The entrance to Mumias Sugar Company.
I gather that the government has appointed an inter-ministerial team comprising top officials from the National Treasury; the Ministry of Agriculture and the Ministry of Industrialisation to come up with a solution on the revival of full operations of Mumias Sugar Company; including the resumption of full operations of both the ethanol and electricity production plants.
Clearly, President William Ruto has calculated that there is immense political capital in the resumption of the company’s full operations.
Just the other day, during his recent visit to Kakamega which included a tour of the company’s premises, 15,000 farmers received bonus payments.
It was a big deal indeed for the farmers because bonus payments have never happened in the history of sugarcane farming in the country.
The speed at which the payments were released and processed and the manner in which the transactions were effected, illustrated the lengths to which President Ruto was prepared to go to squeeze maximum political capital from the cane farming fraternity in the region.
All farmers holding bank accounts with the Kenya Commercial Bank saw the money reflecting in their accounts instantly through the RTGS system even as the President was still addressing the Kakamega rally. The remaining farmers with accounts in other banks received their cash the following day.
Electricity generation
Is the revival of the company’s ethanol and electricity generation a near possibility in the medium term? Clearly, this is the hard part.
The way I see it, President Ruto will have to marshal extra political will if the ethanol and electricity plants are to resume full operations. I say so because the legal issues around rights and control over the two plants are murky and complex.
According to available documents, the rights over the two plants are in the hands of a company called Vartox Resources Inc. The documents show that it was registered in the British Virgin Islands — the World’s most famous tax haven — on January 2, 2019.
Who owns Vartox Resources Inc? As of August 24, 2021, a Dubai entity known as Power Advisory FZE whose sole shareholder is a Swiss national by the name Kristian Khachatuorian. This name also appears in the Panama Papers. Ultimate beneficial ownership is difficult to determine because laws governing registration of companies in both BVI and Dubai do not permit full disclosure.
And just how much money did Vartox pay to acquire the rights for both the ethanol and electricity plants? According available documents, a total of$11.2 million in three payments between November 19, 2021 and January 2022.
Assignment of debt and sale of distressed debts is not uncommon in the corporate world. But it is important to remember that at the time the rights were being exchanged, there were multiple cases in court seeking to stop the receivership of Mumias.
But does it make commercial sense to spend a whole $11.2 million in buying debts of two distressed entities while you are at the same time fighting to liquidate Mumias Sugar Company? It is a matter of fact that Vartox made an application in court seeking to liquidate Mumias Sugar Company.
Yet the two plants depend on the Mumias milling plant for raw materials and are, therefore, not able to operate if the Mumias milling plant is not working.
Kill the company
It was a tactical manoeuvre to kill the company because the true intention of the parties which were purchasing these debts was to throw the spanner in the works in the revival plans of Mumias.
How do you negotiate with a party whose ultimate beneficial owner is not clear? Let us wait and see how the inter-ministerial team appointed to effect full resumption of the ethanol and electricity plants will crack the puzzles around these shadowy transactions.
What are the long-term issues for the company’s future sustainability? I recently exchanged e-mails with a fellow by the name Dennis Driscoll who is ex Booker Tate and former CEO of Mumias.
In his view, the underlying cause of the company’s declining performance over the last three decades has been unreliable cane supply.
He made the point that the Mumias nucleus estate, although relatively large, is not sufficient to meet the daily cane tonnage requirement of the factory
He argued that throughout the 1990s, delayed payment of farmers was a rare occurrence. The rain started beating the company in 2003 when extended delays or intentional defaults became the norm.
In response, farmers started selling their harvested cane elsewhere. West Kenya and local jaggeries were buying cane from local farmers and paying them on the spot.
By 2016, both the company and a majority of farmers were in breach of their commitments; the miller by non-payment to the farmers and the farmers by selling their cane unlawfully to West Kenya for spot cash.
The key to long term and sustainable revival of Mumias is good relations with farmers.
