It was understood that President Uhuru Kenyatta’s administration wants plans to write off a Ksh40 billion ($465.1 million) debt owed by five state-owned sugar companies reviewed.
If parliament and the government resolve not to bail them out ahead of their privatisation, then investors will have to repay the loans.
Thirteen major hotels, five sugar millers and two commercial banks are among the state-owned firms, which have been lined up for sale.
Kenyan sugarcane farmers and other debtors waiting for payments from ailing factories will continue to suffer after the government put on hold a bail out plan.
It was understood that President Uhuru Kenyatta’s administration wants plans to write off a Ksh40 billion ($465.1 million) debt owed by five state-owned sugar companies reviewed.
It has emerged that two parliamentary committees steering the process were against a bail out before parliament debates and agrees on the way forward. This was partly the reason Kenya had to seek another sugar safeguard extension from Common Markets for Eastern and Southern Africa (Comesa).
Late last month, Comesa agreed to extend the import quotas by one year to protect the local industry from cheap imports, giving Kenya more time to reform the ailing industry.
It is also said that President Uhuru Kenyatta’s administration is keen on executing his own plan instead of endorsing a process that had been started by his previous government.
The decision to cancel debts owed by Chemelil, Muhoroni, Sony Sugar, Nzoia and Miwani was approved by Mwai Kibaki government but has been put on hold to give the Committee on Finance, Planning and Trade and the Committee on Agriculture, Livestock and Co-operatives to recommend to parliament on how the privatisation should be done.
If parliament and the government resolve not to bail them out ahead of their privatisation, then investors will have to repay the loans.
Some analysts fear that getting investors ready to buy the companies and also repay the debts could prove difficult, making it almost impossible to privatise them within the one-year deadline granted by Comesa.
It is also feared if the government fails to inject money into the firms, farmers who are owed millions of shillings may fall further into poverty and even abandon the crop, a move that might have major ramifications to the economy, including loss of jobs and even possible collapse of the critical industry.
Miwani is closed while Muhoroni is under receivership. Chemelil, Nzoia and Sony are, however, running but their financial performance has been hit by massive debts.
“The debts have not been cancelled because the Grand Coalition Government did not move to the next level. Farmers are still suffering because of delays in payment,” said Saulo Busolo, a director of the Kenya Sugar Board. “We should be fair to all and also cancel the debts just as we did for the coffee sector to allow a smooth takeover by the private sector,” said Mr Busolo.
In 2012, the Treasury rescued the Kenya Planters’ Co-operatives Union out of receivership with a Ksh1.2 billion ($13.95 million) package that was sanctioned by parliament.
Efforts to get a comment from Cabinet Secretary for Finance Henry Rotich and Investment Secretary Esther Koimett, over bail out of sugar companies proved futile.
However, the Agriculture Committee chairman Adan Noor said both committees were in agreement that no money should be spent on the sugar firms before all contentious issues are discussed and resolved by parliament.
“The government has been involved in bailing out these companies for a long time. This time round we told Treasury to suspend any funding until all issues are ironed out,” said Mr Noor.
The vice chairman of Finance Committee Nelson Gaichuhie, said parliament was against the government’s involvement in the management of sugar companies.
“The companies should be sold. In fact, we have agreed that government should not put any money to revamp them,” said Mr Gaichuhie adding his committee was pushing for the full privatisation of the sugar companies. Parliament is expected to debate and approve the privatisation of the companies in the coming months.
The sale of the sugar firms is part of a wider plan by the government to sell stakes in several state-owned companies to raise funds to plug a rising budget deficit. Treasury projects a Ksh291.5 billion ($3.4 billion) deficit in the next financial year, which begins in July.
Thirteen major hotels, five sugar millers and two commercial banks are among the state-owned firms, which have been lined up for sale.
Early last year, the government announced it would write-off Ksh40 billion ($465.1 million) debt owed by the five companies ahead of the privatisation. This was seen as a step in making the firms attractive to private investors.
Late last year, Agriculture Minister Felix Koskei, said the five millers had an accumulated debt of Ksh45 billion ($525 million), owed to the government and industry regulator.
The government has for years adopted a protectionist approach but the efforts have failed to turn around the sugar companies and make them competitive.
The country is required to allow free import of sugar once the Comesa window expires in February next year. This is the fourth extension Kenya has so far received.
Sugar importation from Comesa member states is capped at 200,000 tonnes to cancel the deficit in supply, since the country produces about 500,000 tonnes of the 700,000 tonnes it requires annually.
To protect the East African sugar industry, the five East African countries agreed to imposed 100 per cent import duty on illegal sugar imported into the region through the EAC Common External Tariff.
Despite the measures, all the countries still suffer illegal importation of sugar, which has also been blamed for stifling the growth of the local industries and impoverishing farmers.
Economists say the cost of sugar is expected to fall once the restrictions are removed, which is expected to benefit consumers who currently pay triple the world price. However, it is feared that farmers may suffer heavy losses if not supported during the transition period.
According to the Privatisation Commission, a detailed proposal has already been submitted to the government for approval in line with the Privatisation Act.
“It was important to let the new leadership take over and also the new Parliament to acquaint itself with the process and approve it. We also needed to accommodate the points of view of the county governments in line with the new Constitution,” said Agriculture Principal Secretary Cecily Kariuki.
All the East African states are sugar deficient and rely on imports to meet the rising demand.
Rwanda, for example, has only one sugar producer in the country, Kabuye Sugar Works, which was taken over by the Madhvani group through a privatisation process.
It is estimated that the factory produces less than 35 per cent of the country’s needs. Uganda, on the other hand, consumes about 350,000 tonnes of sugar annually, but supply has also been erratic.
Uganda Sugar Manufacturers Association forecasts the demand to double by 2030. Plans to give 7,100 acres of Mabira forest to the country’s third-largest producer, Sugar Corporation of Uganda Ltd, to expand its cane stalled after protests from environmentalists.
Early last year, The Sugar Board of Tanzania (SBT) announced the importation of 50,000 metric tonnes of sugar to plug a deficit that had pushed up the prices of the commodity.
Tanzania’s annual sugar consumption stands at 480,000 tonnes but the country’s main producers — the Tanganyika Plantation Company (TPC), Kilombero Sugar Company Ltd in Morogoro region, Mtibwa Sugar Estates also in Morogoro and Kagera Sugar Ltd in Kagera region — only manage to produce an average 400,000 tonnes annually.
The cost of sugar production is highest in Kenya as it costs almost twice as much (at about $500 a tonne) compared with Tanzania and Uganda. The cost of production is even higher when compared with major exporters such as Zambia, Swaziland and Egypt.
Studies conducted by Kenya Institute for Public Policy Research and Analysis show the average productivity per hectare in Kenya is 60 tonnes, almost half the figure in Zambia (113 tonnes) and Malawi (105 tonnes).
