Mumias secures Sh1.6b for ethanol plant

September 27, 2010

, NAIROBI, Kenya, Sep 27 – Mumias Sugar Company will in the next one and a half years start producing 22 million litres of ethanol annually, which could meet nearly 50 percent of the country\’s total demand.

This follows the signing of a financing deal between the sugar company and a consortium of banks including Ecobank Kenya and the Commercial Bank of Africa that will see them contribute Sh1.6 billion towards the construction of a new ethanol plant.

"The total cost of the project is $45 million (Sh3.64 billion).  We will fund $25 million (Sh2.01 billion) from our own internal sources and we are borrowing $20 million from the consortium," Mumias Sugar Chief Executive Officer Evans Kidero explained.

The commissioning of the project is in compliance with a government policy that requires petrol sold in Kenya to be blended with 10 percent ethanol.

The country is currently producing an average of 15 million litres per year against a total demand of between 40 and 50 million litres, a situation that presents a huge potential for Mumias.

The 100,000 tonnes of molasses generated from the factories will be used in the project where other types of alcohol such as rectified spirit will be generated and sold to industries, a move that will in turn contribute immensely to the firm\’s bottom line.

Although Mr Kidero declined to reveal the finer details of the agreement, he said the terms were competitive.

"It\’s a six-year-term loan with a two-year moratorium on the principal (amount) but due to competitive reasons, I might not tell you the interest rate at this time," he said.

Mr Kidero also underscored the importance of the plant as enabling Mumias to position itself competitively against cheap imports that are expected to flood the market from the region upon the expiry of the COMESA safeguard measures in February 2012.

While downplaying the threat of the lifting of the protective measures, the CEO said his company has a strategy to make its sugar operations more competitive.

"This thing with COMESA is overplayed. All the COMESA member states consume 5.9 million tonnes of sugar and produce 4.7 million tonnes. So 1.2 million has to be imported from outside the bloc, but that doesn\’t mean that as a country we should not work to be competitive," he said.

He highlighted the privatisation of six sugar factories by the government and Mumias generation of 26 Megawatts of electricity as some of the diversification measures that were being undertaken to improve the sub sector\’s competitiveness and efficiency.

As part of its expansion, the company is also looking at acquisitions both in Kenya and in the region although finer details of the exercise are still sketchy.

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