Twenty years down the line, the cash-strapped Miwani and Muhoroni sugar factories in receivership are still reeling under a debt of more than Sh50 billion.

Although Parliament had passed a Bill in the House to allow the government to write off the debts a year ago, no action has been taken to this effect to date.

Yet, the two millers’ debts continue to accrue penalties for defaulting to repay the loans in good time as the joint receiver managers struggle to revive the firms.

Parliament had pegged the debt write offs on proposed privatisation and/or leasing of the sugar firms, to revive and forestall their imminent collapse. According to the joint Receiver Managers Francis Ooko and Aoron Kirui, the two factories’ debts are mostly government loans. It means they can be written off.

“We have prepared a financial status report to be presented to the Cabinet on the debts for reevaluation of the need to write them off, ’Ooko told the Business Hub.

Muhoroni and Miwani sugar factories went into receivership in 2001. Since then, the management and operations of the two firms have been unstable or rickety.

Enough revenue

While the two millers are supposed to run and make a profit, they have only been operating on losses for two decades in a row. Often companies generate enough revenue to cover the operating expenses and make an operating profit, but this hasn’t been possible with the two sugar firms. Their operating loss indicates that their core operations are not profitable and that radical changes need to be made to increase revenues, decrease costs, or both.

 “As things stand Miwani is indebted to the tune of Sh24.6 billion and Muhoroni Sh25.8 billion, “ claimed Ooko. They are hoping for a write-off. The monies are owed to farmers, suppliers and accrued statutory deductions and penalties charged on default payments over the last 23 years. The immediate solution in the meantime, is typically to cut back on expenses, as this is within the control of company management or joint receiver managers.

But if sustained, an operating loss signals deteriorating fundamentals of the two sugar company’s products or services even as loan interests grow each fiscal year.

Cane farmers through Kenya National Federation of Sugarcane Growers Secretary General Ezra Okoth wants the State to write off the huge accruing debts. “The operating loss reflects unprofitable operations, and changes may be required to decrease costs or increase revenues through write-off or leasing,” he notes.

Currently, the company’s operating expenses continue to exceed its gross profits, showing an operating loss on its financial statements, which is worrying to echo.

“Investors are cagey to hear of firms whose financial statements are not showing signs of growth and recovery. They want clean balance sheets,” claimed Okoth.

This is because operating loss excludes the effect of interest income, expense, extraordinary gains or losses, from equity investments or taxes.

When the Business Hub visited Miwani, we found some of the factory assets rotting in the firm’s yard, with no visible sign of recovery in the immediate future.

A drive into and around the compound shows a miller whose fate lies in limbo, with no workers seen on site save for a few of them and security officers patrolling.

But Ooko said they have been operating with a lean staff to run errands to keep them afloat amid the financial struggles and production shortfalls. The firms are currently faced with a severe cane shortage.  The shortage of raw materials means they have to grind and halt for at least three days to accumulate cane. The two firms have a combined capacity to mill up to 4,500 tonnes of cane per day and meet their financial obligations. This is not the case as of now.

Miwani has installed capacity to mill at least 2,000 tonnes of sugarcane per day and Muhoroni Sugar Factory has 2,200. They, however, mill less. “At times we mill about 1,000 to 1,500 but after accumulating cane for days,’’ said Ooko who like Okoth urged farmers to grow more cane to sustain firms.

The Joint receiver management admitted that old technology is also to blame for low production. They hope that eventually if the debts are written off and the firms are allowed to be leased as was proposed by the Sugar Task Force, then new investors would bring in modern technology to boost production and up profits.

Prolific businessman

The defunct Miwani Sugar Company was at one point owned by prolific businessman Ketan Somaia and was at some point called Victoria Nyanza Sugar Mills.

Miwani is where the foundations of East Africa’s sugar industry were laid in 1924 by Australian Sugar Magnate, George Russell Mayers. It was established by Victoria Nyanza Sugar Company which farmed roughly 15,000 hectares.

Residents in Miwani are also asking the State to take urgent steps. Today, Miwani town that sprung as a result of the establishment of the mill is a pale shadow of its former self.– David Macharia