This commentary covers three issues. First, the receivership, fate and shenanigans surrounding Mumias Sugar Company.
Secondly, what happened during the receivership and liquidation of Webuye-based Panpaper and the lessons we should have learned from that process vis-à-vis the Mumias transaction,
Finally- the do's and don’ts which we must observe when procuring concessions or leases of State owned sugar companies.
When researching the subject, I came across an October 2014 letter by Ian Small of the insolvency practice, Begbies Traynor Ltd, who were the receivers of Panpaper, to then minister for Industrialisation and Enterprise Development, Aden Mohammed.
That letter disclosed interesting details. First, that two companies, namely, the Rai Group and Juja Pulp and Paper, had emerged top on the list of companies that bid to buy Panpaper.
Secondly, the Rai Group ranked top with a best and final offer of Sh1.1 billion, compared to Juja Pulp and Paper’s Sh1 billion. Thirdly, as the receiver was preparing to sell the company, the Rai Group unilaterally brought down its offer to Sh900 million.
I will not go into the details of the correspondence because most of the information is not germane to this discussion. The anticlimax of the saga came when the receivers abruptly resigned, citing political interference and alleging that the government had shown bias and preference towards the Rai Group despite the fact that their revised offer was below what Juja Pulp and Paper had tabled.
As it turned out, the Rai Group clinched the deal. Today, more than eight years later, Panpaper is yet to resume full operations. From a workforce of nearly 2,000, the complement today is below 300.
What are the lessons?
First, I think the Panpaper transaction shouldn’t have been arranged as an outright sale of assets to a private player. We must not forget that billions of taxpayer shillings were deployed in attempts at reviving Pan Paper because the government did not want to see a company that supported such a massive economic ecosystem in the Webuye region close down.
The advantage of a concession or a lease is that you can spell out clear performance obligations, benchmarks and timelines-including an investment plan.
In a concession agreement, the government is at liberty to introduce termination clauses and to establish an institutional mechanism and framework for monitoring performance.
Personally, I don’t buy the argument that the reason we ended up with too many court cases on the Mumias receivership and leasing matter was because the receiver gave the leasing contract to the lowest bidder.
When you are procuring a concession or a lease, what matters most is not the bidder who is offering you the highest concession or leasing fees.
This is the lesson we learned in 2016 when we handed over Kenya Railways to South African Roy Puffet- just because he offered the highest concession fees.
He sold the leasing contract to vultures out of Egypt and took off to Johannesburg laughing all the way to the bank.
In the Mumias concession, it would have been foolhardy for the receiver just to look at the big cheques being offered without looking at the bigger picture- how the leasing arrangement was going to impact the perennial fights for cane between existing millers.
Indeed, Mumias itself has had explosive fights and court cases with West Kenya over allegations of cane poaching. In 2013, the parties had to fight it out in court with West Kenya accusing Mumias Sugar of impounding its tractors and lorries.
Anarchy reigned in the area for several months and the provincial administration had to be called in to mediate between the two companies.
Butali Sugar Company was licensed to construct a mill at Malava in April 2015. By filing multiple cases-mainly constitutional and judicial reviews- and through other dilatory tactics, West Kenya Sugar blocked this new competitor from starting to mill by keeping it in court in endless litigation.
The case of the Busia Sugar Industry is more illuminating in this regard. Licensed to construct a milling plant at a location known as Bukhayo Matayos in July 2012, the company could not start operations because of endless litigation and court battles with West Kenya which questioned the validity of both the milling licence and the approvals Busia Sugar received from Nema.
Impact on the competitive environment and perennial fights over cane poaching was inevitably going to be an important consideration in deciding the winning bidder.
Predictably, the political pressure President William Ruto has exerted on Jaswant Rai and other parties involved in the Mumias saga has been widely criticised as unlawful and unconstitutional.
Yet we had all lost count of the number of court cases. The answer to the revival of Mumias will not come from those black-robbed judges and the lawyers in grey suits sitting in wood-panelled courtrooms. This was lawfare. Pure and simple.
The writer is a former managing director of The East African.
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