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Citizen Weekly

Sunday, 30 November 2014

PARLIAMENTARY REPORT ON THE CRISIS FACING THE SUGAR INDUSTRY

Correspondent
The crisis in the sugar industry in Kenya Western belt is as a result of political intrigues, business wheeler dealings by vested parties mostly out of the region.
Surprisingly, a number of politicians from the region have been sucked into the crisis. According to sources, a number of MPs and governors are key players in the mess.
Ben Washiali, the Mumias East legislator features prominently among the MPs whose business dealings with Mumias Sugar are suspect, it is alleged. Insiders claim Washiali is being used by culprits of the sugar scandal to scuttle efforts being made to revive Mumias Sugar factory.
As Mumias prepares to hold its annual general meeting, sugar farmers are accusing Washiali of being a traitor. They question why for all these years Washiali has been an MP, he never raised issues to do with the ill-happenings at Mumias. Reports say Washiali’s firm was involved in the clearing and forwarding business with Mumias.
Local voters complain, it is during the tenure of Washiali as the local MP that Mumias started facing serious management crisis. Unconfirmed reports say shareholders have resolved not to allow Washiali at the AGM or his allies. They are bitter Washiali has been fighting the current management led by chief executive Coutts Otolo and chairman Dan Ameyo.
But even as Mumias is set to hold an AGM, Weekly Citizen has a report of the Departmental Committee on Agriculture, Livestock and Co-operatives. It was prepared by legislators with Adan Mohammed Nooru the chairman. It is dated November 2014.
Titled, “The Crisis facing the Sugar industry in Kenya,” with its terms of reference by investigate and inquire the current state of sugar industry in the country, investigate and inquire into the issue of cheap sugar imports and smuggling.
Others were to investigate and inquire into the alleged exports by Mumias Sugar Company between 2006 and 2012. Look into the glut in the sugar market, which has, among other causes contributed to the current crisis in the industry and report on the findings of the committees inquiry.
The report has made a number of recommendations after receiving evidence and submissions from sugar companies and other witnesses.
Your favourite Weekly Citizen will from this week start serialising the full report from chapter 2 to chapter 4, on the committee recommendations.

CHAPTER 2
2.0 EVIDENCE AND SUBMISSIONS FORM SUGAR COMPANIES AND OTHER WITNESSES
2.1 Submissions by Western development Initiative Association (WEDIA)
31. Appearing before the Committee on 16th October, 2013, WEDIA made the following submissions:
a)WEDIA was registered as an association in 2010 and that it represents development interests of sugarcane farmers and other sectors in western Kenya;
b)It was among the first entities to raise the issue of cane poaching and was also at the forefront in stopping the attempted disposal of land belonging to deduct Busia Sugar Company (BSC).
c)Sugarcane poaching started about the year 2000 after the establishing of Butali Sugar Mills in Kakamega county.
d)Sugar factories in western Kenya including Mumias Sugar Company, Nzoia Sugar Company and Butali Sugar Mills, have signed contracts with their cane farmers except West Kenya Sugar Factory;
e)To date, West Kenya Sugar Factory does not have any single contracted sugarcane farmer but has since inception been buying cane from farmers contracted by other millers, hence promoting poaching;
f)West Kenya Sugar factory does not have cane development programmes for farmers but harvests cane from farmers in Western Kenya. The factory has continued to buy cane from Busia Sugar Zone (contracted by Mumias Sugar Company), Nzoia Sugar Zone and Butali Sugar Mills farmers even when they (West Kenya) have no contracted farmers in those zones;
g)West Kenya has gone ahead to construct a weighbridge at Tangakona area in Busia County where all the poached cane is collected for transportation to the factory in Kakamega County;
h)The presence of the weighbridge has led to disputes and conflicts among the surrounding local communities/millers and at one point a tractor transporting sugarcane for Nzoia Sugar Company was burnt and six tractors belonging to West Kenya impounded by Nzoia Sugar Company;
i)Kenya Sugar Board has allowed West Kenya to operate in Western Kenya despite the company failing to honour the licence issued to it to construct a factory in Kimilili area of Bungoma County way back in 2008;
j)Kenya sugar Board gave west Kenya a two-year reprieve under questionable circumstances even after failing to construct a factory in Kimilili and continued harvesting cane from farmers contracted by other factories;
k)In some cases, cane is harvested by agents of West Kenya Sugar factory without the consent of the owners.
