Sh117bn Treasury rescue plan for sugar millers

The National Treasury has proposed a Sh117 billion recovery strategy to save sugar factories from their deathbeds in a plan that will see private investors eyeing lease deals required to take some of the firms merged, and as a package.

In a report to the National Assembly, Treasury wants MPs to approve the writing off of Sh65.7 billion that the five State-owned sugar millers owe the Kenya Sugar Board (KSB) and the government, as well as a further Sh50.144 billion in tax penalties and interest, as at June 30.

Further, Treasury wants the approval to write off Sh1.7 billion that the millers owe farmers.

The State-owned millers are Chemelil, Muhoroni, Miwani, Nzoia, and Sony. Treasury has a separate recovery plan for Mumias Sugar, recently at a centre of a storm between President William Ruto and sugar billionaire Jaswant Rai, who runs West Kenya, Olepito and Sukari mills.

Read: How litigants pulled Mumias Sugar down

On Mumias, the biggest of them all, Treasury proposes that a revitalisation committee be formed to “identify and implement an effective restructuring plan” in what it says is because “Mumias is no longer a public mill.”

Mumias owes the government Sh8.7 billion, with the State owning 20 per cent of the firm.

And while Treasury wants Nzoia and Sony, which have a cane growing area of 49,862 hectares and 81,415 hectares, respectively, to be left intact as they are, it wants Chemelil and Muhoroni merged as one.

Chemelil has 18,437 hectares in its cane growing zone, while Muhoroni has 22,134 hectares, and together they will form a zone of 40,571 hectares, in what Treasury believes will make it a viable enterprise.

“Investors interested in either Chemelil or Muhoroni Sugar Company will be required to bid for both. This will facilitate a leasing arrangement that allows for the two factories and sugar growing zones merging,” Treasury says in the document to be presented to the National Assembly next week.

Read: How P.V Rao blunder on lease opened Mumias Sugar Company to court cases

Treasury says the solution of the woes in the sub sector lies in a bid to bring on board private capital, expertise and modernisation of the sugar mills with adequate sugar to allow them to run efficiently and be a viable commercial enterprise.

“The proposed lease model shall be executed by unbundling the nucleus estate land and the factory land. The existing rundown factories shall be disposed with existing procurement regulations and the successful investors shall be provided with land to lease and construct a modern factory. This makes it possible for the factory to be run by the private sector without permanently divesting the nucleus estates hence meeting the stakeholder and community requirements,” the Treasury note to the House says.

Treasury wants the National Assembly to vacate the privatisation model approved by Parliament in 2015, and which following a Cabinet decision last week, will now revert to a lease model, where investors will bid to run the mills, but which will still belong to the government.

“The National Assembly is invited to approve the leasing model for the five public-owned sugar mills (Nzoia, Chemelil, and Sony; and Miwani and Muhoroni (both in receivership),” the Treasury document dated August 22 states.

Read: Jaswant Rai withdraws applications in Mumias Sugar case

The sugar sub-sector, facing numerous problems and millions of disillusioned farmers, is the livelihoods of over eight million Kenyans in 14 counties, majority in the former Western Province and Nyanza.

The sugarcane growing zones, however, have also spread out to Coast and Rift Valley. Treasury says the Sh65 billion debt has grown from the Sh33 billion in 2013, and whose debt write off had already been approved by the National Assembly, but which was never effected.

“The privatisation process was not concluded as it was opposed by stakeholders, especially the communities, because of sensitivities around permanent divestiture of land,” Treasury said.

Other challenges the Treasury paper notes is the failure by factories to invest in more productive cane varieties and cane husbandry, noting that the millers had instead “left this important aspect of cane development and production in the hands of agricultural research institutions, which due to lack of resource and negligible lobbying by industry stakeholders, have not made much headway.”

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