Debts that have been bedeviling Kenya’s sugar sub-sector worth KSh62.5 billion will be waived by the Government under a plan to support its recovery.
The Government through Agriculture Cabinet Secretary Peter Munya on Wednesday said “To make factories attractive to leaseholders, the Cabinet has approved debt write-off.”
The KSh62.5 billion has been categorised as KSh58 billion loans and KSh4 billion as interests and taxes accumulated as at June 30, 2009 and any additional interest and penalties that have accrued since then.
“Sugar industry has been recording dismal performance over the years owing to perennial challenges that include high debt burden, low-value addition, high cost of production, lack of regulations to govern the industry and sector-wide governance issues,” said Munya.
According to the ministry, debts that date back to when the sector was under the former Kenya Sugar Board (KSB) before its disbanding in 2013 to form the Agriculture and Food Authority (AFA) after the enactment of the Crops act 2013 had collapsed the sector.
“To be a globally competitive producer of sugar and give sugar cane farmers a better return on their investments, the government has looked at addressing perennial challenges in the sector and largely clearing massive debts that have crippled the industry for long,” Munya added.
The government further resolved to privatise five under-performing State-owned sugar mills through a longterm lease model. The five have over the years incurred huge debts due to inefficiencies, corruption, mismanagement and political patronage.
The five sugar mills are Chemelil, Muhoroni, Nzoia, Sony, and Miwani. Both Muhoroni and Miwani with a combined share of 30 percent of the sugar industry market.
- Ailing Kenya Sugar Sector ‘Achilles Heel’ For Cane Farmers
- Is it Gloom, Hope for Sugarcane Farmers in Kenya?
“The leaseholders will be expected to revamp and modernize the sugar mills to the point where they can generate power and produce ethanol,” said the Ministry.
The factories will be leased through long term leases, at least 20 years. The model, the government, will use is a transfer the Right of Use (ROU) of each factory to the lessee on an ”as is where is” principle.
“The RoU shall be on a firm commitment that the lessee will re-develop and operate the factory to meet the government’s objective of higher farmers’ income and increased profitability through the production of ethanol and generation of power.”
Importation of brown sugar suspended
Munya also announced the suspension of imports of brown sugar into the Country, the pre-shipment approvals and extensions of all sugar import permits immediately, until further notice.
“We are further prohibiting the importation of raw cane with immediate effect and all applications for brown sugar imports shall also be subjected to the sugar imports/exports regulations that are soon to be gazette,” he said.
According to Munya, “Ex-factory prices for the mills remain at KSh4,200 per 50-kg bag. The price per tonne is KSh85, 260 compared to the Cost Insurance Freight (CIF) for imported sugar, which stands at Sh60, 117. This scenario clearly explains why Kenyan sugar is struggling to compete with imported sugar in the local market,” Munya said.
“The country may soon be faced with a sugar glut occasioned by this increased importation and an eventual collapse of the industry. This is a great disincentive to the farms and investors.”
Data from the Ministry indicates that sugar consumption in Kenya is approximately 1 million tonnes per annum and it imports between 350 million metric tonnes and 400 million metric tonnes.
In 2019 the country produced 440,935mt against the consumption of 1,038,717MT.
According to the Kenya National Bureau of Statistics First Quarter, 2020 data, the production of sugarcane increased by 10.2 percent increase in the volume of cane delivered to millers.