2.2 Submissions by Mumias Sugar Company. 
32 Appearing before the committee on 29th October,  2013 the former managing director of Mumias sugar company, Peter Kebati, submitted as follows;
i)MSC was established 40 years ago and is the largest sugar producer in Kenya and is currently an integrated factory with installed capacity of 270,000 MT sugar plant, 38MW Co-generation Plant, 22 million-litre ethanol distillery and  15 million – litre Water Bottling Plant;
ii)The company is listed on the Nairobi Stock Exchange and there are over 145,000 shareholders including Kenyan investors and the government of Kenya which holds a 20pc stake in the Company, pays approximately Sh 2.5 billion in taxes and remits Sh500,000 million to the sugar development fund (SDF) annually;
iii)MSC supports a population of 2 million people directly and over 5 million indirectly and the company has a workforce of 1,896 permanent employees and 40,000 seasonal and contracted workers.
iv)The company operates an outgrowers Cane Development scheme within Kakamega, Bungoma, Busia and Siaya counties and spends over Sh2.8 billion to provide services for land preparation, fertilisers/input supply, extension support, harvesting and transport to over 110,000 farmers;
v)MSC signs cane farming contracts with the farmers committing them to supply their cane to MSC to enable recovery of what the company has invested in cane development expenses to contracted farmers;
vi)MSC appreciates fair completion in the sector and wants emerging issues to be addressed as a policy intervention to restore sanity and fair practices in the industry;
vii)There is no fair competition in the sugar sector and unless the emerging issues are addressed from both policy and legislative fronts, then the industry is headed for collapse as rightfully observed by the petitioners. There is urgent need to restore sanity and the rule of law in the industry.
2.3 Submissions by Nzoia Sugar Company
33 Appearing before the committee on November 5 2013, the managing director for Nzoia Sugar Company made the following submissions;
i)NSC was established in 1975 under the company’s Act cap 486 of the Laws of Kenya with the government as the majority shareholder owning 98pc shares while fives call Babcok (FCB) and Industrial Development Bank owning the remaining.
ii)MSC serves over 67,000 farmers in larger Bungoma, Kakamega, Lugari and Malava districts;
iii)NSC produces sugar and supports cane production through the provision of extension services to farmers through extensive Company Nucleus Estate covering 3600ha; 
iv)NSC provides cane development services including supply of fertilisers and provision of extension services to out-grower cane farmers contracted by it;
v)West Kenya was poaching cane from farmers contracted by Nzoia Sugar, Mumias Sugar and Butali Sugar factories;
vi)There were individuals acting as cane poaching brokers based at various points within Bungoma and Busia counties;
vii)NSC sensitizes farmers on obligations of signed contracts with them and other millers and campaigns against cane poaching;
viii)In 2008, NSC set an anti-poaching unit comprising of NSC and the Kenya police officers that used to monitor cane poaching and alter in 2010 and ad hoc  committee of the board was set up to help manage cane poaching which was at an all time high;
ix)NSC has instituted court proceedings against west Kenya Sugar factories (WKSF) in 20123 on the matter of cane poaching; and
x)NSC has not been able to pay farmers in good time due to low sales as a result of a depressed sugar market.
xi)NSC has lobbied the government not to allow cheap sugar into the country as it negatively affects sales, payment to farmers and other obligations.
