The long-awaited divestiture by the government from the debt-ridden sugar millers entered a crucial phase on Wednesday with the release of a privatisation report that gives farmers more say in the management of the industry.
The state-run Privatisation Commission’s report whose highlights were released to the press, guarantees farmers a 30 per cent shareholding in each factory. Of the stake available to them, farmers will be given up to three years to fully take up the shares if they are unable to raise the necessary capital at the time of privatisation.
A strategic investor identified through competitive sourcing will hold 51 per cent while the government will retain 19 per cent, but this will be sold later through an Initial Public Offering (IPO). The anticipated IPO will also avail an opportunity for farmers to increase their stakes in the sugar factories, Agriculture minister William Ruto said on Wednesday. The government listed five mills for privatisation by June this year. These include Nzoia, Chemilil, Muhoroni, Miwani and Sony Sugar.
A cabinet memo on the proposals and a Sessional Paper for restructuring the industry have been submitted for approval by the Cabinet, said Mr Ruto, who was flanked by his assistants Kareke Mbiuki and Gideon Ndambuki, and PS Dr Romano Kiome. Furthermore, the minister said, proposed amendments to the Sugar Act 2001 will also be discussed at the next Cabinet meeting.
The Cabinet is also expected to take a position on the status of Miwani Sugar Company, whose ownership has been locked in controversy and unending court cases. With lessons from Mumias in which farmers were duped into selling shares to outsiders still fresh in the minds of many, the government on Wednesday directed that farmers who buy the shares in the firms will only be allowed to trade amongst themselves.
“Farmers have an overriding interest in the sugar mills and we have been careful to handle these interests because we do not want a repeat of the Mumias case,” Mr Ruto explained. “Shares will be traded among the farmers so that at any given time, the interest of the farmer is not diluted.”
The Privatisation Commission recommended competitive sourcing of a strategic investor who will turn around the sugar companies, whose fortunes have been dwindling over the years. The companies owe the government and the Kenya Sugar Board a total of Sh42 billion. Consequently, the commission recommended the government to write off Sh33 billion and convert Sh9 billion to equity.
According to the privatisation programme, bidding for pre-qualification will be done next month. The completion of the sale and signing of transaction agreements with successful strategic investors is then expected to be concluded by June 2010. The strategic investor, the minister said, would be expected to bring in new technology, including modern equipment and broaden product base.
Besides sugar, the reforms are expected to stimulate diversification into ethanol and power generation, among other products. “The strategic investor must be one with a proven track record who will bring private sector expertise and capital to turn around the industry,” the minister said.
According to the minister, the government picked the option of a strategic investor ahead of going to an IPO because of the skills and capital such a move can generate. He said of the pick: “The proposal to go the strategic investor way was not the government’s. The advisors picked on it after subjecting all scenarios to thorough evaluation.”
The government hired Ernst and Young as the transaction advisor in the sale of the sugar firms. Mr Ruto disclosed that the government was ready to waive duty on equipment that will be brought in by the investors to replace the current near-obsolete machinery at the mills.
Reforms in the sugar sector are a matter of necessity for the government with the preferential trade agreements Kenya has been enjoying from its partners in the Common Market for East and Southern Africa (Comesa) expected to end in February 2012.
Comesa gave Kenya until 2012 to restructure its industry and return the millers to profitability, a move that was aimed at making the local industry competitive in the face of Comesa imports. On Wednesday, Mr Ruto exuded confidence that Kenya would meet the deadline.
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