Sugar board inks Sh450m bailout deal with Chemelil

What you need to know:

As part of the conditions, KSB is one of the signatories of the fund and we have also issued guidelines in procurement to ensure that it is used for its intended purposes.
The loan, whose interest is said to be about five per cent, will be used to revamp the ageing factory whose state has partly contributed to the nearly 50 per cent drop in production.

Chemelil Sugar Company has received a Sh450 million bailout from the Kenya Sugar Board (KSB) to rescue it from collapse.

The country’s second largest sugar miller, which is based in the Nyando Sugar belt, has been unable to meet its obligations — including prompt payment of salaries and for cane deliveries — due to reduced sugar cane supply and an ageing factory.

This prompted the sugar board to offer the State-owned miller the package with tough conditions, including being signatory of the fund and fresh procurement guidelines.

“We thought it wise to give them the funds because it is our view that if the company collapses the farmers will be the biggest losers,” Kiptarus Kirior, chairman of the KSB, told the Business Daily in an interview. “The last time Chemelil received funds to improve efficiency from the board the monies were not used appropriately.

Conditions

As part of the conditions, KSB is one of the signatories of the fund and we have also issued guidelines in procurement to ensure that it is used for its intended purposes.

The loan, whose interest is said to be about five per cent, will be used to revamp the ageing factory whose state has partly contributed to the nearly 50 per cent drop in production.

Data provided by Treasury indicates that Chemelil was expected to return an operating loss of Sh172 million in the year to June compared to a profit of Sh140 million. It has a target to grow revenues to Sh4.1 billion in the year to June from Sh2.7 billion this year to earn it an operating profit of Sh165 million.

A high executive turnover, corruption and State interference has seen Mumias Sugar open a wider market share gap against Chemelil despite the two firms being at par in the 1990’s.

While Mumias has diversified into power production, water bottling and ethanol distillation, Chemelil relies on the volatile sugar production for growth. Delayed pay to farmers has seen them switch to rival millers like Kibos Sugar and Muhoroni Sugar, further dimming its production.

On Monday, Chemelil Sugar Company’s managing director Charles Owelle, however, denied the company was shedding jobs, adding that the Sh450 million-loan will return the miller on the recovery path.

“No permanent employee has lost their job and if there have been any personnel changes in the past it’s on the side of the casual laborers which is normal.”