Copy railway deal for sugar mills

I return to the subject of the plan by the government to lease out five sugar mills to private parties because of the high level of public interest and the torrents of feedback I have been receiving from the two articles I wrote on the subject in the past couple of months.

I don’t understand why the government has chosen to baptise the transaction as a lease when the intention is merely to grant right of use of the factories and nucleus estates to the private players. Leasing only applies to assets. I know of no transaction where a company can be leased.

Since the plan is to hand over the five companies to third parties to run for 20 years, after which they must hand them back to the government, we must all agree that the transaction we are about to consummate is a concession. Which is why we must make sure that the rules and best practice governing procurement of concession of public assets apply.

You cannot just hand over public assets to private entities without a clear and transparent legal frame work for managing the relationship between private players and the owner of those assets.

Concessions

I claim no interpretive authority on management of concessions or of any other types of complex privatisation transactions.

But as a journalist who has followed and reported on these types of transactions for a long time, I can tell when the government is headed in the wrong direction.

In concessioning the sugar mills, the government must go back to the process we followed when we handed the running of the metre gauge railway to Sheltham of South Africa in 2006. Granted, that transaction turned out to be a big scandal and had to be terminated after three years.

Yet when the South Africans couldn’t deliver, the government easily terminated the concession and sent away those conmen. This was because the terms of the relationship and benchmarks for performance were clearly stipulated in a document known as a ‘concession agreement. We had an objective basis for proving that the concession had been a total failure.

On Monday, I fished out that concession agreement from my archives to compare what we did with the railway concession in 2006 and what we are trying to do with the sugar companies now, and to look afresh at the safeguards that were put in place to protect public interest.

Clearly, in seeking to hand over the sugar companies to private entities, the government is behaving as if it is possible to start building a house from the roof.

Before going out there to invite private parties, we should have drafted a concession agreement and put it out for public discussion. A concession agreement is where you spell out the concession fees which the private party will pay.

Hand over for free

Or are we planning to hand over the sugar companies to private individuals for free?

We must put together a comprehensive list of conceded assets we are handing over to the private sector fellow. We must publish and put in the public all facts about the terms of the concession, including the circumstances under which the concession can be scrapped.

We want a list of the assets which must be returned to public ownership at the end of the concession period.

The government must publish and subject to public debate the minimum investment which the individuals we are handing over the sugar companies to must make in the factories, including the time frame within which the money must be pumped into the companies.

I want to see how we treat the assets which the incoming private player may not require such as workshops, residential property, including consumables such as office equipment, furniture and motor vehicles? Who will monitor and track assets brought into the company by the private party? These greedy merchants may just dump used machinery and equipment into the companies.

Notice of default

In the railways case, the concession agreement clearly stated that in the case where the private sector player did not invest the agreed amount within two consecutive financial years, the government was at liberty to issue a notice of default.

Why are we too eager to hand over the sugar companies to private individuals before specifying how the interests of employees will be handled?

For instance, the new investors may want to choose from amongst existing employees, the personnel they want, the skills they want to retain, and the employees they want to retrench

Are we giving them carte blanche to send to the streets as many employees as they choose? What about the existing terms of employees who may be retained? Whose responsibility will it be to pay retrenchment packages? How will pension benefits be handled?

In the railway concession transaction, all these issues were negotiated and spelt out in the concession agreement.

Mr Kisero is a former ‘Daily Nation’ business editor. [email protected].