The way government is handling the Panpaper issue not very transparent

Tuesday September 18 2012



I am not too sure that the government is handling the revival of Panpaper Ltd very well. 

The process is not transparent. We have allowed lawyers and receivers to take us around in circles for far too long. Though hundreds of millions of shillings have been spent in trying to revive the factory, there has not been much progress.

Early this year, the government gave out a whopping Sh2 billion to the Ministry of Industrialisation for reviving the plant. That money was deposited in a special account and ring-fenced against being spent by the ministry on any other activity.

More millions have been released to the company for trial production runs to keep the plant busy and operational and to prevent the machines rusting from disuse. The proceeds of the paper produced by the factory during the trial production runs are kept in another deposit account with the ministry.

Mr Ian Small and Mr Kieran Day, the receivers appointed by the company’ short-term lenders, have been at the helm since the Birla Group fled. In the initial stages, the most visible activity at Panpaper seemed to be the battles between the ministry and the receivers.

Later, politicians jumped into the fray, with both President Kibaki and Prime Minister Odinga making public commitments to reviving the plant. At one point, frustrated local politicians, accompanied by their supporters, marched into the company premises threatening to throw the receivers out.

To date, no substantial progress has been made towards reviving the plant to full production. Critical voices are beginning to ask how billions of shillings kept in special accounts by the Ministry of Industrialisation have been spent.

In May, this year, the receivers left the scene, setting the stage for the government to take control of the company. This exit, however, did not come cheap.

The government was forced to sign an agreement signing away all VAT refunds running into hundreds of millions of shillings, and owed to Panpaper by the Kenya Revenue Authority, to the short-term lenders.

In addition, the government signed an agreement ion which it transferred all debts owed to Panpaper to the short-term lenders. On top of it all, it paid the lenders a total of Sh400 million in cash.

I feel the government made a big blunder by reappointing the very same Mr Small and Mr Day to continue running the company even after disposing of the lenders.

Receivers are not trained to revive troubled companies. The exception, of course, is the case of Uchumi Supermarkets Ltd which was brought back to life by receivers appointed by the government.

But Uchumi’s revival was more or less a unique Kenyan innovation with few parallels. It was  a protective receivership bank-rolled by the State with the full support of the company’s shareholders and suppliers.

You only appoint a receiver of the ilk of Mr Small and Mr Day when your intention is to realise securities to recover your debts. Receivers tend to approach situations with fixed mindsets. They are not trained to look at the big picture.

You don’t expect a receiver to give much weight to the developmental role which Panpaper plays in the economy of Western Kenya. I say so because I recently came across a preliminary report in which the receivers have tried to assess the prospect of Panpaper’s revival.

Entitled “Review of future operations of Panpaper” and dated August this year, it predicts doom and gloom for the company. Didn’t we hear these same arguments when the government was reviving Uchumi? Didn’t we hear the same view when it was reviving the Kenya Co-operative Creameries Ltd?

Admittedly, the company needs to be restructured and brought into line with the changes in the international market and stiffer environmental standards. But we can’t afford to have another white elephant in that part of the country.

Even more critical, we must keep close tabs on how the billions of shillings allocated to revival of the company are being spent. Keeping multiple special accounts operated by a government ministry is not a very transparent way of doing business.