State to write off Sh47b sugar industry debt

By James Anyanzwa and Reuters

The Government will write off or convert into equity Sh47 billion ($588 million) debt owed by sugar milling companies ahead of their privatisation, Agriculture Minister William Ruto has said.

Five firms in the western sugar belt — Chemelil, Sony, Nzoia, Miwani and Muhoroni — are slated for sale in a Sh8 billion disposal of public assets programme.

"Part of the privatisation exercise will involve us as Government writing off that debt or packaging it as equity. We will of course take advice from the transaction advisors," Ruto told reporters.

He said the Government would also consider any other options that the transaction consultants recommend.

"We are aware this is an exercise that has been talked about in the last 10 to 15 years, but... in a year, we should have gotten over it ," said Ruto.

Critics say the sugar industry is plagued by high costs of production and a lack of credit for inputs, leading to low yields. This saddles the country with an annual sugar deficit of about 200,000 tonnes.

Last year, Ruto promised to turn around the industry, which is saddled by corruption and poor management by weeding out cartels and expanding the capacity of sugar factories to produce ethanol and electricity.

Revival programme

He said the Government would also revive the collapsed Busia Sugar Company.

Nzoia Sugar Company is in need of Sh6.5 billion to complete the stalled factory expansion programme as equipment worth Sh3 billion is lying idle since the project failed in 1991.

Lack of investment has led to the industry’s decline, as farmers, who relied on income from the cultivation of cane, have turned to subsistence farming.

In the Kisumu region, the closure of the Miwani mill in 2001 and the subsequent neglect of sugarcane production impacted the local economy sharply.

The Kenya Sugar Board, which regulates, develops, and promotes the sector, is actively encouraging private investment in the sugar industry, and has made strong recommendations to restructure or privatise Government-owned mills.

It was within this framework that the Industrial Development Corporation of South Africa Ltd and a UK-based businessman, RS Chatthe, proposed the establishment of Kibos Sugar and Allied Industries Ltd, a Greenfield sugar factory and 3,000 hectares of irrigated sugarcane.