Sugar barons dancing on Mumias graveyard

Kenya’s sugar is sour. Those sweet, little white crystals are hewn from bitterness.

Cane growers are paid peanuts for their back-breaking labour, while consumers pay through the nose for the sweetener.

In between are politicians who have kept up a chorus of false promises that have long buoyed the hopes of millions of consumers and producers.

But now this layer of faux optimism is wearing off, giving way to despair. The sugar industry has been hijacked by a new, slyer crop of players: the sugar barons.

In Western Kenya, sugarcane has long been the main cash crop, supporting both the region’s economy and its politics. But the region’s vibrancy has been snuffed out by a foreboding spell of silence that has been cast over Mumias Sugar Company in the last three years.

Stripped down to its carcass, its assets are the only monuments of value left of an enterprise that touched millions of households at its peak. And the hounds are circling for these mouthwatering remains.

The sugar barons have fashioned themselves as saviours hankering for an opportunity to help farmers, workers, creditors, shareholders and Western Kenya’s economy.

Read also: Here is a list of court orders disobeyed by the Kenyan government

But at the heart of it, they are looking for the opportunity to grow their ever-expaning commercial fiefdoms. Mumias’ assets, which include more than 4,000 hectares of land, machinery and property, are too attractive to pass up.

Prominent among these sugar barons is Jaswant Singh Rai, the reclusive billionaire. He owns West Kenya Sugar Company, which has been accused of being behind the troubles facing the industry by engaging in illegal sugar imports and cane poaching.

He wants Mumias Sugar. He founded the Rai Group, which also has interests in edible oils and soaps, paper making, real estate and water bottling.

West Kenya is among the jilted bidders for Mumias Sugar’s assets. The results of the bidding were announced towards the end of last year by KCB Group appointed receiver manager, Pongangipalli Venkata Ramana Rao.

KCB put Mumias under receivership in September 2019 over a Sh480 million debt. This followed several attempts to forestall the collapse of the miller, including through debt restructuring and bailouts.

As of December 2018, Rai Group’s three sugar factories — West Kenya, Sukari Industries and Olepito Sugar Company — controlled over a third of the sugar produced locally, a report by the Sugar Directorate showed.

Mumias Sugar had a tiny share of 1.3 per cent over this period.

This was a steep drop compared to its dazzling performance less than 10 years ago when it produced more than half of Kenya’s sugar, hitting 47,320 tonnes in the year to June 2013.

Before it went into receivership, Mumias Sugar was listed at the Nairobi Securities Exchange (NSE). It controlled 60 per cent of the local sugar market and directly employed more than 1,600 people.

It directly supported close to two million people and over five million indirectly.

Today, the sugar factory is decrepit. Its silent machines rusting away from years of disuse and disrepair.

But its enviable assets have withstood the test of time. Its schemes sit on a total of 4,411 hectares; its sugar factory has a crushing capacity of 7,000 tonnes of sugarcane per day. It owns a co-gent plant, mineral water plant, clubhouse and guesthouse, staff housing, schools, golf course, hospitals and other amenities.

In the end, the Uganda-based Sarrai Group won the contract to lease Mumias’ assets for 20 years in a process that attracted eight bidders.

Jaswant has challenged this decision. He wants the contract taken away from Sarrai Group, which is owned by his brother, Sarbjit Rai.

The other bidder that lost in the first stage is Mwale’s Tumaz & Tumaz Enterprises, which was one of the highest bidders with shs. 27 billion and was the first to contest the bidding outcome alleging illegalities.

He was the first to file a lawsuit against the award of the contract to Sarrai Group, arguing that Tumaz & Tumaz submitted the highest financial bid of Sh27.6 billion.

His is just one of several lawsuits filed against the leasing process. For KCB’s Rao, they are all designed to stall the recovery of Mumias Sugar.  

Outside of Sarrai Group, Tumaz and West Kenya, another company that submitted its bid by the close of the advertisement on August 31, 2021 was Pandhal Industries, based in Muhoroni. Pandhal is owned by Harjit Pandhal Singh.

Others were France’s Kruman Finances, Mauritius-based Suicriere de Mascareigms, steel magnate Narendra Raval’s New Mumias Sugar Company, and Kisumu-based Kibos Sugar & Allied.

