Kenyan cabinet approves privatization of state sugar factories

NAIROBI -- The Kenyan cabinet has given a green light to the privatization of government controlled sugar factories in the country subject to parliamentary approval.

A statement issued after the cabinet meeting on Thursday night said the five sugar companies earmarked for privatization are the Nzoia, Miwani, Sony, Chemilil and Muhoroni which have a collective debt of 525 million U.S. dollars owed to the government and industry regulator, the Kenya Sugar Board.

"The Cabinet approved the privatization subject to approval by parliament and after the government restructures the debt portfolio.

"Most of these factories are underperforming and heavily indebted while two are under receivership," the statement said.

During the meeting, the cabinet underscored the need to protect the interest of farmers in the privatization process.

"In this regard farmers will be given an opportunity to actively participate in buying shares in the factories as individuals and co-operatives," the statement said.

The meeting also resolved to establish a trust to ensure that the long term interests of the farmers are taken care of.

The news comes as a welcome relief for stakeholders as the process has been in limbo since 2007 when it was first scheduled for completion.

Early this year, the government said it plans to sell 51 percent of all sugar millers to strategic investors yet to be identified.

"The strategic investor will be expected to bring on board private sector expertise and managerial skills and invest the stake in modernizing equipment so that we can obtain the goal of privatization," William Ruto, then agriculture minister said.

Ruto, who is now the minister for higher education had also revealed that 30 percent of the sugar companies would be sold to farmers while the remaining 19 per cent would be floated to the public through an Initial Public Offer (IPO) once the companies are back to profitability.

The privatization of the factories is expected to enhance competitiveness and efficiency of the country’s sugar sector ahead of the expiry of the Common Market for Eastern and Southern Africa (COMESA) safeguard measures in February 2012 that will see the sugar industry become fully liberalized.

But even with the privatization of the factories, concerns are abounding over sale to foreign investors, at the expense of local investors.

The new developments come at a time when Kenya sugar industry regulator, the Kenya Sugar Board is pushing the millers to diversify in order to offer value to the farmers that supply cane when the sugar market is open to imports.

Sugar production costs in Kenya are generally higher than those of competitors in Sudan, Egypt and southern African countries.

source: coastweek