Inside State’s mega plans to revive the ailing sugar sector

Plans by the government to turn around the fortunes of State-owned sugar factories involve waiving of debts of struggling millers in Western and Nyanza regions and the leasing out of five millers.

The revival strategy involves addressing the litany of management woes that have crippled operations over the years, the waiving of debts amounting to billions of shillings and ensuring availability of adequate supply of raw material to sustain milling operations.

The government has indicated it has written off debts amounting to Sh62 billion owed by the sugar factories.

The millers targeted for the long term lease model, which will transfer the right of use of each factory to the lessee, are Chemilil Sugar, Miwani Sugar (in receivership), Muhoroni Sugar (in receivership), Nzoia Sugar and South Nyanza Sugar companies.

Sugar Bill

While touring Western region two weeks ago, Agriculture Cabinet Secretary Peter Munya asked MPs to support and pass the Sugar Bill sponsored by Kanduyi MP Wafula Wamunyiyi,  which he said would give a clear road map for the revival of the sugar sector if enacted.

The bill seeks to empower Agriculture CS to impose levy on domestic and imported sugar.

To many players in the sugar industry, the disbandment of the Kenya Sugar Board (KSB) and the scrapping of the Sugar Development Levy (SDL) pushed the sector in a quagmire since the fund, which was advanced to millers for cane development, was no longer available.

SDL was started in 1992 as the only source of loans for cane development. The levy financed subsidised fertiliser as well as the construction of roads and bridges in the sugar belt. And just months before it was dropped, it had become a source of bailout cash for millers in financial distress.

Mr Julius Nyarotso, a former director at the defunct KSB, blamed the lack of a legal framework for the decline of the sugar subsector.

“The lack of regulation created confusion and chaos in the sugar sectors, leading to conflicts between public and private millers because of cane poaching in the sugar zones,” said Mr Nyarotso.

“We need to go back to the drawing board and address the shortcomings, which have contributed to the woes in the sector. At the moment, the country is facing shortage of raw material and this means that millers cannot sustain their operations and meet the local demand for sugar,” said Mr Nyarotso, stating that implementation of recommendations of the sugar task force would help fully turn around the fortunes of the troubled sector. On the other hand, Kisumu-based private miller- Kibos Sugar and Allied Industries Ltd say the repeal of the Sugar Act 2001 in 2013, which resulted in the dissolution of KSB, heralded the creation of disaster in the sugar industry.   The board was brought under the Agriculture and Food Authority in the Ministry of Agriculture.

Kibos Managing Director Bhire Chatthe says the Crops Act 2013 removed the sugar board and effectively closed off the participation of stakeholders in the sector from any decision making.

“The repeal of the Sugar Act 2001 also resulted in utter confusion and lawlessness in the sector, which had hitherto been under clear laws of operation and engagement,” said Mr Bhire.

“The other issue was lack of clarity in imports, exports and by-products of the industry — an over-importation of sugar into the country particularly in 2017 when the government allowed reckless importation of all types of sugar with no control over the quality or quantity,” he said.

“The lack of clear laws and regulations and dearth of adequate controls in the sector also resulted in severe erosion of investor confidence,” he observed, adding that there was inadequate control from the authorities and stakeholders locked out in the management of the industry.

Large importations of sugar into the country also destabilised the local market for millers and sugarcane farmers, according to the Kibos MD. Players say for millers to be sustainable, they need to invest aggressively in cane development programmes to ensure adequate supply of raw material.

Millers should also move away from relying on sugar production and diversify into co-generation to break even in their operations.

Switch to irrigation

Mr Nyarotso states that for sugar millers to survive, they should stop over-relying on rain-fed cane farming and switch to irrigation in sugar schemes to improve supply of raw material.

The planned lease-out of the millers targets to increase competitiveness and effective service delivery in sugar sector, which serves as a source of income for over 400,000 smallholder farmers who supply over 90 per cent of the raw material to the millers.

Modernisation

The leasehold period for the investors who qualify is 25 years.

Interested investors (individual or consortium) both local and international have been invited to submit their expression of interest in providing the service.

The objective is to facilitate turnaround of these sugar companies to profitability through modernisation and efficient management, which will in turn enhance competitiveness in Kenya, East African Community, Comesa and the global sugar market, according to the Agricultural and Food Authority (AFA).

In preparation for this, the government through the authority has began the programme  through approving the restructuring of the balance sheets of each sugar company.

The restructuring of the balance sheets involves writing off of debts owed by the millers to the former Kenya Sugar Board/Commodities Fund as at December 31, 2019.

The other debts being written off are those of farmers owed to the former Kenya Sugar Board/Commodities Fund as at December 31, 2019.

The government has further written off tax penalties and interest as at June 30, 2009 and any additional interest and penalties that have accrued since then.

Reported by Victor Raballa, Benson Amadala and Caroline Wafula