2.4 Submissions from Butali Sugar Mills (BSM)
34Appearing before the committee on 5th November 2013, the managing director for BSM submitted as follows:
i)BSM was founded in 2010  by sugar power consulting which is a consultancy firm in engineering after securing a license to build a sugar mill from Kenya guar board \(KSB)l. the firm has branches in India, Syria, Mauritius, Kenya, Tanzania and Uganda was not aware of any poaching of cane and no legal action had been instituted against it in regard to cane poaching;
ii)Kenya sugar Board should come up with regulations in respect contractual obligations on the parts of contracted farmers and respective millers;
iii)The creation of too many weighbridges had contributed to cane poaching;
iv)West Kenya sugar company pays farmers after seven days.
v)BSC received funding from Kenya sugar board for construction of weigh bridges and cane development.
2.5 Submissions by Kenya Sugar Board (KSB)
35. Appearing before the Committee on 7th November, 2013 and 28th March 2014, the Kenya Sugar Board made the following submissions;
i)KSB was established by an Act of Parliament, the sugar Act of 2001, with the main f unction of regulating and facilitating growth of the sugar industry in the country. The sugar Act 2001 is subject for repeal with the commencement of the Crops Act, 2013 and the implementation of the AFA Act, 2010;
ii)KSB is charged with the role of developing regulations to guide the sugar sub-sector and the issuance of licences to import or export sugar and sugar by-products and manages jointly with the KRA any restrictions on imports and exports of sugar and sugar by-products
iii)KSB also licenses the establishment of sugar mills and defines zones with which they operate;
iv)KSB identified West Kenya Sugar Factory as the main sugarcane poacher in Western Kenya and had received complaints from neighbouring millers;
v)KSB identified Kenafric Industries as one of the manufacturers that repackage imported industrial sugar in locally manufactured branded sugar packages for sale of able sugar;
vi)KSB issues licenses for importation and the role of verifying n quality, quantities and values as specified in the KSB permit rests with KEBs and KRA before the consignments are released into the market;
vii)That  KSB issued the licence to import 10,000 MTs of sugar in 2012 to MSC and it was unprocedural for the Permit to have been used by a Third Party, Dantes Peak Ltd since the permit was non transferable; (annex II)
viii)While it was the resolution of the Ministries of agriculture and Finance to allow millers to import sugar, there were no justifiable reasons for Mumias Sugar Company to import the 10,000 MTs from Kenana Sugar Company from Sudan in 2012;
ix)KSB was tracking some 14 containers of imported sugar that had been traced to Nairobi, a consignment of sugar where no documents for its release could be traced in KRA and KPA yet KSB had not licenced its importations. Each container carries 21-25 tones totaling to 301,000 metric tons for the 14 containers which translates into 6020 (50kg) bags worth of Sh24 million;
x)That KSB needs to be empowered with investigatory and prosecutorial powers independent of Kenya Police and KRA in terms of sugar imports and transit sugar;
xi)If there was sugar from India being traded in the Kenyan market, KSB submitted that it had not licenced the importation of table sugar from India in the last five years; and
xii)KSB has weak surveillance capacity and therefore it cannot effectively handle the issue of sugar smuggling through our porous borders; and KSB had been informed that Rising Star Commodities Ltd was repackaging imported sugar in its go-downs in Mombasa in Mumias Sugar Company branded bags and selling it as locally manufactured sugar.
