Mumias Sugar: From leading miller to bailout prospect

The smoke still billows at Mumias even as
The smoke still billows at Mumias even as turnaround chiefs struggle to restore its shine. PHOTO | FILE 

It was supposed to be a showcase small-scale agricultural enterprise. Yet Mumias Sugar has become the sad story of a failed scheme. Perhaps.

Dateline 1967: The Kenyan government had decided to open up vacant land in Mumias in a land transfer programme funded by the British government. It was the largest scheme by the standards of the day, with the UK giving a soft loan of £2.9 million (Sh400m).

The government had approached a British foods company, Booker McConnell, to do the feasibility studies and advise on how satellite small-holder sugar plots could sustain a sugar factory in the midst of the scheme.

With all the planning done, Mumias Sugar Company was registered in 1971 with the government owning 71 per cent while the rest of the shareholding was taken up by Commonwealth Development Corporation (17 per cent), Kenya Commercial Finance Company (five per cent), Booker McConnell (four per cent) and the East African Development Bank (three per cent).

There were initially 8,000 acres under cultivation owned by the factory and a separate outgrowers scheme. A factory built by Fletcher and Stewart sprang up at a cost of £4.5 million (Sh315 million at the time).

Kenya was an importer of sugar mainly from Uganda but with Mumias in place the imports stopped. That was in the 1970s and Idi Amin had decided to close down the Asian-run sugar farms and firms.

Booker was to run the 8,000-acre estate and the factory under a management contract and they went home with a handsome profit. They even built a Booker Academy.

Today, however, Mumias is in a sorry state. A tale of a failed dream.

On June 30, 2003, the management contract between Mumias Sugar and Booker Tate expired and they advertised for the position of a new managing director. In Parliament, questions were raised why Mumias was still run by expatriates.

“It is a shame that 40 years after Independence, Kenya is still looking for a European to crush sugar,” said then Mumias MP Wycliff Osundwa. “Could the minister assure this House that we are going to recruit a local person to run Mumias and forget about the Europeans?”

Two years earlier, Mumias had listed at the Nairobi Stock (now Securities) Exchange, becoming a public company. By this time, the roads network, farmers’ morale and the entire sugar industry was low. Barons were still dumping cheap sugar into the market.

The era of Evans Kidero, the first managing director, did not offer much either. He inherited a sickly loss-making enterprise that had made Sh300 million loss in 2003. By the time he left, the numbers had grown past Sh1.67 billion. The shares tumbled too.

Mr Kidero, who resigned in 2012 to join politics and was elected Nairobi governor, passed the mantle to his former chief finance officer, Peter Kebati.

Mr Kebati’s three-year stint saw Mumias continue to plunge deeper into losses which were blamed on falling cane supply. Last year, the miller’s losses hit Sh2.7 billion and the share price plummeted to a new low of Sh1.45.

Embarrassed by losses, Mr Kebati in 2013 embarked on a management shake-up to improve productivity. Four senior managers, including operations director and agriculture director went home. Others sent packing were the ICT manager and production manager. Interim managers were appointed immediately.

The board followed the changes in September with a one-year time frame for profit turnaround. Board chair, Dan Ameyo, a lawyer appointed in 2014, has said he will get rid of employees who had defrauded the company.

The miller, it now appears, had been tricked by senior managers to import cheap sugar as a stop-gap measure on dwindling sugar production which had decreased substantially due to cane poaching. The executives dumped sugar from the Sudan.

When the parliamentary Committee on Agriculture went to Mombasa, they found 10,000 tonnes of imported sugar at a depot. A total of 115,000 tonnes of sugar had been imported.

Mr Kebati is still facing charges over illegal imports. KPMG’s forensic audit is said to have unearthed the illegal sugar trade by managers at MSC.

Last Tueday, Mumias filed a case against Mr Kebati and three other managers seeking to recover Sh1.1 billion it says the four caused the miller to lose over sugar imports. It also advertised four senior positions and required those serving to apply afresh.

This was in line with a Sh500 million cash bailout pledge by the government. Three days later, 52 employees, most of whom were supervisors in agriculture, were fired for causing the miller to lose Sh400 million by irregularly terminating farmers’ cane supply contracts, which the company said made it difficult to pay farmers’ debts.

Mumias owes banks up to Sh6.5 billion. After three management changes, Mumias is still stuck in a deep rut.

However, there is some potential since Mumias has a co-generation plant which supplies 26 megawatts of power to Kenya Power, and a bottled water project.

The Kenya Plantation and Allied Workers Union says the huge losses are due to 300 contracted services. Mumias relies heavily on contracted services from security to cane delivery. KPAWU said in 2013 that the company could save Sh2.5 billion if it were to review some of the contracts on a needs basis.

With the promised cash bailout of Sh500 million, stakeholders are keenly watching the direction the miller will take.