Farmers have emerged as the big winners under the government’s sale plan for divesting from five sugar mills in a bid to enhance competitiveness in the sector and meet free trade requirements stipulated under regional integration platforms.

A sale plan released Wednesday by Agriculture minister, Mr William Ruto, showed that growers stand to win big with a 30 per cent stake allocation complete with a three-year grace period over which to subscribe to their allocation in the event that they lacked ready money to buy out the stake through their various outgrower companies. The farmers will also get a boost with a debt burden of Sh42 billion owed to the government and the industry regulator Kenya Sugar Board lifted through write-off of Sh33 billion and the conversion of the other Sh9 billion liability into equity.

This would enable the millers to start on a clean slate as they seek capital for expansion into other income streams like electricity generation through plough back of cash from operations or servicing of credit lines from development finance institutions.

“The debts have seriously strained the industry and things will get better without them. The stakes allocated are also gratifying because that is the bare minimum we had requested for. It’s good for us,” Samuel Anyango, secretary-general of the Kenya Sugarcane Growers Association (Kesga), told Business Daily.

Although the minister did not explain how the equity across the millers would be eventually shared among farmers, he said that strategic investors would be allocated a 51 per cent stake at each of the millers - Miwani, Chemelil, Muhoroni, Sony and Nzoia.

The remaining 19 per cent would be offloaded through an initial public offer (IPO) at the Nairobi Stock Exchange (NSE) once the millers became profitable.

“We felt this would be the best option to ensure a speedy realisation of the intention and objective of bringing competitiveness in the sugar industry ahead of full liberalisation in 2012. It also best serves the interests of farmers,” Mr Ruto told a news conference in Nairobi.

The minister said the 30 per cent stake to farmers would be warehoused to ensure they rightfully benefited from the process expected to start in five months time and conclude in June 2010 with the sale and signing of transaction agreements with the successful strategic investors.

“We don’t want a fiasco such as what happened during the sale of Mumias Sugar Company when genuine farmers lost out to other people who took advantage of them,” Mr Ruto said, adding that bidders’ pre-qualification will be done next month.

The State, however, seemed to have succumbed to pressure from farmers and an inspection team from the Common Market for Eastern and Southern Africa (Comesa) and dropped earlier proposals to sell off the factories as integrated units.

For instance, it had been proposed that factories in the Nyando sugar belt -Chemelil,Miwani and Muhoroni - be lumped up as a lot and sold.
Some growers had feared they would be short-changed under such an arrangement by forcing separate outgrower zones into affiliations of convenience to buy the shares, but which may not be sustainable in the long run.

“The five mills should be unbundled and be treated as separate and individual operating facilities and be sold on its own merit,” a Comesa mission that visited the country in October 2009 ruled in a report.

Away from the factory sale structure, Mr Ruto said though local companies would be encouraged to bid for stakes in the companies, they would be spared the kid gloves treatment and be evaluated on the same parameters as foreign investors

“The world has become a global village and anyone is free to invest anywhere without discrimination. We don’t intend to lock out foreign investors by according priority to local investors. Everyone must compete based on capability and track record,” Mr Ruto said.

Several foreign investors, mainly from Brazil, India and Mauritius have already made enquiries with sources at KSB hinting interest in the co-generation programmes such as the production of ethanol.

Last November, the government through the Energy Regulatory Commission (ERC) gazetted new regulations for the blending of power alcohol with gasoline in a bid to enhance competitiveness in the industry. Brazil is a major player in ethanol production.

Locally Mumias has already branched into ethanol production and awarded a contract to an Indian firm, Avant-Grade Engineers and Consultants Limited, to put up a Sh3.4 billion ($45 million) ethanol plant in western Kenya. The venture is expected to be completed within two years and have its first products on the shelves by July 2011.

The distillery is scheduled to run on the 100,000 tonnes of molasses that Mumias produces every year with a targeted production of 25 million litres of ethanol per annum. It eyes the business area where ERC ethanol would be blended with premium fuel in the ratio of 85:15.

“Expanding our product base will be a priority in the industry because we need an edge above the rest in order to be competitive,” Mr Ruto said.
The minister said the successful strategic investors would be required to drive through a three-pronged agenda that includes expansion and modernisation of existing facilities, enhancing technology and expanding the product base to include products such as ethanol.

Though Mr Ruto declined to state the amount the government expected to tap from the sale, estimates by the KSB showed that Kenya could tap Sh55 billion in new capital inflows from the privatisation process, much of it channelled towards expansion, modernisation and research.

“Transaction advisors are analysing the likely scenarios on the proceeds. The expectation cannot be disclosed until the work is completed,” the minister told Business Daily on the sidelines of the news conference.

But even as the privatisation enters the home stretch, analysts and investors are anxious that hiccups such as those witnessed in 2007 when Treasury called off the divestiture exercise are looming in the shadows.

“We want a transparent and free process so that everyone can participate. We don’t want a rushed process that would cover our eyes with wool and allow some sections to abuse the process,” Mr Anyango said.

In the failed attempt to sell Miwani and Muhoroni sugar companies, preliminary results of the evaluation process had shown that Country Logistics -- a consortium led by Kenana Sugar Company of Sudan - had taken pole position in the battle for Miwani Sugar Company after it floored four other competitors on both the technical and financial scores.

In the technical bids for Miwani, the Kenana-led consortium garnered 50 points outdoing local rival firms such Mumias Sugar Company and Spectre International. The consortium also placed the top financial bid of Sh2.3 billion against a reserve price of Sh2 billion that was set by the KSB and the joint receivers.

Another group of investors comprising India’s industrial giant -- Indian Sugar and General Engineering Corporation (ISGEC) and government-backed South African firm Industrial Development Corporation of (IDC) - were also leading the race for Muhoroni Sugar Company.

Participating under the Kibos Sugar umbrella, the consortium scored 46 points to tie with their only rival Panafrican Millers Limited on the technical front but broke away in the financial front where it placed a Sh3 billion bid against their rival’s Sh1.7 billion. The Sh3 billion bid was in tandem with the reserve price set by the joint receiver managers and KSB.

The sale was however later shelved by Treasury amid claims that government and public interest was “not sufficiently represented”. The Comesa mission in its report termed the reasons for the cancellation as “not very clear,” suggesting bureaucratic inertia had forestalled the sale.

source: businessdailyafrica

0 comments

Creative Commons License

This is not a company blog or website. The views and statements expressed in this blog are absolutely subjective. All content here is either copyrighted or by the mentioned news sources.

Privacy Policy | Contact Us