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National Treasury is seeking the approval of Parliament to write off loans and tax penalties worth Sh117.64 billion accrued by five sugar companies in its bid to revive the industry. Cabinet secretary Njuguna Ndung’u in a memorandum to Parliament said the move is in line with the Cabinet decision to have the loans done away with.

The five sugar industries are Nzoia, Chemelil, Miwani and Muhoroni currently under receivership and South Nyanza Sugar Company.

Of the Sh117.64 billion, Sh65.77 billion relates to loans owed by the five mills to government and Kenya Sugar Board /commodities fund, Sh50.144 billion relates to tax penalties and interests as at June 30 this year while Sh1.71 billion relates to balances owed to farmers. Reads the memorandum: “In view of the above, the National Treasury submits the Memorandum on Action plans to revive and commercialise the State-owned sugar companies.”

Private sector orientation

Ndung’u explained that his decision is based on the fact that despite the government being involved in the sugar industry , lack of private sector orientation and political interference have been cited as the reasons that have led to low levels of productivity and investment in the sector.

According to him, the actions taken by the government will create a competitive sugar sector as the they intend to create a sector that can withstand the withdrawal of the Common Market for Eastern and Southern Africa (Comesa) safe guards, enhance profitability of the sugar farming and achieve economies of scale.

Actions are also meant to enhance profitability in the sector as they will focus on investing on modern sugar milling plants, increase of the tonnes cane harvested per acre from the average 35 tonnes, recover the sugar recovery rate from the current 12.5 per cent to 6 and 8 per cent as well as increase the cane sucrose content to 13 and 14 per cent.

Ndung’u also told MPs to approve the vacation of the privatisation model approved by parliament in 2015 and leasing model of the five sugar mills.

According to him, although the privation process was approved, its implementation was not concluded as it was opposed by stakeholders especially the communities because of sensitivities around permanency divestiture of land.

He noted that the leasing model will allow for private sector participation without undertaking a permanent divestiture process, enhance livelihoods of farmers, employees and communities, modernise sugar mills to enable efficiency and hence profitability, develop nucleus estates as well as generate taxes.
Ndung’u said: “The government, despite being a major shareholder and stakeholder in the sugar subsector, has been unable to address the problems bedevilling the industry in a satisfactory manner.”

The move comes after early this month, the cabinet formally dropped plans to privatise sugar mills following concerns from various stakeholders.

In a meeting chaired by President William Ruto at Sagana State Lodge, in Nyeri, the Cabinet vacated an earlier decision to privatise the debt-ridden entities in a bid to save them from imminent collapse.
“Today’s decision sets the sugar sub-sector on a path of renewal by vacating the earlier decision by Cabinet to privatize State-owned entities within the sub-sector,” the Cabinet said.

Ndung’u recommended that Nzoia and South Nyanza Sugar companies which have a cane growing area of 49,862 and 81,415 hectares be retained as they are, Chemelil Sugar Company and Muhoroni Sugar Company with cane growing areas of 18,437 hectares and 22,134 hectares be merged to form one zone with a total cane growing area of 40,571.

With regards to Miwani Sugar Company where the government holds 306million shares out of the 1.53 billion shares representing 20 percent while the other 80 percent is held by private shareholders, he said that its decision be made once the ongoing court cases are determined.

He said: “Investors interested in either Chemilil or Muhoroni Sugar Companies will be required to bid for both. This will facilitate a leasing arrangement that allows for the two factories /zones merging.”

Settlement of disputes

Added: “government to come up with mechanisms to enhance efficient settlement of disputes efficiently to mitigate the numerous legal suits filed by the sector players in court.”

Following the move, National Assembly speaker Mosses Wetangula ordered the committee of Finance and National Planning and that of Agriculture to consider the memorandum and table a report to the house within two weeks.

His ruling came hours after leader of Minority Opiyo Wandayi had sought his intervention to have the house not to consider the memorandum on grounds that members were still discussing the sugar bill that is before the house.