If that was the case, how does one explain the fact that companies owned by Kenyans of Asian origin are thriving and putting in more investment in the sugar sector in western Kenya?
- In South Nyanza, the Awendo-based South Nyanza Sugar Company is facing a twin offensive from two younger and nimbler players — Sukari Factory Ltd and Transmara Factory Ltd, both owned by Kenyan-Asians.
I do not like the way things are going at Mumias Sugar Company. Currently, all indications are that the company is in dire financial straits.
And I am not too sure that the turnaround strategy being pursued by the company’s board of directors will yield results any time soon.
If Mumias, the largest sugar producer in the country and the biggest employer in western Kenya, is allowed to collapse, the impact on the economy of that region will be disastrous.
We must not forget that the economy of western Kenya is still reeling from the closure five years ago of the Webuye-based Panafrican Paper Mills which, until its death, was the largest industrial plant west of Nakuru.
Panpaper’s current predicament is, of course, as a result of many factors and an ill-informed revival strategy by the government that has worsened the situation and made its rescue impossible. Indeed, the rescue strategy, which involved pumping billions of taxpayers’ shillings into the sick company, has merely spawned a firm that is now firmly in the hands of receivers.
The last time I checked, the receivers had advised the government to sell the company to a timber merchant. The receivers contend that the only value proposition for a potential buyer is the licence that allows the company to access subsidised timber from government forests.
Clearly, the whole Panpaper rescue strategy was a grotesque game of deception. The receivers are busy collecting more money from the government to pay their own fees, legal fees, security, insurance, and electricity.
Which brings me back to Mumias. In April, the board sent the managing director and commercial director on leave and appointed Mr Couts Otolo as acting managing director.
FORENSIC AUDIT
The directors then engaged the services of KPMG to conduct a forensic audit of all procurement activities, but specifically on a transaction between Mumias and a company known as Dantes Peak Ltd in February 2013 in which the company was to import 30,000 tonnes of sugar from Kenana Sugar of Sudan. Mumias made huge losses in the transaction.
When the board received the findings of the audit, more top managers were sent home. I have been trying to get access to the KPMG report without success. Unless the board is hiding something, I do not understand why this report is considered top secret.
What is filtering through is that it has uncovered a catalogue of blatant irregularities and exposed the much-vaunted projects of power generation, ethanol, and water purification as unviable proposals conceived merely to create rent-seeking opportunities for the company’s top decision-makers.
I do not think the resources being thrown at the revival of the company are sufficient to change its fortunes in any significant way in the near future. The government needs to step in to rescue Mumias from its current financial problems. Mumias is not insolvent; it is merely going through temporary cash-flow problems.
GOVERNMENT ASSISTANCE
Companies such as Mumias occupy a special place in the country’s commercial history. They were created as special-purpose vehicles to play a development role. If the government could put in money to rescue Uchumi supermarkets in 2004, why not help Mumias pay its creditors? The government risks being accused of acting in a biased manner if it allows Mumias to die.
The notion that State-owned sugar companies are an unworkable model is a big lie. If that was the case, how does one explain the fact that companies owned by Kenyans of Asian origin are thriving and putting in more investment in the sugar sector in western Kenya? West Kenya Sugar Factory and Butali Sugar are engaged in a bruising battle over the control of sugarcane zones.
These private players know that sugar production still makes economic sense.
In the Rift Valley, there is another company related to West Kenya operating profitably even as State-owned Nzoia Sugar hurtles towards insolvency.
In South Nyanza, the Awendo-based South Nyanza Sugar Company is facing a twin offensive from two younger and nimbler players — Sukari Factory Ltd and Transmara Factory Ltd, both owned by Kenyan-Asians. In the Nyando sugarbelt, Muhoroni and Chemelil are fighting it out with privately-owned Kibos Sugar.
The State-owned companies are suffering from the twin problems of mismanagement and chronic under-capitalisation. Mumias must be rescued. Urgently.
