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Weaponised cases imperil Mumias – Business Daily

Entrance gate at Mumias sugar company. PHOTO | ISAAC WALE | NMG
More and more, litigation is becoming a big danger to commerce. No case illustrates this situation than the predicament that Mumias Sugar Company finds itself at the moment.
Until last week, there was hope that the financially troubled sugar maker whose factory has been closed for the last four years would re-open and start crushing sugar again.
The Sarrai Group, the new investors in the company, had rolled out an aggressive plan of rehabilitating and repairing the plant and equipment. The factory itself had become a theatre of brisk activity.
Parts of the factory that had been set on fire by unknown arsonists during the closure of the factory were being rehabilitated, the diffuser plant was being repaired while heavy equipment, including motors and boilers, was being transported outside the factory premises and promptly returned
My own relatives living within expansive Mumias village that hosts hundreds of households and former workers were brimming with confidence and predicting to me that it would not take long before the Mumias brand returns to the shelves.
Shops, markets and other businesses around the village started experiencing good tidings, especially after the company paid farmers and salaries for the first time in four years.
Doom and gloom was to return when the fate of the revival of the company went back to court where a litigant filed an application seeking to throw the Sarrai Group out of the factory, alleging that they were operating the factory in breach of court orders.
As we went to press, legal minds were still interpreting the implications of the court ruling yesterday requiring that the assets of Mumias Sugar Company be preserved pending the outcome of several cases that yet to be disposed concluded.
The upshot is that the fate of the company and of the ordinary sugar farmer is now in the hands of Nairobi’s litigation aristocracy — a brigade of elite lawyers representing dozens of creditors with interlocking interests in the matter.
It has been a firing squad engaged in protracted weaponised litigation meant to wear down the efforts to revive the company. Clearly, the ultimate intention is to wipe out the company.
I have said it before in these columns. The rights of creditors to pursue their claims cannot be gainsaid. But when we reach a place where whether or not to reopen a company so important to the livelihood of farmers is reduced to a matter about protracted litigation and dilatory tactics by lawyers, we have to re-examine our collective conscience and ask ourselves hard questions about our priorities as a society.
I say so because, the re-opening of Mumias Sugar Company is about livelihood options for the ordinary farmer and the hundreds of thousands of businesses across the supply chain it supports.
In the financial sector, companies anchoring an extensive ecosystem such as Mumias are called systemically significant financial institution or by the acronym ‘sifis’. When they fall into problems, the state bails them out just the way Kenya Airways is being revived.
Isn’t it a pity that the very existence of Mumias is at the mercy of a foreign entity with anonymous owners? I refer to Vartox Resources Ltd, which has lodged a case in the High Court to wind up the sugar miller.
Last week, I went to the companies’ registry to find out the identity of this entity.I wanted to establish the names of the actual beneficial owners.
I was not able to pierce through the corporate veil because Vartox is incorporated in British Virgin Island—the world’s most popular tax haven. The territory is famous for offering cheap and simple shell companies that allow their owners to avoid registering their names in public.
The third pertinent issue is the question of local private sugar millers.
I am not against them and I think that all local private millers have a right to compete for the opportunity to run the government-owned sugar companies. But my view is that the local private millers cannot be part of the solution to the problems ailing the sugar industry.
I am surprised that these private mills have the audacity to pose that they have solutions for the sugar farmers when they caused some of the problems of the government-owned sugar firms.
Where did the perennial problem, the issue of poaching of sugarcane, come from?
Have we forgotten the battle between West Kenya and Butali Sugar and when the former mobilised its allies in high offices to have a fully built factory by the latter uprooted?
Despite holding a licence to construct a sugar plant in Busia for several years, Polysack Ltd found its hands tied in endless litigation over the issue of zoning.
When it comes to the dodgy business of duty-free sugar imports, local private millers join in to play with crooked traders.
We have five private millers. And, there is this popular myth that they have been operating efficiently and making tonnes of money while government-owned companies have been making losses.
But just how transparent are the operations of these private players? There have been incidents where some of them were investigated for repackaging imported duty-free sugar and rebranding it as theirs.
It is very hard to get reliable statistics and numbers on price and costing due to the opaque operations of these entities.
They have mastered the art of hiding statistics and massaging numbers, so much so that even getting true and accurate statistics on sugar production costs is a big problem.
Private millers exaggerate production costs so as to hide what ought to go to farmers.
The last reliable production cost study for sugar was conducted years ago. There used to be a cost and pricing committee comprising millers and growers but the powerful private millers lobbied it out of existence.
The Kenya Revenue Authority suspects that private millers are engaged in massive transfer pricing, tax evasion and opaque transactions with related parties.
What is my point? It is that if the true intention of the government is to make sugarcane production profitable, let us not even pretend that these five local private sugar millers can be part of the solution.
The fifth pertinent issue is the case for local participation in ownership of the proposed leasing companies to whom we want to hand over management of government-owned sugar companies to.
I hear the argument that one of the reasons Dominion Farms failed was because there was no participation in local ownership.
I don’t agree with that. I was old enough when, during the privatisation of Mumias Sugar, a decision was made that 20 per cent shares be reserved for farmers but these were snapped up by the elite of the Nairobi Securities Exchange (NSE) through secondary trading.
Which brings me to my sixth pertinent point; namely, corruption.
When you introduce a threshold for local participation in some of these transactions, you create an opportunity for corrupt elites to hide behind these investors in consortia.
We must not allow another Mobitelea.



Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.