Economic and Business News By Leo Odera Omolo In Kisumu City

The fine owned parastatal sugar companies have over the years incurred huge debts due to inefficiencies, corruption, mismanagement and political patronage.

The five sugar mills are Chemelil, Muhoroni, Nzoia, SONY and Miwani. Both Muhoroni and Miwani are currently under the official receivership.

Thus was disclosed during at tentative meeting of cane farmers from all sugar cane growing zones in Nyanza, Western and part of the Rift Valley Provinces held in Kisumu at the week,.

The one day workshop which was supposed to have been attended by only about 150 small scale sugar cane farmers from Busia, Nzoia, Mumias, SONY,West Kenya, Chemelil, Miwani, Kibos, Muhoroni, Soin and Ndhiwa, but to the surprise and shock of the organizers it attracted close to 300 cane growers.

Held under the joint auspices of Sugar Campaign for Change {SUCAM} ad the Kenya National Sugarcane Growers Union {KNSGU} at the New Kisumu Hotel,the farmers were told that for any accounting purpose all the five government owned sugar companies located in the three regions are technically insolvent,.

The Minister for Agriculture Dr. Sally Kosgei who was expected to address the workshop, did not show up. She, however, sent an apology. The same was with the Chief Executive Officer of the Kenya Sugar Board Rosemary Mkok. The Board was represented by its chairman Zacharia Okoth Obado, who faced hard time answering tough questions from the seemingly charged cane growers.

The organizers and farmers alike were disappointed that not even one single MP representing the sugar growing zones in Parliament was in attendance.

Making his presenting a paper entitled “Necessary Reforms to Harmonize Sugar Industry Privatization process a member of the SUCAM executive committee John Salim Kado said the debts that have been bedeviling the sugar sub-sector are built out of commercial loans and unremitted tax assessment and levies, sugar development fund {SDF} loans and third party creditors which include sugar cane farmers unpaid arrears for cane harvested and delivered to the millers.

The sugarcane farmer’s debts are treated as unsecured third party debts with no guarantee for face value compensation open sale of these sugar companies’ assets. This is a contentious matter since the debts were incurred in contravention of Sugar Act 2001 N0 10. Second schedule section 6. Whereas some of such debts in SONY, Nzoia and Mumias have been litigated at the regular law courts and the Sugar Arbitration Tribunal, thanks to the efforts of the KNSGU, the ones in Nyando sugar belts are only reflected in the companies books.

“Failure to settle these sugar cane farmers’ debts, upfront, will create conflict and come disincentive to sugar cane production. Secondly, it will deny the incoming new investors requisite soft landing. It is therefore recommended that, as has happened severally in the past, the government would classify these debts as priority and sensitive, coupled with a comprehensive bailout schedule.

And with the expected new investors injecting substantial own funds to factory modernization and rehabilitation, the demand pressure on SDF loans for these activities will scale.”Such created reserve could utilize for upfront settlement of these farmers claims in totality either as a grant or long term liability to the exchequer.

The farmers were further told that the five paratatal sugar companies Chemelil, Nzoia, Miwani Muhoroni and SONY are set to be privatized during the on-going government divestiture programme.This follows the cabinet approval in December 2008 and in line with the Privatization Act 2005.

Prior to Kenya’s independence in 1963,the sugar sector was purely in the private hands. It was at the independence, that the government started playing a central role in the start up, ownership and control of the industry. And within a span of 16 years,5 factories were established. These were Muhoroni } 1966} Chemelil {1968} Mumias {1973} Nzoia {1978} and SONY {1979}.The total government equity contribution amounted to 80 per cent. And with time, other privately owner sugar companmi9es sprang up. They included West Kenya Sugar Company Ltd, Kibos Sugar and Allied Industry and Soin Sugar in Kericho.

According to statistics made available to this writer, in 2008 total area under sugarcane crop in the existing milling zones was 169,421 ha, out of which 54,485 ha was harvested producing 5,204,214 tones of sugarcane for milling in the same period total available rate milling capacity was 23,463 tones, cane per day per day {TCD} out of which 56.25 per cent was utilized to produce 518,226 toners of made sugar. The un-utilized capacity could have produced an additional 23.93 per cent of sugar. This is lost revenue to the industry totaling Kshs 4.1 billions.

Sugar imports for the same perio9d was 218,607 42 per cent of total production[excluding the smuggled ones} with an estimated value of Kshs6.9 billion {USD 505 million}the Kenya sugar sub-sector has over the time become increasingly ineffic9dent and uncompetitive and at the same time does meet domestic requirement. On the other hand the sub-sector is a source of income generation for over 200,000 small scale sugarcane farmers, and also supports over 6 million livelihoodwithi9n Western Kenya and its environs.

The sugar sub-sector also has substantial financial input to the exchequer, local authorities and own revolving fund [Sugar Development Fund}.During 2005 and 2008,an average of kshs 3.3 billion VAT and Kshs 460 million PAYE monies were remitted to the exchequer annually.

The cess deductions to the local authorities was on average Kshs 361 million yearly. Sugar Development Fund levies averaged Kshs 1.4 billion yearly. But despite of all the huge resources being generated, poverty index in the sugar cane growing regions remained the highest due to poor and corrupt handling of farmer’s money by the millers.

The KSB chairman Zachry Okoth Obado went full length persuading the seemingly hostile farmers to accept the process off loading of shares by the government to private investor, explaining how the efficiently run factories will turn around their lots.

Ends

leooderaomolo@yahoo.com