Relief for Sarrai bosses as court suspends jail orders over Mumias sugar lease

Sugarcane farmers during peaceful demonstrations at Mwitoti on May 10, 2023, over the collapse of Mumias Sugar factory. They urged President William Ruto to fulfil his promise to revive the miller. [Benjamin Sakwa, Standard]

The orders of the court came as the government announced its decision to write off Sh117 billion owed to it by sugar companies.

Sarrai took over Mumias after the Court of Appeal suspended Commercial Court orders that had blocked it from running the firm.

In the case, the National Treasury backed the receiver manager Ramano Rao's decision to hand the miller to Sarrai Group.

Former Treasury PS Julius Muia, in his affidavit, argued that it would be of no help to hand Mumias to a competitor or a company with milling machines within the same area.

The PS took a cue from Mr Rao who claimed he dropped off West Kenya Sugar Company from the bid race due to a conflict of interest. This is despite the company offering the highest financial bid.

According to Rao, West Kenya has a factory that is 36 kilometres east of Mumias and was harvesting 50 per cent of the sugarcane within MSCL's territory.

Rao also claimed West Kenya did not produce its financial statements as was required in the bid documents.

Dr Muia, in his argument before Commercial Court judge Alfred Mabeya, stated that in order for the leasing process to be successful, the best bidder should be able to turn the miller into profitability.

He was of the view that although all creditors want to be paid through leasing of all Mumias assets, this may not be achievable within the 20 years of the lease given to Sarrai Group.

Muia said the most important issue at hand is balancing the lease rent and ensuring Mumias has funds for sustainable operations.

"I verily believe that the direct competitor of MSCL, especially one that has mills within the same vicinity as MSCL and competes with MSCL with resources including raw materials for sugar production is unlikely to have the best interest of MSCL due to conflict of interest," the PS.

Muia told the court that he wanted to clarify his earlier affidavit which appeared to suggest he had faulted Rao for picking Sarrai Group as the most preferred bidder.

"I found it necessary to make this supplementary affidavit upon realizing my statements in the affidavit of February 15, 2022, may be taken out of context to suggest I was faulting the first defendant's (Rao) evaluation of the bids that were presented to him. I verily believe that it is in the interest of justice, of all the parties herein and of the public that I provide the context in which I made the statements," he stated.

Mumias was incorporated on June 29, 1971. It was then privatized through listing at the Nairobi Stock Exchange in 2001.

According to court papers, the National Treasury owns 20 per cent of Mumias while other government institutions have 4.57 per cent shareholding. Individuals own 75.43 per cent of the ailing miller.

The miller's financial troubles started in 2012. According to Treasury's documents, by the end of 2017-2018, it registered a Sh39.44 billion loss after tax. In that year alone (2017-2018), the company posted a net after-tax loss of Sh15. 14 billion.

The shareholding equity had eroded to negative Sh14.63 billion, thereby exceeding its Sh628. 24 million assets. It had also accumulated huge debts.