21 October 2009

Kenya: Rescue Plan Needed


More than eight months since Pan African Paper Mills closed shop under the weight of debts there are little signs that it will roar back to life any time soon.

While the Cabinet passed a resolution way back in March to reopen the paper mill, little headway has been made amid talk of differences between the government and receivers appointed by the short-term lenders on the rescue plan.

So far, the lenders have been keen to sell the firm's assets to third parties to recover their money while the government has been working hard to draft a rescue package that will sidestep the lenders and have their debts cleared once the firm is up and running.

But as the two principals continue to pull in different ways, the economy of the once vibrant Webuye Town is teetering on the brink of collapse.

Close to 1,500 permanent employees, 30,000 casual labourers and a raft of auxiliary businesses have no source of livelihood, taking away the much needed purchasing power that had been the engine of this Western Kenya town.

Crime is now setting in as a way of life for the thousands of idle youth.

This spectre of hopelessness must not be allowed to take shape at a time when Kenya's underperforming economy is delivering layoffs, curb in fresh hiring and widening wealth inequality among its citizens.

What the country badly needs is for employers' to get back to hiring once again, and firms such as Pan Paper have a role to play in this noble agenda.

Therefore, we urge the government and the receivers to work together on the firm's rescue plan since the economic wellbeing of the country is at stake.

The company did not close shop due to a subdued paper market but through mismanagement as attested by the vibrancy of smaller paper manufacturers such as Chandaria Industries and Thika-based Kenpaper.

This is a clear pointer that the business is still viable with change of management and debt restructuring, making case for closer partnership between the government and the short term lenders rather than working at cross purposes.

This framework is not fresh in the rescue of distressed firms in corporate Kenya: it worked successfully in the revival of Uchumi Supermarkets after near collapse in 2006.

The supermarket chain was declared insolvent for being unable to clear debts of close to Sh2 billion owed to bankers-- PTA Bank and Kenya Commercial Bank--and a host suppliers.

But a government led rescue plan supported by the creditors has seen Uchumi turn the corner to post profits and clear a huge chunk of the debts.

This has been a winner for shareholders, employees, shoppers and the creditors of the retail chain, and Pan Paper creditors and the government must borrow a leaf and adopt this united front in crafting a speedy rescue plan for the paper maker.

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