Running Head: MUMIAS SUGAR COMPANY

MUMIAS SUGAR COMPANY

Name Reg

Peter lungwanyi

Questions

1. Brief history of the company

2. Reasons for bankruptcy

3. Possible reorganization of the company

Brief History of the Company.

Introduction

Mumias, in Kenya's Western Province, is home to one of the country's largest and most

established industries, Mumias Sugar Company. The company's history traces back to 1967,

when the Kenyan government commissioned Booker Agriculture and Technical Services to

do a feasibility assessment on the potential of cultivating sugarcane in Mumias before

launching a trial operation. It is safe to assume that the Mumias area was one of Kenya's less

developed areas at the time, as evidenced by the fact that what land was used was solely by

farmers producing crops for sustenance and grazing animals.

While poor land utilisation, combined with the remoteness of the area and virtually non-

existent communications infrastructure, had previously discouraged economic activity in

Mumias, the fact that land adjudication had been completed and farmers had freehold title to

their land piqued the government's interest due to its favourable conditions for sugarcane

development.Mumias Sugar Company was legally formed on July 1, 1971, as the entity in

charge of project implementation. The primary goals of founding the firm were to offer a

source of income for farmers, to generate job possibilities in the local region, to assist curtail

rural-urban migration, to lessen Kenya's reliance on imports, and to strive for self-sufficiency

in sugar production.

When it was fully operational in 1973, the company's initial factory had a capacity of

45,000 tonnes of sugar per year. Mumias Sugar Company now has a factory with a capacity

of 173,000 tonnes of sugar and 1.8 million tonnes of cane crushed each year, having

developed substantially over the decades. Mumias Sugar Company's production method
 Running Head: MUMIAS SUGAR COMPANY

includes cane production, sugar production, cogeneration, and molasses production. Cane

farming contributes for around 80% of farm produce production in the sugar zone, and this

accounts for up to 90% of total cane used as raw material by the industry.

In the year 2000, a statewide distribution network for sales and marketing was developed,

and a power selling deal was signed with Kenya Power and Lighting Company to deliver 10

000MWh of electricity per year to the national grid. The firm was changed from a private to a

public corporation in 2001, and it was listed on the Nairobi Stock Exchange. Booker Tate's

management contract terminated in 2003.In 2006, a deal was made with Avant Garde

Engineers and Consultants (P) Ltd of India to build a US$ 40 million power production unit,

increasing the company's producing capacity to 35 MW and allowing it to sell up to 25 MW

to the National Grid.

Mission statement

Our Mission To consistently satisfy our customer needs through efficient, innovative and

ethical practices while meeting the diverse expectations of other stakeholders

Vision statement

To be a world class integrated producer of sugar, green energy and related products

Core Values

MSC shall gain competitive advantage through its empowered, talented, energetic and

passionate workforce who shall be committed to the following values: -

• Quality products and services to our customers

• Excellence in team driven performance

• Ethical business practices

• Responsible corporate citizenship

• Safety, health and sound environmental practices.

Reasons For Bankruptcy.

a) Malpractices by Staff 

Malpractices by staff at the miller that resulted in loss of millions as another cause of the

financial turmoil the once premier miller is facing. They include double procurement, single

sourcing, overstating of books of account, inflated commercial activities, printing of books

and fliers with renowned fraudulent companies compounded by poor record keeping.

The Mumias Sugar Company Board, management staff, and suppliers have over time

engaged in unprofessional malpractices that contributed immensely to the current state of the

company. The commercial department diverted ethanol meant to be sold in Tanzania and also

the imported molasses tankers never arrived at company. the agriculture department

fraudulently acquired satellite fields, some which did not exist, paid ghost farmers in

collaborations with the Information Technology (IT) staff, and overstated acreage firm inputs

in collusion with the survey section, diverted firm inputs meant for the nucleus and farmers

b) Poor Governance.

Poor governance by the management resulted in losses that triggered delayed or non-

payment for cane deliveries by farmers leading to them quitting cane farming The repealing
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of the Sugar Act 2001 with the enactment of the Crops Act 2013 that left the sugar sector

without regulations to guide it, leading to confusion in the sector in general as a major gap in

the performance of the sugar sector.

c) Investments in Projects That Never Give Returns

The company’s financial status started dwindling in 2013 largely due to mega projects that

the company engaged in and whose return on investments has never been realised. This took

away the much-needed cash to pay cane farmers for their deliveries, leading to delays in

payment that demoralised them and they started uprooting the crop from their farms. The

company staff started projects they could not complete. These include CCTV, IDMS,

Ethanol, bagging machine, HT clocking system, recruited staff un procedurally, failed to

control board of directors’ expenditure and colluded with board members to open an account

in Dubai that was used to deposit customer funds.

d) A Poor Farming Models

First, the cartels orchestrated the fall of Mumias Out-growers Company (Moco), which

used to be main supplier of cane to the miller. When it collapsed, the sugar company

inevitably started going down. This made Thousands of frustrated cane farmers uprooted

cane and the giant's once endless financial taps threatened to run dry.

e) Sugar Importation From Outside The Country

major contributor to the problems. These imports are procured at world market prices, which

average at US $ 125. The cost of Kenyan sugar has been averaging between US $ 426 - $600

(2000-2003) when compared to the EU preferential Sugar protocol price of US $ 536. Kenya

sugar market is arguably the second most attractive open market in the world after the EU in
 Running Head: MUMIAS SUGAR COMPANY

terms of premium sugar destination market. This phenomenon has led to maintenance of a

spurious and destructive sugar regime in Kenya.

