Puzzling turn of events at Mumias as Ruto pledge at odds with lease deal
The entrance to Mumias Sugar Company.
When President William Ruto picked up the microphone in his address to Kakamega on Wednesday, it was largely expected that he would address the woes surrounding Mumias Sugar, whose collapse has caused a lot of misery to thousands of residents.
The bombshell that would follow – that the government will settle all Mumias Sugar’s debts and revive the firm – has set in motion an interesting series of events that may include booting of Uganda’s Sarrai Group from management of the mill’s management.
Mumias Sugar’s assets were leased to Sarrai Group in December 2021 in a move that would puzzle many, as the Ugandan firm was among the lowest bidders. The deal also sparked several court battles that remain unresolved.
Despite helping Mumias Sugar’s brand grace retail stores for the first time in several years, questions remain on whether the Sh6.2 billion financial promise by Sarrai Group will be enough to settle the firm’s debts.
But how did Ponangipalli Venkata Ramana Rao, the man appointed by KCB as receiver manager and by the courts as an administrator, accept a bid seven times lower than the highest proposal? The decision may have led Mumias into a long-drawn execution, as it suffocates under a debt portfolio of over Sh20 billion.
Strategic investor
President Ruto in Kakamega added that his administration is shopping for a strategic investor who will have to give the county at least Sh100 million monthly towards social development.
“For a long time the government has used a lot of funds, nearly Sh5 billion, but the company (Mumias Sugar) is still stuck. Kakamega residents have sacrificed 8,000 hectares (19,768 acres) and it should bring some benefit. Other than employment for locals, there has been no other financial benefit from Mumias Sugar [to residents]. It has just become a dumping ground for government funds,” Dr Ruto said.
“I directed that the government settles all Mumias Sugar debts. We shall do the same for Nzoia Sugar. Secondly, we shall look for a strategic investor and have an agreement beforehand that every month Sh100 million be handed to the people of Kakamega. We shall sit down with the county government to agree on whether the funds will go towards constructing roads, hospitals or providing scholarships. And that is my commitment.”
The President’s words may come as music to the ears of creditors, including sugarcane farmers, whose debts have remained unpaid for years while growing on account of interest.
But for Sarrai Group, what does this mean for its 20-year lease?
Kenyans woke up to freshly packaged Mumias Sugar on supermarket shelves on Tuesday, and the nostalgia gave some hope that a sleeping giant felled by runaway corruption, theft, book cooking and bad governance had awoken.
Two months ago, the courts allowed Sarrai Group to resume its 20-year lease of Mumias milling equipment and brand as part of a plan to repay debts owed to creditors, with KCB demanding Sh2.6 billion in defaulted loans. Sarrai’s deal will see the Ugandan firm squeeze out Sh6.2 billion from milling operations, assuming no major hiccups emerge in the 20-year period, a seemingly difficult scenario going by global and local shifts in economy and politics.
The lease was signed during Mr Rao’s the controversial tenure, which was revoked by the High Court in 2021. KCB appointed Mr Rao in 2019 shortly after Kimeto & Associates Advocates filed an insolvency petition against Mumias Sugar, which was unable to pay the law firm Sh76 million in legal fees.
Mr Rao’s stint and attempts to return to management at Mumias have ruffled feathers. He has been at loggerheads with other creditors that claim they have been locked out of information regarding the mill’s financial affairs. Dubai-based Vartox Resources Inc and France’s Proparco are among creditors that have not had a cordial relationship with Mr Rao. Vartox, in court papers, has accused Mr Rao and KCB of attempting to keep Mumias in a debt trap at the expense of the other creditors.
While one of East Africa’s biggest consumer brands returning to the shelves may seem exciting, court proceedings indicate that Mumias Sugar may have walked into a long-drawn execution. As of today, it owes creditors over Sh23 billion. And that bill is post-reprieve from the taxman who waived Sh11 billion in unpaid levies.
That means the Sarrai deal will at best settle 26.9 per cent of Mumias Sugar’s debts. The implication under terms of the lease is that creditors would have to wait for nearly a century to recover all their funds.
Controversial bid
Perhaps the biggest worry for creditors is the fact that the Ugandan firm was one of the lowest bidders in a secretive and controversial process overseen by Mr Rao. The President’s promise has also fallen in line with a petition filed by Busia Senator Okiya Omtatah, who, last year, sought to have the Treasury compelled to revive Mumias after booting Mr Rao from its affairs. Mr Omtatah had also faulted the selection of Sarrai to lease Mumias Sugar’s assets and equipment, arguing that the procurement process was shadowy.
