Business Daily (Nairobi)
Cosmas Butunyi
27 October 2009
Huge debts and a raft of legal tussles threaten to delay efforts to privatise sugar factories in western Kenya.
A report by Ernst & Young, consultants appointed by the Kenya Privatisation Commission to act as transaction advisers, says the mills are embroiled in many court battles involving land disputes and ownership besides being weighed down by debts.
The consultants estimate that the millers' joint debt owed mainly to the government, Kenya Sugar Board, and other creditors is about Sh38 billion.
Miwani Sugar Company that is under receivership is engaged in a drawn-out legal war with Crossley Holdings over land.
Land belonging to the miller was allegedly obtained by the firm but the receiver managers challenged a court order to that effect and was granted a stay.
However Crossley Holdings appealed against the decision and the matter is yet to be determined.
"The receivers and lawyers should ensure that the appeal is heard urgently for the transaction to be disposed of," the consultants said in a draft report on due diligence that was presented at a stakeholders' workshop in Kisumu last weekend.
Chemelil Sugar Company is facing the challenge over its land given out for construction of schools, churches, and other social amenities.
Thanks to this state of affairs, a section of land belonging to the miller has been encroached on by squatters.
This could become a bottleneck in the privatisation since interested buyers would want a clear definition of the land under the firm.
About this, the consultants want the management and the local authority to work out the amount of land owned by the factory.
Nzoia Sugar Company, the report says, lacks title deeds for land it was allocated in the mid 1980s when it was set up, and are still using allotment letters.
Recent attempts to correct the anomaly was impeded by demands for huge rates and penalties that have accumulated over time.
The consultants have proposed that the Privatisation Commission obtain a waiver on these accumulated rates for a smooth process.
Apart from these, the Commission has recommended that lawsuits involving other creditors be determined to ascertain liabilities and a settlement formula worked out.
It has been recommended that the debts owed to the government be turned into shares but what is not supported by assets be written off.
Agriculture Minister William Ruto said that the government intended to write off debts to the tune of Sh20 billion.
Ernst & Young propose that three giant factories be formed in the Nyando, Nzoia and Sony sugar belts.
In the Nyando sugar zone, this would see Muhoroni, Miwani and Chemelil merged into one large firm.
This would, however, be preceded by sale of their individual assets to the giant company and the proceeds channelled towards settling the debts.
But the proposal has generated stiff opposition from a section of farmers and leaders from Nyando Sugar Belt.
There are concerns about the privatisation process thanks to the outcome of the court cases.
"Is it wise to risk a whole process by tying it to an event that we have no control over?" Mr Ruto asked the consultants during the workshop.
However, the consultants said that the outcome of the case would not stop the transactions.
The Privatisation Commission CEO, Solomon Kitungu, assured workers in the sugar factories that the process would not result in job cuts.
"Privatisation will enhance productivity and create more jobs in future," Mr Kitungu said.
He noted that if the firms are overstaffed, this had to be addressed, with or without privatisation.
"A detailed plan on how to deal with staff will be included in the proposal to the Cabinet," he stated.
The draft report is set to be presented to the Cabinet before it is taken to the Parliamentary Committee on Agriculture.
According to Mr Ruto, the process was 10 years behind schedule and urged it was necessary to not only meet the deadline for the Common Market for Eastern and Southern Africa (Comesa) safeguards but also make sugarcane growing profitable to farmers.
Finance Minister Uhuru Kenyatta, in a speech read on his behalf by his assistant, Dr Oburu Oginga, said Kenya had no option but to prepare for the expiry of the safeguards since an extension was not possible.
Mr Kenyatta argued that the deadline could not be extended beyond 10 years according to provisions of COMESA and the World Trade Organisation.
"It is imperative that the measures should be implemented to rejuvenate and modernize the sector in order to make it more competitive," he said.
He noted that most sugar factories were limited in product range due to restricted capabilities, profitability and future sustainability of new products.
The Finance Minister said that the privatization of the firms was part of the government's plan to revitalize agricultural production in the country as enshrined in the first medium term plan of the 2008-2012 government plan.
Mr Kenyatta said that this would ensure that farmers got better returns on their crops.
The consultants report states that in the next three years after the millers' privatisation, there will be an initial public offering.
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