Sugar millers crushed by Sh117 billion debt

Sugarcane farmers stranded before delivering them at Chemelil Sugar Company. [Peter Ochieng, Standard]

Crushing debt among State-owned sugar millers appears to be a permanent feature within the local sugar industry and one that has stalled development in the sector, including scuttling the numerous attempts to privatise them.

Alongside other challenges such as running archaic equipment at the factories and failure to take up better farming techniques, high indebtedness among the public millers has been among the factors that have been dragging the industry.

The six millers–Mumias, South Nyanza (Sony), Chemilil, Miwani, Muhoroni and and Nzoia sugar companies–currently owe the National Treasury Sh117 billion not just in loans but also unremitted taxes as well as penalties and fines for failure to service their loans as well as non-remittance of tax.

The debts have in the past been among the factors that have derailed privatisation of the sugar companies. Previous plans to write off the loans, including one in 2013 which had received parliamentary approval, never materialised.

President William Ruto on Monday said the government would write off the debts that the five millers owe the State. He said the five millers owe the government Sh117 billion that has been outstanding for years.

“As I speak right now, I have taken a memorandum before the National Assembly. I have asked the Members of Parliament to write off the debt facing our State-owned cane millers,” said Ruto, adding that the Cabinet had resolved to write off the debts.

The matter, he said, was now before Parliament. “I know in the next few weeks the legislators will have to write off the debts as the first step so that I can plan well on the issue of sugarcane. We have to sort out the issue of sugar because it affects and touches the majority of Kenyans and that is what we are doing currently”.

The Agriculture ministry in a report in May this year noted that “high level of indebtedness by public-owned mills ... is one of the most debilitating factors in the development of the sugar industry in Kenya”.

A 2019 report by the Sugar Industry Stakeholders Taskforce that was co-chaired by former Agriculture CS Mwangi Kiunjuru and former Kakamega Governor Wycliffe Oparanya, said that excluding taxes fines and penalties, the sugar millers owed the government Sh90.4 billion.

The biggest debtor at the time was Miwani Sugar Company at Sh27 billion, followed by Muhoroni (Sh25.1 billion) and Nzoia (Sh21.2 billion). Sony owed Sh6.2 billion, Chemelil (Sh6.1 billion) and Mumias had a debt of Sh4.8 billion.

The millers have over time been prepped for privatisation but this has never taken off. Only Mumias is partially State-owned, with a stake of 20 per cent, having offloaded its stake on two offerings at the Nairobi Securities Exchange in 2001 and 2007.

Over the last decade, Treasury has been planning to bring the private sector on board the other millers.

“In 2013, the National Assembly approved write-off of excess debt (for the period up to June 2009) and conversion of some of the debt backed by assets to equity. The approved restructuring was expected to take place immediately as part of the implementation of the privatisation of the mills,” said the taskforce.

“Implementation of the write-off was linked to the privatisation in view of some of the conditions by the National Assembly, which required the write-off to be implemented as part of a comprehensive restructuring process. The write-off was also delayed in view of the implications on companies under receivership, to ensure restructuring objectives were met.”

This, however, never came to fruition and the push and pull about the privatisation would go on until 2020 when the ministry started searching for investors to modernise and operate the five sugar factories under a lease model, at the time appearing to be backtracking on plans to privatise.

At the time, the ministry said it was still evaluating the options available in the case of Mumias Sugar.

The ministry then said it was looking for an investor with “world-class experienced to redevelop the factories into large sugar complexes and operate them for 25 years".

Kenya remains a major importer of sugar despite the government’s arguing that there is potential to produce and meet its domestic consumption and even have surplus for export.

Last year, sugar production stood at 796,600 tonnes and the country had to import 320,700 tonnes to bridge the gap between production and consumption.