Panpaper may be sold to a timber trader cheaply without regard for public gains


Panpaper Mills in Webuye. While the government has pumped in excess of Sh2 billion to revive the Webuye-based paper making factory, the receivers have now put the company on sale. Photo/FILE


  • The question is: Will the two receivers deliver what Bungoma County wants?
  • While the government has pumped in excess of Sh2 billion to revive the Webuye-based paper making factory, the receivers have now put the company on sale.
  • Ian Small and Kieran Day from the insolvency practice Begbies Traynor EA Ltd have been handed the duty of auctioning the company.

The vultures have been circling the carcass for nearly four years, patiently waiting for the receivers of the Pan African Paper Mills Ltd (Panpaper) to blow the whistle.

While the government has pumped in excess of Sh2 billion to revive the Webuye-based paper making factory, the receivers have now put the company on sale.

Ian Small and Kieran Day from the insolvency practice Begbies Traynor EA Ltd have been handed the duty of auctioning the company. The big question as the two receivers embark on looking for a buyer is the following: will the two receivers deliver what the people of Bungoma County want?

This is a pertinent question because insolvency practitioners are better known for burying corpses than bringing patients back to life.

An even more pertinent question: is there a realistic chance that this receivership will return Panpaper to what it used to be in terms of volume of activity and number of people employed? While it is early to predict how the receivership will pan out, there is no doubt that the process of auctioning Panpaper is going to generate heavy political undercurrents in Western Kenya.

The people of Bungoma and the local political elite want to see Panpaper revived into a much bigger business that will not only stimulate economic activity but will offer even more employment opportunities.

At its peak, Panpaper had about 1,600 staff and would engage an average 3,000 casual workers monthly. What is emerging, however, is that the interests of the people and political elite of Bungoma and those of the receivers are likely to clash.

To the people and political leadership of Bungoma County, Panpaper must be restored to what is used to be. They expect the receivership process to end in a robust operation capable of employing more people.

These expectations mainly arise from the fact that the government has pumped in excess of Sh 2 billion in reviving the plant.

As a matter of fact, in view of the public resources so far spent, the assumption out there was that the government was underwriting a process which would end up turning Panpaper into a public entity, playing a wider development role within the West Kenya economy.

Yet, looking at the approach the receivers are taking, there is a strong prospect that the company could end up being bought by a private party with no qualms about its broader development role in the Western Kenya region.

The signs that what the receivers want are diametrically opposed to what the people of Bungoma want are to be found in confidential briefings and reports the receivers have been giving the government since they started running the affairs of the company in March last year.

The Business Daily has seen some of these notes. What emerges is that the receivers are approaching the whole project as an ordinary insolvency aimed at raising money to pay Panpaper’s creditors.

To them, it does not matter whether the company ends up in the hands of an individual who will want to reduce operations to the minimum or even strip the assets in a piecemeal manner.

What emerges from the briefings is that the receivers have been consistently dropping vague hints to the government to consider selling Panpaper to a large timber merchant.

In one of the documents dated August 2012, the receivers pointed out that the only value proposition likely to attract any buyer to Panpaper is the Kenya Forest Service licence that the company has and which gives the company permission to harvest timber from government forests at subsidised rates.

The receivers argued further that the government must not assume that any timber merchant coming forward to buy Panpaper will want to continue with the paper milling business.

“It may be the intention of a purchaser to utilise the license to obtain wood for purposes other than paper production,” they said in the briefing documents signed by Ian Small.

In another briefing document to the ministry of Industrialisation in July, the receivers expressed concerns about what they described as “a determined approach by local politicians to ensure that paper production continues at the mill site regardless of whether paper production is viable or not.”

Clearly, and even though the point is not made plainly, the hint coming consistently from the receivers is that the insolvency process was likely to end with a company that will not be a paper manufacturer per se but an operation that while maintaining some limited paper-making activity will be doing timber business.

If they can make more money from stripping the assets of the company and selling the land and equipment in parts, the receivers will do it.
“It may be the case that a higher realisation might be obtained from selling the business and assets for another purpose or on a break-up basis”, they said in another briefing document to the Ministry of Industrialisation. Clearly, and going by the views of the receivers, it is unlikely that the process now under way will produce a serious buyer interested in reviving Panpaper into the big company and employer it used to be.

But if the receivership ends up putting Panpaper into the hands of a large timber merchant as hinted by the receivers, the political ramifications will be big.

This is more so because of widespread suspicions in Western Kenya that big timber merchants had something to do with Panpaper’s collapse in the first place.

Only last week, the MP for Lugari, Mr Ayub Savula claimed in parliament that big timber merchants were behind Panpaper’s tribulations.

Clearly, the idea of selling Panpaper to a timber merchant will be a hard sell.

The big question that arises is the following: does it really make sense for the government to spend billions in underwriting such an expensive process when all the receivership achieves is to hand over the company to a timber merchant whose prime interest is access to cheap wood from government forests?


How events unfold remains to be seen. But it is noteworthy that ahead of the company being advertised for sale, Industrialisation and Entrepreneurship Cabinet Secretary Adan Mohamed also announced that the private party which ends up buying Panpaper will be given a lucrative and long-term licence to harvest wood from government forests at subsidised rates. He said that the lucrative offer was being made to whet the appetite of potential buyers.

If the company is bought by a timber merchant, it will not be the first time for a troubled paper making plant to be sold to a timber trader in East Africa.

In 2004, Tanzania sold the State-owned Mufindi Paper Mills to the Rai Group of Kenya at $1 million. The Eldoret-based group are the largest timber merchants in Kenya. In retrospect, the Panpaper saga has been an unending tale of intriguing twists and turns.

Formerly controlled by the Indian conglomerate, the Birla Group, the company’s fall started after its former chief executive, Mr K. Saha fled to India in March 2009.

Mr Kieran Day and Ian Small immediately moved in to take control having been appointed by a group of short-term lenders who held securities over the company’s floating assets.

In the early stages of the receivership, dramatic disagreements arose between former Industrialisation permanent secretary John Lonyangapuo and local MP Alfred Sambu on the one hand and the two receivers on the other.

There was a time the political elite of Webuye threatened to mobilise people to storm the premises to forcefully evict the receivers.

At one time, the locals breathed a sigh of relief when the government eventually paid off the short-term lenders, paving the way for the exit of the receivers. But the receivers returned almost immediately, this time as appointees of the government.

Thus, one cannot be mistaken to conclude that powerful forces have been pulling the strings from behind the scenes to deliver the company firmly into the hands of a big timber merchant.

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