Why Sony MD’s explanation on sugar imports raises more queries

Detectives are investigating how the struggling State-owned South Nyanza Company imported Sh2.4 billion worth of brown sugar and why it lied to the National Treasury that it brought in 50.5 million kilogrammes of white mill sugar.

Also on the spotlight is a London-based importer, Holbud Ltd, which is turning to be an important player in the ongoing saga of Brazilian sugar imports.

QUESTIONS RAISED

The investigations began when questions were raised on how the government miller’s licence was used to import sugar on behalf of other businesspeople – and whether the consignment ever reached Migori County for processing.

“We are pursuing this as a wanton economic fraud,” Mr George Kinoti, the Director of Criminal Investigations told the Saturday Nation.

“We shall definitely get to the bottom of it.”

Records show that Sony Sugar Managing Director Bernard Otieno lied to the Treasury that MV The Holy, a Panama-registered vessel, was carrying white mill sugar while in essence it had Brazilian brown sugar, which required pro-cessing into white sugar.

“This was brown sugar and was fit for human consumption. It needed no pro-cessing,” Mr Otieno told a local daily last week.

ICUMSA

But according to the pro forma invoice dated October 12, the bulk sugar had its colour classified as Max 1300 Icumsa.

Icumsa is the International Commission for Uniform Methods of Sugar Analysis.

It was established in 1897 to create standards for sugar quality classification.

An Icumsa score of 45 to 800 is assigned to refined granulated sugar and consumable raw sugar, also known as brown sugar.

FURTHER PROCESSING

Sugar with scores of 800 and above require further processing to be fit for consumption.

That explains the reason Mr Otieno told the National Treasury that Sony imported white mill sugar.

Mr Otieno’s November 14, 2017 letter was addressed to Dr Kamau Thugge, the Principal Secretary in the National Treasury, and was seeking to have the consignment exempted from duty since it was loaded within the duty-free window which had been opened to businesspeople and millers.

Mr Otieno requested the National Treasury “to facilitate the clearance of the above consignment in line with the gazette Notice No. 10149 of 2017”.

DUTY FREE WINDOW

On October 13, 2017, Treasury Cabinet Secretary Henry Rotich issued the notice, which limited the duty-free window to sugar loaded into a vessel between September 1 and October 13 of the same year, meaning Sony Sugar was technically within the timelines.

But several discrepancies have been pointed out in the in the company documents, which suggest that the cargo was not loaded within the said time.

The notice had restricted the duty-free sugar imports to consignments destined to a port in Kenya and a local miller.

Documents indicate that a day before Mr Rotich issued the notice, Holbud Ltd entered into a deal with Sony Sugar and they agreed that payment would be “settled by six buyback parties”.

FACILITATE SHIPMENT

With a buyback, it meant that the company would not do anything other than facilitate the shipment of 50,500 metric tonnes of brown sugar to be paid for by third parties.

Police and other agencies are now looking at the paperwork and the trail of money.

Sources say the detectives are interested in unravelling whether a state corporation’s licence was used by traders to dodge tax.

They are particularly interested in the pro forma invoice and a commercial in-voice, all dated October 12, 2017 and why these were issued when the cargo was already on MV The Holy.

The detectives want to know why the cargo was certified “clean on board.”

The “clean on board” term is used in shipping to denote that the carrier has received the goods with a clean bill and any damage henceforth is on the carrier, in this case, Panama’s Mariban Holding Inc.

NO AGREEMENT

From the dates, sources familiar with shipping say, it seems like the consignment was loaded on MV The Holy without any agreement between the seller (Holbud) and Sony Sugar since invoices and agreements were reached three days after the ship had been loaded.

The commercial invoice is one of the main documents used by customs in deter-mining duty while a pro forma invoice is a document that states a commitment on part of the seller to deliver the goods to the buyer for a particular price.

While records indicate that the Brazilian brown sugar consignment was on MV The Holy on October 9 and a “clean on board” bill of lading issued – it is unclear why the ship took 69 days to sail from Brazil to Kenya.

