Sugar sector hopes hinged on Sh59bn debt write-off

TOO LITTLE, TOO LATE?
Consumers of industrial sugar may enjoy cheaper prices of the commodity as Finance minister Uhuru Kenyatta lifted the Sugar Development Levy (SDL) charged on imported consignments of the commodity.

This type of sugar is mainly used by soft drink manufacturers and is not produced in large quantities locally, leaving consumers mainly reliant on imports.
“I hope the benefits are passed on to consumers,” the finance minister said.

The SDL is currently pegged at 7 per cent of both local and imported sugar. So far the proceeds remain the most competitive source of credit for the industry and the only source of funding for Kenya Sugar Research Foundation (Kesref) and Kenya Sugar Board (KSB) operations.

The gesture by the Finance minister now leaves the operations of these institutions in a tight spot.

Research in sugar production methods and cane varieties is critical to the industry and players are certain to meet the minister’s proposals with reservations unless alternative sources of funds are provided to the Kesref management.

The write-off of a Sh59 billion debt currently weighing down on the sugar industry topped the wish list of the sub-sector’s players as Finance minister Uhuru Kenyatta moved to present his 2009/10 budget.

With barely 30 months to go before the country fully liberalises its domestic market for the commodity, the industry is under pressure to undertake major operational restructures that would ensure a competitive production system capable of surviving the anticipated onslaught from rival producer nations within the Comesa bloc.

“What the industry requires is a total write off of the debts so that reforms can begin on a clean slate,” Okoth Obado of the Kenya Sugar Board (KSB) said.

Kenya enjoys a preferential trade arrangement on sugar with Comesa. Though the arrangement was meant to expire one year ago, Kenya got an extension of the special safeguards on duty-free imports in December 2007.

The extension was, however, granted only after Kenya committed to enlarging the imports quota each successive year of application.

Besides, the tariff on imported sugar above the quotas is to fall each successive year down to zero by 2012. Besides the quota-tariff structure, the Kenya Government also committed to give up ownership of sugar mills within the first 24 months of the extension.

The Privatisation Commission of Kenya has started the sale process and has picked advisors to help identify strategic partners for State-owned Chemelil, Muhoroni, Sony and Nzoia sugar companies.

Other issues embedded in the deal with Comesa included requirements that the Government adopts an energy policy aimed at promoting co-generation and other forms of bio-fuel energy production to improve the industry’s competitiveness.

The pact also requires sugar sector operators to deepen research on high sucrose and early maturing cane varieties while the KSB and the Kenya Sugar Research Foundation (Kesref) should spearhead adoption of research findings by cane growers.

But despite this lengthy agenda, the sector is yet to make any substantive strides thanks to the huge debt portfolio accrued by firms over the years.