Sugarcane cutters load the produce onto a tractor at a farm in Muhoroni, Kisumu County. Muhoroni Sugar Company has been leased to West Valley factory.
How does a sugar factory that has hardly been in operation for two years qualify to be selected to run Muhoroni, which has been milling sugar since 1966?
Little-known West Valley factory, owned by a Mr Ben Soi, was commissioned as recently as October 2023. And in terms of capacity, it is licensed to crush only 1,250 tonnes of sugar cane per day, slightly over half of Muhoroni’s capacity of 2,200 per day. In terms of area under cane, excluding the out-grower zones, Muhoroni is at 1,393 hectares. The West Valley mill is on a 21 hectare plot registered in the name of Mr Soi.
As I tried to discern how Muhoroni ended up in the hands of this unknown entity, I scanned through the tender documents to read the terms and conditions under which successful companies were selected. Here are some quotable quotes from the bidding documents: “‘Experience in operating, management and maintenance of a sugar processing factory and ecosystem.”
“Bidders must attach evidence of at least five years in managing and operating a sugar factory.” Another key qualification requirement: “You must have had an annual turnover of Sh5 billion in three years.
The pertinent question here is: why are we putting the destiny of hundreds of thousands of farmers in the Nyando sugar belt in the hands of such an untested and inexperienced player?
Mr Soi may have the money, but the overriding objective in the leasing option is leveraging on domain knowledge and experience of the private sector. Clearly, Mr Soi can’t hack it. The Muhoroni lease should be cancelled.
Good prices
Out first priority must be the farmer. The key objective of leasing must be to deliver a functioning and competitive market that can assure the farmer of good prices and prompt payment.
If you asked me to summarise what the government has implemented, I will say the following: privatising public assets but nationalising liabilities. It’s like we wanted to put the private miller at an advantage.
In the current circumstances, the government is taking over billions in liabilities, including salary arrears, arrears to farmers and monies owed to the Kenya Revenue Authority. The private sector has been gifted companies with clean balance sheets.
Instead of a structure that promotes competition, we are creating a structure dominated by monopolies and cross ownerships. The dominant player in each geographic area now has an open field to determine prices on a take or leave it basis. The vampires will start sucking the blood of farmers through weighbridges with rigged meters, meagre producer prices and delayed payments.
Call me a conspiracy theorist if you wish, but I see a grand scheme to transfer control of nucleus sugar estates to the oligarchs. Private millers don’t have nucleus estates. Following the transaction, they now own mature cane in the nucleus and are at liberty to start transporting the commodity to their existing mills for crushing.
The unintended consequence is that these oligarchs can drag rehabilitation of the factories inherited from the government for years even as they crush the free mature cane gifted to them by the government. We should not be surprised if we see a frenzy of activity in the building of feeder roads between their existing factories and the nucleus estates of the public companies they are taking over.
My crystal ball also shows me a scenario in future where the land on which the nucleus estate is eventually sub-leased to corrupt political elites. Mark you, the contracts these oligarchs have signed do not bar them from executing sub-contracts and sub-leases. As a matter of fact, the only caveat stipulated in the contracts is that they are prohibited from using the nucleus land as collateral for bank loans.
Sugar industry
Government spokesmen have been telling us that the leasing programme will unleash billions in new investment into the sugar industry. Let them tell that to the birds.
As you scan the contracts, you will not see clear obligations, including stipulated timelines on performance. Granted, the bidding documents mention “proposed initial investment in the first year”. But there nothing in the contracts to legally commit the private millers to spend billions on rehabilitation and expansion.
In reality, we have just handed over public-funded mills to individuals and entities who have been at the heart of the problems bedevilling the State-owned mills.
The publicly owned mills are now in the hands of competitors who have been incessantly poaching cane from their nucleus estates. What has been going on amounts to blatant theft of a competitor’s stock. And they have been the biggest players in the perennial importation of cheap substandard sugar into the country.
This leasing process should have involved qualified transaction advisers experienced in structuring leasing deals. We left it to politicians and bureaucrats at Kilimo House.
The leases should be cancelled.
