5 December 2017

Kenya: Ownership Dispute Delays Kenya Sugar Millers' Sale

The Kenya government plans to sell five indebted state-owned sugar millers to strategic investors to boost production have come unstuck following a prolonged dispute over who between the county and national governments should control a 25 per cent stake in the firms.

The dispute has seen the government successively lobby the Common Market for Eastern Africa (Comesa) for a one-year extension of safeguards -- ending February 2019 -- to ensure the local market is not swamped by cheap sugar from the region.

Through the Comesa safeguards, Kenya has in the past 14 years enjoyed protection through quotas on duty-free sugar imports from countries like Egypt, Malawi, Swaziland and Zimbabwe, which ended in 2016.

In October of the same year, the country obtained another two-year moratorium -- to expire in February 2018 -- during which it is expected to turn around the fortunes of its sugar industry. And with this expiring in two months time, the moratorium has been extended to 2019.


Kenya is expected to fast-track the privatisation of the five ailing sugar millers -- Nzoia, Sony, Miwani, Chemilil and Muhoroni -- to improve the industry's competitiveness and end reliance on the Comesa safeguards.

But wrangles over ownership of the assets between the county governments and national government have stalled the process despite approval by parliament in April 2015.

"We had started this process of privatisation but it was stopped on grounds that there was not enough the consultation on the ownership of the millers," said Henry Obwocha, chairman of the Privatisation Commission.

Under the privatisation deal, 51 per cent of the shares of each of the five millers is to be sold to strategic investors; a 24 per cent shareholding reserved for cane farmers and employees of these firms, while 25 per cent has been allocated to the national government.

However, county governments now argue that since agriculture is a devolved function as per the constitution, sugar production should be left to the counties and that the national government should surrender the 25 per cent of the shares it has been allocated.

"The dispute is about the 25 per cent stake which is temporarily a preserve of the national government," said Jacqueline Muindi, the commission's acting chief executive.


Though the matter had been before the court, it was ruled on November 10, 2017 that the two levels of government resolve their dispute through the intergovernmental dispute resolution mechanism within the ambit of the Intergovernmental Budget and Economic Council (IBEC).

IBEC brings together representatives from the national and county governments, and the privatisation commission.

The Privatisation Commission said it has written to the Council of Governors inviting the county chiefs for talks to resolve the issue, but is yet to receive feedback.

Agriculture Principal Secretary Richard Lesiyampe and Josphat Nanok, the chairman of the Council of Governors, were not available for comment.

The EastAfrican has learnt that the government is planning to reduce the valuation of the millers under auction by Ksh16 billion ($160 million) to attract buyers for the 51 per cent shares in the firms.

The amount consists of the debts that the millers owe the revenue authority, financial institutions and the defunct Kenya Sugar Board in the form of interest, taxes, penalties and levies.


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