Chemelil is insolvent, says Ouko in audit report

Chemelil Sugar Company is technically insolvent, Auditor General Edward Ouko says in a new report.

The sugar miller’s performance has continued to deteriorate, which saw it declare a loss of Sh526.7 million in the year to June 2015, raising its cumulative retained earnings to negative Sh3.5 billion.

“The current liabilities exceed the current assets by Sh1.4 billion. Evidently, the company is technically insolvent and its continued operation as a going concern is dependent upon the continued financial support from the government, trade payables and its bankers,” says Mr Ouko in an audit report tabled in Parliament last Thursday.

The company recorded a loss of Sh359.5 million in the financial year 2013/14.

Chemelil is one of the five State-owned millers that the government is seeking to privatise. The others include Sony, Nzoia, Muhoroni and Miwani. Muhoroni and Miwani are in receivership.

The government seeks to auction 51 per cent stake in the five sugar companies to strategic investors and reserve another 24 per cent for farmers and employees.

According to the Privatisation Commission, the government will then sell a remaining 25 per cent stake in the Sony, Chemelil, Nzoia, Muhoroni and Miwani milling companies in an initial public offering once the factories are profitable.

The government last year announced that it had written off Sh39.7 billion owed by State-owned sugar companies in a move aimed at easing their planned privatisation.

READ: State sugar firms sale to go on after TA withdraws suit

The five companies are in urgent need of modernisation to survive competition following the registration of more millers and the impending end to sugar import limits from the Common Market for Eastern and Southern Africa (Comesa) trade bloc.

The problems facing Chemelil Sugar company is further compounded by its inability to remit statutory deductions to the Kenya Revenue Authority and the Kenya Sugar Directorate.

“The management has included Sh886.8 million of these liabilities in trade and other payables balance. Interest and penalties on the outstanding balance have not been quantified and incorporated in its financial statements by the management,” Mr Ouko said in the audit report dated April 1, 2016 for the year ending June 2015.