Mauritius’ Omnicane starts sugar production mid 2013

Mauritian sugar manufacturer Omicane will start production in Kenya by mid-next year in a move that will heighten competition in the market and help stabilise prices.

The company, which is listed in the Stock Exchange of Mauritius, said on Monday it had started construction after a six-month delay in inking contracts with developers, which dashed its earlier plan to begin production this year.

The sugar manufacturer received a boost after Finance minister Njeru Githae exempted it from paying stamp duty following the transfer of about 17,000 acres to Kwale Sugar, the promoters of the new plant, giving the company room to hinge production on its own sugarcane as opposed to small-scale outgrowers.

The firm said it would inject $200 million (Sh16.8 billion), making it one of the largest foreign direct investments in the industry in what could shake the dominance of the sector by Mumias Sugar.

“We have started construction and we should be through by mid-next year when we expect to start production,” Hashil Kotecha, an executive of the firm, told the Business Daily.

The planned factory, with a capacity of 3,600 tonnes of cane per day, will include a 30,000-ethanol production plant.

The facility will also host an 18-megawatt power plant run on bagasse, a by-product of cane.

Kenya has an installed factory crushing capacity of 30,109 tonnes of cane per day while Omnicane brings in 3,600 tonnes of cane per day.

The project is being funded 50 per cent by debt while equity from both foreign and local investors will make up the rest.

Kwale Sugar is a joint venture between Kwale International Sugar Company and Omicane.

The Mauritian firm owns a 20 per cent stake in the project and it has been brought on board as managing partners.

The company seeks to avoid dependence on outgrowers for sugar cane supplies, a situation that has worked against efficiency of local sugar manufacturers.
The small-scale farmers will, however, account for 25 per cent of its sugarcane needs with the remaining share coming from the 17,000 acres of land. The government, which owned 85 per cent of the land, has exempted Kwale Sugar from paying stamp duty, normally two per cent of the transfer value.

“The minister for Finance directs…Kwale Sugar Company shall be exempt from the provisions of the Act (stamp duty),” says Mr Githae in the latest Kenya Gazette.

The Kwale project is expected to boost competition is the sugar industry where processors have been bogged down by high production costs due to poor technology and old machinery.

Omnicane’s entry is expected to hand the project a major boost because of the firm’s immense experience in Mauritius where the sugar industry is quite competitive due to high technology use in cane production and processing.

The country’s largest miller, Mumias Sugar, also plans a Sh24 billion integrated sugar project in the coast’s Tana River District to cut its reliance on small scale farmers.