2.6Submission by West Kenya Sugar Factory (WKSF)
36. Appearing before the Committee on 5th November 2013, the Managing Director for West Kenya Sugar Factory submitted as follows;
i)West Kenya Sugar Factory was the second largest Miller in Kenya and had grown from 500 Tons Crushed Daily (TCD) in 1979 to its current crushing capacity of 5000 TCD and employs 2000 workers apart from indirect employment to harvesters, loaders and transporters;
ii)Until 2005 when the Kenya sugar board licensed Butali Sugar Mill Limited in controversial circumstances, the then existing millers sourced cane from their clearly demarcated zones and each miler was able to invest in cane development within their respective zones;
iii)When Kenya sugar licensed Butali Sugar Miller Limited and supported its commissioning in the name of free competition in a liberalized market, cane zones were hitherto respected;
iv)A miller who buys cane from a farmer in an area presumed to belong to another miller cannot be deemed as either stealing or poaching cane;
v)The cane farmer has the right to sell his or her cane to a miller of his or her choice as guaranteed by article 40 of the Constitution and the Sugar Act 2001, which specifies that the farmer is the owner of the cane on his farmer;
vi)West Kenya Sugar denied it was engaged in cane poaching activities and had taken legal action against the ministry of Agriculture and the Kenya Sugar Board and Butali Sugar Mills Limited on the licensing on the mill against existing laws and regulations;
vii)The sugarcane crisis in western Kenya was occasioned by the licensing of Butali Sugar Mills Limited and the commencement of its operation in 2011, which has increased the number of millers competing for decreasing cane;
viii)West Kenya sugar company pays farmers after seven days with competitive prices and it chargers them a flat rate of Kshs  390 per tonne irrespective of the distance with the option of the farmer using own transport; and
ix)West Kenya Sugar Company operated with the involvement of local communities, the provincial and county administration and champions the rights of farmers as regards correct tonnage, better prices, prompt payments and efficient extension services.

2.7 Submission by the Former Managing Director MSC Evans Kidero
37 Appearing before the committee on 19th May 2014, the former managing director for Mumias Sugar Company made the following submissions;-
i)At the time of retirement from MSC, the company had initiated the process of importing 10,000MT from Kenana Sugar Factory in Sudan;
ii)That between the years 2006 and 2012 MSC exported sugar to Ethiopia, Uganda, Sudan, Democratic Republic of Congo and Rwanda and the EU especially Italy and United Kingdom;
iii)That he did not have any documents to corroborate his submissions but that he believed the current management should furnish the committee with the necessary documents available on the exports;
iv)That during his tenure at MSC, the company was making good profits, paying farmers in good time and even the value of its shares at the Nairobi Stock Exchange was reasonable.
2.8 Submission by the director general – National Environment Management Authority.
38. Appearing before the Committee on 7th November, 2013, the director general for NEMA made the following:
i)    That National Environment Management Authority (NESMA), was established under the Environmental Management and Co-ordination Act No. 8 of 1999 (EMCA) as the principal instrument of Government for the implementation of all policies relating to environment;
ii)    That EMCA 1999 was enacted against a  backdrop of 78 sectoral laws dealing with various components of the environment, the deteriorating state of Kenya’s environment, as well as increasing social and economic inequalities, the combined effect of which negatively impacted on the environment. The supreme objective underlying the enactment of EMCA 1999 was to bring harmony in the management of the country’s environment;
iii)    That there was mandated authority to exercise general supervision and coordination over all matters relating to the environment and to be the principal instrument of the Government of Kenya in the implementation of all policies relating to the environment;
iv)    That the role of NEMA in the establishing of a weighbridge at Tangakona in Busia County was to coordinate the various environmental management activities undertaken by the lead agency, West Kenya Sugar Factory (WKSF); 
v)    That due diligence environmental assessment test was done on the land at Tangakona in Busia County and a report issued to West Kenya Sugar Factory to go ahead with the intended development on the said land;
vi)    That NEMA is not involved in the issuance of Permits of Licences for trade;
vii)    NEMA also establishes and reviews land use guidelines examines land use patterns to determine their impact on the quality and quantity of natural resources and carries out surveys, which assist in the proper management and conservation of the environment.
2.9 Submission by Commissioner General – Kenya Revenue Authority (KRA)
39. Appearing before the Committee on 24th April, 2014, the Commissioner General of KRA made the following submissions;
i)    KRA was established by an Act of Parliament, Chapter 469 of the Laws of Kenya, which became effective on  1st July  1995 was aware of the presence of contraband sugar in the country, which had seriously affected the local industry.
ii)    KRA was aware Mumias Sugar Company imported 10,00MT of sugar in 2012 through a third party called Dantes Peak Limited and that Mumias paid all the duty for the consignment which was cleared in 2013; (Annex IV).
