Kisumu Governor Prof Anyang Nyong'o, cane farmers and receiver managers of struggling Muhoroni Sugar clashed over the closure of the factory.
Nyong'o and cane farmers led by Kenya National Sugarcane Federation union officials, Charles Anyumba, Atyang Atyang and Michael Sidigu, protested over the closure of the miller.
They demanded that the factory be re-opened and farmers paid Sh471 million owed to them for cane deliveries in the last six months.
The governor questioned the rationale behind the quick decision to shut down the factory, which has been in receivership for 17 years, without consent from his administration.
He said this was wrong and ill-timed. Muhoroni was closed down last week after Kenya Revenue Authority (KRA) officials raided the miller demanding tax arrears amounting Sh861 million.
The taxman wanted to recover the cash from sales and clients who owe the miller. This forced the receiver managers Fredrick Kibinei and Asha Okoth and General Manager Operations Nashon Osieko to close the factory.
On Friday, the management was put to task by the governor and farmers who said the sudden closure would impoverish thousands of cane farmers. "How do you just shut the factory without telling me. Now you have put the lives of thousands of cane farmers at risk," Nyong'o told the receiver managers.
He demanded that the factory be re-opened but the receiver managers said it was not possible. They explained that they had asked Government for Sh660 million to settle the debt first.
"As things stand, we can’t re-open the factory, we are financially crippled and farmers are on our neck demanding to be paid for cane delivered," Kibinei said.
The receiver managers disclosed that they had met ministry officials and asked for a bailout of Sh660 million.
"Part of this money will be used to offset farmers’ arrears, salaries and debt owed to our suppliers," Kibinei said.
Muhoroni Sugar Company owes cane farmers Sh471.6 million, arrears for deliveries made in the last six months. Suppliers are owed Sh251.1 million and Sh107 million is for staff salaries.
According to Okoth, the factory's daily output had been affected by erratic supplies of raw material and the obsolete parts of the crushing machine that often breakdown. "We have been trying our best and sometimes operating with these shortcomings makes it cumbersome to realise good returns, hence the cash crisis," he said.
He disclosed that when they came in 2012, the Government, which is the debenture holder of the company, told them to turn it around awaiting privatisation.
Okoth told farmers that the agreement was that by the time they were coming in, previous debts would be written off, under privatisation arrangement.
"We were told to turn around the miller in preparation for the debts being written off, to pave way for privatisation. That is still a mirage today,'' Okoth claimed. Yet in 2009, Parliament riding on radical proposals by MPs from the Nyando sugar belt, led by now Kisumu Senator Fred Outa, agreed that the debts be written off.
He said they were told the debts can only be written off if the firm is privatised. "To date, we have not received any official communication or letter to the effect that the debts have been written off by the Treasury in respect to Parliament's decision," Okoth said.
Nyong'o asked farmers' officials to work closely with the receiver managers to resolve the problems.
Okoth said they had even proposed that the company be liquidated so that someone can buy it and run it under the privatisation programme.
"There are two ways a company can go into liquidation; either voluntarily or in a compulsory liquidation,'' the receiver manager said.
During the liquidation process, assets of the insolvent business are sold and the proceeds used to repay as many creditors as possible, as part of remedial solution.
When it was put under receivership in 2012, KRA was owed Sh500 million which has now grown to Sh860 million.