Kenya: Anatomy of a Sugar Giant Brought Down By Plunder

6 October 2019

Mumias Sugar Company has been a playground of brokers and charlatans. It was just a matter of time before it was put under receivership by someone it owed money.

Had the government not been pumping billions of shillings into this sickly monolith, chances are that it would have collapsed several years back. Now, its assets are up for grabs and Mumias has a painful legacy.

POORLY CRAFTED

Mumias used to make profits by the grace of God -- because it was a poorly crafted project. In 1996, its financials indicated that it made a net profit of Sh6.3 billion. Then two years later, things had gone so wrong that the company was issuing bouncing cheques to farmers and suppliers.

But trouble had started earlier when a modernisation project that was expected to improve this factory's milling capacity -- and championed by its then chairman, the late George Saitoti -- became a conduit to fleece the company.

Parliament was told that Prof Saitoti had awarded an exclusive contract to British firm Fletcher and Smith to supply spare parts to the company. The local agent for this company was Joseph Schwartzman's H.Young, an Israeli engineering firm that counted on then powerful Cabinet minister Nicholas Biwott to win lucrative tenders. Its other local director was Schwartzman's wife Hannah.

"That is when theft started at the company," said Wycliffe Osundwa, then Mumias MP. But the matter was much deeper than that. H. Young had, in the early 1990s, won the $33 million (Sh3.4 billion in current conversion rate) Mumias Rationalisation Project deal to install a 7,500 tonnes of cane per day diffuser. It was a joint venture with Fletcher Smith Ltd UK, and South Africa's sugar giant Tongatt Hulett.

But that is the tail-end of the story.

SCANDAL-RIDDEN

What Mumias farmers had never been told was that the entire factory -- plus the later expansions in 1990 -- was designed by Fletcher and Stewart, and that the firm had patented the designs, which meant that the spare parts would exclusively be purchased from it, the price notwithstanding.

How did we get here?

Two years after independence, the Jomo Kenyatta government had decided to find a cash crop for western Kenya and asked British company Bookers Agricultural and Technical Services Ltd to undertake a pilot scheme to establish the viability of a sugar project. When you look back, this was a scandal-ridden undertaking.

This was largely a political undertaking and, by 1970, a final feasibility report was released after five years of study.

Mumias Sugar Company was set up in June 1971 with the government holding a majority share (69 per cent). The other shareholders were Commonwealth Development Corporation (12 per cent), Kenya Commercial Finance (9 per cent), East African Development Bank (5 per cent) and Booker McConnell (5 per cent).

BLAME GAME

What Kenyans were never told was that the company that did the feasibility study was a subsidiary of the company that designed the factory (Fletcher and Stewart) and also a subsidiary of Booker McConnell, the company that was later to get the management contract. In essence, the company that was asked to undertake a study on the viability of Mumias had an interest in getting other tenders. That is how Mumias was mooted, and we can thank the British Government's Overseas Development Corporation and others for financing that mischief.

The first problem encountered by the government was how to grow cane in smallholdings of 10 acres and whether to organise the new cane farmers into co-operatives. The coffee farmers in Central Kenya had been organised into co-operatives, an experiment that was still being watched by the ministries of agriculture and co-operatives.

After the failure of co-operatives in Chemelil Sugar, the first experiment on smallholder sugar production in Kenya, a war of words started in 1971 between Cabinet ministers Jeremiah Nyaga of Agriculture and Masinde Muliro of Co-operatives over how to organise the cane farmers. The ensuing blame game informed the future of cane farming in the country.

BLUEPRINT

On February 1, 1972, at Rhodes House in Nairobi's Kenyatta Avenue, a draft was placed before the under-secretaries of the treasury, agriculture and co-operatives ministries and that is what became the blueprint for the sugar industry. The meeting approved the formation of Mumias Outgrowers Organisation Limited, whose aim was create a buffer between the farmers and Mumias Sugar Company. In a letter to the Ministry of Agriculture, Bookers' project manager M.N. Lucie-Smith lamented that the freehold landowners needed "a great deal of indoctrination" to accept co-operatives.

The Treasury, then under Mwai Kibaki, started pushing for an outgrowers' organisation, rather than a co-operative. But the people who were to implement the project were busy fighting. In a protest letter he wrote to the Permanent Secretary for Agriculture Joe Kibe, the Commissioner of Co-operatives, a Mr Muthama, dismissed the outgrowers organisation as nothing new.