iii)    The commissioner-General admitted that KRA did not have the capacity to verify all containers of commodities imported but does random verification and scanning of the cargo before release;
iv)    The Commissioner-General was aware Mumias Sugar Company exported sugar to various countries between n 2006 and 2012 but was not in a position to confirm if the sugar had indeed left the country as that would   require confirmation from border officers and counterparts in countries of destinations;
v)    The Commissioner-General said if indeed the sugar never left the country then Mumias Sugar Company is duty bound to pay the equivalent of Value Added Tax (VAT) exempted;
vi)    KRA does not have infrastructure at all borders of our country especially in Eastern and North Eastern where smuggling is rampant but they have formed a joint team with the Kenya police service  and the Kenya sugar board to address the issue of illegal sugar entering the country unregulated and untaxed;
vii)    Sugar imports into Kenya is restricted under the 2nd schedule part B (1) of the East African Community Customs management Act of 2004 where any import into Kenya must therefore first get approval from Kenya sugar board through a non-transferable permit containing details of the importer, tonnage, origin of sugar and other relevant details, information which is used during clearance;
viii)    The revenue or duty collected and paid is determined by the type of sugar whether it is industrial or table sugar and also the origin of the sugar. Sugar from COMESA region are exempted from duty while non-COMESA sugar attracts 100% duty,
ix)    KRA has created special units to address non-compliance with KSB sugar import regulations and it was through such a unit that the case of non-compliance of the Mumias Sugar Company sugar import of 10,000 MT of 2012 was detected leading to a delay  in clearance;
x)    In 2011 KRA noted increased importation of industrial sugar from Egypt as a result of which joint investigations were conducted that revealed most of the said sugars were tran-shipments from brazil. Thereafter, KRA in consultation with KSB implemented restrictions on industrial sugar imports from Egypt’s by imposing 10% duty as it the case with non-COMESA imports;
xi)    KRA has made several sugar seizures leading to several court cases, one in point is that of Matt International who has since challenged KRA’s decision to impose 10% duty on industrial sugar imported from Egypt (the matter was still pending in Court).

2.10 Submissions by Kenya Ports Authority (KPA) 
40. Appearing before the Committee on 28th march, 2014, Managing Director for Kenya Ports Authority informed the Committee that:-
i)  KPA’s mandate was to handle inbound and outbound cargo once they have been cleared by relevant authorities.
KPA handled 40 x 20ft containers of sugar belonging to Mumias Sugar Company but imported through Dantes Peak Ltd,
KPA waived a total of 15 million shillings in demurrage charges that accrued following delay of clearance the cargo after anomalies were detected by KRA and the interventions of Mumias Sugar Company accepted;
KPA works in collaboration with KRA and KSB in monitoring the flow of sugar through the port.

2.11 Submissions by the Inspector General of Police (IG).
41. Appearing before the Committee on 29th April 2014, the Inspector General of Police made the following submissions:-
i)    National Police Service was established by Act of Parliament and mandated to enforce the law which includes surveillance of all goods, including sugar, entering or being traded within but some borders are extensive, porous and some areas may not be manned;
ii)    the Kenya police service, immigration department, Kenya revenue authority, Kenya ports authority and Kenya airports authority work together in manning the borders and to ensure that the necessary taxes and duties are paid;
iii)    the Kenya police escorts all the transit goods including sugar and ensure that KRA’s main interest (tax) is paid and all other laws are adhered to;
iv)    the Kenya police has managed to arrest and prosecute suspects in sugar smuggling although often courts release the suspects, especially cases concerning sugar through Kismayu and Kenya’s boarder with Somalia;
v)    legislation regulating the sugar industry is very weak and there is need for strengthening it;
vi)    the national police service does not protect criminals and is not aware of a ware-house in Mombasa that is protected by police where even Kenya Sugar Board personnel denied access to the premises but promised to investigate the matter following complaints from the principal secretary department of Agriculture and report to this Committee;
vii)    the IG acknowledged that some police officers had lost their lives while tackling contraband sugar which somehow abets insecurity terrorism in the country since all entries are not ascertained that it is sugar;
viii)    the IG acknowledged that the capacity in terms of resources is lacking at our borders and that there is need to develop a policy where a particular officer can several a station for only three years per station;
ix)    officers are regularly appraised on the required documentation for importation of any goods in the country, however the service was dealing with isolated cases of integrity among the officers as and when they arise;
x)    the Kenya police service had signed agreement memorandum with Kenya sugar board and Kenya Revenue Authority toe establish anti-smuggling unit to deal with cases of smuggling;
xi)    the Kenya Police Service has been underfunded for a long time but there is noted improvement in the allocation of resources to the police service;
xii)    police Officers are routinely seconded to the Kenya Revenue Authority to oversee operational matters including revenue collection and compliance to statutory requirements; and
xiii)    The various government agencies at the boarder points need to appreciate security as a cross-cutting issues and an important aspect of our national development.

