The saving grace in the outcome of the Mumias Sugar Company leasing transaction is the fact that the miller is not being handed to a local miller. The Sarrai Group of Uganda are entering into the local milling market for the first time.
Mr Sarbi Singh Rai, who is a brother of the industrial mogul, Jaswant Rai, who owns West Kenya Sugar, has only recently put up a big plant in Naitiri in Bungoma County and owns Sukari Ltd in South Nyanza. But as competitors, there is no love lost between the two brothers.
The important thing in this transaction was to put Mumias in the hands of a player who has an incentive to rehabilitate the mill.
My own suspicion was that some of the companies angling to take it over were mere fronts for parties whose real interest and motive were to take and start a protracted revival even as they continue harvesting from that massive sugar-growing zone that serves Mumias.
Sarbi is a big player in the Uganda market where he owns Kenyara, Hoima Sugar and Kiyandongo Sugar with a total installed capacity of crushing 19,000 tonnes daily, producing more than 170,000 tonnes of sugar per annum. He must be relishing entry into the vastly more lucrative Kenya market.
As he will soon learn, the competitive environment of the milling market in Kenya is much more complex.
Hardly discussed in the debate about local sugar milling is the stranglehold that a small cartel of merchants and producers have maintained in the industry.
It is a nexus of merchants and millers with a foothold in nearly all segments of the sugar business, doubling as millers, importers, distributors of local sugar, transporters and owners of giant warehouses.
The local millers have been acquiring and hoarding sugar milling licences, especially in areas adjacent to State-owned sugar millers. This enables them to illegally access cane developed by the public firms or pre-empt the emergence of competitors. Had Mumias ended up in their hands, revival would have taken ages.
The second positive outcome from the transaction is how due diligence managed to weed out jokers. This transaction was taking place against the backdrop of the rise to prominence and profile in this country of private-equity-like businesses who are always scouring the landscape for distressed companies.
These are big-talking over-leveraged entities wont to behave as though they have inexhaustible pools of funds but who cannot raise bank guarantees to support their inflated and highly speculative bids.
When you are procuring a concession or a lease, what matters most is not the bidder who is offering the highest concession fees. Didn’t we learn our lesson in 2016 when we handed over Kenya Railways to South African Roy Puffet just because he emerged on top with the highest offer and promised to revive the business?
Three years later, it turned out that the promises the South African had made were worthless. He did not have a cent to invest in the business. He sold the concession contract to an Egyptian company and took off.
The point, therefore, is the following. In the Mumias concession, the most important consideration is proof of domain knowledge and experience in running a successful sugar operation. It is the quality of the investor. Stupid.
Since running Mumias will require immediate raising of billions of shillings, you have to produce guarantees from triple-A-rated banks.
More questions: Are you a good taxpayer? Indeed, some of the companies on the list of bidders for Mumias have disputed bills with Kenya Power that run into hundreds of millions of shillings. Remember that a huge Sh2 billion tax liability still hangs on the head of Mumias.
Still, I am not convinced that Sarrai Group is the best for this assignment. I had hoped that this thing would attract big players like Toongat Hulet of South Africa, Illovo Sugar, or Kenana or even Mount Sugar of Mauritius.
https://www.businessdailyafrica.com/bd/opinion-analysis/columnists/revival-of-mumias-sugar-remains-doubt-3662108
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