Ex-CEO: Why I fled Mumias Sugar after resigning three times

Former Mumias Sugar Company boss Errol Johnson resigned at least three times during his two-year stint at the troubled Mumias Sugar Company before he finally fled to Australia and refused to come back.

In a tell all letter to eight top managers at the miller, the Australian poured out his heart on why he decided not to return to Kenya after he went on leave. “Under the circumstances, I have decided not to return from leave to Kenya. I have come to this decision with somewhat of a heavy heart, although I cannot deny I feel a sense of relief as well,” Johnson writes in the letter sent by email from his home country.

The explosive letter seen by Weekend Business was written on May 28, 2017. The recipients include Abed Malik, Alexander Chirchir, Josephat Asira, Ronald Lubya (now deceased), Moses Owino, Narboth Mbalanya, Odhiambo Edie and Julie Kisaka.

“As some of you are aware, I had resigned three times last year, each time the Finance Committee of the Board and the Board Chairman, pleaded with me to stay as to leave would destabilise the efforts to properly finance the company,” he writes.

The expatriate, who was brought on board in 2015 with a monthly salary of about Sh3.4 million to turn around the firm’s fortunes laments that he would have reversed the downward spiral of the miller if the Sh3 billion bailout package from the Government was received in a timely manner.

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By the time he went on leave, the Government had pumped into the miller about Sh3.1 billion and he was expecting to receive the second part of the package. The firm, which has not paid employees for four months, received another Sh500 million this week.

Mumias Sugar, once a giant miller that controlled over 60 per cent of the sugar market, nearly collapsed and turned to the taxpayer for a bailout package.

Johnson says it was particularly important that the second tranche of the Sh2 billion bailout was received by January 2016 so as to allow the proper maintenance to be carried out with a full complement of spares in April and May.

“I had a top level meeting with the Treasury early January 2016 and Thugge (Treasury Principal Secretary Kamau Thugge) assured the chairman and myself that the funds were immediately available and that the procedures would take days to complete,” he adds.

Johnson says as a way of making a record of the meeting, he wrote to Mr Thugge reiterating that the funds had to be released before the end of January 2016. “I did not receive a reply, but what followed were delays apparently for the want of completion of the paperwork brought to the board by the Treasury representative,” he adds.

PREVAILED NOT TO QUIT

But it was not until the firm fell into deep trouble that funds were released in late April 2016, in part Sh1.16 billion, and not in time to do any constructive factory rehabilitation as we were already in the wet season. The firm had to play catch-up using the funds mostly for legacy issues such as farmers’ payments.

The cash dilemma forced the firm to abandon the maintenance for the fourth year in a row. “To keep generating funds we had to continue operations, by bringing cane forward. It was at this time I began to believe that if the funds were readily available from the time of the first tranche release, the GoK was not serious about recovering MSC,” he notes.

At this time, the downward spiral of the miller’s fortunes would gather momentum since the firm had not rehabilitated the factory and was unable to allow the cane to grow to maturity. It was at this point that he resigned.

“I resigned on June 24, 2016 as a result of the funds not being disbursed in a timely manner,” he writes. Before the dust settled on this, having been prevailed upon not to quit, another policy directive by the Government threw its revival plans into new headwinds.

On August 11, 2016, Agriculture Cabinet Secretary declared that zoning had been abandoned giving licence to the poachers to increase their activity.

By September 2016, the situation had deteriorated to the extent that Mumias was forced to stop operations. But before closing down, the Australian boss made a plea to the Board and banks to raise Sh790 million to sustain it as it waited for cane to mature and worked on the factory.

“The banks refused and the Board dithered and eventually, by default we put the future crop in jeopardy, by continuing the operation.”

By the time the then chairman (Daniel Ameyo) resigned, Sh239 million had not been disbursed. When Mr Kennedy Ngumbau was appointed as the new chairman, the Australian says he had a meeting with him immediately after a board meeting.

FACILITATE RELEASE OF FUNDS

The new chairman requested that he be given time to raise the finance and specifically to obtain the last disbursement of Sh239 million. “He thought he could do that in two weeks. In the event it took 6 weeks and by that time no farmers would give us cane unless it was immediate cash. MSC had sunk further,” the letter adds.

But it was after the Sh239 million was received that Johnson received a disturbing request. He alleges that he was told that a Sh10 million fee would be required to facilitate the release of the Sh239 million. The Standard contacted Mr Ngumbau who dismissed a letter that had earlier been circulating on social media as fake.

