A showdown looms between Kenya and its 18 trading partners from eastern and southern Africa over a bid to extend the country’s three-year restriction of sugar imports into 2015.
The sugar directorate officials have begun to lobby the Comesa Secretariat for a fourth extension of safeguards that have shielded the local millers from direct competition of cheap sugar from the region.
“We are in the process of applying for an extension and currently, our officials who have just come from a trip in other countries to study the cost of production in those states are writing a report which will be key in determining whether we will get another extension,” says Alfred Busolo, the director-general at Agriculture, Fisheries and Food Authority (AFFA).
Kenya first sought the Common Market for Eastern and Southern Africa (Comesa) intervention in 2003 and was given a four-year window to reform its sugar sector to make it competitive. But it has always sought more extensions since. Comesa is a free trade area with 19 member states straddling Egypt to Swaziland.
Mr Busolo said officials of the sugar directorate, a department within AFFA, have already visited five Comesa states, among them Egypt, to conduct a comparative study on production which will be compiled into a report used to push for another extension.
Last October, Comesa Competition Commission ruled out another extension, saying such a deal would encourage laxity in development of the sugar sector in Kenya.
“So far, we have accorded Kenya three extensions, which have gone past required limits of two safeguard periods. And all along, there is not much that the sector has achieved in line with the requirements,” the agency’s director George Lipimile said.
Kenya which initially pledged to prepare its sugar industry for full competition with region’s producers by February 2012 has failed to implement the agreed reforms, choosing instead to cushion its market by seeking the yearly extensions.
The third extension granted early last year will lapse next month, putting local millers in head-to-head competition with regional exporters like Egypt, Sudan and Uganda.
The continued restriction of sugar imports from the three states have frequently bred damaging trade rows that have threatened Kenya’s exports like tea, building materials and cooking fat. To date, Kenya has hardly met the required conditions that the regional bloc had set when the country was granted the safeguards.
The conditions include privatisation of the state-owned millers and diversification of their revenue streams.
Last week, Parliament went on a two-month recess without adopting the report that would allow for the sale of the state-owned sugar millers. The companies that are lined up for privatisation include Nzoia, Chemelil, South Nyanza (Sony) and Miwani.
The endorsement of the report would be significant in privatisation of the five state-owned millers as one of the conditions by Comesa.
MPs from the sugar growing areas say they are crafting a Bill to protect entrepreneurs seeking to invest in the sector. Last week, Matayos MP Godfrey Odanga was quoted as saying that some of the laws on sugar curtail and frustrate growth of the sector.
The Comesa also requires Kenya to transit to using early maturing cane, and move away from the current tonnage-based payment for sugarcane to one that is linked to sucrose content in the cane delivered.
Mumias, the only miller that has so far opened other revenue streams such as the co-generation, production of ethanol and water-bottling, has been off radar in the last two months, having closed its factories for maintenance amid material shortage and boardroom corruption claims.
The firm has been making losses on its co-generation project. The losses are mainly attributed to low feed in tariffs and penalties that Kenya Power charges the sugar miller for interrupted supplies.
Recently, Mumias sought to delay some of the debts that were to mature early by a further three to four years. Its debt stood at Sh5.2 billion in June, up from Sh2.4 billion in July 2012, costing Mumias Sh601 million in financing expenses in the year to June.
Sugar millers returned total losses of Sh6.1 billion last year, according to a financial report that the Treasury presented to Parliament. Nzoia Sugar was the most-indebted miller with a liability burden of Sh21 billion by the end of June 2012.
The figure is five times more than the miller’s Sh4 billion worth of current assets, resulting to a negative working capital position. On the cane buying formula, the sugar directorate is still had initiated pilot projects in two millers and it is yet to be rolled out in other factories.
The country has exceeded the maximum allowable limit of 10 years. The Comesa window was first introduced in 2003 and Kenya was given a four-year waiver, with the subsequent extensions in 2007 and 2011.
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.