Ministry of Agriculture Statement on Leasing of Four Sugar Factories (Nzoia, Chemilil, Sony and Muhoroni)

The Republic of Kenya, Ministry of Agriculture and Livestock Development, has announced the completion of the leasing process for four sugar factories. The ministry has entered into an agreement with sugarcane farmers and sugar factory workers' unions to pay cane delivery and salary arrears owed to both farmers and workers. This agreement aims to secure the future of cane farmers and sugar factory workers as the government leases out these factories to private millers.

Under the agreement, the government will settle the arrears owed to both farmers and workers before handing over the four factories to private millers. Last year, the government paid out over KES 1.7 billion to sugarcane farmers to clear arrears owed by sugar factories. Since then, the factories have accrued an additional KES 500 million for cane delivered by farmers. The government will pay farmers the KES 500 million in July this year.

The government paid over KES 600 million to factory workers last year out of the KES 5.3 billion owed to workers, leaving KES 4.7 billion in arrears. Since then, the arrears owed to factory workers have accrued to an estimated KES 5.6 billion. Following lengthy negotiations, the government has entered into an agreement with the Kenya Union of Sugar Plantation and Allied Workers (KUSPAW) to safeguard the interests of sugar factory workers.

KUSPAW has signed a Memorandum of Understanding (MOU) under which the government, as the lessor, undertakes the following:

• a) There will be a 12-month transition period during which the four lessees shall evaluate their workforce needs and determine the criteria for the retention of current employees.
• b) The Ministry shall remain responsible for all unpaid salary arrears, pension contributions, and statutory deductions up to the lease handover date.
• c) A phased payment schedule shall be adopted as follows:
  • KES 1 billion to be paid to workers upon takeover (KES 600 million to pay part of the staff arrears and the remaining KES 400 million to pay salary as from May 2025).
  • KES 1.5 billion will be released in July 2025 to be used for the payment of staff salaries and arrears.
  • The government shall continue to pay salaries arrears at the rate of KES 1.17 billion (to be verified) on a quarterly basis until 30th June 2026.

The decision to lease out the four sugar factories was made after lengthy consultations with key stakeholders across the sugar sector, including farmers, sugar factory workers, unions, Members of Parliament, and Governors, with approvals by the cabinet. It was informed by the need to ensure a return on investment for taxpayers, who have, over the years, bailed out the ailing sugar sector. Last year, the government wrote off over KES 117 billion to bail out the local sugar industry and injected an additional KES 2.5 billion to clear arrears owed to farmers and workers.

The procurement of the four firms follows broad-based engagement with stakeholders across the sugar sector, dating back to 2015 when Parliament approved the process. Due process was followed in the lead up to the selection of leasing as a viable model for the transformation and rehabilitation of the 4 sugar factories as earlier guided by Parliament and the Cabinet. A detailed procedure on how the decision was arrived at is as follows:

In November 2018, the government established a task force on the sugar industry to examine the challenges facing public sugar companies and provide appropriate recommendations. In 2020, the task force recommended mobilization of resources for capital injection through strategic investors, as Parliament had approved in 2015.

In May 2023, the Ministry of Agriculture and Livestock Development and the National Treasury hosted elected leaders, including governors and members of Parliament from sugar-growing counties, who unanimously agreed to the leasing model. The move was then submitted to the cabinet for approval.

In August 2023, the National Treasury submitted a memorandum of action plans for the revival and commercialization of the sugar companies to the National Assembly to allow stakeholders to provide views on the proposed action plans in compliance with public participation. The Speaker of the National Assembly directed that the memorandum be referred to the Departmental Committees on Finance and National Planning, and Agriculture and Livestock for collection of views, consideration, and reporting.

In September 2023, the departmental committees held meetings with various stakeholders in Kisumu. Stakeholders appeared before the committees and unanimously endorsed the proposal to revive and commercialize the sugar companies through leasing. The report was tabled before the National Assembly, which considered, adopted, and approved the views from stakeholders. The National Assembly vacated the privatization model approved in 2015. It approved the leasing model as well as the cabinet decisions to write off the debts owed by the sugar companies. The National Assembly further rejected the proposal to merge Chemelil and Muhoroni sugar companies.

Further, the matter of public participation has been litigated and ruled on. The Hon. Justice Chacha Mwita, sitting in the Milimani High Court, found that 'The tender notice for leasing having been issued under the Public Private Partnership Act, the Privatisation Act was not applicable and, therefore, the action did not violate the conservatory order that had been issued suspending section 21 of the Privatisation Act. There was public engagement which led to the recommendations that the sugar companies be put on leasing.'

The Ministry further wishes to reassure all stakeholders that no public land will be sold or acquired under the leasing agreements. All assets belonging to the four sugar companies, including land, will remain the property of the national government. The assets will be leased out to the lessees annually based on the prevailing market rate with all proceeds being collected by the Kenya Sugar Board for reinvestment into communities around the 4 factories and for utilization in cane development.

The four firms were competitively procured by the government through the Ministry of Agriculture and Livestock Development, the Kenya Sugar Board, and other government key players. Following broad-based consultations, the following companies have been awarded a 30-year lease for the operation of the four sugar factories:

1. The leasing of Nzoia Sugar Company has been awarded to West Kenya Sugar Company of P.O. Box 2101-50100 - Kakamega.
2. The leasing of Chemilil Sugar Company has been awarded to Kibos Sugar & Allied Industries Ltd of P.O. Box 3115-40100 Kisumu.
3. The leasing of Sony Sugar Company has been awarded to Busia Sugar Industry Ltd of P.O. Box 132-50400 Busia.
4. The leasing of Muhoroni Sugar Company has been awarded to West Valley Sugar Company Ltd of P.O. Box 1314- Kericho.

I would like to assure the public and all stakeholders that the negotiated terms represent the best possible outcome to ensure the revival of the sugar sector. I call upon your continued support in realizing this vision. The Ministry remains fully committed and ready to address any concerns that may arise.

By :
Sen. Mutahi Kagwe.
Cabinet Secretary, Agriculture & Livestock Development