Plan to write off sugar debts hits snag over lack of funds

October 17, 2008: The restructuring of the troubled local sugar industry faces extended delays following revelations that Treasury is not able to write off debts owed to the government by millers.

It was claimed on Thursday that action on a Cabinet paper prepared by the Agriculture ministry for the debt’s cancellation had been held back by Treasury, which is pleading lack of funds.

Failure to clear the debts would reverse the gains towards meeting the recommendations of the Common market for East and Southern Africa (Comesa) in extending the safeguards to 2012.

Agriculture minister, William Ruto has been talking of writing the Sh47 billion debts by sugar companies before the year ends.
KSB chairman Zachary Obado on Thursday said that Kenya would seek for the extension of the Comesa free trade area safeguards on sugar imports beyond 2012 if the debts are not cleared.

“If by 2012 we shall not have attained the competitive edge, then we shall ask for more time,” Mr Obado said on the sidelines of a sugar Campaign for Change (SUCAM) workshop in Kisumu.

He said that it would be “illogical” to subject the local industry to competition from Comesa before it stabilises.

“We can only open our doors fully to Comesa imports when we are stable. Otherwise, the imports will kill our own industry and make sugar damn expensive in the long run.”

Writing off the debts was one of the key pillars in the restructuring process of the local sugar industry.

Millers whose privatisation is on hold are Nzoia, Chemelil, Muhoroni and Sony factories run down by years of mismanagement and political interference in the leadership.

The companies were set to go for sale within 12 months of Comesa safeguard extension, which began in February this year.
Mr Obado reiterated the sentiments saying that any meaningful reform hinges on the government endorsing the bail out plan before the government-owned millers can be privatized.


Non-performing millers
“The Government is keen on privatising the non-performing millers but as things stand now the companies cannot attract any serious investor because they are heavily indebted,” said Mr Obado.

Mr Obado disclosed that several investors have expressed willingness to put their funds in the local sugar industries but they were waiting for the debts scared of the debts.

Miwani has received six suitors while Muhoroni got seven, he disclosed.

“KSB is lobbying to have the debts dropped as soon as possible. This is the opportune time to write off the debt and if we fail to get this done then we can as well forget about it,” said Mr Obado.

The KSB chair warned the government that the millers would also continue recovering loans from farmers until the debts are cancelled.

“The government must do everything it possibly can to ensure that cane farmers do not take the same route taken by tea and pyrethrum farmers of uprooting the crop.”

At the same time, the KSB boss lamented that the regulatory body was not in a position to strictly implement the recommendations of the Sugar Act (2001) fearing that such an action could wipe away the heavily indebted millers.

Should the millers get on their right footing, he said, KSB would start charging penalties for delays in paying farmers for cane delivered.
source:bdafrica