Why Sh1 billion Mumias Sugar Company bailout is drop in ocean

President Uhuru Kenyatta hands over a Sh1 billion cheque to Mumias Sugar Company Chairman Dan Ameyo (fourth left) as Kakamega County Governor Wycliffe Oparanya (third left) and other leaders look on. [Photo: file/Standard]

Mumias Sugar Company (MSC) is facing a bumpy and winding road to recovery following doubts raised by legislators and industry stakeholders about the Sh1 billion bailout that is seen as “a drop in the ocean”.

The doubts were further heightened when it emerged that Sh500 million from what it received will be a loan and not a grant. 

Mumias, which is Kenya’s largest sugar miller, will gulp down the Sh1 billion trying to deal with the ‘ghosts’ of lenders, angry farmers and suppliers, each waiting for a slice of the Sh1 billion.

The miller needs at least Sh6.2 billion capital injection to clear its debts. This burden is expected to be further reduced when the Government injects another Sh2 billion through a rights issue later in the year. This will leave it with another Sh3 billion to raise from its other shareholders being a public listed company and from other sources.

Mumias board chairman Dan Ameyo said priority will be to pay farmers as the firm moves to calm incessant protests at its gates over delayed pay. “We are going to do a thorough vetting process of the farmers so that we don’t pay any ghost claims. But the priority is to pay farmers,” Mr Ameyo said on a phone interview.

Ameyo said the firm is negotiating with lenders to give them a break until they are afloat. After the Sh1 billion injection, Mumias has  accumulated another Sh500 million in debt.

Treasury Principal Secretary Dr Kamau Thugge told The Standard on Saturday at Parliament Buildings that Sh500 million will come from the Sh1.9 billion that had been allocated to the Ministry of Agriculture, while the other Sh500 million will come from the Kenya Sugar Board, under the Sugar Development Levy, as a loan.

Parliamentary Budget Committee Chairman Mutava Musyimi said the goal was to ensure the company got sufficient cash to begin the restructuring process. The Controller of Budget Agnes Odhiambo confirmed the allocation.

“I have spoken to the National Treasury and they have told me the money will be coming from the Ministry of Agriculture, in the supplementary budget as an additional amount for the 2015-2016 National Budget,” said Ms Odhiambo.

Deputy Minority Whip Chris Wamalwa, one of the leaders from Western Kenya who met President Kenyatta at State House where the deal was announced, said half the money was a loan, while the remaining half was for Government to buy equity.

“I asked the President where the money would come from. Treasury Cabinet Secretary Henry Rotich was there. They explained that Sh500 million will be a loan from the Sugar Development Levy Fund, which Mumias will have to pay back; while the remaining Sh500 million was issued from the National Treasury through an executive order. It is not a grant. It will increase the shareholding of the National Treasury in the company,” said Dr Wamalwa.

The Government holds 306 million shares, 20 per cent of Mumias Sugar. The company is saddled with debts worth Sh6.2 billion and the Sh1 billion is “a drop in the ocean”, said Wamalwa as he recalled his conversation with Rotich.

The money will have to be regularised through a supplementary budget to be issued in the next financial year. Wamalwa said Rotich had asked the directors of Mumias to negotiate with banks to stop levying interest on the loans the company took. The loans, in 2014 cost the company Sh611 million in charges and interest.

A source in the company said  MSC is likely to face a two-month sugar shortage in the remaining financial year, a gap it intends to fill by talking to its rivals among them, Nzoia Sugar Company.

This comes a day after confusion reigned among MPs at Parliament Buildings over the source of the Sh1 billion. The curious thing was that the President issued the cheque even before the National Assembly approved the Supplementary Budget with the money. The National Treasury went for the unspent money in the Ministry of Agriculture.

The confusion arose just as the Budget and Appropriations Committee rejected the Sh2 billion request that Treasury had put in for a rights issue. In a report tabled in the House, Musyimi said funding for the rights issue “has been deferred”.

This means the earliest Mumias can get a rights issue will be in the next supplementary budget, possibly from the second quarter of the next financial year.