Mumias buyout plan prepares for bitter sugar fight between Rai brothers

A mix of toxic western Kenya politics and distant sibling rivalry could derail the best way to revive a sick miller. [Benjamin Sakwa, Standard]

When ODM party leader Raila Odinga recently introduced two leaders of the Ugandan group Sarrai to the crowd at Bukhungu Stadium in Kakamega County, the businessmen looked dumbfounded.

“I brought these people to you,” Odinga said, extending a hand to one of the managers, who shyly greeted the ecstatic crowd.

They were being thrown into uncharted political territory, anathema to Mumias Sugar, whom some observers have blamed for the collapse of the giant sucker which was suspended from the Nairobi Securities Exchange (NSE) after the group seized its assets. KCB.

But the roller coaster is only just beginning for Sarrai Group, a conglomerate with interest spanning three countries and a myriad of cement and plywood manufacturing sub-sectors in Kenya; sugar, mattresses and edible oils in Uganda; and plywood in Malawi.

The company has more than 200 employees in its constellation of companies in all three countries.

Sarrai Group is owned by Sarbjit Singh Rai, a brother of billionaire Jaswant Rai, who owns Rai Group of Kenya.

The latter currently controls a large part of the sugar market in the Kenyan retail space through its Kabras brand.

But maneuvering through its 20-year tenure with the struggling Miller could prove to be a game of snakes and ladders for the Sarrai group.

Less than 10 days after the conglomerate won the bid, it faced a barrage of lawsuits losing bidders.

The pending court cases – an injunction against interference with Mumias Sugar’s assets and a contempt lawsuit against its directors and the receiver for allegedly disobeying court orders – will not only disrupt the company’s timelines to resuscitate the Miller. , but will also inflict mortal danger on them. financial blow, says the Sarrai group in court documents.

“The orders issued on December 29, 2021 will cause untold suffering, embarrassment and great financial loss and insurmountable economic damage to the plaintiff, who has already carried out a significant rehabilitation since the date of takeover,” argued the lawyer de Sarrai, Wesley Gichaba.

The company said it would inject nearly $ 1 million (1.13 billion shillings) into the ailing miller for the rehabilitation, refurbishment and maintenance of machinery and vehicles ready for operation over the years. next six to eight months.

The company is expected to rehabilitate and operate Mumias Sugar Company for 20 years, with rental costs accruing to the miller.

However, one of the losing bidders, Tumaz & Tumaz Enterprises Ltd, which is associated with Kakamega American businessman Julius Mwale, obtained an injunction against Sarrai Group.

He indicates that the offer was unfairly delivered to Sarrai by the receiver-manager appointed by KCB Group, Ponangipalli Rao, noting that it was tainted with fraud.

Tumaz went to court on Thursday, accusing Sarbjit, Rakesh Kumar Bvats (director) and Rao of disobeying the court’s directive.

Sarrai Group argues that the restrictive orders came into effect seven days after the lease had already been executed and awarded.

Tumaz also lodged another file with the Administrative Revision Commission for Public Procurement (PPARB), requesting a review of the allocation of the lease to the Sarrai group.

But Sarrai insists the transaction does not fall under the PPARB.

Tumaz, which has no known record of operating a sugar crushing plant, made the highest bid of 27.6 billion shillings, followed by French company Kruman-Finance with an offer of 19 billion shillings, while Sarrai offered 11.5 billion shillings.

If they succeed in overcoming these court cases, Sarrai Group will face fierce competition, which will be like sibling rivalry.

The collapse of Mumias Sugar, which at its peak controlled 60 percent of the local sugar market and directly employed over 1,600 people, left a void which was quickly filled by the Rai group of Jaswant.

In 2016, the sugar industry had 18,106 permanent workers, according to official data.

However, with the death of Mumias Sugar, other sugar companies are also on their knees, most of them illiquid and permanent employees reduced by almost a third to 13,100 by the end of 2020. .