Kruman Finances has also disputed the award of the contract, arguing that the process was shrouded in secrecy.  

Jaswant’s West Kenya Company argues that Sarrai never validly won the lease tender. It insists it offered the highest financial bid. 

But the receiver manager says the financial bid is not the only consideration in procurement. He describes West Kenya’s proposal as a “spoiler bid” whose sole aim might have been to frustrate the recovery of Mumias Sugar as the two millers are competitors.

It is a position that was taken by the National Treasury, which has a 20 per cent stake in Mumias Sugar.

 “I verily believe that the direct competitor of MSCL (Mumias Sugar Company Ltd), especially one that has mills within the same vicinity as MSCL and competes with MSCL for resources, including raw materials for sugar production is unlikely to have the best interest of MSCL due to conflict of interest,” said Treasury Principal Secretary Julius Muia in a supplementary affidavit.

Conflict of interest, a weak balance sheet and fear of creating a dominant sugar company are some of the reasons that informed Rao’s decision to drop West Kenya at the technical stage.

In a 2015 report by the National Assembly Committee that looked at the crisis facing the sugar industry in Kenya, West Kenya was cited by both its competitors and the regulator, the Kenya Sugar Board, for cane poaching, a malpractice of harvesting cane from farmers that had been contracted by competitors.

Mumias Sugar was a victim of cane poaching.

The company told lawmakers that it spent up to Sh2.8 billion in providing farmers with services for land preparation, fertiliser supply, extension services, harvesting and transport, only for a competitor harvest the cane.

But West Kenya, through its managing director, defended itself.

“A miller who buys cane from a farmer in an area presumed to belong to another miller cannot be deemed as either stealing or poaching cane,” said Tajveer Rai.

It was revealed that Mumias Sugar, Nzoia Sugar and Butali Sugar Millers had signed contracts with their farmers; West Kenya is the only one that had not signed such a contract.   

The failure to revive Webuye-based Pan Paper Mills, -which Rai Group acquired in 2016, also came to haunt Jaswant. The receiver managers argued that it was a clear sign of West Kenya’s inability to resuscitate Mumias Sugar.

“I am aware that the Rai Group, which is linked to West Kenya, took over Pan Paper Mills Limited in Webuye in 2016 which had not been in operation for more than 11 years. Pan Paper Mills has not been revived since the take over and remains non-operational to date,” said Rao.

But Jaswant’s beef against Sarrai is a clear case of sibling rivalry.

Sarbjit Rai, the owner of Sarrai Group, and Jaswant are brothers who do not  see eye to eye.

The family’s vast wealth drove a wedge between them, with Sarbjit and Jaswant finding themselves on the opposite sides of the divide.

The two have carved out their own sugar empires in two separate East African countries: Sarbjit in Uganda and Jaswant in Kenya.

But with the leasing of Mumias Sugar’s assets, Sarbjit would bring the competition to Jaswant’s doorstep.

In Kenya, Jaswant looked like he had finally amassed a good chunk of Kenya’s sugar market. Competition was almost non-existent as nearly all Government-owned millers were moribund.

Miwani, which was Kenya’s first sugar milling factory,  and Muhoroni are in receivership. Nzoia Sugar’s liabilities exceed its assets by Sh45 billion, according to a 2020 report by the Treasury. Chemelil Sugar’s liabilities, the report revealed, exceeded its assets by Sh2.8 billion, and South Nyanza Sugar Company’s by Sh2.7 billion.

Additionally, Kenya has consistently asked for and received an extension on safeguards from cheaper sugar imports since 2002. With these safeguards, the industry has been shielded from competition from sugar-producing countries in the Common Market for Eastern and Southern Africa (COMESA), a trading bloc where Kenya is a member.

But Jaswant knows West Kenya is no match for a roaring, well-run Mumias.

As a result, his response to Sarrai’s contract win has been distinctively spiteful.  He even argued that Raval’s New Mumias should have been handed the contract as it had the highest financial bid. The receiver manager, however, argued that New Mumias withdrew its bid early on.

Ironically, when it looked as though Raval – better known as Guru – would clinch the contract, it is Jaswant, in cahoots with some local politicians, who is reported to have scuttled his bid.

