West Kenya’s bid on Mumias was a spoiler– receiver manager

West Kenya Sugar Company Limited's bid on Mumias Sugar was a “spoiler bid”, the receiver-manager now says, as he reveals more details on the evaluation process.

This, as a section of the bidders and non-bidders (individuals and the Mumias Out growers Company), who has moved to court, continue to protest the decision to lease the Mumias Sugar plant and related assets of Mumias Sugar Company to Sarrai Group Limited.

Supplementary submissions by the receiver-manager– Ponangipalli Venkata Ramana (PVR Rao) and KCB, as defenders, have detailed why West Sugar which is related to the billionaire Rai family did not qualify to take over Mumias, adding to the previous revelation that point to possible sabotage on the revival of the miller.

About four cases have been filed challenging the lease but one was rejected at the Public Procurement Administrative Review Board.

It ruled that Mumias was not subject to the Public Procurement and Disposal Act since the majority stake is privately held, with the government having a minority stake. It is also not a State-owned company.

West Kenya last month asked to be enjoined in the case where sugarcane farmers are challenging the leas award.

Through lawyer Paul Muite, it told the commercial court that it deserved to take over the ailing miller having been the highest bidder.

The receiver-manager has now revealed more details, including West Kenya failing in the technical evaluation stage.

If the bid was awarded to West Kenya, it would amount to a dominant position as the Rai Group, which owns West Kenya, would control at least 41.95 per cent of the daily total sugarcane crushing capacity in Kenya, he said.

As of 2020, the Rai family controlled nearly half of the sugar market in Kenya through its three sugar millers – West Kenya, Sukari Industries and Olepito.

“ As a result of the failure of West Kenya at the technical evaluation stage,  their bid did not proceed to the financial evaluation stage,” the receiver-manager explains.

Rao further adds that he examined West Kenya’s financial proposal which showed it would have also failed at the financial evaluation stage if it had made it that far.

According to the receiver manager, West Kenya’s holding company that owns 99.9 per cent of its shares, TJS Argo Limited, has no operations and does not produce financial statements.

West Kenya has also been embroiled in litigation in numerous cases against competitors 

(including the Company) and employees leading to legitimate conflict of interest concerns and reasonable grounds.

This puts doubt on their ability to maintain good industrial relations which is critical in the labor-intensive sugar industry, the defendant says.

There was also no plan that was submitted by West Kenya for the proposed investment of Sh4.6 billion.

“It was therefore difficult for the 1st defendant (the receiver manager) to assess whether the plan would be effective,” PVR Rao says, adding There was also a failure to provide a letter from West Kenya’s bankers confirming availability of the funds set out in the bid.

He says they only provided reference letters from their bankers.

West Kenya also failed to disclose a conflict of interest in its bid documents despite having factories 36 kilometres east and 35 kilometres northwest of the company and harvesting 50 per cent of the sugarcane in the Mumias Sugar area.

The company, once operational, will be competing with West Kenya for sugarcane and other resources, with the receiver manager casting doubt on whether full attention will be given into the revival of Mumias.

The receiver manager has also noted what he terms “dominance and monopolistic tendencies of West Kenya and the Rai family that owns it in the sugar industry in Western Kenya region and in the country generally.”

FINANCIAL STRAIN

Financial struggles at West Kenya have also come to haunt its bid to take over operations of Mumias in the revival plan.

According to the receiver manager, the company did not demonstrate how it would pay Sh 150 million per month (Sh1.8 billion per year).

He notes that West Kenya made losses in 2018 and 2019 and a profit of Sh491,246,316 in 2020.

This profit was achieved after crushing 1,464,241 tonnes of sugarcane. It would therefore require them to crush 5,373,134 tonnes of sugarcane per annum to raise the lease rent of Ksh1.8 billion that they offered.

This is difficult to achieve as the company can only crush 2,920,000 tonnes of cane per year when operating optimally.

“Based on these facts and observations, West Kenya’s bid was anomalous and the only logical  conclusion – all factors considered – is that awarding the lease to West Kenya would not have  facilitated the intended result of the leasing process which was to revive and keep the company (Mumias) operational,” the receiver manager says.

It would not have preserved the value of the assets for the benefit of all creditors and in the public interest, he adds.

The bidder must have not had any conflict of interest which may incentivise the bidder to avoid optimally operationalising the plant, be able to pay the rental fee for the period of the lease, and have the capacity and experience to operate the assets.

He must also benefit stakeholders of Mumias which are local residents, the employees, service providers and farmers.

“Considering all the above, there is proper basis to conclude that West Kenya’s bid was a spoiler bid intended to gain access to a competitor and possibly harm it,” the receiver manager says in the court papers.

RAO in December tapped Uganda based conglomerate–Sarrai Group to run the ailing miller for 20 years.

Sarrai Group, which is associated with Kenyan businessman Sarbi Singh Rai, placed the third-highest bid of Sh11.5 billion in the lease battle that attracted businessman Julius Mwale, who placed the highest bid of Sh27.6 billion.

West Kenya Sugar owners had offered Sh3.5 billion while steel tycoon Narendra Raval had placed a bid of Sh8.4 billion in a contest that attracted eight bidders.

Sarrai Group is big in agro-manufacturing operations in Uganda, Kenya and Malawi.

In the sugar sector, its track record includes 20,000 hectares of its own nucleus estates in Uganda, with a sugar production that includes Kinyara Sugar, Hoima Sugar, and Kiryandongo Sugar with a total installed capacity of 19,000 tonnes crushed per day, producing over 170,000 tonnes of sugar per annum.