Even the addition of new milling plants by the Rai Group failed to cover the sugar supply deficit, in part because Rai relied on a reduced workforce.

This has seen sugar imports continue to rise, a clear indicator that local production is not keeping up with demand.

Jaswant’s fight against Sarbjit will not only be an ego clash between two brothers who do not seem to agree and who have been fighting for control of their late father’s multibillion shillings estate since 2015. It will also be a struggle for regional domination.

Jaswant won the first round of the battle for Rai’s succession after the court dismissed the petition of Sarbjit and his two other brothers.

However, Sarbjit appears to have had a taste for revenge by foiling his brother in the offer for Mumias Sugar. Rai Group had made an offer of 3.5 billion shillings for Mumias Sugar.

Rai, through its three sugar factories – West Kenya, Sukari Industries and Olepito Sugar Company – controls more than a third of the sugar produced locally.

The fallout between the two brothers was precipitated by the death of their father, Tarlochan Singh Rai.

Led by widow Sarjij Kaur Rai and her three sons, including Sarbjit, they challenge the patriarch’s will, who they say left out some of the children while accusing the executioner Jaswant of plotting to keep the assets. of several billion for itself.

The fallout is so unpleasant that the two companies do not share a director.

For a long time, the sugar companies of the two brothers did not intersect directly, each carving out its sphere of influence, one in Uganda and the other in Kenya.

Like Rai Group, Sarrai Group’s Kinyara Sugar Ltd controls 30 percent of the market share and is the second largest producer of sugar in Uganda.

In 2011, the miller produced 105,000 tonnes of sugar per year from 23,000 hectares of sugar cane.

Sarrai’s other sugar company, Hoima Sugar Ltd, is located in northern Uganda and includes a base estate of 10,000 hectares and a sugar factory with a cane crushing capacity of 1,500 tonnes per day.

But now the borders have disappeared, with Sarbjit gaining a foothold in the lucrative Kenyan market.

Over the past five years, the amount of sugar consumed in Kenya has increased steadily to reach 1,045,888 tonnes in 2020 against local production of 603,788 tonnes, according to official data.

Rai may have beaten a lethargic and ineffective Mumias Sugar who was under the spell of local child politics, but the Mumias brand still holds a special place in the hearts of many Kenyans.

His return, boosted by well-oiled machines, better conditions for farmers and good governance will be a threat to Jaswant.

In February 2023, safeguards against the unhindered importation of sugar from the Common Market for Eastern and Southern Africa (Comesa), a free trade bloc of which Kenya is a member, will end after a two-year extension that the country was given by the Council of Ministers of Comesa.

Since 2008, Kenya has requested this extension, arguing that its sugar industry is not yet competitive with that of other sugar producing members of Comesa such as Mauritius.

The 2020 extension was granted on the condition that Kenya provides a detailed roadmap on how it will improve the competitiveness of the sugar sector over the two years; ensure that the process for issuing import permits is transparent, swift and efficient; and provide the projected sugar deficit in January of each year based on production and consumption data.

It is therefore a race against time for the Sarrai Group. Cheap sugar from not only Comesa countries, but also East African Community (EAC) countries like Uganda, should find it well prepared.

Yet the success or failure of Sarrai will ultimately depend on real policy, at both local and national level. The stakes are even higher in an election year.

Over the past 10 years, the relaunch of Mumias Sugar has been a hotly debated topic in Western Kenya.

It becomes intense as the country nears elections. In the last election, for example, President Uhuru Kenyatta, in his hunt for votes from western Kenya, injected 1 billion shillings into Mumias.

This was against the 10 billion shillings owed to creditors, with local politicians pushing for the money to be used to pay farmers rather than helping the factory come back to life, according to a former company manager who requested anonymity.

In the future, aspirants who come up with popular plans to revive Mumias Sugar, which had been placed under administration by KCB Bank for an unpaid loan of 480 million shillings, have a chance to win the hearts and votes of the people of western Kenya.

Rachel J. Bradford