Companies

Revealed: Why tycoon Rai lost Mumias deal

rai

Tycoon Jaswant Rai. FILE PHOTO | NMG

geraldandae

Summary

  • The Rai family owns West Kenya, Sukari Industries and Olepito, which have taken over the market previously occupied by Mumias with their Kabras Sugar brand.
  • The Mumias leasing tender was awarded to Uganda-based Sarrai Company, which has been in the sugar business for years.
  • Other bidders were Pandhal Industries with Sh9.7 billion over 20 years and Kibos Sugar with Sh8.8 billion.

Billionaire Jaswant Rai lost a bid to lease ailing Mumias Sugar Company on account of his dominance in the sugar sector, the receiver manager has said.

In his defence on why he awarded the lucrative tender to Uganda’s Sarrai Group, KCB’s receiver-manager Ponangipalli Rao says in court documents that were Mr Rai to be awarded the lease, he would control 42 percent of the total sugarcane crushed in the country daily.

Mr Rao said this would have amounted to a dominant position in the sugar industry in view of the provisions of Section 23(2)(a) of the Competition Act 2010.

The Rai family owns West Kenya, Sukari Industries and Olepito, which have taken over the market previously occupied by Mumias with their Kabras Sugar brand. At its peak, Mumias had more than 60 percent market share.

The Mumias leasing tender was awarded to Uganda-based Sarrai Company, which has been in the sugar business for years. The receiver-manager said the multinational was best placed to revive the operations of the ailing miller, owing to its expertise in the field, as demonstrated by its performance in Uganda.

The Sarrai Group consists of different agro-manufacturing companies, which run three sugar factories in the neighbouring country, producing about 170,000 tonnes of sugar annually. It also has operations in Malawi.

“If the Rai Group, which owns West Kenya Sugar Company Limited, is awarded the lease of the assets of the company, then the Rai Group of Companies will control at least 41.95 percent of the total sugarcane crushing capacity per day in Kenya,” said Mr Rao in court filings.

The receiver manager said while undertaking the technical evaluation, due consideration is given to the successful bidder’s capability to undertake immediate revival of the operations to ensure social welfare and corporate governance by providing immediate employment opportunities to the community.

Submitted bids

A total of eight investors submitted bids to lease the troubled sugar factory. The highest bidder was Tumaz & Tumaz, with an offer of Sh28 billion followed by Kruman Finances, who wanted a 25-year lease with Sh19.7 billion.

Other bidders were Pandhal Industries with Sh9.7 billion over 20 years and Kibos Sugar with Sh8.8 billion.

Mr Rao said five of the firms failed to meet the technical evaluation criteria, leaving three firms Pandhal Industries, Kibos Sugar and Sarrai to fight for the deal.

Tumaz & Tumaz, Transmara Sugar and Kruman Finances were kicked out after they failed to submit the Sh500 million bid bond, which was one of the requirements.

A bid bond guarantees the project owner that if the bidder fails to honour the terms of the bid after the bid is accepted, the project owner will be compensated.

But Tumaz indicated in court documents it had a bid bond of Sh500 million from Monarch insurance dated October 21, 2021.

The court filings have also revealed for the first time that steel tycoon Narendra Raval of the Devki Group withdrew from the bidding race.

“We request you to kindly return all our original bid documents, including bid bond, immediately to the bearer of this letter as we would no longer like to participate further,” said Devki Group in a letter to the receive manager.

Mr Raval had in June last year pulled out of the Mumias bid after political leaders from western Kenya questioned the process of reviving the miller. However, he participated in the exercise again after the fresh bids were called. The steel tycoon was planning to inject Sh5 billion to revive the once giant miller.

The High Court in December suspended the leasing of the firm to Sarrai after Tumaz & Tumaz, a company associated with Kenyan investor Julius Mwale, challenged the process.

Lender barred

Tumaz & Tumaz had requested a stay order against the receiver-manager Ponangipalli Venkata Ramana Rao, his servants, agents, principal and employees from executing any lease agreement or contract in respect to the leasing and operation of the assets of Mumias Sugar Company Limited, citing a lack of transparency in the process.

The court will start listening to these court cases this week.

Mumias was in September 2019 placed under receivership by KCB Group #ticker:KCB to protect its assets and maintain its operations. The lender has been barred from auctioning the plant to secure assets used as security for other loans, prompting it to turn to the lease option.

Mumias owes Proparco Sh1.84 billion secured using the electricity generation plant, Ecobank Sh1.77 billion on the ethanol plant, and the Treasury Sh2.83 billion. Banks it owes more than Sh3 billion include KCB, NCBA #ticker:NCBA and Stanbic Bank #ticker:SBIC .

[email protected]