2 November 2008
Nairobi — With only three years left before the protection that the Kenya sugar industry enjoys on imports from Comesa countries expires, the Ministry of Agriculture is proposing a multibillion shilling rescue package entailing massive loans write-offs and fresh injections of hundreds of millions in the ailing state-owned sugar factories.
The details are contained in a confidential Cabinet paper set to be tabled this month. Included in the bailout plan are Chemelil, Sony Sugar, Nzoia, Miwani, Busia, Muhoroni, and spirits manufacturer Agro Chemical and Food Company.
The draft Cabinet paper presents the most candid account so far of how low the sugar industry in Kenya has sunk in terms of indebtedness and financial distress.
According to the document, literally all the six state-owned sugar companies are insolvent -- with their liabilities far in excess of their assets.
The largest, Nzoia, had as at December 2007, a debt portfolio of Ksh26.6 billion ($332.5 million) against an asset base of Ksh9 billion ($112.5 million).
Of the total debt, Ksh22 billion ($275 million) is owed to the government, mainly loans and arrears to statutory bodies. The Sugar Development Levy alone is owed a massive Ksh2.5 billion ($31.25 million).
Cabinet approval is being sought to have Ksh17.7 billion ($221.2 million) of the debt be written off by the shareholders of the company in proportion to their shareholding, with the government assuming Ksh17 billion ($212.5 million), Fives Cail Babcock Ksh20 million ($250,000) and the Industrial Development Bank Ksh16 million ($200,000).
It is also proposed that the Ksh2.5 billion ($31.25 million) loan owed to the Kenya Sugar Board be taken over by the government.
Then there is the South Nyanza Sugar Company, which by December last year had a total debt portfolio of Ksh3 billion ($37.5 million) -- of which Ksh2.3 billion ($28.75 million) is non performing -- against an asset base of Ksh3.3 billion ($41.25 million).
It owes the Sugar Development Levy Ksh1.3 billion ($16.25 million) in loans and levy arrears.
Cabinet approval is being sought for the company's debts be converted into equity in proportion to their shareholding as follows: Government of Kenya, Ksh1 billion ($12.5 million), and the Mehta Group, Ksh100 million ($1.25 million).
It is also proposed that the Ksh1.3 billion ($16.25 million) owed to the Sugar Development Levy be taken over by the government and written off; and that the company be privatised to a company with the capacity to support a Ksh7.3 billion ($91.25 million) modernisation project.
Miwani Sugar Company Ltd (in receivership) has estimated liabilities that amounted to Ksh9.5 billion ($118.75 million) compared with an asset base of Ksh2.01 billion ($26.25 million) by September 2007. Of the total debt, Ksh6.2 billion ($77.5 million) is owed to the government in loans and taxes.
The Cabinet is to be asked to allow sale of the assets of the company through competitive bidding.
The defunct Busia Sugar Factory is also on the list of financially distressed sugar company. Although the factory is yet to be rebuilt, the company owes the Sugar Development Levy Ksh375 million ($4.69 million).
The shareholding of the company currently stands at 33 per cent for the government and 67 per cent for a private entity by the name Reliant Holdings Ltd. The net value of standing cane is Ksh15 million ($187,500)over the next three years.
The main problem with the project is its inability to attract funding to put up a mill. Cabinet approval is sought to have the company privatised through liquidation.
At the start of December 31, 2007, the estimated liabilities of Muhoroni Sugar Company Ltd stood at Ksh10 billion ($125 million) against an asset base of Ksh3 billion ($37.5 million). Alcohol manufacturer Agro Chemical and Food Company Ltd (ACFC) is also on the list of distressed state-controlled companies in the sugar industry.
Kenya is a member of the Comesa Free Trade Area and has signed an arrangement that allows duty and quota-free access of commodities including sugar from within the trading bloc.
Last year, Kenya secured a four-year safeguard period to allow its sugar industry time to restructure and attain competitiveness.
The safeguard period will lapse in February 2012, hence the urgent need to restructure the government-owned sugar firms.
Whether there will be enough political support for the proposals to win Cabinet approval remains to be seen. Proponents of the proposals say that it should not be difficult considering that President Mwai Kibaki's administration has agreed to other state-led rescue plans including the Kenya Co-operative Creameries, the Kenya Meat Commission, and Uchumi Supermarkets.
As at December 31, the estimated liabilities of the company stood at Ksh10 billion ($125 million) against an asset base of Ksh3 billion ($37.5 million).
Of the total debts, Ksh6.9 billion ($86.25 million) is owed to the government. According to the memorandum, ACFC has a weak balance sheet with negative reserves out of huge interest charges on expensive foreign loans.
Although the company is insolvent, the receiver managers have been able to continue with operations, although efficiency has remained low due to aged equipment and poor maintenance.
Be the first to Write a Comment!
Copyright © 2008 The East African. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
