Kenyan bidders lack capacity to revive Mumias, says manager

The receiver-manager of Mumias Sugar Company has defended his decision to award the lucrative tender of reviving the ailing miller to the Sarrai Group of Uganda.

Mr Ponangipalli Venkata Ramana Rao has urged the High Court to dismiss allegations by two aggrieved bidders that the leasing process was irregular and opaque.

He explained to the court why West Kenya Sugar Company Ltd and Tumaz & Tumaz Enterprises Limited were not given the job, despite pledging the highest amounts of money. The statement was also signed by Kenya Commercial Bank, the sugar miller’s creditors.

On claims by West Kenya that it was the most qualified for placing a bid of Sh36 billion compared to Sarrai Group’s Sh6 billion, the receiver-manager said the price was not the only consideration in evaluation of the bids.

Tumaz, which is associated with US-based Kakamega businessman Julius Mwale, had placed a bid of Sh28 billion. The aggrieved bidders, together with a section of farmers and other stakeholders, have been criticising the receiver-manager’s choice of Sarrai on basis of the amounts of money.

But in the response filed through Munyao Muthama & Kashindi Advocates, Mr Rao disclosed that the two bidders lost due to conflict of interest and failure to reveal past performance in the form of the audited accounts.

“It is not correct to proceed, as West Kenya and Tumaz have done, on the basis that the highest financial bid alone would be the winner. A bidder was required to show technical capability over and above their financial proposal,” the documents filed at the commercial court state.

KCB insisted that there was no basis to fault Mr Rao’s decision since the two bidders lost fairly.

If the highest financial bid would be the automatic winning bid, there would be no need for an elaborate evaluation process. The bank said the leasing would then rather have been done through a process akin to an auction as opposed to a procurement process.

Mr Rao and KCB said Tumaz was unsuitable for the job for other reasons, including the fact that there were several court cases by various creditors against it.

While accusing Tumaz of misleading the court by making a false statement, the receiver-manager stated that the company has produced documents that were not part of the bid.

Tumaz had also filed three other cases challenging the leasing process before seeking to join the one filed by five farmers and two companies.

“The attempts by Tumaz to belatedly fill the gaps in its bid by submitting a fresh bid through litigation is in bad faith, non-procedural, dishonest and an abuse of court process. It ought to be condemned,” he stated.

In regard to West Kenya’s bid, the receiver-manager told the court that the company’s proposal was a “spoiler bid”.

Mr Rao said West Kenya failed in the technical evaluation stage because the Rai Group, which owns the company, would have taken control of at least 41.95 per cent of the total sugarcane crushing capacity per day in Kenya if they won the bid.

This would have amounted to a dominant position “and monopolistic tendencies of West Kenya and the Rai family in the sugar industry”. He said West Kenya’s bid would have failed at the financial evaluation stage.

“No plan was submitted by West Kenya for the proposed investment of Sh4.6 billion. It was therefore difficult for Mr Rao to assess whether the plan would be effective. There was a failure to provide a letter from West Kenya’s bankers confirming availability of the funds set out in the bid. They only provided reference letters from their bankers,” said the receiver-manager.

Having considered West Kenya’s financial bid, Mr Rao said he observed that the company did not demonstrate how it would pay Sh150 million per month (Sh1.8 billion per year).

West Kenya made losses in 2018 and 2019 and a profit of Sh491.2 million in 2020. This profit was achieved after crushing 1,464,241 tonnes of sugarcane. It would therefore require them to crush 5,373,134 tonnes of sugarcane per annum to raise the lease rent of Sh1.8 billion that they offered.

“This is impossible as Mumias Company can only crush 2,920,000 tonnes of cane per year when operating optimally,” said Mr Rao.

“We urge the court to dismiss the plaintiffs’ applications and allow the Sarrai Group Ltd to take steps to revive the Company in accordance with the lease and for the benefit of all stakeholders,” he argued.

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