The Crippled Mumias Sugar Can Bail Itself Out

The crippling problems strangling the very survival of the country’s leader in sugar production, the giant Mumias Sugar Company is a classic example on how bad corporate governance, corruption, bad politics and outright looting by top corporate individuals have ruined the lives and a promising economy supporting more than 10million people.

At the  moment the sugar industry and the giant ultra-modern diffuser technology miller that has for more than four decades been the economic backbone  of Kakamega, Kisumu, Eldoret, Bungoma, Kitale, Busia, Siaya, Vihiga  and their environs are on their death beds.

However, Mumias Sugar does not require the government bailout that is being touted around every day. It only requires a deadly, ruthless, surgical forensic clean up to wipe out the rotten potatoes replaced by highly competent incorruptible managers and directors to get back to its feet.

The many published comments in a wide range of local dailies and broadcasted by electronic media outlets on the issues affecting and afflicting Mumias Sugar Company, the sugar cane farmers, business people trading with MSC directly and indirectly makes researchable topic(s) for our higher institutions of learning on how high levels of corporate corruption, outright looting and bad governance are highly dangerously destructive.

Therefore, it is paramount that when you are writing about MSC, make a note of acquainting yourself with the history of the company including the history of the people who have run it, their management styles, operations, successes and failures.  So that you can objectively give readers a balanced story when commenting on their actions, reactions as is the case now when there are boiling accusations and counter accusations.

To any avoid doubt; MSC was a classic success story right from its inception in 1976 all through the 1970’s up to 2003 under the management of the British Booker Tate Plc. The departure of Booker Tate marked the beginning of the journey into the deadly wilderness in which MSC finds itself in today.

From the well tended sugarcane crop in the then greater Kakamega, Siaya, Bungoma, Busia Districts enter the high fliers who began experimenting with the so called fast maturing varieties of sugarcane.  These new varieties though high in sucrose content are light and thus do not pay the farmers whose payments are based on weight.

The newly acquired management found a well structured infrastructure with functioning systems and strategic plans like ethanol, water and cogeneration development which proposals were to be phased in a manner consistent with capacity i.e. cogent to be developed after the company acquires a certain acreage of cane so as to sustain the production of baggase for use in its running.

However, the management were in a rush to implement those diversification strategies without going into the hassles of raw material acquisition at affordable rates.  And in the usual style, went on acquiring the various technologies needed for the job-ethanol, cogen and water bottling plants at prices that almost doubled the then reigning market rates. Through these over inflated projects implementations killings were being made in billions of shillings going to high level corporate individuals pockets. The farm inputs-fertilizers, ploughing (land preparation), crop husbandry, cane transportation costs among others were sourced and dumped onto the farmers at extremely high rates resulting into cane farming being a non viable undertaking.

It became fashionable to create any loophole for payment.  A new office block had to come up at highly inflated construction costs, most of the services had to be outsourced at almost three times their existing competitive market costs – toilet cleaning, road construction and maintenance, fumigation of pests, legal services, bill boards to advertise MSC and even garbage collection name it.

MSC was everywhere; all of a sudden Kenya ceased having a more than 250, 000 tonnes annual sugar deficit and MSC was now exporting sugar to the European Union. With MSC employees doing the clearing but someone else doing the invoicing at with abnormal figures.

Pink vouchers were a common sight in the office corridors at the company’s headquarters at Mumias and offices in Nairobi with employees claiming “funny” allowances from buying teacups to processing certain documents in Nairobi on a weekly basis.

Every week come Wednesday to Friday the airlines in Kisumu would be full with most passengers being MSC employees going to Nairobi for ‘official’ reasons up to Tuesday of the following week to flood the same airlines on return flights to Mumias.  Because Nairobi was the sugar millers preferred centre of management operations.

A fulltime office had to be created and the MD technically moved his offices there – if working in Mumias took daily flights from Nairobi to Mumias and back at the expense of the company.

In short even in its current crippled state the company ran on autopilot.  No major decisions could be made because the CEO didn’t sit in the Mumias office; all those decisions had to await the CEO’s presence which at times took three or more days in a month.

In a complete departure from rewarding merit, MSC went on a tribal, nepotism, sycophancy spree. You need a contract; you have a friend, relative in top management? You get it; it’s up to you to fill in the rates, terms and conditions.

You need employment? Come with your certificate from whichever village polytechnic/backstreet college, you are now in management.  I am the boss here your starting salary is Kshs. 45,000/- plus a house, free water, electricity, garden to plant sukuma, subsidized sugar monthly and a fuel allowance of Kshs. 30,000/- minimum plus car loan.  MSC maybe the only company in Kenya with a management ratio of 2:7 – it has 700 people in management with a total workforce of 1900 employees.

Further, management could create a contract for convenience overpays it and have the company pay for it with an arrangement with the beneficiary.  A classic example is of the Cane Buying Centres which are exclusive for one Ima Hauliers and Nile Hauliers both of which have a relationship with past and current senior management personnel.

With all these, the giant could not survive.  At some point in time the elephant had to crash.  All along from 2003 MSC has been doing well on paper but not in deed.  The tricks employed range from pumping in some money from sale of scrap, pre-payment of sugar sales, conversion of the sugar development funds onto the balance sheet, late financial reporting you name it.

For the farmers, shareholders, employees, and the National Government of the Republic of Kenya MSC is still a very viable business.  What is ailing it most is lack of prudent management and policy direction.  Sugar sells itself, sugar is a monopoly product; MSC does not need a government/private bailout or injection of funds. It generates sufficient capital to bail itself out.  What MSC needs is a manager who will manage the resources available objectively.

Kill the sugarcane poaching crisis that was initiated by the then Kenya Sugar Board which allowed other millers to go against its own rules and regulations, restore farmers confidence and instill strict highly disciplined corporate management and it will be on the run. After all the raw material supplier still has the goodwill and the market is there.  What MSC lacks is the person to link the two and cutoff the fraudulent activities.

Meanwhile we can also begin thinking of how the government can assist in following up the boys who have looted the company dry bring them to book, recover the looted proceeds and restore it to the company.

How the looting was done is common knowledge in Mumias, they are known so are the conduits they used/use.  It only needs political goodwill for the exposure to be made or rather a forum. The leaders are part of the problem.  When asked, did you know what caused MSC to be in the state in which it is? One leader retorted “as long as I get my cut, I don’t care what happens/happened.”

MUMIAS SUGAR COMPANY FACT FILE

  1. With sufficient raw materials MSC mills an average 5,000 tons of sugarcane/day
  2. From that they would get 13% sugar i.e. 650 tonnes
  3. 650 tons x1000 kgs =650,000kgs
  4. 650,000kgs/50kg bag=13,000 bags
  5. 13,000 x3, 200/-(current sugar prices) =41,600,000/-
  6. With sufficient raw material Ethanol production/sale/day can be approximately Kshs. 12m
  7. Total MSC income could be approximately Kshs. 50m/day
  8. With sufficient raw material MSC would operate approximately 6 days in a week
  9. This comes to about 26 days a month
  10. Average income 1.2b/month

With such cash flow (1.2b/per month), MSC does not require a bail out at all.  It can comfortably pay its debts and other obligations from own cash flow.  If only poaching would be killed completely this would ably supported by the fact that farmers would still be supplying MSC with raw material and sugar sells itself unlike other services/products which you really have to work hard to sell.

 

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