State has limited options to rescue sugar sector

By Kepher Otieno

Having set a target of 11 months to sell majority stakes in its five sugar factories to strategic investors, the millers’ heavy debt is now a source of concern.

It is now emerging that writing off the debts, estimated at Sh47 billion choking the factories, or converting them into equity are the only ways Treasury will be able to get the attention of investors in the factories.

Even that may not be enough, and the Government may also have to waive tax penalties levied on the millers, now worth at least Sh9 billion.

Mr Evans Kamau, the Associate Director at financial consultants Ernst & Young, said that in their current state, the factories are unlikely to appeal to investors.

Value Depreciates

Privatisation of the factories has dragged on for much of this decade. And it has become even more urgent, against an approaching 2012-deadline set by Comesa for Kenya to straighten out her sugar industry, before duty-free imports flood her market.

The factories earmarked for sale are Sony, Miwani, Muhoroni, Nzoia and Chemelil.

The value of their assets has significantly depreciated.

During the presentation of the industry status report last week, cane farmers were shocked when Ernst and Young revealed that the net asset value of the firms is a negative Sh24 billion, against liabilities of Sh54 billion.

"According to the international financial regulations, any asset that has no value has to be written off," Kamau explained.

Besides the depreciation of assets, the companies still hold obsolete and inefficient machinery, while most suffered years of poor management.

In their current state, they are unable to compete against imports from Comesa and other regions.

Ernst and Young was contracted to assess the companies’ financial position, identify their key business drivers, and suggest solutions to legal issues that may hamper their privatisation.

Merger Proposal

The consultant’s lawyer advised that title deeds for factories in Nyando be acquired to avoid long protracted battles in court that may delay the process.

Farmers shot down proposals to merge Miwani, Nyando and Muhoroni sugar belts into one before disposal.

A farmer from Nyando, Samwel Anyango revealed that the local community leased 10,000 acres of nucleus estate land for factory development. The lease elapsed in 1997.

Led by former Kenya Sugar Board director Samwel Bonyo, and former Muhoroni MP Aloo Ogeka, they proposed that the factories be sold as single entities.

The factories will be auctioned through strategic investors, within 11 months, according to the Privatisation Commission’s Chief Executive Officer, Solomon Kitungu, and Chairman Peter Kimuyu.

 

 

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