Mumias Sugar: Dashed dreams, court battles and delayed revival

Dan Lwanga, a 54 year old cane farmer in Matungu misses the good old  days when his family used to holiday at the coastal beaches after receiving sugarcane dues.

''That envelope from Mumias Outgrowers Company was life to our family. It meant food, school fees and once in a while, a three-day holiday to a coastal beach," Lwanga ,who now grows maize on half of the family land told the Star during a recent visit.

Leaning on a wall of his worn-out four bedroom house, one of the first permanent structures in the village, the father of five recalls with nostalgia how his deceased wife could start packing in September for a holiday in December.

''Our souls were tied to Mumias and it's slow collapse that first manifested after 2007 general election gutted us. It completely drained us,'' Lwanga says, fighting back tears.

He inherited the sugarcane farming business from his father who was among first members of the Outgrowers company

His neighbour, Jacob Mumia now relies on proceeds from his two posho mills and a shop for survival.

According to him, the collapse of Mumias Sugar will have an impact on two generations to come in the absence of clear revival plans.

"Most people who depended on this company are either dead or depressed. Our lives were tied to its existence. I hope it is revived someday," Mumia who still practices small scale sugarcane farming says.

Lwanga and Mumia's stories represent those of hundreds of farmers who relied on the once biggest sugar firm in Eastern Africa, controlling 50 per cent of Kenya's market.

In its heyday, the miller would crush up to 7,000 tonnes of cane per day, producing at least 250,000 metric tonnes of sugar annually.

It had 4,494.8 hectares of nucleus under sugarcane, as well as additional cane from contracted farmers.

The collapse

Famers who talked to the Star said they noticed a change at the firm after 2007 general elections.

"We started experiencing delays in payment, logistical challenges and other red flags that resulted in the collapse of the Outgrowers, the main cane supplier to the company,” a farmer explained.

This affected supply at Mumias forcing it to go under after defaulting loans from creditors,  huge power bills, and tax arrears.

In September 2019, KCB Group which was owed in excess of Sh500 million was forced to appoint an administrator in a bid to recover the money.

Apart from KCB’s Sh545 million, Mumias  owes Ecobank Kenya Sh2 billion, Proparco (Sh1.90 billion), which financed the construction of the power plant at Mumias and Commercial Bank of Africa (Sh401 million).

In a report prepared by the receiver-manager dated June 4, 2021, the receiver manager Pongangipalli Venkata Ramana Rao stated that Mumias Sugar has an asset base of Sh15.7 billion and liabilities valued at Sh30.1billion.

The net assets or owners’ equity stood at negative Sh14.4 billion, which implies that the company could not meet its short-term and long-term financial obligations and therefore insolvent.

The firm which was listed at the Nairobi Securities Exchange (NSE) in 2001 reported a net loss of Sh15.10 billion in the financial year 2018/19, against the previous year’s loss of Sh6.80 billion.

This, despite the company receiving a bailout of Sh3.70 billion from the national government.

Revival attempts

The government, which owns a 20 per cent stake in Mumias has been pumping cash into the facility since 2016, hoping to stabilise it.

By 2018, Deputy President William Ruto revealed that the Jubilee administration had pumped Sh3.5 billion in the sugar company, which had unfortunately been consumed, with no improvement in its earnings or capital position.

“To date, the government has given close to Sh4 billion to Mumias towards the bailout programme. But there is nothing to show for it," a local paper quoted Ruto while on a tour of Kakamega county.

Lease bid and court cases

In August last year, Mumias  administrator was forced to re-advertise a lease deal for the Sh15 billion assets of the debt-ridden sugar firm.

He yielded to pressure from stakeholders, including sugarcane farmers and politicians from western Kenya, who demanded a publicly run bidding exercise, opposing a Sh5 billion private bid by Devki Group.

A repeat bid saw the deal awarded to Sarrai Group which ticked all the right most boxes in the technical stage.

According to the administrator, Sarrai was awarded 58.4 points, Kibos (52 points) and Pandhal (34.4 per cent).

He reckons that Sarrai emerged top among the three firms that made it past the technical valuation stage, adding that its experience in running three sugar plants in Uganda with a crushing capacity of 19,000 tones daily, power and ethanol plant made it stand out.

West Kenya was locked out at the technical stage for fear that offering it Mumias would cement its dominance of the sugar market and breach the competition law.

It's stable includes West Kenya, Sukari Industries and Olepito.

The administrator said that it would have controlled 41.95 per cent of Kenya’s cane crushing capacity.

Kibos had a bid of Sh5.9 billion, Pandhal (Sh7.7 billion) and Sarrai (Sh6.1 billion).

The award of the bid to Sarrai did not sit down well with other bidders, especially West Kenya, leading to a dozen cases in court.

The firm holds that it had the biggest bid worth Sh36 billion to lease those assets for 20 years.

However, the administrator says West Sugar's bid failed at the technical stage hence there was no need to look at the offer.

The court has since placed orders restraining Sarrai from implementing the deal, a move likely to delay the reorganisation of the company.

Last week, the National Treasury spoke against the multiple cases touching on the lease, terming them injurious to the revival of the once sugar giant.

The Exchequer moved to court to oppose West Kenya’s bid for lease of Mumias, terming the push by its billionaire owner Jaswant Rai as a ploy to derail the revival of the ailing miller to protect his factories.

The Treasury backed the position of the receiver-manager, who shepherded the lease process and defended the award of the deal to Sarrai.

"West Sugar is already a dominant player in the county's sugar market. It could be in this to guard control akin to misuse of monopoly," Treasury said in court papers.

Sarrai Group says it is ready to start revival plans once it gets the green light from court.

For instance, the firm expects to spend about Sh1.14 billion within the first six months of  lease signing before it can power the machinery again.

"Our turnaround team is working with a schedule to resume operations at what was Kenya’s largest sugar manufacturer within the next 6 – 8 months," Sarrai said in a statement.

It added that they remain steadfast in their commitment to roar the sugar firm back to life.

This assurance is good news to millions who depended on the sugar firm both directly and indirectly, including Lwanga and Mumia who hope that their grandchildren will one day enjoy the fruits of sugar farming.

(Edited by Francis Wadegu)