What you need to know:
- We must not forget that the government-owned sugar companies are not in the sorry state they are in merely because of bad management.
- The greatest problem has been under-capitalisation and lack of investment in new technology and failure to diversify into other revenue streams, including ethanol production.
I write this letter to all leaders from the sugar belt in western Kenya — governors, senators and MPs — to beseech them to support and take a keen interest in the ongoing process of the leasing of government-owned sugar companies and to engage them on what I consider to be the most pertinent issues on the matter.
First, you must fight to make sure that the process of procuring the private party to run these firms is transparent.
I was present last week at the opening of the tender box. We were told that 29 companies put in bids. However, the list of companies that bid through the internet were not announced. In terms of transparency, that was not a good start.
The second and most pertinent issue is the quality of the winning investor, who must make this leasing process a game changer to the farmer.
We must not forget that the government-owned sugar companies are not in the sorry state they are in merely because of bad management.
The greatest problem has been under-capitalisation and lack of investment in new technology and failure to diversify into other revenue streams, including ethanol production.
Therefore, the most important criterion for choosing the private party to whom we want to hand over our sugar companies must be deep pockets.
They must show us that they have both the money and experience in successfully running large sugar mills with a successful track record in exporting sugar and with proven capacity to compete in international markets.
The third pertinent issue is the question of local private sugar millers.
I am not against them and I think that all local private millers have a right to compete for the opportunity to run the government-owned sugar companies.
But my view is that the local private millers cannot be part of the solution to the problems ailing the sugar industry. I am surprised that these private mills have the audacity to pose that they have solutions for the sugar farmers when they caused some of the problems of the government-owned sugar firms.
Where did the perennial problem, the issue of poaching of sugarcane, come from? Have we forgotten the battle between West Kenya and Butali Sugar and when the former mobilised its allies in high offices to have a fully built factory by the latter uprooted?
Despite holding a licence to construct a sugar plant in Busia for several years, Polysack Ltd found its hands tied in endless litigation over the issue of zoning.
When it comes to the dodgy business of duty-free sugar imports, local private millers join in to play with crooked traders.
We have five private millers. And, there is this popular myth that they have been operating efficiently and making tonnes of money while government-owned companies have been making losses.
But just how transparent are the operations of these private players? There have been incidents where some of them were investigated for repackaging imported duty-free sugar and rebranding it as theirs.
No reliable statistics
It is very hard to get reliable statistics and numbers on price and costing due to the opaque operations of these entities.
They have mastered the art of hiding statistics and massaging numbers, so much so that even getting true and accurate statistics on sugar production costs is a big problem.
Private millers exaggerate production costs so as to hide what ought to go to farmers.
The last reliable production cost study for sugar was conducted years ago. There used to be a cost and pricing committee comprising millers and growers but the powerful private millers lobbied it out of existence.
The Kenya Revenue Authority suspects that private millers are engaged in massive transfer pricing, tax evasion and opaque transactions with related parties.
What is my point? It is that if the true intention of the government is to make sugarcane production profitable, let us not even pretend that these five local private sugar millers can be part of the solution.
The fifth pertinent issue is the case for local participation in ownership of the proposed leasing companies to whom we want to hand over management of government-owned sugar companies to.
I hear the argument that one of the reasons Dominion Farms failed was because there was no participation in local ownership.
I don’t agree with that. I was old enough when, during the privatisation of Mumias Sugar, a decision was made that 20 per cent shares be reserved for farmers but these were snapped up by the elite of the Nairobi Securities Exchange (NSE) through secondary trading.
Which brings me to my sixth pertinent point; namely, corruption.
When you introduce a threshold for local participation in some of these transactions, you create an opportunity for corrupt elites to hide behind these investors in consortia.
We must not allow another Mobitelea.