The letter says that he was further requested to give a Sh5 million processing fee but insisted that he could not give any money to third parties. We cannot name the person who requested the funds for legal reasons. “He pressed for a week and finally asked for Sh5 million which again I could not accede to. He gave the names of some of the recipients, needless to say the names were of politicians,” he writes.

He says that it was clear to him that going forward, any future disbursements would attract some facilitation fee. “Clearly the management team under my stewardship would be an obstruction to payment of such a fee.”

Months before he fled, managers at the firm had met with officials from the National Treasury. The meeting is understood to have happened in early March 2017 and it was agreed that to save Mumias, an additional Sh1.8 billion would be required in the short term while the full financing package now required due to the failure of the first bailout.

When this proved difficult, the chairman tried to get an interim Sh300 million. This was expected to come in early March. However, by the time he went on leave in May, the money was yet to hit the miller’s account. Before he went on leave, the chairman of the miller asked him to report to work.

“I refused and asked him if there were no funds coming. He was evasive but said we were in a crisis and I had to come and calm the staff. I suggested that as he was the one liaising with GoK on the sourcing of funds, and I could no longer give false hope to the staff, he should go to MSC and address the senior staff on progress of his negotiations. This was to be a calming exercise.”

He alleges that the objective of the meeting changed after politicians were invited. “The story had changed from GoK supporting the new financial restructuring, to the failure of the current management to properly utilise the Sh3 billion and for the mismanagement of the company’s affairs,” he says.

Johnson adds that by Saturday 6, May, the Deputy President William Ruto had visited Mumias division and publicly gave the chairman two weeks to remove the so-called corrupt managers from the company. After the staff meeting, he had ‘a very heated discussion’ with the chairman on the night of May 14.

“I realised that the meeting had set in motion a witch hunt to denigrate and blame the current chiefs and myself for the crisis at MSC and asked the chairman directly if we were to be removed in disgrace,” he writes. “I accused him of stage-managing the whole exercise. He replied that he was helpless in this situation.”

He says he wondered why the firm did not let the managers also known as ‘chiefs’ go on their own accord with their terminal benefits, and without attempting to destroy their careers. “The whole conversation being unsatisfactory, I suggested that we had nothing more to discuss and hung up the phone.”

A meeting was held on Friday May 19, with the Board deciding to form a rapid response committee to go to Mumias to look for ways to fund the gap between when the Government might make some cash injection. “I had previously implored the banks to at least fund their security of the assets. They declined to do so. The team did come to MSC and amongst other things began looking for areas where management failed in its responsibility.”

In deciding not to return, he also said that he was not convinced that some of the directors were acting in good faith. We cannot publish some of the contents of the letter due to legal reasons. In conclusion, he narrowed down his inability to perform his duties at the firm to two issues.

“It is apparent that despite our best efforts to improve the situation at MSC, two things stand out as being the main reasons that we failed.” He says the strangulation of the company financially, despite there being no sound reason to the contrary, GoK withheld readily available finances at critical times, and obstruction with the banks in negotiations were setbacks.

“The structural collapse of the regulated sugar industry, the full effects which are yet to hit home, but in the meantime opened up MSC cane lands to other millers. This effect will be long felt as the instability in the industry, has led to a dramatic decline in cane development, while milling capacity remains at double the available cane.”

EVIDENTIARY COMFORT

On a personal note, he pens off by telling his former team that it was ‘a pleasure working with them.’ “Often in adversity, bonds formed are stronger, and I would like to think that we had a strong team. As far as the teams that I have led, this team was right up there with the best and in the right circumstances would achieve everything expected of it.”

He acknowledges that he did not always get everything wrong. “I know we have made mistakes but we are human and if those mistakes are not wilful or negligent history will forgive us...If there is a need to contact me for any allegations brought against you, and where I can give evidentiary comfort please do not hesitate to contact me. I have kept pretty good records which I can refer to.”

He was not a stranger to the sugar miller when he joined it. He had worked in the same capacity between 1988 and 2001 and it was expected that he would start with the benefit of hindsight. When he reported, Mumias board chairman Daniel Ameyo described him as a manager with an ‘extensive experience in the sugar industry worldwide.’

Some farmers uprooted sugarcane and have been replacing it with other crops to reduce their losses. Others have opted to sell it to the new players in the sugar belt such as West Kenya.