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Mumias takeover plan brews bitter sugar battle between Rai brothers

A mix of toxic western Kenya politics and a rivalry pitting estranged siblings could derail the best shot at reviving ailing miller. [Benjamin Sakwa, Standard]

When ODM Party leader Raila Odinga introduced two managers of Uganda’s Sarrai Group to the crowd at Bukhungu Stadium, Kakamega County recently, the businessmen looked bewildered.

“I have brought you these people,” said Mr Odinga as he held up the hand of one of the managers, who waved timidly to the ecstatic crowd.

They were being tossed into the unfamiliar territory of politics, an anathema to Mumias Sugar, which some observers have blamed for the collapse of the giant miller that was suspended from the Nairobi Securities Exchange (NSE) after its assets were seized by KCB Group.

But the roller-coaster has just begun for Sarrai Group, a conglomerate whose interest spreads across three countries and a myriad of manufacturing sub-sectors from cement and plywood in Kenya; sugar, mattress, and edible oils in Uganda; and plywood in Malawi.

The company has over 200 employees in its constellation of companies in the three countries.

Sarrai Group is owned by Sarbjit Singh Rai, a brother of billionaire Jaswant Rai, who owns Rai Group of Kenya.

The latter currently controls a big chunk of the sugar market in Kenyan retail space through its Kabras brand.  

But manoeuvring through its 20-year lease of the troubled miller could turn out to be like a game of snakes and ladders for Sarrai Group.  

Less than 10 days after the conglomerate won the bid, it came up against a barrage of lawsuits by losing bidders.

The ongoing court cases - an injunction against any interference with Mumias Sugar’s assets and a contempt suit against its directors and the receiver manager for allegedly disobeying the court orders - will not only disrupt the company’s timelines for resuscitating the miller but will also deal them a deadly financial blow, says Sarrai Group in court documents.

“The orders issued on December 29, 2021 will cause untold suffering, embarrassment and great financial loss and insurmountable economic prejudice to the applicant, who has already made significant rehabilitation from the date of takeover,” argued Sarrai’s lawyer Wesley Gichaba.

The firm announced that it will inject close to $1 million (Sh1.13 billion) into the ailing miller for the rehabilitation, refurbishment and servicing of machinery and vehicles in readiness for operations in the next six to eight months.

The company is expected to rehabilitate and operate Mumias Sugar Company for 20 years, with the leasing fees going to the miller.

However, one of the losing bidders, Tumaz & Tumaz Enterprises Ltd, which is associated with US-based Kakamega businessman Julius Mwale, has obtained an injunction against Sarrai Group.

It says the bid was given to Sarrai unfairly by KCB Group-appointed receiver-manager Ponangipalli Rao, noting that it was marred with fraud.

On Thursday, Tumaz moved to court, accusing Sarbjit, Rakesh Kumar Bvats (manager) and Rao of disobeying the court’s directive.

Sarrai Group argues that the restraining orders came seven days after the lease had already been executed and awarded.

Tumaz has also filed another case at the Public Procurement Administrative Review Board (PPARB), requesting a review of the award of the lease to Sarrai Group.

But Sarrai insists the transaction does not fall under PPARB.   

Tumaz, which has no known record of running a sugar milling factory, gave the highest bid of Sh27.6 billion followed by France’s Kruman-Finance with a bid of Sh19 billion, while Sarrai offered Sh11.5 billion.

Should they overcome these court cases, Sarrai Group will be confronted with fierce competition, which will be a sibling rivalry of sorts.

The collapse of Mumias Sugar, which at its peak controlled 60 per cent of the local sugar market and directly employed more than 1,600 people, left behind a vacuum that was quickly filled up by Jaswant’s Rai Group.

In 2016, the sugar industry had 18,106 permanent workers, according to official data.

However, with the death of Mumias Sugar, other sugar companies are also on their knees, with most of them being illiquid and permanent employees reducing by close to a third to 13,100 by the end of 2020.