"In our view, this type of organisation is not a new innovation (sic), as it has been tried in Muhoroni Sugar Settlement without success ... the proposed outgrower organisation will be viewed by the local people to be investors or at best government tool rather than outgrowers representative ... I doubt if those people who propose it intend it to be (an outgrowers' representative)."

TECHNOCRATS

Another co-operatives technocrat, J. Laban Murungi, then an assistant commissioner, wrote to Mr Muthama cautioning against pushing for an outgrowers organisation "which will never work" and suggesting that the funds be used to set up a strong co-operative.

Amid the chaos, Mumias was founded even as Mr Muthama on March 23, 1973 dismissed the outgrowers' proposal as an "ineffective and expensive temporary palliative."

He might have been right.

Eight months before, in July 1972, it had been agreed by technocrats that Mumias Outgrowers Company (Moco) would be formed owned by the government, outgrowers and Mumias Sugar Company Limited. Later in 1975, Moco was formed and took over the responsibility of providing credit to all contracted outgrowers -- to represent the interests of the outgrowers with Mumias Sugar Company, the government and other outside bodies, and to negotiate on behalf of farmers. But soon it went rogue and would make fraudulent deductions from farmers' earnings by overcharging services such as land preparation, survey, provision of seeds, fertiliser, harvesting and transport. The government would also second the local district commissioner as an official of the outgrowers company -- and at some point, the chairman.

SHELL COMPANY

This happened under the watchful eyes of Booker, the management firm, to an extent that Kimilili MP Mukhisa Kituyi in 1998 accused Booker Tate of "running down Mumias Sugar Company, so that they can buy a shell company."

"Ms Booker Tate have an interest in destroying Mumias Sugar so that they buy it at a throwaway price. How can the government continue being a slave to an illegal authorisation (where) a subsidiary company wholly owned by Booker McConnell and Tate Lion has been given an open contract to make supplies to Mumias Sugar to the tune of Sh750 million every year? We are bleeding the farmers, bankrupting them," he said.

The other problem was cane supply. From the very beginning, and in order to have a constant supply of cane, it was decided that Mumias would need its own nucleus estate of about 8,000 acres, and the outgrowers would manage the balance of 20,000 acres within a 12-kilometre radius of the factory. Outside that, the cane-growing would not be profitable, thanks to huge transport costs. It was left to the British firm to manage the farmers -- the way it did in Guyana.

POLICY FAILURE

The Overseas Development Institute had by 1974 hailed Mumias as a "resounding success," but the farmers had a different story. Mumias Sugar had thought that the programme of cultivation that mimicked a large plantation would be followed by smallholder farmers. They were wrong. and that is how the challenge of mechanising cane farming developed.

Mumias is by far the largest miller in Kenya, with about 66,000 registered outgrowers. But by the time it went under, it was only doing less than 20 per cent of its capacity due to a biting cane shortage.

How a company that was supposed to produce about 50 per cent of the domestic sugar output could book losses running into billions of shillings is the sad tale of mismanagement, wanton theft and policy failure. If you want to know the story of Mumias, look at the fortunes of its past managers, directors and their associates in both procurement and distribution.

RECURRING LOSSES

On June 30, 2003, the Booker Tate management contract with Mumias ended and they advertised for the position of a managing director. The recruitment was done by PricewaterhouseCoopers. They picked Evans Kidero as the new boss. The less said about Dr Kidero and Mumias, the better.

In 2008, the giant Mumias Outgrowers Company collapsed, leaving the farmers with no voice at the factory level.

What was foreseen as far back as 1971, even before farmers were enticed to grow cane, has come back to haunt the Mumias cane growers.

Sugar consultant Mr B.J. Warnes had warned that "without collective discipline, the cane supply will be sporadic: Either too little, resulting in idle time at the mill and therefore high production costs, or too much (where) the mill will not be able to handle it (leading to) cane spoils, high costs and recurring losses."

PAINFUL LEGACY

To deal with this problem, the expert suggested that an organisation be formed that can have "dictatorial" powers to enforce discipline on the more than 3,000 outgrowers, which he warned would be a "highly sophisticated, technical and political operation."

KCB and its receiver managers might not turn around this enterprise. The best they can do is bring the lie to an end and allow private entities to run the show. Mumias has squandered a lot of our money, and has a painful legacy.

See What Everyone is Watching

More From: Nation

Don't Miss

AllAfrica publishes around 700 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.