State must never be allowed to abdicate its duty to Kenyans

Wednesday March 9 2016

The entrance to Pan African Paper Mills in Webuye town. National Treasury and Ministry of Industrialisation are about to sell the troubled Panpaper to the Rai Group at a price of Sh900 million. PHOTO | JARED NYATAYA |

The entrance to Pan African Paper Mills in Webuye town. National Treasury and Ministry of Industrialisation are about to sell the troubled Panpaper to the Rai Group at a price of Sh900 million. PHOTO | JARED NYATAYA | NATION MEDIA GROUP

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I return to the subject of the fate of the Webuye-based Panpaper Ltd to address the concerns of readers, who inundated my inbox last week to express their views about the fate and future of what, until 2009, was one of the largest manufacturing companies and employers in western Kenya.

It is Panpaper that created Webuye town. The company was the pillar supporting an economic ecosystem that was constantly catalysing the growth of other small businesses, providing livelihood options to traders, hoteliers, transporters, and farmers.

You kill Panpaper and you have disrupted the lives and businesses of hundreds of thousands of citizens in this country.

Before I continue, let me give the readers of this column the latest news on the Panpaper saga.

First, I have it on good authority that the receivers who have been running the affairs of the company since 2009 — Ian Small and Kieran Day of Begbies Traynor East Africa Ltd — have slapped the government with a Sh240 million bill that they want paid before the company is transferred to the Rai Group.

If you remember, the two resigned last year after they disagreed with the Ministry of Industrialisation over the procurement of a buyer for Panpaper.

Initially, Rai emerged top with an offer of Sh1.1 billion, dwarfing the offer by Juja Pulp and Paper Mill of Sh1 billion.

A few months later, Rai revised its offer to Sh900 million, explaining that this was because of a Gazette notice in which the government had reduced duty on imported paper.

Ian Small and Kieran Day abruptly resigned after exchanging acrimonious letters with the Ministry of Industrialisation. In July, 2015, Kuria Muchiri and Muniu Thiothi were appointed as the new receivers. Ian Small and Kieran Day have refused to hand over the company’s books, documents of title, and records until they are paid. Clearly, the transfer of the company to the Rai Group may have to wait.

Still, a big question remains: how much is the taxpayer going to realise from the Sh900 million payment from Rai, considering that the government is a mere short-term lender whose interests must be subordinated to the interests of the long-term lenders?


I am against the idea of selling Panpaper to a timber merchant because in this transaction the State appears as if it wants to outsource the responsibility of providing services to the people to greedy merchants, even after pumping billions of taxpayers’ shillings into the company.

Considering the billions spent and in view of the fact that Rai is still demanding more concessions, including subsidised timber from government forests, duty on imported paper, and provision of environment licences, why was the idea of the proposed State-owned Webuye Paper Mills dropped? (In 2011, the Cabinet directed that a State-owned company by the name Webuye Paper Mills Ltd be incorporated.)

As far back as September 2011, the State had successfully negotiated to buy Panpaper from the company’s long-term lenders at Sh900 million and to pay the short-term lenders Sh400 million.

Yes, you can take the dogmatic view that the State must stay out of commerce, but how do you reconcile this position in view of a clear shift of government thinking following the recommendations of President Uhuru Kenyatta’s task force on parastatal reform?
The centrepiece of the new thinking by the task force was that there was nothing wrong with the government being in business as long as the businesses were run commercially.
Had the government paid off these pesky lenders, as had been suggested, it would have had the leeway to make its decision from among several options, including experimenting with contracting a paper manufacturer to run the company on behalf of the State.

If you insist that the State must stay out of business, then you must explain to me why the government still ended up sinking a whopping Sh2 billion into reviving Panpaper.

More and more, we are witnessing situations where the State, in the name of privatisation, is abdicating its responsibility of providing services to its citizens in favour of benefiting greedy merchants.

What we are seeing in western Kenya is the State abdicating its responsibility to provide national services. The plans to privatise State-owned sugar companies in western Kenya should also be stopped.