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Lawmakers yesterday approved a request by the National Treasury to write off loans amounting to Sh67.8 billion five State-owned sugar companies owe the government and Kenya Sugar Board (KSB).

According to the MPs their decision is based on the fact that all the five public sugar companies are faced with dire financial difficulties thus resulting in some having failed to undertake annual machinery maintenance for many years.

The approval comes after National Treasury Cabinet Secretary Njuguna Ndung’u in a memorandum to Parliament said the move is in line with the Cabinet decision seeking to have the loans done away with.
Ndung’u explained his decision is based on the fact 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.

Reads the report: “That the house approved the cabinet’s decisions to write off loans owed to the government of Kenya and Kenya Sugar board/commodities Fund by the five state owned sugar companies amounting to Sh65,778,448,646.”

The MPs also approved the Cabinet decision to write off total tax arrears of Sh16.37 billion comprising Sh9.9 billion as principal tax, Sh231.2 million as interest and Sh6.2 billion as penalties owed by the all the five companies.

They however raised concerns that the amount of taxes, penalties and interests provided in the memorandum by the National Treasury are different from those submitted by the Kenya Revenue Authority (KRA). According to the memorandum the total taxes, penalties and interest owed to KRA amounting to Sh50.1 billion while KRA submitted a total of Sh16.4 billion which is a difference of Sh33.8 billion.

Forensic audit

This came even as MPs directed the Auditor General Nancy Gathungu to within 60 days conduct a forensic audit of other debts amounting to Sh26.7 billion to ascertain its authenticity and table a report to the National Assembly to facilitate the budgeting for settlement of the authenticated debts.

The five sugar companies include Nzoia Sugar Company whose loan amounts to Sh47 billion, Chemelil Sugar Company (Sh3.7 billion), Miwani (Sh3.9 billiom), Muhoroni sugar company currently under receivership (Sh9.7 billion) and South Nyanza Sugar Company (Sh1.4 billion).

Consequently the legislators also adopted the report by the joint committees of agriculture and Finance that approved the leasing of five the state owned companies within the provisions of the Public Private partnership.

The joint committee report came after they held a one weeklong one weeklong meeting where they met various stakeholders in the sugar sector.

They however rejected the proposed merger of Chemelil Sugar Company and Muhoroni Sugar Company and ordered that the two companies be leased as separate entities. In this regard the joint committee resolved to vacate the privatization model that was approved by the National Assembly in 2015.

The leasing of the said companies, the report states shall be for a period not exceeding 30 years pursuant to section 21(2) of the public Private Partnerships for the sugar mills and the nucleus estates presently owned by the sugar companies whereby the nucleus land shall only be used for cane development and cannot be used as collateral by leases.

In addition the leasing model states that at the expiry of the lease period, the land will revert to the original owners, the National treasury shall cause the basement of the lease after every five years to determine whether the leases have adhered to the terms and conditions while the fate of workers who are currently working at the mills should be specified.

Reads the report: “The leases shall modernize the sugar mills by installing new machines and technologies to revive the companies, improve the financial well-being of the farmers, create employment (both direct and indirect) and increase government revenue. The leases shall specify the Community Social Responsibility that will be set up for the local community as a requirement for the award of the lease.”

In the report prepared by the joint committee, the MPs also directed the National Treasury to cause the payment of Sh1.7 billion as arrears to the farmers and another Sh5.2 billion as salary arrears and other emoluments.

The Joint committee said it made the decision as the memorandum from the National Treasury is silent on the treatment of staff salary arrears amounting to Sh5.2billion, and other creditor’s payables of Sh26.7 billion.

Nzoia Sugar Company has arrears worth Sh269.6 million owed to farmers and Sh1.8 billion owed to staff as salaries and other emoluments, South Sugar Company Sh865.8 million as arrears owed to farmers and Sh1.2 billion as salaries and other emoluments, Miwani Sugar company has no arrears, Muhoroni Sugar Company Sh316.7 million owed farmers and Sh1 billion owed as salaries and other emoluments while Chemelil Sugar Company owes farmers Sh231.3 million and Sh1.1 billion as salaries and other emoluments.

Supply contracts

Further the MPs directed the National Treasury to within 60 days cause the allocation of Sh600 million to the Sugar Research Institute for multiplication and popularisation of the 27 sugarcane varieties already generated through research also directed the Ministry of Agriculture and livestock to within the same period put in place regulations to protect the recommendations of the report.

On cane development, the MPs approved the introduction of five sugar cane development and farmer representation catchment where cane supply contracts are signed between a farmer and a miller.
According to the committee, the cane supply contracts should include the timelines and a cane pricing formulae that is developed by the Sugar Research and Training Institute and approved by the Sugar Pricing Committee.

The areas are Rift Valley (Kericho, Nandi and Uasin Gishu), Upper Western region (Bungoma and Trans Nzoia), Lower Western region (Busia, Kakamega, Siaya, and Vihiga) Southern region (Homa Bay, Kisumu, Migori, and Narok) and Coast region (Kwale, Lamu and Tana River).

They also directed the National treasury and the Ministry of Agriculture and Livestock Development to within 60 days conduct an audit of the debt portfolio of the out grower companies including Mumias Outgrowers Company (1998) Limited and Nzoia Outgrowers company limited ad establish whether they are solvent and can be utilised for cane development.