Mumias Sugar lease deal turns sour for Ugandan miller Sarrai

The revival of Mumias Sugar Company will have to wait longer after High Court cancelled the lease awarded to Ugandan miller Sarrai Group.

Justice Alfred Mabeya’s decision comes as a reprieve for some local sugar millers and bidders who had complained of being denied the lease despite placing higher bids. They will now have a second attempt to take over management of the firm.

The judge also kicked out Ponangipalli Ramana Rao as Mumias Sugar Company administrator for mismanaging the leasing process, which led to the lowest bidder getting the contract. Mr Kereto Marima was appointed to take over. “I find that the lease of Sh5.8 billion to Sarrai Group for 20 years was irregular since the administrator did it secretly and even failed to disclose details of the lease,” said Justice Mabeya. “There are enough reasons to cancel the lease since it did not meet the threshold.”

The judge ordered the Ugandan miller to immediately vacate the Mumias premises and remove any machinery it had put in place.

He said there was open bias and conflict of interest when Mr Rao awarded the lease to Sarrai Group while disregarding other bidders that had quoted higher amounts capable of paying off the miller’s creditors and bringing the company back to its feet.

Justice Mabeya said if the lowest lease amount of Sh5.8 billion by Sarrai Group was accepted, the sugar miller will never bounce back to profit. He said the amount was not even sufficient to settle the debt owed, pay cane farmers and resume the company’s operations.

“The receiver manager cum administrator was seriously conflicted in awarding the lease to Sarrai Group,” the judge said, adding: “The lease should have been awarded to a company with financial muscle to bring the company back to life. I do not understand why he disregarded the highest bidders.” 

He dismissed Mr Rao’s explanation that he denied West Kenya Sugar the lease despite being the highest bidder to stop sugar monopoly in Western Kenya, ruling that there was no justification whatsoever and that the reasoning was not in the best interest of Mumias Sugar.

While revoking Mr Rao’s appointment, Justice Mabeya said the administrator acted with impunity to protect the interest of KCB Bank, while ignoring other creditors who were looking forward to the company’s operation to recover their investment.

He said Mr Rao failed to notify creditors when he was appointed and since he was acting on behalf of KCB, it was necessary to have a neutral person to handle administration and oversee fresh bidding for leasing of the firm.

“He should have asked the court to be removed as an administrator instead of acting with impunity. His actions failed to protect the company’s assets and which will only bind Mumias Sugar to unending disputes with creditors,” ruled Justice Mabeya.

The judge, however, said Mr Rao would remain the receiver manager on behalf of KCB and asked him to formally prepare and hand over to the new administrator within seven days, failure to which his position as receiver manager would be suspended.

Justice Mabeya directed that upon taking over, the new administrator would call a meeting of all creditors within 60 days to kick-start the fresh process of leasing the company.

Mr Rao had last year awarded the lease for Mumias Sugar to Sarrai Group but several companies that had their bids rejected challenged the decision in court. Among them was West Kenya Sugar Company, which argued, through lawyer Mr Paul Muite, that Sarrai Group did not validly win the tender and that the former ought to have won the same as it had floated the highest financial bid.

Mr Muite submitted that the bidding process was unfair and tainted with vagueness.