The Mumias Sugar Company leasing plan is now the subject of two parallel legal disputes. One is a court case where one of the losing bidders has sued to challenge the legality of the procurement process that saw the deal being awarded to Sarrai Group, of Uganda. The other is a dispute filed by the same parties under the Public Procurement and Disposals Act.
Insolvency practitioners must be waiting with bated breath to hear what both the courts and the procurement tribunal will say about the powers of a receiver in such circumstances— and whether, in executing his duties under the insolvency laws, the receiver is bound to follow public procurement laws.
Remember that, technically, the government, despite being the largest single shareholder of the company, does not have much say in its fate. Mumias Sugar is insolvent and shareholder capital is in the negative. It is legally in the hands of its lenders and their appointed receivers.
We must also wait to hear what the courts will say about the controversy around the issue of the highest bidder in the leasing plan for, especially in circumstances where what is being procured is a lease on a concession, and where the financial bids are just but mere proposals and projections based on assumptions.
This is, perhaps, the most pertinent issue in this controversy because the impression out there is that, in handing over the contract to Sarrai Group, the receiver left bigger bucks on the table.
Yet the truth of the matter is that this was not an outright auction, where the bidder who put on the table the biggest amount of cash was to emerge the winner. Indeed, what bidders offered were financial proposals, not cash.
In such transactions, just the offering of big cash in your proposal is not enough. The proposals must be thoroughly interrogated for believability and bid bonds from triple ‘A’-rated banks are an important requirement.
In 2006, we learnt a big lesson when we handed over Kenya Railways to the South African businessman Roy Puffet because he presented a financial proposal with the highest concession fees and leasing terms. Three years later, it turned out that the promises he had made were worthless. He came up with one excuse after another as to why he was not able to pay the big concession fees he had proposed.
It turned out that he did not have a cent to invest in the business. He sold the concession contract to an Egyptian Company and took off to Johannesburg laughing all the way to the bank.
What we need at Mumias is a player with demonstrable capacity and experience in running large sugar mills — capable of pumping in cash in rehabilitating the nucleus plantation and committed to making local smallholder farming profitable again. We must demand a return to subsidised credit and systems where money due to farmers is not deducted to pay for corruptly procured and expensive fertiliser and other farm inputs.
Indeed, Mumias has been the pillar supporting a critical ecosystem that not only catalyses the growth of small businesses but also provides livelihood options to traders, hoteliers, transporters and rural farmers. Just pumping in money into the company without addressing the root causes of the problems will not help.
And what are the root causes of the company’s problems? It is all documented in myriad investigations and forensic audits conducted every time the company fell into problems.
We have since learnt that the much-vaunted multi-million-shilling diversification capital projects the company engaged in — including co-generation, ethanol production and water purification — were unviable ventures.
For a sustainable turnaround, you have to dismantle the nexus between distributors, transporters, directors and top managers who have made a complete mess of pricing and marketing at the company.
You have to dismantle and disperse the corrupt groups of distributors and transporters who siphoned billions of shillings from the company through inexplicable discounts, duplicated credit notes and opaque forward contracts.
Such was the capture of the company by this small group of distributors that, at one stage, about 70 per cent of the total revenue was coming from only 10 top customers. A forensic audit revealed that there was a time when 65 per cent of sugar sales were conducted by six customers.
We have read from these reports how discounts were issued arbitrarily. The quiet joke within Mumias was that anybody working in marketing, sales or distribution departments became an instant millionaire.
At the end of the day, priority must be given to supporting the sugarcane farmer. I want to hear that over-surveys of farms have stopped, that farmers are being paid on time — that they are not charged exorbitantly for transport and tractor services — that they have access to subsidised credit for cane development, and that their dues are not deducted to pay for fertiliser and other farm inputs that they did not receive.