Possible Reorganization Of The Company

a) Change of Governance

Good corporate governance is expected to increase firm performance. The main objective

of the implementation of good corporate governance is to optimize value for shareholders and

stakeholders in the long run. The new governance board need to balance conformance (i.e.

compliance with legislation, regulation and codes of practice) with performance aspects of

the board’s work (i.e. improving the performance of the organisation through strategy

formulation and policy making). As a part of this process, a board needs to elaborate its

position and understanding of the major functions it performs as opposed to those performed

by management

b) Investment in Cane Development.

Demand for sugar is growing in local, regional and global markets, spurred by rapid

urbanisation and a growing middle-class driving demand for processed foods, which contain

sugar. The company should Enhancing the sugar competitiveness by providing support to

ensure operational efficiency with a keen focus of decreasing harvesting and transportation

costs ,Expanding the product base to include additional uses of sugarcane into the value chain

thereby diversifying the product demand, e.g. ethanol production, Enhancing infrastructure

development with a focus on roads and technology infrastructure and Strengthening the

regulatory framework to enhance the company trade and drive demand which includes a

review of current policies and corporate governance structures.

c) Transportation
Infrastructure for cane transport needs to be improved. Most of the roads within the cane

growing areas are in bad shape. The cost of transport is high. Cane spillage is common and

thus after harvest loss is high. There is also insufficient number of tractors and trailers to do

the transportation work.

d) Marketing reform

Marketing reforms are identified as crucial to the survival and restructuring of the

company. The current marketing arrangement afforded abnormal profits to sugar barons,

distribution agents and brokers at the expense of millers and farmers. The company should

do the following:

 Adoption of a single desk marketing system in which the marketing body is

mandated to export sugar and import the deficit quantity, and share proceeds

among the industry stakeholders. This arrangement will plough back surplus funds

into the subsector and also manage the conflict of interest, which currently exists.

 Effect payment to sugarcane farmers on delivery. The sugar company can borrow

from the tea sector payment system in which payment is made in stages. It is

suggested that the company owned marketing would improve the cash flow in the

sub-sector by providing advances to the millers and farmers.

e) Engagement with Lenders and Creditors on Viable Debt Payment Plan

Debt management is a way to get your debt under control through financial planning and

budgeting. The goal of a debt management plan is to use these strategies to help you lower

your current debt and move toward eliminating it completely. The company needs to have a
 Running Head: MUMIAS SUGAR COMPANY

debt payment plan because it lower cost source of funds and allows a higher return to the

equity investors by leveraging their money

f) Pursue Capital Injection

A capital injection is a lump-sum investment, typically in the form of cash, but may also

consist of equity or debt. Capital injections can be obtained for a variety of purposes

including start-up funding, growth, initial public offerings, distress, or bailout funding.

There are other ways that the company can receive a capital injection. The government

may inject capital to stabilize them for the public good. The government may negotiate an

equity stake in recipient companies or institutions, or it may treat the capital injection as a

debt obligation.

g) Involvement by The County Government of Kakamega In the Development of

Cane

The company needs to make a raft of interventions to turn around the once vibrant miller.

They include involvement by the county government of Kakamega in the development of

cane, negotiation with national treasury to surrender its 20 percent shareholding in the

company to the county government to give it a foothold in decision making.

h) Increase Efficiency in Cane and Sugar Production and Marketing

The aim here is to lower the Kenyan cost of production without looking into competitiveness

with other countries or regions. The basic motive is to lower the Kenyan cost. The efficiency

should be measured in three areas:

 Field level performance indicators: under this heading, the cane yield per hectare

and sucrose content per ton should be improved.

 Factory performance: under this heading, the average milling capacity, season

lengths, factory recovery rate and sugar produced per ton should be examined.

 Technical and management performance as well as improved marketing policy

should be fostered.

i) Work on the deep financial crisis

As a matter of priority, the Government intervene in the debt management in order to give

the factories a clean balance sheet necessary to attract new investment in to the sector. the

debt portfolio be analysed and classified and recommendations be made, based on merit how

the amounts should be dealt with, with respect to: Write off and Ensuring that the individuals

linked to debts incurred corruptly are held accountable

An audit of the machinery used on the entire value-chain would be necessary because

there is reason to believe that little has been spent to keep up with the industry trends. Indeed,

the greatest concern is that unless the older factories are rehabilitated fast, the competition

that will drive them out of business may not even come from outside the country but may

emerge from the newly established local firms that are expected to give foreign competitors a

run for their money. But, after all is said and done, the success of the sub-sector will be

determined by how aggressively the government addresses the governance issues that have

plagued it over the years. Filling boardrooms with political appointees who are, often,

candidates who failed to win elections is obviously the worst way possible.
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References

Charles Wachira (October 22, 2014). "Mumias Sugar of Kenya Idles Milling Plant for

Annual Maintenance." According to Bloomberg News. 20th of January, 2015.

Globefeed.com. "Road Distance Between Nairobi And Mumias With Interactive Map."

20th of January, 2015.

Ochiel, Hezron (9 January 2015). "As Mumias resumes operations, sugar prices are

expected to fall." The Industry Standard (Kenya). Nairobi. 20th of January, 2015.

Victor Juma and Simon Ciuri Tuesday, February 2, 2015. "How President Kenyatta

Arranged a KSh500 Million Bailout for Mumias." Africa's Business Daily (Nairobi).

February 2015, retrieved 

Wanga, Justus (15 November 2014). "Troubled Mumias to Appear in Front of

Shareholders." Nairobi's Daily Nation. 20th of January, 2015.