Under ordinary circumstances, the journey from the South American country to Mombasa takes 20 days.

MV The Holy reached Mombasa on December 17, according to the December 18 port’s arrival and berthing report.

“To arrive in Mombasa on December 17, MV The Holy must have left Brazil in late November,” said a maritime source.

“This could only mean that the sugar was not loaded at the time of the gazette no-tice.”

TIMELINES

There are fears that the consignment may not have been loaded within the duty-free timelines and detectives are interested in tracking MV The Holy’s movement.

More so, the Request for Conformity — a cargo verification requirement — indicates a December 4, 2018 date, which means the sugar had not been approved for shipping by the Kenya Bureau of Standards by then.

The certificate of conformity was only issued on December 8 – and perhaps by that time, the ship was already sailing to Kenya as it arrived in Mombasa nine days later.

Parliament was recently told that Holbud Ltd brought in sugar on behalf of the company “to the tune of 100,000 metric tonnes” but did not pay duty.

“The sugar was even brought in after the duty-exemption window had elapsed,” Muhoroni MP John Oyoo told fellow lawmakers.

“It is the same maize company that brought in fertiliser and sugar the other time. Keep it among the companies to be investigated.”

On November 20, the Sony sugar MD wrote to Kenya Revenue Authority, saying the company had “contracted an company to import sugar.

“We wish to confirm that the sugar was loaded on October 9, 2017. The purpose of this letter is to request your office to give South Nyanza Sugar Co Ltd an exemption number to be able to register the entry and pay the requisite taxes,” the letter said.

The other intriguing anomaly is why Sony Sugar applied for Import Declaration Form on December 26, 2017 when the ship had already docked.

One cannot ship goods to Kenya before the IDF is passed.

BENEFICIAL OWNERS

Sources say detectives are looking for the six beneficial owners of the consignment and where it was taken after it was offloaded from MV The Holy.

Initially, activist Okiya Omtatah had tried to block the offloading of the consignment and told the court that it did not qualify for duty.

The court granted Mr Omtatah temporary orders to block the importer from offloading the sugar, which was in two consignments of 25,500 and 20,000 metric tonnes.

Alternatively, the importer could pay Sh2.4 billion as duty to the National Treasury.

Sony Sugar through Moronge & Co. Advocates argued that it had already paid statutory taxes to the government, amounting to Sh250 million and that holding the cargo in the ship would damage it.

High Court judge George Odunga ordered Sony Sugar to deposit Sh2 billion as security for the consignment, pending the hearing of the case.

RESPONDENTS

Other respondents in the suit include Mr Rotich, KRA and the Ministry of Agriculture.

Mr Omtatah said KRA, the ministry, the Fisheries and Food Authority and Kebs committed fraud by approving and clearing the December 18 customs entry lodged by Sony Sugar Company.

The question on many people’s minds remains: Since Sony Sugar Company had no interest in the consignment and never processed it for packaging, where is the cargo?

Who paid the value added tax on behalf of Sony and how much did the company make from the deal?

And as Sony grapples with its myriad problems, farmers who supply cane to Nzoia Sugar Company are a dejected lot.

The company has not paid their dues for cane that was harvested in November last year and there is no light at the end of their tunnel.

That the company is facing a cash crunch is not a secret.

NO CANE TO CRUSH

Roads’ repairs have become sporadic, there is no cane to crush, casual workers were recently sent home and told to hang in there until fortune favoured the Bungoma based factory when this will happen is not sure as the management and county leaders wait for the government to bail it out for the umpteenth time.

The company is the heart of Bungoma economy, after the collapse of Webuye Panpaper mill and its imminent collapse will spell doom for the residents.

Many farmers have uprooted their crop with some finding solace in maize production while others have taken to planting trees an investment that takes around 15-20 years to break even.

For small scale farmers this is disaster.

Additional reporting by Wanyonyi Wambilyanga