Sugar barons turn the heat on minister Ruto

Sugar industry’s fortunes were last week hanging on a thread following a fresh outbreak of a legal tussle between the Attorney-General’s office and the Agriculture ministry.

The two are warring over a demand by the Attorney- General that the ministry complies with a December court order extending the freeze on new sugar import rules that Agriculture minister, Mr William Ruto, published in October last year.

Complying with the court order means huge consignments of imported sugar that have been lying at the port of Mombasa — having been blocked from entering the domestic market — will be allowed in, depressing retail prices and slowing down movement of stock from local millers with far reaching implications on growers’ earnings.

Mr Ruto had cancelled all licences issued to importers and established a new auction system to shield Kenya’s fragile sugar industry from a perennial swamping by cheap imports.



That move was, however, fiercely contested by importers, who successfully sought court orders barring the minister from enforcing the ban.

But the Agriculture ministry has been acting in defiance of the court order, forcing the AG’s office to demand compliance.

By close of business last Friday, the ministry had stuck to its earlier position, saying compliance with the AG’s orders would undermine ongoing sugar sector reforms.

“As far as we are concerned the rules are clearly spelt out in the gazette notice issued by the minister and we are sticking to them,” Mr Okoth Obado, who chairs the board of the sugar sector regulator, Kenya Sugar Board (KSB), said in reaction to the letter from State Law office.

He said that the board, through its legal office, would contest the AG’s position to avoid “losing ground in the fight against sugar barons.”

Frequent glut
At stake is a multi-billion shilling business that has been blamed for the frequent glut in the domestic sugar market and its weakening of the local millers’ ability to undertake reforms to improve the industry’s competitiveness.

The battle against Mr Ruto’s ban on imports started in earnest on October 3, last year when High Court judge Roselyn Wendoh granted Mat International, a sugar importer, a 45-day leave to begin judicial review proceedings on the new regulations.

The orders were extended on December 2 until February 2009 when the application will be heard. But the KSB has continued to act in defiance, forcing the AG’s office to act.

“You should therefore facilitate importation of the said sugar by all importers who qualify including the applicants to avoid protracted litigation on the issue at the public expense,” senior deputy Solicitor-General Muthoni Kimani said in a letter to the Agriculture permanent secretary, Romano Kiome, and KSB and dated January 20, 2009.

Kilimo House, the ministry’s headquarters, fought the first round of sugar imports war barely a month after Mr Ruto published the new rules.

The AG’s office warned that the rules posed the danger of sparking off a diplomatic tussle with Kenya’s Common Market for Eastern and Southern Africa (Comesa) partners who may see them as non-tariff barriers to trade.

In a letter to Dr Kiome, Mr Wako said the rules contravened “the wording and spirit of the Comesa Treaty and particularly Article 49.”

Beside, warned the AG, the regulations posed the danger of lengthening import procedures, and thus constituting non-tariff barriers that are prohibited by the Treaty.

The latest war between the two arms of government stems from judicial proceedings by Mat International, a sugar importer, against the ministry and KSB over the new import and export rules that were gazetted in October 2008.

Mr Ruto published the rules, which among other things established an auction system for sugar import licences to rid the process of corruption.
Unlike the past when dealers were licensed to import and export sugar depending on prevailing demand, the minister ruled that the traders would be granted annual permits with specific consignment volumes.

This effectively meant that applicants for such permits would be required to state up front the amount of sugar they intended to ship in or out of the country in any given year and include such specifications in their request forms.

Under the new rules, such permits are not transferable to third parties while a manufacturer wishing to procure refined sugar locally from another manufacturer would be required to get permission from the industry regulator. But his radical measures immediately drew the attention of the importers causing Mat International to file a case against the minister and KSB.

Even as KSB mulled over its latest stand off with the State Law office, the Business Daily has established that it was also fighting to contain suspected fraud at the port of Mombasa.

Last week, it was reported that some individuals had attempted to secure the release of huge consignments of imported sugar at the port using forged documents.

“Investigations are ongoing to establish the source of forged documents said to have come from KSB authorising the release of 7,000 tonnes of sugar from the port,” Mr Obado said.

Kenya enjoys a preferential trade arrangement on sugar with Comesa. Though the arrangement was meant to expire one year ago, Kenya got an extension of the special safeguards on duty-free imports in December 2007.

The extension was, however, granted only after Kenya committed to enlarging the imports quota each successive year of application.

Besides, the tariff on imported sugar above the quotas is to fall each successive year of application of the safeguard measures to hit zero by 2012. This year, the safeguard quota of 220,000 tonnes is expected to rise by 40 tonnes to 260,000, to 300,000 in 2010 and 340,000 in 2011 before being eliminated by 2012.

The tariff charged above the safeguard quota is set to fall by a margin of 30 per cent every year starting March this year before being phase out in 2012.

Sale process
Besides the quota-tariff structure, the Kenya Government also committed to give up ownership of sugar mills within the first 24 months of the extension. The Privatisation Commission of Kenya has started the sale process and placed a tender for advisors to help identify strategic partners for State-owned Chemelil, Muhoroni, Sony and Nzoia sugar companies.

Other issues embedded in the deal with Comesa included requirements that the Government adopts an energy policy aimed at promoting co-generation and other forms of bio-fuel energy production to improve the industry’s competitiveness.

The pact also requires sugar sector operators to deepen research on high sucrose and early maturing cane varieties while the KSB and the Kenya Sugar Research Foundation (Kesref) should spearhead adoption of research findings by cane growers.