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Sweet news for cane farmers as Sh62b debt waived

By Macharia Kamau | July 3rd 2020

A tractor captured at Lugusi area in Malava ferrying cane to Butali sugar mill on June 22, 2020. [Benjamin Sakwa, Standard]

The Government has written off Sh62 billion owed by sugar millers and farmers in the latest attempt to revive the ailing industry.

The Ministry of Agriculture also said it will invite bids from private firms for the lease of five state-owned factories next week.

In a new move that replaces a previous plan to privatise the sugar firms, the bidders that will lease the factories will operate them and produce sugar as private entities while the Government will continue owning the assets.

Agriculture Cabinet Secretary Peter Munya said writing off the debts the entities owed the Government was a step towards attracting private investors to bid and make investments in the sugar mills.

The Sh62 billion owed by the millers and farmers include Sh4 billion in unpaid taxes and penalties.

The five factories that have for long been on the privatisation list but will now be leased are Chemelil, Miwani, Muhoroni, Nzoia Sugar and South Nyanza Sugar companies. Of these Miwani and Muhoroni are already under receivership.

Munya said Mumias Sugar, which is partly private, would be dealt with separately, with the Government likely to sell off its shareholding in the miller as opposed to leasing. “Cabinet has decided to approve the lease of five State owned sugar factories. The factories will be leased through long-term leases, at least 20 years,” said Munya, adding that the privatisation plans had been vacated.

“The model the Government will use is a transfer of the Right of Use (ROU) of each factory to the lessee on an ‘as is where is’ principle.”

He said that once leased, the factories would be required to revamp and modernise the sugar mills. The Government expects the leased factories to increase production of ethanol and electricity while maintaining sugar as the main product.

Munya said millers in the western sugar belt could produce as much as 260 megawatts of electricity.

“The right of use shall be on firm commitment that the lessee will re-develop and operate the factory… the idea behind leasing is that government will invite investors with experience in the Global Sugar Industry. Our focus will be on sugar (main product), and co-production (ethanol) and co-generation (power) and value add products such as industrial sugar, pharma sugar and sugar cubes,” he said.

“The objective is to facilitate the turn-around of the now dead or underperforming sugar companies and return them to profitability by modernisation and efficient management.”

Munya also banned the importation of brown sugar in a move he said would stem illegal practices by numerous businesses plying the trade, which he noted have been sneaking the product in from Uganda during curfew hours.

He also banned the importation of raw sugarcane. Some of the millers are usually given permits to import sugarcane for their operations whenever cane is in low supply in the country. Munya, however, said some had continued to use permits issued for a short duration in 2019 to bring in cane, also from Uganda.

The CS said the two illegal activities could have dire consequences on the local industry, threatening to kill what is left of the ailing sector.

“The ministry has noted with great concern an influx of illegal importation of brown sugar from Uganda through the Busia border, with indications of unscrupulous businessmen and traders taking advantage of the Covid-19 curfew hours to sneak in unlawful imports into the country at night,” he said.

“Additionally, some millers who had obtained temporary permits to import raw cane from Uganda for a limited period of three months (September to December 2019) have illegally continued to import raw cane. This trend could potentially affect the livelihoods of Kenyan farmers along the sugar-belt, whose crop is ready for harvest.

He said the illegal importation of brown sugar and raw cane has rendered locally manufactured sugar uncompetitive. The CS said the ex-factory cost of local sugar was Sh85,260 per tonne, compared to imported sugar at Sh60,117.

“This scenario clearly explains why Kenyan sugar is struggling to compete with imported sugar,” he said.

“The country may soon be faced with a sugar glut occasioned by this increased importation and an eventual collapse of the industry. This is a great disincentive to the farms and investors.”

Munya also suspended the sugar import permits, which he said would be reissued once new regulations on the exportation and importation of sugar are gazetted.

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