State-run sugar mills earmarked for privatisation will wait a little longer for new capital injection after it emerged that the planned invitation of bids from potential strategic investors would be delayed for at least a month.

A blueprint released in January by the Agriculture ministry to guide the privatisation process of Miwani, Chemelil, Nzoia, Sony and Muhoroni sugar factories had indicated that investors would be invited to place bids by the end of February and contracts signed with the successful parties by June.

In the sale plan, strategic investors are to be handed a 51 per cent stake while growers would be reserved a 30 per cent shareholding.

The remaining 19 per cent stake will be off-loaded through an initial public offer (IPO) at the Nairobi Stock Exchange (NSE) once the millers have been turned-around.

But even as the February deadline set by Agriculture minister William Ruto lapsed, no calls for bids had been made prompting concerns among deal makers that the development could interfere with the valuation and capital inflows into the targeted five millers.

"It is getting serious because the investors are likely to give lower offers because of the shortened time frame within which they would be required to turn around the firms by the time the market is fully liberalised," an official involved in the planned sale said "A rushed process may send wrong signals to investors who may in turn become cautious,"

Projections by the Kenya Sugar Board (KSB) indicated that the country could tap Sh55 billion in new capital inflows from privatisation of sugar firms ahead of the 2012, opening of the domestic market to foreign producers, citing the high level of investment that is needed to make local millers competitive.

Detailed proposals on the sale process were handed over to Treasury in December by the Privatisation Commission of Kenya and the transaction advisors, Ernst and Young.

Mr Ruto on Tuesday confirmed that the invitation of bids from strategic investors would be delayed for at least a month "because of a little intricacies in the process".

He told Business Daily by phone: "We are slightly behind schedule by a couple of weeks or so but we hope to present the papers to Cabinet any time now. The announcement of calls for the bids will come at least a month later once the process through Cabinet are complete," ]

An assessment mission from Comesa that visited the country in September last year, pointed out that delays in the privatisation calendar could cause major knocks to the country's sugar industry.

"The Privatisation Commission's time lines for privatisation of the publicly owned mills does not appear to take account of the time frame for the expiry of the safeguard," the mission ruled in a report.

The minister however maintained optimism that the sale process would still be completed on time to allow for reforms that would ensure local millers are competitive by 2012.

"All is not lost and we still have an opportunity to recover for the lost time," Mr Ruto said.

Though the minister declined to explain the "intricacies" facing the sale process, sources at Treasury pointed out that concerns over the authenticity of some of the debts recommended for write-off by government were to blame.

Most of the debts are said to have ended up in private coffers---making it difficult for Treasury to justify such write-off plans before Parliament.

Key recommendations

According to a deal reached with the Common Market for Eastern and Southern Africa (Comesa) in December 2007, for a four-year extension of special safeguards against duty-free imports, Kenya is expected to fully liberalise its sugar market by 2012.

Key among the recommendations that followed the deal was that the quota covered under the Comesa safeguard be enlarged gradually starting March 2008, and the tariff applied each successive year until 2012.

This meant that starting 2008, the safeguard quota of 220,000 tonnes has been increased by 40,000 tonnes every year and is scheduled to be cleared off by 2012.

On the other hand, the tariff charged above the safeguard quota has also been successively reduced by 30 percentage points starting March 2008 before being phased out by the end of the four years.

Apart from the tariff/quota arrangement, Comesa also requires that the Government adopts a privatisation plan for the sugar industry and grants approval for privatisation of publicly owned sugar millers within the first 24 months of the safeguard extension.

A shift to a sucrose content-based payment system was also one of the conditions set to Kenya.

"Research on high sucrose and early maturing cane varieties should continue and the KSB should fund the Kenya Research Foundation adequately and should also spearhead the adaptation and application of research findings by cane growers.

"The sugar industry changes the cane pricing formula from one based on cane tonnage to one based on sucrose content of the cane delivered," a ruling granting Kenya the further four-year moratorium reads.

The Comesa secretariat further demands that the government adopts an energy policy aimed at promoting co-generation and other forms of biofuel energy production that would contribute to making the sugar sector more competitive.