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Cabinet approves Pan Paper bail out plans

NAIROBI, November 13 – The Cabinet has approved the conversion of Sh440 million arrears owed by Pan Paper Mills into equity.

This is part of a raft of proposals that the Cabinet passed on Thursday to revive the paper manufacturer which has been facing financial difficulties for over eight years now.

During a meeting chaired by President Mwai Kibaki on Thursday, the ministers also agreed to reduce royalties paid to the Kenya Forest Service from Sh1200 to Sh700 per square metres.

“The Cabinet also agreed that there shall also be a cash injection of Sh226 million and a capitalisation of 70 percent of all royalties payable to the government in the next four years,” a statement from the Presidential Press Service said.

The Ministers said that these measures, which had been proposed by a task force that was formed in 2005 to recommend ways to return the firm to profitability, were aimed at improving the company’s performance and safeguard about 1,500 direct jobs.

The Webuye-based Pan Paper is a joint venture between the government, the World Bank’s private investment arm International Finance Corporation (IFC), and Orient Paper & Industries of India. It has an annual production capacity of 120,000 tonnes of paper and controls nearly 60 per cent of the market in the country.

In October 2008, it was reported that the partners were working on a Sh1 billion bail-out plan for the company that has been making losses since 2000.

The government has acknowledged that Pan Paper is a crucial contributor to the economy and it has considered a number of short and long term measures to address the underlying causes of its problems and put it back to profitability.

It has already released Sh140 million to the company while about Sh100 million has been factored into the budget.  However, part of the medium and long term plans include availing land to the company for growing bio-mass for its proposed co-generation project.

This is expected to greatly reduce the company’s dependence on fuel oil and power from the national grid. In addition, the government has been considering pursuing financial concessions and the improvement of internal efficiencies.

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This intervention measures were aimed at saving the company from insolvency whose situation was aggravated by loses amounting to Sh320 million that were incurred during the post election violence.

The company had petitioned the government to consider issuing the company with long term license to procure wood from its forests at affordable rates arguing that this would ensure sustainable supply of raw materials to the company.

It has also been calling on the government to ensure a level playing field for its products which the firm’s management say are in competition with zero-rated imports from South Africa and Tanzania.

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