State mulls talks with unions opposing leasing of sugar factories

A stalled tractor loaded with sugarcane [Sammy Omingo, Standard]

The Agriculture Ministry has said it is in negotiations with the employees of the State-owned sugar millers to unlock the stalemate that has slowed down the planned leasing of the sugar factories. 

The Ministry had mid-last year started a process to hand over the millers to private firms in a long-term leasing programme.

The State had been banking on the lease to turn around the companies and breath life into the western Kenya sugar belt through investments in modern technology and efficient management of the millers. 

The programme, which would see the private firms lease the factories for 20 years, however, run into headwinds when employees of the factories lodged cases in court to stop the process.

This was largely on account of money owed to them in unpaid salaries. 

The High Court in Eldoret in October last year suspended leasing process pending the hearing and determination of a case filed by a group of farmers from Nandi County. 

The Kenya Union of Sugar Plantation and Allied Workers (Kuspaw) had also sought the suspension of the leasing process at the industrial court, noting that the Government should address issues raised by workers of sugar companies.

These include payment of outstanding salary arrears and statutory deductions. 

Agriculture Cabinet Secretary (CS) Peter Munya on Thursday said the ministry has been in negotiations with players who had lodged the suits in a bid to get to a middle ground that would result in withdrawal of the cases and enable the government to go ahead with the leasing programme. 

“Some of the stakeholders have been engaging some of the people who had taken the issue to court… there are negotiations with the expectations that these people will drop the case. I have engaged the stakeholders to make sure that the roadblocks that have been put are removed so that the farmers can benefit from a liberalised sugar sector,” he said.   “We are looking forward to resolving the matter so that we can move ahead.” 

The Government has in the past included union members in a committee that was steering the leasing programme with expectations that it would get the buy-in of the employees. This appears to have had little luck. 

With the cases seemingly set to derail the leasing process, Munya appears ready to abandon the plans, at least in the short term.

At the Thursday press briefing, the CS said if this route fails, he would put in place new boards of directors in the five millers.  

“We believe that the sector can improve a lot if leasing took off... (but) if there is too much delay, I will reappoint the boards and keep the factories running,” he said, adding that aggrieved parties were at liberty to seek redress since “we are in a democracy, there is nothing I can do beyond trying to facilitate the process.”  

Even with new boards, the sugar companies would be operating the same archaic infrastructure, raising questions as to whether anything will change. The failure to invest in new equipment and technology over time has been among the issues been blamed for sinking to factories into their current predicament. 

Among the requirements that the Ministry expected to place on the firms that would be leasing the sugar millers was the investment in new crushing equipment as well as diversification of products to include production of ethanol, power   

But Munya will not take the defeat. He says even in the absence of leasing of the State millers, there are more reforms on the way for the sugar sector.

He cited the Sugar Bill, which among other things reintroduces the Sugar Directorate as a regulator. The Agriculture and Food Authority (AFA) currently regulates the sugar industry, with the directorate domiciled within the authority. 

“Reforming the sugar industry is not all about leasing. There Sugar Bill that aims solving other major issues that the sector faces that is with the agriculture committee of the National Assembly. I am also asking the committee to fast-track the Bill and it proposes far reaching reforms that will help improve the sugar industry. Leasing was just one of the reforms. There are many other reforms including reviewing the Sugar Board,” he said. 

The Government in July started the search for investors who would lease the five sugar factors that are on the blink of collapse, with expectations that this would set them on a path to recovery. 

Factories that will be handed to private firms under the lease model include Chemelil, Miwani, Muhoroni, Nzoia Sugar and South Nyanza Sugar Companies.

The Ministry of Agriculture is still looking at the options available in the case of Mumias Sugar, partially owned by government, but it is likely to be fully privatised. 

The companies earmarked for leasing have been struggling - some having gone for almost two decades without turning a profit while nearly all are operating at a fraction of their capacity. 

In preparing to hand the factories over to private firms, the State had waived Sh62.5 billion the millers owed the government in loans they had not been servicing, and penalties as well as unpaid taxes. 

Among the conditions for leasing the factories include plans to revamp the sugar mills, which is expected to rid them off archaic equipment perennially blamed for low yields. 

The millers have a combined market share of 30 per cent, according to AFA, leaving the balance to the few private millers in operation as well as imports.

Other requirements on the leaseholders will be diversification.

While sugar will remain the mainstay, their new product portfolio will include increase of electricity and ethanol production as well as industrial sugar, pharmaceutical grade sugar and sugar cubes.

Millers in the western sugar belt, according to the ministry, could produce as much as 260 megawatts of electricity.