Economy

Mumias seeks arbitration over Sh1bn Kenya Power bill

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Sugarcane is delivered for milling at Mumias Sugar Company. The miller’s revenue from its power plant has been struggling owing to the long running dispute over the massive bill. PHOTO | FILE

Troubled Mumias Sugar Company now wants the High Court to refer a Sh1.1 billion dispute with Kenya Power over an unpaid bill to arbitration.

The company claims mediation by an independent intermediary was among the terms of the power purchase agreement that the two firms signed in 2009.

The listed firm has filed an application before Justice Farah Amin in which it says the power purchase agreement with Kenya Power prescribed arbitration for disputes arising from contract breach before any party takes any court action. The agreement was to last for 10 years.

Kenya Power has sued the struggling miller for the unpaid Sh1.1 billion electricity bill and wants the court to freeze the firm’s assets until the amount is settled in full.

The suit comes as the government tries to rescue Mumias, Kenya’s biggest sugar producer, from going under.

While making the application, Mumias Sugar lawyer Valentine Ataka told the court that “the power purchase agreement provided for arbitration in the event of any conflict.”

Kenya Power has opposed the application, saying that the dispute in question is not among those that can be referred to arbitration under the power purchase agreement.

The electricity distributor wants the court to throw out the arbitration application by Mumias and enter judgment in its favour for the full Sh1.1 billion without trial.

Kenya Power has asked the court to freeze Mumias Sugar’s assets until the debt is settled, or alternatively compel the company to deposit Sh1.1 billion in the court as security.

“The dispute herein does not stem from the power purchase agreement as alleged or at all. Kenya Power’s claim against Mumias is simple and straightforward and is not technical at all, hence the application for judgment without trial,” said Jotham Arwa, Kenya Power’s lawyer.

READ: Kenya Power slaps Mumias with Sh1bn electricity bill

Mumias in 2009 signed the deal that was to see it sell surplus electricity from its 34 megawatt plant to Kenya Power.

The firm was in turn to buy electricity from Kenya Power whenever the generators in its plant were on standby. Both parties were to buy the electricity at commercial rates.

The miller produces electricity from bagasse a product left over from sugar production that is used as a biofuel to generate electricity. The miller uses about eight megawatts to run its factory and supplies the remaining 26 megawatts to the national grid.

Kenya Power says the miller has only paid Sh70 million since May 2009, and now owes Sh1.1 billion, which it fears may not be repaid as the company is on its knees and may be forced to wind-up its business.

Justice Amin ordered the two firms to file their respective documents regarding the miller’s application for arbitration and appear before her on May 5 to argue the matter, and for any further directions.

“The application for arbitration had been brought before the court after the application for summary judgment. They need to be canvassed before the court decides. Written arguments should be filed within seven days. Highlighting the arguments will be on May 5,” the judge said.

Mumias Sugar’s revenue from its power plant has been struggling owing to the long running dispute over the massive bill. In the last financial year ending June 2014, its electricity sales to the national grid dropped by nearly half to Sh230 million.

The drop in electricity revenue was occasioned to reduced power output and penalties imposed by Kenya Power for breaching terms of the 2009 power purchase agreement.

READ: Failure to supply power deepens Mumias cash woes

President Uhuru Kenyatta has brokered a deal that will see the listed company receive Sh1 billion which is less than the amount claimed by Kenya Power, in a bid to help it survive total collapse.

Another Sh4 billion is expected to be raised by shareholders through a rights issue. Kenya Power’s suit comes as the government pleads with firms owed by the miller to ease the pressure on the collection until Mumias gets back on its feet.

Security firm G4S has also filed a suit demanding Sh45 million in unpaid services it provided to Mumias.

Mumias Sugar currently owes over Sh5 billion to seven banks, which it has engaged in talks to restructure the repayment agreements as it struggles to remain afloat. Among the banks owed are KCB, Ecobank and Dubai Bank.

Mumias CEO Coutts Otolo said in September last year that the company was seeking to delay some of the debts owed to banks by three to four years.

It was also set to retrench 300 workers in a bid to cut down expenditure.

In the last financial year, the company posted a Sh2.7 billion before tax loss, which has mostly been blamed on illegal importation by some of its past and present officials that have occasioned it massive losses.