Chemelil Sugar Company requires Sh258.7million to resume milling operations

In Summary

• The company needs Sh 82.7 million for mini-factory maintenance, Sh 73 million for farmers arrears payment, Sh37 million for purchase of canes and Sh 20 million to pay Kenya Power Company to restart production.

• It stopped milling on March 11, 2019, due to inadequate supply of sugarcane from farmers over accumulated arrears. 

Chemelil Sugar Company Managing Director Gabriel Nyangweso
Image: MAURICE ALAL

Chemelil Sugar Company in Kisumu county requires Sh258.7 million to resume operations.

Managing director Gabriel Nyangweso said Sh82.7 million is required for mini-factory maintenance, Sh73 million to clear farmers arrears , Sh37 million for cane purchase and Sh20 million to clear an outstanding electricity bill.

The company also need Sh844 million to pay its 600 permanent workers and 469 casuals.

He said the company is on the verge of insolvency unless quick action is taken to avert it from collapsing.  He said creditors may soon institute liquidation proceedings to recover owed amounts.

 

It stopped milling on March 11, 2019, due to inadequate supply of sugarcane from farmers. The company's funding request has been submitted to the Ministry of Agriculture.

Nyangweso said the factory has run for six years without any major maintenance which has significantly affected its level of efficiency. For the last 19 years the factory has carried out maintenance only five times intermittently instead of 19 times, Nyangweso said.

The last comprehensive maintenance was undertaken in the year 2013. Commodities Funds loaned the Company Sh 248 million in 2016 which was used for partial maintenance of the factory,” he added. Nyangweso said the factory has been producing at a loss because of years of non-maintenance.

Chemelil Sugar Company requires Sh 258.7 million to resume milling operations
Chemelil Sugar Company Chemelil Sugar Company requires Sh 258.7 million to resume milling operations
Image: MAURICE ALAL

With the 17 months of salaries in arrears, employees are in a deplorable financial situation. They can hardly afford to provide daily meals to their families and can no longer keep their children in school,” he said.

The factory has to stop every time a breakdown occurs, thereby occasioning tremendous losses. Sugar recovery has become poor, pushing the cost of production above the roof,” he said.

The six-year average cost of sugar production since 2013/14 financial year is Sh106,396 per tonne compared to the average ex-factory net sugar price per tonne of Sh68,880 over the same period.

 

Over the last six years, he said the company has experienced declining sugarcane supply, depressing ex-factory sugar price and high cost of production

The company has had to suspend milling operations for periods of between 5 to 7 consecutive months each financial year since 2016/17 financial year.

The unavoidable results are accumulating operating losses, inadequate cash for operations and accumulating liabilities,” Nyangweso said.

The nucleus estate cane area is 65 percent of the cane able area of 2,273 hectors because of reduced investment. Fields with crop return very low yields because of inadequate maintenance.

The last run of milling operations ground to a halt in March 2019 after farmers withdrew supply of cane to the factory citing accumulated arrears.

Nyangweso said to keep operations running, they plan to pay farmers, Employees, and suppliers for supplies and services rendered.

He wants a restriction on sugar importation to the country’s sugar deficit as well as hastening the privatisation process, and gazette the “sugar regulations” to salvage the deteriorating industry performance

He noted that the cash generated from operations has been lower than the company’s payment demands, basically because of Low sales volumes and Negative sales margins.“More often than not, the company only manages to pay Net salaries while statutory deductions delays or remain outstanding,” Nyangweso said.