Mr Rao’s appointment and management decisions have since attracted at least eight separate court cases.
His assessment was that the only way out for Mumias Sugar was to lease out its business and use funds from the deal to repay creditors. The initial attempt drew the attention of the Narendra Raval-associated Devki Group, which was willing to pay Sh60 billion over the 20-year period.
But when pressure mounted for the contract details to be made public, the Devki Group backed out.
Mr Rao initiated a fresh process that attracted six firms. The Jaswant Rai family-owned West Kenya Sugar submitted the highest bid with Sh36 billion on the table. Tumaz and Tumaz Enterprises, the company associated with US-based Mwale Medical and Technology City investor Julius Mwale, offered Sh27.6 billion for the bid. The others included a consortium led by Turkish and French consortium Kruman Finances (Sh19.7 billion), Kibos Sugar (Sh5.9 billion) and India’s Pandhal Industries (Sh5.9 billion).
Mr Rao dismissed West Kenya’s bid on claims that the firm would have become a dominant player. His averment has been questioned in court, as West Kenya argues that such a pronouncement can only be made by the Competition Authority, which was not involved in the process.
Mr Rao added that West Kenya’s financial bid did not make sense as it would have to crush an impossible amount of sugarcane to meet the Sh36 billion lease price quoted.
Sarrai Group will now be expected to remit Sh19.5 million to the Mumias Sugar administrator every month.
West Kenya’s bid would have amounted to Sh150 million monthly, while Kruman Finances would mean Sh70 million monthly. The other bidders would have been at under Sh30 million monthly.
Interestingly, the complex deal was negotiated and signed within one day of Sarrai being declared the best bidder. The leasing deal has also unearthed past dealings between KCB, Mr Rao and some of the key individuals behind Sarrai Group.
KCB appointed Mr Rao as administrator of TSS Grain Millers in 2016 after the firm failed to repay its loans. Aside from land, TSS Grain Millers also owned milling equipment, silos and vehicles.
Mr Rao dismissed a Sh810 million bid for some of TSS Grain Millers’ assets in 2017.
In 2019, just months before taking over Mumias affairs, Mr Rao sold the same assets to Jamii Flour Millers for Sh350 million, less than half the bid made just two years earlier. Jamii would change its name to Ustawi Grain Millers. The firm is owned by Sarbjit Singh Rai, Amaanraj Rai and Rajbir Rai who are also the faces behind Uganda’s Sarrai Group.
On April 14, 2022, High Court judge Alfred Mabeya cancelled the Sarrai Group contract and ordered that Mr Rao step aside to allow an independent administrator. Among the documents that led to Justice Mabeya’s decision was an affidavit detailing Mumias Sugar’s finances at the time Mr Rao had been in charge. Mr Rao indicated that Mumias had made Sh800 million, but none of those funds had gone into repaying any part of KCB’s debts.
But the firm went ahead and took an overdraft of Sh200 million from KCB, further digging the hole Mumias Sugar currently sits in.
Mistrust
Part of Justice Mabeya’s reasoning was that Mr Rao’s two-year stint had yielded zero results and created mistrust with other stakeholders, as he was largely loyal to KCB only. KCB and Mr Rao appealed against the decision and obtained suspension orders. Three months later, Mr Mabeya backed out of the case, saying some parties had filed complaints against him, including at the Judicial Service Commission, over his handling of the matter. He did not, however, name the complainants. Justice Dora Chepkwony has taken over the case, and is expected to soak in as much pressure as Mr Mabeya in reaching a final determination.
In the meantime, the suspension of Justice Mabeya’s decision has become the new battlefront. Mr Rao handed over Mumias affairs to the new administrator – Kerato Marima – in May but now argues that the suspension of Mr Mabeya’s ruling means he should still be in charge.
His initial appointment as receiver manager was to expire on November 19, 2022. Three days before the date, Mr Rao filed an application before Justice Chepkwony seeking to extend his appointment as administrator. Ms Chepkwony has dismissed the application, which could now also move to the Court of Appeal.
For now, Sarrai Group is in control of Mumias Sugar’s equipment and milling business. The group was founded in 2017. Its owners also have majority control of Hoima Sugar Limited and Kiryandogo Sugar Company in Uganda.
