A tractor ferries cane to Muhoroni sugar factory. File
What you need to know:
Finance minister Njeru Githae says the write-off is aimed at attracting private investors to buy into the sugar firms.
Attracting investors is seen as critical in turning around the struggling millers
The government is set to write off Sh40 billion debts owed by sugar milling parastatals ahead of privatisation, which is expected to take place in one year.
The ailing industry joins coffee where billions have been written off in the Kibaki administration.
Finance minister Njeru Githae says the write-off is aimed at attracting private investors to buy into the sugar firms and prepare them for increased competition from regional and international producers.
The government has for years protected Chemelil, Muhoroni, Sony Sugar, Nzoia, and Miwani from cheaper duty-free sugar imports from the Common Market for Eastern and Southern Africa (Comesa).
Attracting investors is seen as critical in turning around the struggling millers ahead of the expiry of the latest safeguards from competitors which expire in February 2014.
“We are prioritising the privatisation of sugar companies to prepare them for increased competition in Comesa,” Mr Githae said.
“The debt write-off is to make it easier for the companies to attract investors and improve their production and efficiencies,” he said.
Miwani is closed, while Muhoroni is under receivership. Chemelil, Nzoia, and Sony are, however, running profitable operations but all the five firms have massive debts.
Kenya remains a net sugar importer and is struggling to boost output as its consumption continues to outpace production. Consumption of sugar stands at 800,000 tonnes per year against local production of 550,000 tonnes.
It is feared that an influx of cheaper sugar from Comesa and the international market will greatly erode market shares of existing local millers and kill them.
Kenya’s pricey sugar has been linked to high cost of electricity and inadequate production of cane, forcing millers to run below capacity and raise the price at which they buy cane.
Mr Githae said there were no fixed rules in the privatisation drive in terms of the ownership structure of the millers, adding that farmers would be allotted a stake in the companies.
“The privatisation will be done on a case by case basis. Each will be unique,” he said. Last week, the minister signed a sessional paper to guide the millers’ looming privatisation.
In early 2012, the Agriculture ministry published amendments to the Sugar Act to change the 51 per cent shareholding farmers were guaranteed to hold in the millers.
The move was seen as paving the way for investors to acquire controlling stakes in companies where farmers may not be able to inject capital necessary to revamp operations.
“The Government shall set aside a specific percentage of shares to be sold to the growers, taking into account the management, financial and technical needs of the company being privatised,” reads part of the Bill.
The government had initially adopted an ownership structure where the millers would sell a 51 per cent stake in the five sugar companies to strategic investors; farmers 30 per cent and 19 per cent through an initial public offer, once the factories are profitable.
The growers will also be entitled to nominate directors proportionate to their shareholding, the Bill adds.
The minister cited reasons for the reversal as different management, financial, and technical needs of the companies, and the need to give strategic investors a bigger role in the turnaround of the firms.
Investors from Brazil, Mauritius, and Turkey have shown interest in bidding for the factories, which have been weighed down by high production costs and lack of credit, leading to low yields and an annual national sugar deficit of more than 300,000 tonnes.
