Economy

House recess hits sale of State’s stake in five sugar companies

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Privatisation Commission chief executive Solomon Kitungu. Photo/FILE

The planned sale of a 51 per cent stake in the five government-owned millers has been hit by further delay after Parliament went on recess before approving the deal.

The Ministry of Agriculture had indicated that bids for the long-delayed sale of the millers would be floated by end of April as the sector races to complete reforms aimed at making its sugar industry competitive.

“Parliamentary approval is still awaited. We can’t move forward without it,” said Privatisation Commission chief executive Solomon Kitungu.

Parliament will resume on June 3 after starting recess on April 30. This leaves the sugar industry in a tight spot because of the limited time it has to complete key reforms.

Kenya is expected to fully open up its market to imports from the Common Market for Eastern and Southern Africa (Comesa) states after more than a decade of an arrangement that allowed it to charge high tariffs on sugar imports to protect its cane farmers.

Kenya was in February granted a one-year extension of safeguards that limit sugar imports from Comesa to allow the country improve competitiveness of its sugar industry.

The tariffs were scheduled to fall to zero in March, but Kenya sought an extension until 2015 to conclude key reforms in the sugar sector.

“We hope the approval process will be concluded fast enough when Parliament resumes,” said Ayub Savula, a member of the parliamentary Committee on Agriculture.

“There is a loaded agenda on debating and approving the national Budget when the House resumes but we hope the sale of the millers will also be given priority.”

The government plans to sell a 51 per cent stake in five sugar companies to strategic investors and reserve another 30 per cent for farmers, the official said.

The government will then sell the remaining 19 per cent stake in the Sony, Chemelil, Nzoia, Muhoroni and Miwani sugar companies in an initial public offering once the factories are profitable.

Critics have blamed high cost of production for the woes facing Kenya’s sugar industry. The poorly funded government-owned factories have aging machinery. The roads in most sugar cane growing areas are also in bad shape.

The sugar millers posted a collective loss of Sh6.1 billion in the year to June. A sessional paper on writing off their debts amounting to Sh42 billion was approved by MPs last January, removing one of the hurdles in the sale of the millers.

Industry regulator, Kenya Sugar Board estimates the cost of producing a tonne of sugar at about $570 (Sh50,000) in western Kenya compared with $240-$290 (Sh21,000-25,000) in rival producers such as Egypt.

Kenya has an annual sugar deficit of around 200,000 tonnes, which is usually filled by imports from producers in the region.

The sector has an installed factory crushing capacity of 30,109 tonnes of cane per day and expects an additional 3,000 tonnes to be added when a factory being built near Mombasa starts operations.