Job cuts loom at Mumias Sugar as second bailout package is received

A tractor transports can to Mumias Sugar. The company has received Sh1.1 billion from the Government. (Photo: File/Standard)

Mumias Sugar Company has received Sh1.1 billion from the Government in the second tranche of a bailout deal.

This now brings the total package received from the Government to Sh2 billion, which is a third of the amount the miller needs to climb out of its financial hole.

“This funding has come at an opportune time as we have put in place a spending plan approved by the board of directors and shared with stakeholders in the restructuring of the company,” the firm’s board chairman, Dan Wameyo, said in a statement.

But employees of the miller should brace themselves for a tough period ahead after it emerged that part of the money received would be used to send them home as the miller moves to reduce its wage bill.

“The funds shall immediately be directed into the purchase of factory spare parts in preparation for factory rehabilitation, farmers’ payments and staff rationalisation,” the statement added.

It is not yet clear why the Government gave Mumias an advance bailout, but it signals that the company may have run out of the earlier funding before it could finalise its planned rights issue, where it hopes to raise Sh4 billion.

The revival

Mumias, a once giant miller that controlled more than 60 per cent of the sugar market share, nearly collapsed and turned to the taxpayer for a Sh1billion bailout package, which was delivered in June.

The money, which was described as a drop in the ocean, saw the firm increase its production from 350 tonnes to 450 tonnes a day, but it is a far cry from the 7,000 tonnes it used to produce in its best days.

The revival of Mumias has posed both a political and economic problem for the Jubilee administration.

With a 270,000 metric tonne sugar plant, a 38MW co-generation plant, a 22 million-litre ethanol distillery and a 15 million-litre water bottling plant, Mumias is Kenya’s most important sugar factory.

It has more than 145,000 shareholders, including Kenyan investors and the Government, which holds a 20 per cent stake.

Mumias was paying about Sh2.5 billion in taxes and remitted Sh500,000 to the Sugar Development Fund (SDF) annually.

It is estimated that the company needs about Sh6.2 billion to fully pay its debts and get to an operational level that can assure it of profitability.

The firm is counting on its new management led by Eroll Johnson, an Australian national, to turn around its fortunes.

One of its major headaches has been the electricity bill from Kenya Power, which has slowed down its production process.

The sugar miller is also facing a major sugar shortage after years of non-payment of farmers. Some farmers uprooted the crop for other alternatives to cut their losses. Others have opted to sell their produce to the new players in the sugar belt, such as West Kenya.

But it is how he will deal with the competition for cane, following increased sugarcane poaching, that is set to define Mr Johnson’s term. He is also expected to close the gates of corruption and theft in both the sugar and ethanol business lines that nearly collapsed the miller.