2.12 Submission by Kenya Bureau of Standards (KEBS)
42. Appearing before the Committee on 14th May, 2014 the Managing Director for Kenya Bureau of Standards submitted as follow:-
i)    Kenya bureau of standards (KEBS) was established in July 1974 under CAP 496 of the laws of Kenya. It offers several services including standards development and harmonization, testing, measurement (Calibration), enforcement and standards, product inspection, education and training in standardization, metrology and conformity assessment, management systems certification and product certification;
ii)    KEBs analyses sugar imports coming into the country on request and notification of arrival of the same by Kenya Ports Authority and Kenya Revenue Authority;
iii)    Since 2012; seven consignments of sugar had been recommended for destruction by KEBS and other government agencies for non-conformance to quality specifications and KEBs is among the state agencies charged with destruction of goods that do not conform to the standards;
iv)    KEB was aware of the impounding of a consignment of sugar that had been imported by Mumias Sugar Company although the IDF was reading Dantes Peak Limited;
v)    KEBS  was facing the challenge of determining the importers of industrial sugar meant for manufacturing but which was being repacked for domestic consumption against the regulations;
vi)    KEBs does not have up-to-date equipments and infrastructure for analysis of various commodities imported and exported. KEBs also lack capacity for enforcement of standards and market surveillance and therefore cannot cope with demands like single window and 24 hour operations at the port of clearance or entry /exit. 

2.13 Submissions by Management and Board of Directors for Mumias Sugar Company
43. Appearing before the committee on27th May, 12th June, 10th July and  17th July, 2014, the Board of Directors of Mumias Sugar Company submitted as follows:
i)    The Board and management were aware that the company exported sugar to several European and African countries between 2006 and 2012 and concerns that the sugar may not have left the country and that revenue in the form of VAT payable could have been lost;
ii)    the Board and management were also aware that certain information regarding the exports was missing from the Company’s records and promised to institute forensic audit of all MSC exports in view of the fact that some of the key managers had since left the company and would report the findings to this Committee;
iii)    the company was in a crisis a result of serious management short fallings and the company was unable to meet its obligations including payment to farmers;
iv)    the company was on a restructuring process to address serious management bottlenecks and disciplinary measures had been taken  against some mangers following the findings of the forensic audit on sugar imports and other management shortfalls;
v)    The Board and management were not involved in the decision to import the consignment of the 10,000 MT of sugar in 2012 and there was an ongoing Board investigation on the same and undertook to submit the outcome of the investigations to the committee within two months. The Board had asked KPMG to investigate into whose accounts money from the imports went. The final KPMG report would also shed light on exactly how much monetary loss MSC incurred through fraudulent activities.
vi)    The preliminary report of the Forensic Audit by KPMG on sugar imports by Company could not be released to the Committee at the stage because  there were certain transaction details that had been captured in the report and the Board undertook to submit the report in two months when those aspects had been addressed;
vii)    The Board admitted that it was having challenges from neighbouring Companies that had taken advantage of delay in payments for sugarcane by MSC to poach cane from its contracted farmers.
