Mumias row raises fears of meddling in private firms

Last week, the High Court in Kakamega reversed an order that had allowed Sarrai Group to resume operations at Mumias Sugar Company #ticker:MSC .

This is after the judge said he was informed of the possibility of his previous decision to allow the company to resume operations conflicting with directives issued by two other courts. This is not the first case challenging the Mumias lease — there are four filed by different parties.

For a period of time, Mumias Sugar Company was one of the largest sugar manufacturers in Kenya, with a cane crushing capacity of 7,000 tons per day, and a distillery/ethanol plant with a capacity to produce 80,000 litres per day.

Financial difficulties

From 2015, the company started experiencing financial difficulties and it pursued various recovery strategies but failed to keep the company afloat.

In 2019, KCB #ticker:KCB one of the secured lenders of Mumias placed the company under receivership after seeing that the financial position of Mumias wasn’t changing. At the time, Mumias owed creditors about Sh30 billion.

Now, the greatest concern about Mumias is whether it’s a private or public company?

When the company was placed under receivership by KCB, politicians from the area were up in arms that KCB had no authority to put the company under receivership and questioned why the creditor didn’t involve them when making that decision.

I remember discussing this issue with one of the politicians from the area on a panel at the time. I tried explaining that Mumias is a private company and the creditor had no reason to involve any local leader because it has the right in law.

If the leaders from that area had concerns to raise with the management, the appropriate channel was to take them to the Treasury, which has a representative on the board to take care of public interest.

But the politician was ferociously convinced that leaders from the area needed to have been involved before the company was placed under receivership and vowed to block the receiver-manager from taking over the operations of the company.

Last year when the receiver-manager proposed that the industrial assets of Mumias be leased, the same politician raised questions before the Senate.

His four grounds were about the current state of the company’s assets and liabilities, the fate of the current receiver-manager and the decision to lease out the company, the company’s revival plan and why stakeholders were not consulted.

One would have expected that the Senate would stand guided that looking at the issues raised and the fact that Mumias is a private company, the matter would have been set aside. Instead, the matter went ahead before the Senate Agriculture Committee.

The committee even went ahead and summoned the receiver-manager whose powers emanate from the debentures under which he was appointed — meaning he is there to preserve the interest of lenders and creditors.

It was clear that the Senate was interfering and meddling in the operations of a private company which should not be the case. It shouldn’t be lost on us that Devki Group in fact withdrew from the bidding process at the earliest stage citing interference by politicians in the area.

But the concern about whether Mumias Sugar is a private or public company gets more convoluted when the court cases are filed against the leasehold by various entities questioning the decision by the receiver-manager to award the lease to Sarrai Group.

The fact that the cases have been admitted in court raises the question whether a private company can be taken to court challenging its bidding process. Can Safaricom, for example, be challenged in court when it awards a tender?

The same question can be asked of KCB, which is the creditor in this case. These companies are similar to Mumias in the sense that they are private entities in which the government holds shares. What makes these companies different from Mumias when it comes to the bidding process?

It is interesting to note that a majority of stakeholders, including all secured lenders — KCB, Absa Bank Kenya Plc and Stanbic Bank of Kenya — the County Government of Kakamega, the Treasury and the staff union, were in agreement with the decision of the receiver-manager. So, under what law can a loser in a bid challenge a private company when it loses the bid?

Not state-owned

It is also worth noting that when the Mumias leasing case was filed at the Public Procurement and Asset Disposal Tribunal challenging the decision of the receiver-manager the tribunal dismissed the case saying that Mumias was not a State-owned company required to be subjected to the Public Procurement and Asset Disposal Act.

So, the handling of Mumias since KCB exercised its rights to put it under receivership leaves two questions.

First, is Mumias a public or private company? Second, if it is a private company, are we setting a precedent where we will be seeing tender awards by private companies being challenged in courts?

Watima is an economist and a Business Daily columnist