“I am not interested in Mumias to make more money. God has given me enough investments and industries, but I want to change the life of farmers and break this monopoly formed by a cartel among players in the sugar sector,” Guru had said in interview with The Standard last year.

He revealed that he had since signed an agreement with the receiver-manager that would see him lease Mumias facilities for at least 15 years.

The monopoly that Guru was alluding to was Rai Group. The firm’s ascendancy coincided with the fall of Mumias Sugar, which gave it access to a huge chunk of cane crushing market. 

Jaswant has also been accused of sponsoring cases to stall the leasing of Mumias Sugar.

Thanks to new insolvency laws, when KCB appointed a receiver manager, he was first expected to turn the debt-ridden miller profitable for the sake of both the shareholders and creditors whom Mumias owed Sh30.1 billion.

Rao’s idea was to lease the assets of Mumias to a reputable company with the necessary financial and technical capabilities for 20 years.

At first, Rao seemed to have settled on Guru. But this announcement, which was made by Raval, kicked up a storm. Soon after, Senator Cleophas Malala petitioned the Senate Committee on Agriculture and Livestock to look into the state of Mumias Sugar and its impending takeover. He was afraid that Mumias was being bought for a song through an opaque procurement process.

The Senate directed the tendering process to start afresh, with the receiver manager inviting bids from August 2, 2021.

But the litigants were not done. Before the bids were opened, two cases were filed.

There was an insolvency petition by Kisumu-based Gakwamba Farmers’ Co-operative where, besides wanting the tendering process stopped, they also wanted the appointment of Rao as the receiver manager and administrator revoked.

Activist Okiya Omtata, in a separate case, also wanted the leasing process stopped.

The court declined to stop the leasing process and directed that Mr Omtata’s case be merged with the insolvency petition.

The court also allowed Rao to continue with the leasing process, with some conditions. These included the bids being opened in front of the bidders, and the financial information contained made public.

Moreover, the Senate Committee on Agriculture was to attend the bid opening.

Rao insists in court documents that he complied with these requirements, and in the end  settled on Uganda’s Sarrai Group.

This decision triggered another wave of litigation.

Mwale was the first to file a case in the High Court, noting that the procurement process was not transparent.

He wanted the court to stop Sarrai Group from starting operations at Mumias Sugar.

Mwale’s experience in sugar milling, he said in court documents, stems from the fact that he was born and bred in Mumias District where he used to sell sugarcane to Mumias Sugar.

His bid was stillborn after he failed to follow simple instructions, like submitting his tender in a sealed bid and in the prescribed format. 

The flamboyant businessman said given an opportunity to run Mumias Sugar, he would build an airport (not airstrip) in Kakamega County.

Rao says Mwale’s court submissions amount to a fresh bid. His first bid was only six pages long – in court, he  annexed 108 pages.

For all his grand plans, Mwale was unable to raise a bid bond of Sh500 million, a security of sorts should he fail to operate the plant. 

He was flagged as a possible defaulter, with the receiver manager noting that he had a lot of cases in which he has been accused of not paying his debts.

Additionally, Rao was afraid that Mwale’s interest was in Mumias Sugar’s assets. He said the lease rent offered by Tumaz & Tumaz was lower than what was offered by other bidders for the first five years.

“However, the Lease rent then skyrocketed from the 6th year, which caused concern that Tumaz & Tumaz may enjoy the Lease at a low rate in the first 5 years and exit thereafter, which would not be in the public interest or the best interests of the creditors.”

Gakwamba Farmers’ Co-operative Society suit also took a turn, fuelling concerns that Jaswant was sponsoring lawsuits to stop Mumias’ revival.

“We are aware that the firm of Kibe Mungai represents the interests of Jaswant Rai, who is the director of West Kenya Co which also bid in the same tender, and is only using our society with an ill motive and in an unethical and unprofessional manner to file suit to benefit from the leasing of Mumias Sugar,” the farmers’ group said in court.

It added that: “… West Kenya is using the name of our society to defeat the rights of the debenture holders unprofessionally and unethically.”

The group wants the courts to allow Sarrai to begin operations even as the lawsuits are heard.