viii)    The Board admitted that there was massive corruption and lack of clear management direction in MSC in the past, to this effect some officers had been sent home pending investigation; and
ix)    The Board also affirmed that there were reforms going on at MSC to clean the mess and also to recover the money lost. The company did not have an internal audit department and the chairman promised to have a new department reconstituted;
2.14 Submission by the Director General of the National Intelligence Services (NIS)
44. Appearing before the Committee on 10th July, 2014, the Director General of NIS made the following submissions:-
i) That the function of MIS was to gather intelligence and compile reports on the same for action by the relevant authorities;
that NIS has no prosecutorial powers;
The sugar industry was crippled by among other issues, high cost of production and absolete technology hence Kenya was a very lucrative market for the commodity and that has been a catalysts for sugar smuggling in the country.
45. The committee expressed disappointment over the information presented by the Director General and informed him that Kenyans had very high expectations of his office. The DG expressed his appreciation  of the Committee’s need to deal with the sugar issue and requested that the Committee details out of information they required from him and he would respond within two weeks.

46. The Committee acceded to his request and outlined the required information as follows:
I.    provide information on illegal sugar importation, exportation and smuggling;
II.    Provide the name of the illegal importers and smugglers and their local partners within and outside government institutions;
III.    Provide information in the custody of national intelligence service if any concerning smuggling of sugar into the country through Kismayu and along Kenya’s boarder with Somalia;
IV.    The names of companies, traders, dealers, transporters’ and any other persons involved in the alleged sugar exports by Mumias sugar company to regional countries and in particular owners of the trucks that ferried the sugar for export from Mumias Sugar warehouses; and
V.    The circumstances under which sugar meant for industrial use ended up being used as table sugar and the persons involved in the repackaging of the sugar for domestic consumption.
A letter detailing the above was sent for action however this has not been done to date.
2.15 Submissions by the cabinet Secretary Ministry of Agriculture, Livestock and fisheries.
47. Appearing before the Committee on Tuesday  9th September,  2014, the Cabinet Secretary made the following submission on the status of the sugar sector in the country and other matters affecting the industry:-
2.15.1 On the Status on the sugar Sector in Kenya the cabinet Secretary informed that:-
i)    The sugar subsector plays a major role in Kenyan economy and was a source of income for million in citizens. The country was producing about 600,000MT of sugar against the annual domestic requirements of 800,000MT running a deficit of about 200,000MT.
ii)    There were 11 operational sugar mills in the country, 1 additional new mill was to be commissioned in Kwale while 2 other mills (Muhoroni/Miwani) were under receivership.
iii)    The combined installed crushing capacity of operational mills was about 29,990Mt of cane per day. The current capacity was sufficient to produce about 1 million tons of sugar per annum. The target was to expand this capacity to approximately 50,000MT in order to produce 1,250,000MT to make Kenya a sugar surplus producer.
iv)    The sugar closing stocks held by the factories at the start of the year 2013/12 was at 27,392 MT up from 19,205 MT at the end of 2012/12. The stock level increased to a high of 42,845 MT in February, 2014 against optimal level of 9,000MT.
v)    The Ministry embarked on the strategy to decrease the sugar stock to an acceptable level of 8,478MT, which was achieved by  20th August 2014.
vi)    The increased sugar stock was attributed to;
·    Sustained high sugar production;
·    Carrying forward huge stocks from the previous year;
·    Surplus balances in the world market and depressed prices; and
·    Increased presence of uncostumed sugar in the country attracted by high  cost of production
vii)    The Kenya sugar industry has the potential to generate up to 120MW of electricity for export to the National grid without major investments’. However, it is only Mumias Sugar Company that is currently generating 38MW out of which 26MW is exported to the National grid. The rest of the factories generate electricity for their own use but do not export to the national grid.
viii)    All 5 Government owned sugar factories are earmarked for privatization program. The program received Cabinet approval in 2008 and debt writes off has been approved by parliament as a precursor to Government divestiture. This aims at;
·    Transforming the industry towards commercial orientation; and