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Auditor: Taxpayers could lose Sh20bn sugar, coffee mills bailout cash

Auditor General Nancy Gathungu says monies not secured, casts doubt on recoverability

In Summary

•Last October, President William Ruto’s administration approved Sh117 billion to bail out the struggling firms.

•Gathungu has further flagged a possible loss of Sh3.7 billion in loans to farmers and sugar-related saccos.

A tractor transporting sugarcane
A tractor transporting sugarcane
Image: FILE

Sugar factories and coffee mills may have sunk more than Sh20 billion injected in their operations by the government in bailouts over the years.

Auditor General Nancy Gathungu, in a new report, says the amounts disbursed from the Commodities Fund have no collateral.

“An analysis of the coffee and sugar loan records revealed that loans totalling Sh19 billion had no security,” she says in a review of the fund’s books as of June 30 last year.

Gathungu says some Sh311.7 million loans “had securities which are less than the outstanding loan balances”.

The audit casts a spotlight on the sorry situation of the state-owned sugar and coffee mills despite getting a shot in the arm in hefty bailouts over the years.

Last year, President William Ruto’s administration approved Sh117 billion to bail out the struggling firms, some of which were to be leased out.

In a meeting at Kisumu State Lodge, the Cabinet directed the National Treasury to do the paperwork for the bailout.

The money was to benefit South Nyanza Sugar, Nzoia Sugar, Muhoroni, Chemelil, Miwani and Mumias Sugar companies.

President Uhuru Kenyatta’s regime also extended hefty bailouts to the sugar factories.

Apart from the troubles with cash spent on the factories, Gathungu has flagged a possible loss of Sh3.7 billion in loans to farmers and sugar-related saccos.

The loans are due from three saccos namely, Kisumu Sugar Belt Cooperative Union, Muhoroni Multipurpose Cooperative Union and Muhoroni Sugar Company – which has the bulk share of Sh3.4 billion.

Gathungu questions why the two farmers' unions were not servicing their loans yet they are in operation and are actively involved with farmers.

“They have been defaulting on loans repayment to their respective unions which in turn has caused the unions to default on the Fund’s loans,” she says.

At the time of the audit verification, Muhoroni Sugar was milling ‘yet no efforts have been made on remitting the amounts owed to the Fund’.

The company is also on the spot for allegedly recovering Sh3 million from farmers and not remitting the same to the Commodities Fund.

The audit says the company collected the cash on behalf of Muhoroni Multipurpose Cooperative Union for onward transmission to the fund.

“It was not clear why these loan recoveries were not remitted immediately they were recovered. The union has been sending several reminders on the same without any responses from the factory management,” Gathungu says.

In what could worsen recovery efforts, the Auditor General says most of the outstanding loans were given as social grants with no securities.

“As such, recovery of these loans by the out-grower companies from the farmers has become almost impossible over the years,” she says.

Gathungu, while taking issue with political pronouncements, says the declaration by the government that the loans have been written off has worsened recovery efforts.

“In the circumstances, the accuracy, completeness, existence and recoverability of the gross loans and advances of Sh20.9 billion could not be confirmed,” she says.

Farmers have been capitalising on political utterances – most recently by the Kenya Kwanza administration – to evade repaying loans.

“They refuse to pay or find ways of evading loan recoveries by delivering cane to other milling factories that have no loan commitments with them,” Gathungu says.

The Fund’s managers are also on the spot for investing Sh1.8 billion surplus funds in local commercial banks without the approval of the National Treasury.

In March 2018, the exchequer through a circular directed all state corporations to invest surplus funds in treasury bills or treasury bonds directly through Central Bank of Kenya without intermediaries.

“In the circumstances, the management was in breach of the law,” Gathungu says.

She says there is uncertainty with recovering some Sh6.3 billion outstanding loans to sugar, coffee and coconut sectors.

“The loans totaling Sh6,289,008,765 have been outstanding for long. The recoverability of the amount could not be confirmed,” Gathungu says.

Records show that Nzoia, Chemilil, Muhoroni, Miwani, and Sony have been granted a write off of Sh13.1 billion, albeit the figure by the Treasury differs from that held by the fund.

Gathungu has flagged the Sh832 million variance from the amounts approved by the Treasury and the amounts as per the commodities fund’s records.

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