Sugar sector hopes hinged on Sh59bn debt write-off

“The debt is a very frustrating setback and impedes cash flow,” Agriculture minister William Ruto told Parliament last week, adding that the Cabinet would review the issue in a bid to expedite the planned privatisation of the firms.

As at March 2008 the debt owed by various institutions in the sub-sector stood as follows; Chemelil (Sh2.54 billion), Miwani (Sh8 billion), Muhoroni (Sh9.96 billion), Busia (Sh375 million) and Nzoia (Sh26.6 billion).

Other debtors are Sony (Sh2.99 billion) and Agro-Chemical Food Company (Sh6 billion).

Government guarantees
Insiders said the debts mainly stemmed from government guarantees that have largely been offset but Treasury would have to seek the consent of Parliament to effect any write-offs.

“Proceeds from the privatisation process should be ploughed back to develop the industry,” Mr Obado said.

So far major strides have been made with regard to the energy policy with the Energy ministry launching a new initiative that would see the cash-strapped sugar factories have an opportunity to boost their earnings as the Government reached out to investors to help build the country’s overstretched electricity reserves.

In a new initiative the Energy ministry has put in place a renewable policy through which investors can negotiate attractive feed-in tariffs with the Kenya Power and Lighting Company (KPLC) for supply of power generated through biomass.

A key target of this policy is a sugarcane waste product known as bagasse that most millers have not put to sound economic use and usually rots away despite the huge potential for power generation.

The cost of producing electricity from bagasse is estimated to be less than half the cost of generating electricity from imported petroleum or natural gas.

The country is currently relying more on thermal power which contributes 40 per cent of the total power output, way above the ideal 16 per cent, a factor that has driven up the fuel element in power bills.

“The ministry of Energy has conducted a feasibility study on co-generation from bagasse and established that there is potential for immediate development of a system that can produce about 200 Mega Watts (MW) from the use of bagasse produced at the six sugar mills operating in Nyanza and Western Provinces,” the new policy stated in part.

So far Mumias Sugar Company is the only miller that has made major strides in attempting to tap this potential and currently runs a power project that churns out 2MW to the national grid using bagasse with industry estimates showing that every 100 tonnes of sugarcane crushed produces 17 tonnes of bagasse.

Co-generation
The company also recently launched a $50 million power co-generation project that is expected to generate some 34 Mega Watts (MW) for its own internal needs with the surplus 25MW being put up for sale to KPLC for general supply through the national grid.

Chemelil Sugar Company has its factory equipped with a 5.5MW power generation system that runs on bagasse with the output for internal use. Nzoia and Sony also have such installations with a capacity of 3MW and 7.2MW respectively.