The South Nyanza Sugar Company (Sony Sugar) is on the spot over the misappropriation of Sh335million loan secured from the Commodities Fund in 2017.
The company got the cash from the agricultural sector financier but has not done the intended annual planned maintenance (APM) of the factory and its auxiliary facilities, and only Sh607,007 is remaining as balance, while part of the money was diverted to fund other activities.
Although the company was expected to have commenced servicing the loan, it has not started paying, and the money has accrued interest.
The bank guarantee also expires in seven months, with trustees fearing that the maintenance process may not be completed at all.
The state corporation applied for funding on January 26, 2016 to enable it undertake its annual planned maintenance of the factory and its auxiliary facilities, an application that was approved by the Ministry of Agriculture on September 26, 2016.
A bank guarantee secured the loan, and disbursed the funds on three tranches, in the months of March, April and May, 2017.
This would be the first time the corporation would receive a loan since 2009.
The company has been using internally generated funds.
The loan was meant to enable the company optimize the cane yard, improve steam generation and improve extraction and boiling facilities among others, an exercise that was slated to cost Sh402 million but the company projected that it would raise Sh67 million for the same.
Although the initial plan was to have the APM conducted mid-May, the Ministry of Agriculture through the Agriculture and Food Authority – Sugar Directorate postponed the activities basing it on the fact that there was a sugar shortage of in the country. The proposal was to have the exercise conducted in September and October 2017.
The company, on October 3, again rescheduled the exercise, stating that it “shall be done anytime between December 2017 and February 2018. This is based on the operating reality of the need to bring in overseas contractors and the anxiety around the post-elections events around Migiori”.
This despite the Commodities Fund in a letter dated January 18, 2018 notifying Sony Sugar that the Cooperative Bank guarantee provided as the security for the loan would expire on February 24, 2018.
In its reply, the sugar company negotiated with the bank and the guarantee was renewed and scaled up by Sh754,844 in March 2018 to cover interests up to June 30, 2018 since payment of monthly instalments was expected to start before the end of June 2018.
Because of the delays, the board of trustees resolved that management undertakes a monitoring and evaluation exercise to establish if the maintenance had been undertaken and the status of the project.
The monitoring and evaluation team in its audit report stated that the company made 12 bulk withdrawals totalling Sh238,652,378 to its bank accounts, on diverse dates between November 2017 and March 2018.
A review of the bank statements showed that not all the purchase orders indicated in the procurement status report were reflected in the bank statement and vice-versa.
“The company paid for some of the items from their own funds and therefore the payments were not reflected in the bank statements,” the report prepared by the team showed.
The factory is yet to shut down for the planned maintenance. The last maintenance was done in 2015.
An audit report dated September 9, 2017 states that “as at the time of the audit, rehabilitation had not been undertaken yet Sh190,642,680 out of Sh335 million disbursed for purposes of factory rehabilitation had been utilised”.
Documents available at the Ethics and Anti-Corruption Commission (EACC) showed that the company also diverted funds into procuring items that were not reflected in the purchase orders, among them Sh48 million paid for fuel.
This was done without communicating the same to the Fund which is contrary to the agreement on the letter of offer which states that “The loan shall be applied towards its intended purpose, and MUST not be diverted to unauthorised use failure to which the whole loan will be recalled”.
Funds were also set aside under power generation for the 2.5 MVA transformer and sub-station switchgear rehabilitation which was budgeted at Sh20 million but reallocated to purchase two packing machines valued at Sh12 million.
The company also claimed to have reimbursed itself Sh2.8 million meant for items it had purchased in 2015 before the funds were even applied for, approved or reimbursed.
Further, the audit stated that some of the unit process budget were understated leading to increased cost for undertaking the project leading to a variance of Sh76 million.
They include the installation of a rock removal system, mill-roller re-shelling, a mill for electric drive and boiler tubes.
Sony Sugar Managing Director Bernard Otieno, when contacted by the Daily Nation, said he was not aware of the use of Commodities fund loan at the company and accused rivals of witch-hunt.
“We are aware that Sony Sugar, being the only public miller operating, is targeted with propaganda and misinformation and our enemies would wish us out of operation. We are soldering on,” he said.
Sony Sugar is among six sugar companies which have accrued Sh16.5 billion loan debt from the government, yet employees and farmers still keep complaining of unpaid dues through the Kenya Sugar Plantation Workers Union.