Economy

Kenya handed another Comesa extension on sugar imports

sugar

A tractor transports sugarcane to a factory in Kisumu County. FILE

Kenya has once again won an extension of special safeguards on the importation of duty-free sugar from the Common Market for Eastern and Southern Africa (Comesa), giving the country more time to complete reforms in the ailing industry.

Foreign Affairs principal secretary Karanja Kibicho said Comesa’s top decision-making organ had agreed to extend the import quotas by one year.

The decision allows Kenya to limit the entry of imported sugar to 350,000 tonnes needed to meet the annual production deficit.

“Our request for extension of the safeguards was approved by the Council of Ministers and is now awaiting approval by the Comesa summit,” said Mr Kibicho on his Twitter handle from Kinshasa where Comesa is holding a meeting of its Heads of State.

Kenya’s leading sugar miller Mumias Sugar Company welcomed the decision as the right step that will enable the industry to deal with outstanding matters before the country opens up to duty-free imports.

“It gives us room to streamline our affairs,” said the Mumias Sugar managing director Peter Kebati.

Kenya Sugar Board executive officer Rosemary Mkok said the industry needed the safeguards to fully achieve market conditions Comesa has set.

“We must work to clear all the outstanding deliverables and achieve global competitiveness,” said Ms Mkok.

Kenya is required to, among other things, privatise State-owned millers, diversify the revenue chain, transit to using early maturing cane, and move away from the current tonnage-based payment for sugar cane to one that is linked to sucrose content in the cane delivered.  Only a handful of these conditions have so far been met.

Privatisation has effectively stalled because many of the State-owned firms have huge amounts of debt that need to be cleared before they are sold.

READ: Treasury writes off Sh40bn sugar millers’ debt

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.

The industry’s troubles have been worsened by the Sh10.4 billion debt it owes the government and the KSB. Nzoia Sugar managing director Saul Wasilwa did not respond to questions on the subject.

Sugar companies that are lined up for privatisation include Nzoia, Chemelil, South Nyanza and Miwani.

The sector has also faced a major challenge in its bid to venture into commercial co-generation and other forms of bio-fuel energy production because of the tough operating conditions the government has set.

“The government has not provided enough incentives to enable millers venture into co-generation despite its viability as an alternative source of revenue,” said Mrs Mkok, adding that the pricing of co-generated electricity has made the feed in tariffs unattractive.

She said that while the Energy Act provides for the E10 mandate (10 per cent blending of ethanol with petrol), the legal framework is weak on product pricing and marketing, hence acting as a big disincentive for investment in the business.

Mumias, the only miller to have diversified into alternative revenue streams, has been making losses from supply of electricity to the distributor Kenya Power.

The losses are mainly attributed to low feed in tariffs and penalties that Kenya Power charges the sugar miller for interrupted supplies.

The KSB has so far established cane testing fields in Nzoia and Sony and hopes to extend it to other millers.

Comesa’s extension of the safeguard measures comes as relief to the industry players who have been operating in an unpredictable environment clouded by a possible entry of duty-free sugar imports.

Kenya had by end of last year exceeded the maximum allowable safeguard duration of 10 years, having requested and got extensions three times.

Comesa secretary-general Sindiso Ndema Ngwenya, who was in the country a fortnight ago, promised Kenya an extension after he met President Uhuru Kenyatta.

“Cheap sugar imports at this time when our sugar industry is facing a myriad of challenges does not augur well for our cane farmers. A little more time will help address the issues that have held down the sector,” Mr Kenyatta told Mr Ngwenya.

The announcement, which was made during the 32nd meeting of the Comesa Council of ministers this week, prolongs the safeguard measures that were due to expire Friday. 

A team from the Comesa council was in the country last month to assess Kenya’s progress in meeting the conditions that were set prior to granting the safeguards.

The Comesa window was first introduced in 2003 and Kenya was given a four-year waiver, with the subsequent extensions in 2007 and 2011.

Initially, the treaty provided for a maximum of eight years but was amended in December 2007 to help Kenya avoid contravening Comesa Trade Remedy Regulations.