Sugaronline Editorial - Kenya; A Desertion, a Funeral and a new Hire by Jane Thirikali
Published: 07/21/2017, 2:21:00 PM
The end is nigh for Kenya's sugar industry unless Mumias can find another US$800 million to keep the doors open.
Mumias Sugar Company Ltd has for as long as anyone can remember been the largest sugar producer in Kenya, representing up to 40% of the country’s local sugar production capacity. Established in 1973, the mill has continuously produced more than 250,000 metric tonnes of mill white sugar, peaking in 2012 at 260,000 tonnes. Its location in the western region of the country makes it an important contributor in the local economy and a cornerstone of national geo politics.
In 2002, the company leadership felt it was successful enough and its future bright enough that it went public in an Initial Public Offering (IPO). The public felt differently and only 60% of shares on offer were taken up. It is currently listed on the Nairobi Stock exchange with dismal performance. Some of the selling points were the diversification of its portfolio from just sugar into 22 million litres of ethanol annually, another 15 million litres of distilled water and power cogeneration of 38MW.
That’s where the good news ends, however. From 2012 the fortunes of this national heritage seem to have turned. Production dropped to as low as 71,000 tonnes in 2015, only improving to 76,000 tonnes in 2016. Due to a serious shortage of sugar cane the mill has not been in a position to supply electricity into the national grid, nor produce substantial quantities of ethanol. The water bottling facility was up for sale or lease in 2016.
In 2015, a turn around Chief Executive Officer (CEO) was needed, hurriedly sought and brought in from Australia. His was a two-year renewable contract. He advised the government (the largest shareholder with 20%) that to turnaround the company at least US$300 million was required over a two-year period – citing payments to sugar cane farmers, development of new sugar cane strains and renewal of factory equipment as his priority areas. Of the requested amount, the government provided US$260 million in three tranches but despite the intervention, sadly nothing much changed at the mill.
His contract comes up for renewal in August 2017. However, from his home country where he is on annual vacation, he advised the relevant ministry, via a lengthy letter, that he would not be coming back!
There is more than meets the eye going on at Mumias. The problems seem to be beyond just the farmer’s payments, other creditors owed, sugar cane productivity or obsolete equipment.
While the turnaround Chief Executive Officer was penning his letter of no interest, the legal lead at the mill met his death at the hands of criminals while relaxing in his home. No one has been arrested yet, though investigations are still ongoing. Markedly, during his funeral, none of the other senior managers of the mill were in attendance – a fact that was not lost on the media. It is fair to say that there seems to be serious governance, human resources, and negative political interference at play at the flag ship mill.
In spite of all this hullaballoo, a new leader had to be recruited and is now in office at Mumias Sugar Company. But this time US$500 million is needed to turn the company around in the next two years. He is an old hand in the sugar industry having worked for both the sugar regulator and the government. Knowledgeable sources say realistically Mumias would need in excess of US$800 million to be successfully turned around.
But even then, without a total re-vamp in the policies and legislation affecting the sugar cane sub sector its revival is doubtful. Add to that the fact the miller has withdrawn all credit to farmers, further delaying cane development and potentially leaving the mill without cane in the future.
Pointing to the terminal deficit of 35% – 40%, in reality the deficit that requires local investment or otherwise in sugar milling is now in excess of 400,000 tonnes and growing.
Jane Thirikali is the Supply Chain Director at JaNe Kenya, Ltd.