Dubai firm wants Mumias administrator removed as details of lease bids revealed

Vartox Resources has accused Mr Rao of keeping Mumias Sugar Company’s financial status and the procurement process secret as part of a ploy to lease the miller’s assets to one of the lowest bidders, Uganda’s Sarrai Group.

Mumias Sugar owes Vartox Sh6 billion, with the miller’s ethanol plant standing in as security for the debt.
Vartox has applied to join an insolvency petition filed by Kimetto & Associates Advocates in 2019 against Mumias Sugar, from where the firm intends to challenge Mr Rao’s appointment.

Vartox accuses the receiver-manager of punishing Mumias Sugar and its creditors by picking a bidder whose payment for the entire 20-year period is not sufficient to repay the Sh29 billion debts.

“Ignoring the accrual of interest owed to creditors, the Sarrai Group’s bid amount will never settle the liabilities of Mumias. After 20 years, the monies realised from Sarrai Group’s monthly lease payments would only equate to approximately 27 per cent of all of Mumias’ liabilities,” Vartox Resources says in court papers.

“Contrasted with West Kenya’s bid of Sh150 million every month, which would total Sh36 billion in 20 years, all of Mumias’ historical debts (both secured and unsecured) would be cleared well before the end of the lease period,” the firm adds.

Procurement process

The Dubai-based firm also wants five court cases on the leasing of Mumias Sugar’s assets consolidated.

Two groups of farmers filed separate cases in Nairobi over the leasing deal. Mr Rao had also filed a suit in Nairobi seeking to stop bidders from interfering with his decision to award Sarrai Group the 20-year lease.

The Kakamega County government had sued Tumaz and Tumaz Enterprises in Vihiga, while activist Okiya Omtatah challenged the procurement process that saw Sarrai Group awarded the lease.

Responding to Mr Omtatah’s case, Mr Rao has filed documents revealing that the Devki Group-owned New Mumias Industries placed the highest bid at Sh60 billion for a 20-year deal.

But New Mumias Industries backed out of the procurement process, leaving West Kenya’s Sh36 billion bid as the highest.

Butere-based businessman Julius Mwale placed the second-highest bidder at Sh27.6 billion.
In third place was Kruman Finances Limited, a firm associated with French and Turkish investors, which bid Sh19.7 billion. 

Uganda’s Sarrai Group, which was awarded the leasing deal that has now been suspended by the High Court, was the fourth highest bidder at Sh6.2 billion.

Declared best bidder

Only Kibos Sugar and Pandhal Industries placed bids lower than Sarrai Group. Each of the two firms placed a Sh5.96 billion bid for the 20-year period.

Mr Omtatah had asked the High Court to send Mr Rao to civil jail for failing to file documents detailing how Sarrai Group was declared the best bidder.

But Mr Rao now says that the delay in filing the documents was occasioned by the need to juggle several cases on the same issue.

"The delay in submitting the financial information was largely occasioned by my involvement in various court proceedings involving Mumias Sugar Company Limited which have been instituted in the recent past,” Mr Rao says in his affidavit.

Vartox now wants the decision to select the third-lowest bidder used as grounds for the removal of the KCB Bank-appointed receiver-manager.

Kristian Khachatourian, a Vartox Resources director, says that Mr Rao kept creditors and the courts in the dark over Mumias Sugar’s fiscal status for two years after being appointed receiver-manager.

He adds that the receiver-manager and KCB have refused to acknowledge the fact that Mumias Sugar’s ethanol plant has been lodged as security for Vartox Resources’ Sh6 billion debt.

Vartox Resources’ debt

Mr Khachatourian says that during a September 2010 meeting between Mumias Sugar’s secured creditors, it was agreed that the ethanol plant would be lodged as security for Vartox Resources’ debt.

The creditors agreed that all production sections at Mumias Sugar, including the ethanol and co-generation, would be operated together as a going concern.

Following Mumias Sugar’s default on Vartox Resources’ debt, the Dubai firm appointed Harveen Gadhoke as the ethanol plant’s receiver manager and informed both KCB Bank and Mr Rao.

Mr Khachatourian says that Mr Rao and KCB Bank instead filed applications seeking the removal of Mr Gadhoke as receiver-manager of the ethanol plant.

The ethanol plant is among Mumias Sugar Company’s assets that will be leased out for a 20-year period.

Mr Rao has claimed in some of the court cases involving the leasing deal that he left out West Kenya, the highest bidder, to avoid creating a dominant force in the sugar industry.

Vartox Resources holds that only the Competition Authority has the power to declare dominant forces in specific industries.

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