Delayed sale could kill Kenya's sugar industry

Plans to privatise the sugar industry in Kenya appear to have stalled even as the March 2012 deadline to open the sector to competition draws closer.

Effectively, Kenya has 18 months — in other words, as long as it takes the country’s cane to mature — to face an influx of cheap sugar imports from the Common Market for East and Southern Africa.

Fingers are now being pointed at the Ministry of Agriculture, which is still sitting on the proposals prepared by the Privatisation Commission of Kenya (PCK) detailing the time lines of the long waited sale of the country’s ailing state-owned sugar factories.

While handing over the ministry to his successor, former minister William Ruto said he had prepared a Cabinet paper on the sector’s sale and forwarded it for perusal.

Highly placed sources at the PCK said only the ministry’s approval stands between the factories and potential buyers.

“If we got the go-ahead from the ministry, the factories would be up for sale tomorrow,” the source said, accusing the government of failing to realise that in less than two years, Kenya could find itself without a sugar sector — with devastating consequences, since it supports 20 per cent of the country’s population.

Projections by the Kenya Sugar Board indicate that the country could tap Ksh55 billion ($733 million) in new capital inflows from privatisation of sugar firms ahead of the 2012 opening of the domestic market to foreign producers, citing the high level of investment that is needed to make local millers competitive.

The plan is for the five state-owned sugar companies — Nzoia, Chemilil, Muhoroni, Miwani and Sony Sugar — to sell 51 per cent of their shareholding, with another 30 per cent going to farmers, as the first step on the road to modernising the country’s sugar sector, after a number of false starts over the past 10 years.

Initially, the process was to have been completed in 2007, but three years down the line, the country is yet to advertise for strategic investors to take up the 51 per cent.

The remaining 19 per cent will be sold in initial public offerings once the profitability of the refineries has been improved.

The chairman of the Parliamentary Committee on Agriculture John Mututho, however, criticised the plan, saying it contravenes the 2001 Sugar Act, which proposed that farmers take 51 per cent and investors 49 per cent.

Farmers too are reportedly unhappy with the proposals and are demanding they be allowed to buy 100 per cent of the factories, a position backed by Mr Mututho.

According to a director of the Sugar Board of Kenya, Saulo Busolo, the success of the privately run Mumias Sugar Company and West Sugar Company is an indication that with proper management, the limping state-owned firms can be turned around.

Mr Mututho however felt that the Cabinet was unlikely to accept the paper prepared by Mr Ruto due to concerns about the shareholding ratio, reverting the matter back to the Privatization Commission. Mr Ruto had announced in April that the process would be concluded in June.

According to the privatisation programme, bidding for pre-qualification should have been done in February, and the sale and signing of transaction agreements with successful strategic investors concluded by June.

“All the paperwork is ready, including adverts waiting to be published in the press inviting bids; all we are waiting for is government approval,” a Privatisation Commission official said.

The strategic investor is expected to bring in new technology and broaden the product base, diversifying into ethanol and power generation, among other products.

“The trouble is that investors are likely to give lower offers because of the shortened time-frame within which they would be required to turn around the firms before the market is fully liberalised,” an official involved in the planned sale said.

“A rushed process may send wrong signals to investors who may in turn become cautious,”
Attempts to get comment from the Ministry of Agriculture proved fruitless, with officials at the minister’s office and at the Agribusiness Department unable to agree on which office should divulge further details.

source: theeastafrican.co.ke