House report lays bare ills bedevilling sugar sector

A parliamentary investigation has uncovered serious malpractice by key actors in the sugar sub-sector that has led to paralysis in the industry through fraudulent imports and the diversion of export products into the local market.
The preliminary report by the Departmental Committee on Agriculture, Livestock and Co-operatives chaired by Adan Mohamed Nooru (Mandera North URP) has recommended the relieving from office and prosecution of a former Kenya Sugar Board (KSB) official for overseeing the near-collapse of the sub-sector.

The draft report is now at the centre of a controversy with some members of the committee refusing to sign it unless it is edited and the names of certain companies and individuals deleted while some are pushing to have it tabled in Parliament as is.

The Sunday Nation has learnt that the committee considered the report at a retreat in Mombasa in September “and the resolution to adopt this report was reached unanimously in a meeting attended by a majority of the members.”

The KSB official, the report states, irregularly issued import licences to local millers and individuals at a time the factories held adequate stocks.

It is also alleged the official issued operating licenses to two sugar companies in western Kenya in complete disregard of the law on zoning and “should be held accountable.”

The two companies, the report says, lack the necessary pre-requisites to operate as sugar millers given that they don’t have a nucleus estate for the development of their own cane and are too close to other millers, resulting in the rampant cases of cane poaching.

CANE POACHING
One of the companies is said to have constructed a weighbridge at a disputed location in Busia County where all the poached cane is collected for transport to the factory.

“The presence of the weighbridge has led to disputes and conflicts among the surrounding local communities/millers, and at one point a tractor transporting sugarcane for Nzoia Sugar Company was burnt and six tractors belonging to West Kenya impounded by Nzoia Sugar Company,” the report states.

It recommends that licences for the two millers “should be suspended until both millers prove they have developed sufficient cane to sustain their operations to reduce cane poaching.”

The MPs further recommend that a senior politician adversely mentioned in the diversion of export sugar and illegal imports “takes full responsibility for the fraudulent transactions” and subsequently be barred from holding public office.

In addition, the report recommends that the government should recover from Mumias Sugar Company at least Sh250 million in realisable value added tax (VAT) that was waived when the company claimed to have exported sugar.

But the said sugar was discovered to have been sold locally.

Officials of KSB should also be punished/prosecuted whenever they disregard the law (Sugar Act 2001) “and the property of managers responsible be attached to compensate for any losses.”

The committee’s mandate was to inquire into the current state of the local sugar industry, investigate the presence of cheap sugar imports, smuggling and alleged exports by Mumias between 2006 and 2012.

ILLEGAL IMPORTS
The terms of reference also extended into looking into the glut in the sugar market.

The committee’s investigations arose from a petition by the Western Development Initiative Association (Wedia) on the imminent collapse of the sugar industry in western Kenya.

The committee report said contraband sugar enters the country through Shimoni Port. The consignment is then lumped together with sugar diverted from export routes to be repackaged in warehouses located in Nairobi’s Eastleigh and Msambweni, Ukunda, Bomani village, Bodo and Majoreni areas in the coast region.

The illegal imports arrive from Sudan, India and Ethiopia. Those behind the deals are prominent personalities in the country, Mumias sugar company which has lately been on the news over mismanagement and a leading confectionery manufacturer.

The latter, the report states, imports under the guise of industrial sugar which is later repackaged and sold locally. 

“Substantial amounts of illegal sugar imports are repackaged into local branded bags to conceal identity and evade the surveillance network. Industrial sugars have been found repacked and end up on the market to compete with table sugar that has been taxed,” the report observes.

“Substantial stocks of repackaged sugar have failed quality tests confirming they are not of local origin,” the report states.

To stop the diversion of sugar meant for the export market and protect the sub-sector to make it more competitive, the committee recommends introduction of landing certificates for all transit sugar as a confirmation of physical exit.

ANTI-SMUGGLING UNIT
Another company that was licensed to import sugar was found to have brought in more than the declared quantities and denied KSB access to its warehouse for verification.

“It is suspected the (company) repackages imported sugar into bags with Mumias brand details. During our investigations, the committee found repackaging of rice imported in lower grade bags into superior quality bags taking place in one of its go-downs,” the report states.

The report recommends that a multi-agency anti-smuggling unit police the sugar market since as KSB on its own is unable to man borders and enforce its mandate as a regulator.

“The country needs to establish a permanent inter-agency enforcement unit on sugar trade to increase scrutiny and monitoring of cross-border trade to eradicate smuggling.

The unit should draw membership from KPA (Kenya Ports Authority), Public Health, KSB, Kenya Bureau of Standards), the police and Kenya Revenue Authority.”

Once formed, the agency would check illegal imports that enter the Kenyan market concealed as other low-value commodities like rice, pasta or even fertilizer.

In addition, the committee recommends banning companies that although they may have been cleared by KRA, lack the KSB permits.

In its investigations, MPs received evidence and submissions from Wedia, Mumias, Nzoia, Butali and West Kenya sugar factories and former managing director of Mumias and now Nairobi Governor Evans Kidero.