How cartels killed Mumias Out-growers Company

The take-over of Mumias Out-growers Company (Moco) in the 70s due to purported illiteracy created a spiral of events leading to the collapse of Mumias Sugar Company, it has emerged.

Investigations by Sunday Standard have established that the problems bedeviling East and Central Africa’s largest sugar miller started way back on May 28, 1976 when Moco accounts were put under the custody of Mumias Sugar Company (MSC).

In that instance, then Attorney General Charles Njonjo brokered a deal to have the sugar miller manage Moco’s accounts on grounds that its more than 77,000 farmers were illiterate.

Main supplier

Moco was the main supplier of canes to the miller. When it collapsed, the sugar company inevitably started going down.

“After that, Moco didn’t have her own account. It had a current account in the books of MSC where all income was supposed to be channeled. The account had a special code number, 28604,” current Moco Chief Executive Officer Gamaliel Anamanjia told Sunday Standard.

For managing Moco’s account, MSC was earning Sh16 million annually in accountancy fees. A series of loans advanced to Moco over time through MSC also created a web of confusion that runs to this date.

The government advanced Moco a loan of Sh4.8 million and another of Sh6.5 million from the Commonwealth Development Cooperation (CDC) as at May 28, 1976. The loan was meant for cane development.

Mr Anamanjia said the money was put under the custody of MSC.

“The agreement meant MSC will be managing all finances of Moco on grounds that our farmers were illiterate and didn’t have any knowledge in accounting,” he said.

Part of the agreement in our possession reads: “Throughout the term of this agreement, MSC shall act as accountant of Moco and as such shall keep proper books of account and records for Moco as from time to time required under the Companies Act of Kenya”.

The books were to show loans advanced by Moco to each member, the amount of levies members pay per tonne of canes delivered, the quantity and proceeds of all sugarcane sold by each member to MSC and all transactions between Moco and the miller.

Sunday Standard also established that the loan advanced to Moco by the government and CDC was to be retained as a revolving fund, but interest accrued was to be surrendered to Moco’s account by MSC.

The interest was to help Moco run its activities.

This money was to be recovered when cane farmers received their payment for cane delivered to MSC. The miller used to release the money to Moco to make the payments.

Investigations by Sunday Standard show Moco never run her own account by the time the agreement was signed until it collapsed.

According to Anamanjia, a grant of Sh35 million was released to the farmers company in 1979 but credited to the MSC account to increase acreage on cane development.

The CEO claimed a small part of the money was released to Moco to encourage more farmers to plant more cane to cater for the increased crushing meant for export. The rest cannot be accounted for.

He said the anomalies in the books of accounts on how the grant was spent were first realised in 2002 when they engaged an external auditor to review their books.

“Moco borrowed Sh190 million from MSC in 1994 to advance loans to our farmers to increase acreage under canes. The money was paid back to the miller in 1996 but by 2006, MSC claimed that we had not paid the money,” he said.

MSC claimed interest accrued amounted to Sh2.6 million. “This is one of the scams that made Moco to collapse,” said the CEO.

Anamanjia said the Sh6 levy imposed on cane farmers had accumulated to Sh288, 117,885 for the 23-year-period the money was deducted.

This money was transformed into farmers shares in 1998 when they discovered that they could not meet the demands by the miller for more land for cane development.

“Moco could get between Sh20 million and Sh30 million as interest funding when our farmers owned shares after the 1998 agreement,” he said.

The money vanished in 2008 after the collapse of Moco and it cannot be traced according to the CEO.

Anamanjia also claimed that canes harvested from farmers by the company for crushing were never credited to Moco’s account from 2002 to 2008 when the company collapsed.

The external auditor discovered that Moco had a credit balance as at December 30, 2003 of Sh1.5 billion, but in June 30, 2004 MSC showed that Moco owed them Sh622 million.

“This figure came around by declaring farmer’s debt as the sugar miller’s funds and leaving out unbilled cane,” said Anamanjia.

He said MSC top brass also withheld more than Sh783 million every month between 2004-8 for cane development on the unsettled Cane Suspense Account, saying they overdrew the money into a debit account.

According to Anamanjia, MSC owes them Sh3.7 billion.

Moco Chairman Edward Ambani told Saturday Standard the management of MSC charged the farmers’ association an interest of more than Sh725 million on the wrong debit balances.

What debt?

“This came about when they withdrew the Sh783 million from unsettled cane suspense account, took it away and debited on our accounts,” he said.

Mr Wambani claimed that the funds were then transferred to the sugar miller’s annual profits as interest income.

The MSC management, he claimed, built on the wrong claim that Moco owed it Sh622 million and declared that the association had exhausted all the money they had in their account.

“Despite reporting the matter to the then Kenya Anti-Corruption Commission (KACC) now EACC, nothing happened. Instead, the sugar miller stopped remitting the monthly interest to paralyse MOCO operations,” he said.

Mr Wambani said the resignation of MSC’s senior directors on June 9, 2008 from the board of Moco was a strategic way of denying them funds for legal redress.

Moco then wrote to Capital Markets to help them audit their accounts October 28, 2015. Capital Markets sent Andrew Maclay, a principal forensic expert from the UK. No report has ever been given out to date.

But MSC CEO Nashon Aseka told Sunday Standard that he is not aware of the Sh3.7 billion Moco claims the sugar miller owes them.

Instead, he said he wants to work with farmers to revamp the factory and ensure it is back on its feet by 2020.