Not even the addition of new milling factories by Rai Group has helped cover the sugar supply deficit, partly because Rai has relied on a lean workforce.

This has seen sugar imports continue to rise, a clear indicator that local production is not keeping up with demand.

Jaswant’s fight against Sarbjit will not only be a clash of egos by two brothers who do not seem to see eye to eye and who have been battling for the control of their late father’s multi-billion-shilling estate since 2015. It will also be a fight for regional dominance.

Jaswant won round one of the Rai succession battle after the court dismissed the petition by Sarbjit and his two other brothers.

However, Sarbjit seems to have had his taste of revenge by outfoxing his brother in the bid for Mumias Sugar. Rai Group had put a bid of Sh3.5 billion for Mumias Sugar.  

Rai, through his three sugar millers - West Kenya, Sukari Industries and Olepito Sugar Company - controls over a third of the sugar produced locally.   

The fallout between the two brothers was precipitated by the death of their father, Tarlochan Singh Rai.

Led by the widow, Sarjij Kaur Rai and three sons, including Sarbjit, they are contesting the patriarch’s will, which they argue left out some of the children while accusing Jaswant, the executioner, of conniving to keep the multi-billion assets to himself.

So nasty is the fallout that the two companies do not share any directors.

For long, the two brothers’ sugar businesses have not crossed paths directly, each carving his sphere of influence, one in Uganda and the other in Kenya.

Just like Rai Group, Sarrai Group’s Kinyara Sugar Ltd controls 30 per cent of the market share and is the second-largest sugar producer in Uganda.

As of 2011, the miller produced 105,000 tonnes of sugar per annum from 23,000 hectares of sugarcane.

Sarrai’s other sugar milling company, Hoima Sugar Ltd, is located in Northern Uganda and includes a 10,000-hectare nucleus estate and a sugar plant with a cane crushing capacity of 1,500 tonnes per day.

But now, the borderlines have melted away, with Sarbjit gaining a foothold on the lucrative Kenyan market.

In the last five years, the quantity of sugar consumed in Kenya has increased steadily to 1,045,888 tonnes in 2020 against local production of 603,788 tonnes, according to official data.

Rai might have beaten a lethargic, inefficient Mumias Sugar that was under the spell of infantile local politics, but the Mumias brand still occupies a special place in the hearts of many Kenyans.

Its return, boosted by well-oiled machines, better terms to farmers and good governance will be a threat to Jaswant.

In February 2023, the safeguards against the unfettered import of Sugar from the Common Market for Eastern and Southern Africa (Comesa), a free trade bloc in which Kenya is a member, will come to an end after a two-year extension that the country was given by the Comesa Council of Ministers.

Since 2008, Kenya has been requesting this extension, arguing that its sugar industry is not yet competitive against that of other sugar-producing Comesa members such as Mauritius.

The 2020 extension was given on condition that Kenya provide a detailed roadmap on how it will enhance the sugar sector’s competitiveness in the two years; ensure the import permit issuance process is transparent, fast and efficient; and provide the projected sugar deficit in January of each year based on production and consumption data.

It is thus a race against time for the Sarrai Group. The cheap sugar from, not just Comesa countries but also East African Community (EAC) countries like Uganda, should find it well prepared.

Yet, the success or failure of Sarrai will ultimately depend on real politics, both at the local and national levels. The stakes are even higher in an election year.

Over the last 10 years, the revival of Mumias Sugar has been a hotly debated topic in Western Kenya.

It gets intense as the country approaches elections. In the last elections, for example, President Uhuru Kenyatta in his hunt for Western Kenya votes pumped Sh1 billion into Mumias.

This was against the Sh10 billion owed to creditors, with local politicians pushing for the money to be used to pay farmers rather than helping the plant roar back to life, according to a former manager at the firm who requested anonymity.

Going forward, aspirants who offer popular plans of reviving Mumias Sugar, which had been placed under administration by KCB Bank for an unpaid loan of Sh480 million, stand a chance of winning the hearts and votes of the people of Western Kenya.