Kenya to privatise sugar factories

January 13, 2010

, NAIROBI, Kenya, Jan 13 – Privatization of the five State-owned sugar factories is set to be complete by June, Agriculture Minister William Ruto has said.

The news comes as a welcome relief for stakeholders as the process has been in limbo since 2007 when it was first scheduled for completion.

Addressing journalists at his Kilimo House office on Wednesday, Mr Ruto said the government plans to sell 51 percent of all sugar millers to strategic investors yet to be identified.

“The strategic investor will be expected to bring on board private sector expertise and managerial skills and invest the stake in modernising equipment so that we can obtain the goal of privatisation,” Mr Ruto said.

Ernst & Young Consultants are the Lead Transaction Advisors for the privatisation exercise working closely with the Privatization Commission.

The Minister also revealed that 30 percent of the sugar companies would be sold to farmers while the remaining 19 percent would be floated to the public through an Initial Public Offer (IPO) once the companies are back to profitability.

“The government will facilitate the sale of the 30 percent to farmers where farmers are unable to pay for at least three years as a means of insulating farmers from extraneous interests that may compromise their position,”he said.

The five sugar companies earmarked for privatization are the Nzoia, Miwani, Sony, Chemilil and Muhoroni which have a collective debt of Sh42 billion owed to the government and industry regulator the Kenya Sugar Board.

According to the minister, Sh33 billion had been written off while the remaining Sh9 billion would be converted to equity and shared out amongst the five companies.

"I have already signed a sessional paper recommending the write off of part of the debt which has remained a major stumbling block to the financial viability of the millers," he said.

The privatization of the factories is expected to enhance competitiveness and efficiency of the country’s sugar sector ahead of the expiry of the Common Market for Eastern and Southern Africa (COMESA) safeguard measures in February 2012 that will see the sugar industry become fully liberalised.

But, even with the privatization of the factories, concerns are abound over sale to foreign investors, at the expense of local investors.

In a past interview with Capital Business Sugar Campaign for Change Chairman Peter Kegode said the Privatisation Commission should instead float the shares to the public.

Mr Kegode believes an IPO would be a much transparent and wider process giving most Kenyans an opportunity to participate in the process.

“We have seen the government bring in strategic partners who are just dummy companies. This is why we are very wary of this strategic partnership approach,” he said.

Mr Ruto however maintained that the exercise would be open to all interested parties with “no special favour”.

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