Kenya finalizes leasing of four sugar factories, addresses farmer and worker arrears

The Ministry of Agriculture and Livestock Development has announced a definitive agreement with sugarcane farmers and sugar factory workers’ unions, focusing on the settlement of outstanding arrears and the leasing of four state-owned sugar factories to private millers. This initiative is geared towards securing the future of cane farmers and sugar factory workers.

Through a press release signed by Agriculture and Livestock Development CS Mutahi Kagwe, the core agreement stipulates that the government will settle arrears owed to both farmers and workers before the handover of the four factories to the private operators.

Arrears settlement details:

• Sugarcane farmers: Last year, the government disbursed over Ksh. 1.7 billion to sugarcane farmers to clear outstanding arrears. Since then, an additional Ksh. 500 million has accrued for cane delivered by farmers. The government has committed to paying this Ksh. 500 million to farmers by July of this year.
• Sugar factory workers: The government paid over Ksh. 600 million to factory workers last year, out of a total of Ksh. 5.3 billion owed. The remaining arrears stood at Ksh. 4.7 billion. These arrears have since increased to an estimated Ksh. 5.6 billion. Following extensive negotiations, an agreement has been reached with the Kenya Union of Sugar Plantation and Allied Workers (KUSPAW) to protect the interests of the workers.

Memorandum of Understanding (MOU) with KUSPAW:

The MOU between the government (as the Lessor) and KUSPAW outlines the following terms:

• A 12-month transition period will be implemented, during which the four Lessees will assess their workforce needs and determine the criteria for retaining current employees.
• The Ministry will remain responsible for all unpaid salary arrears, pension contributions, and statutory deductions up to the lease handover date.
• A phased payment schedule for the workers’ arrears will be adopted:
  • Ksh. 1 billion will be paid to workers upon takeover (Ksh. 600 million for part of the staff arrears and Ksh. 400 million for salary from May 2025).
  • Ksh. 1.5 billion will be released in July 2025 for staff salaries and arrears.
  • The government will continue to pay salary arrears at a rate of Ksh. 1.17 billion (subject to verification) on a quarterly basis until June 30, 2026.

Leasing process and rationale:

The decision to lease out the four sugar factories was made after lengthy consultations with key stakeholders across the sugar sector. This included farmers, sugar factory workers, unions, Members of Parliament, Governors, and approvals by the cabinet. The move is motivated by the need to ensure a return on investment for taxpayers, who have supported the sector through bailouts over the years. Last year, the government wrote off over Ksh. 117 billion and injected an additional Ksh. 2.5 billion to clear arrears owed to farmers and workers.

Process of selecting the firms

The procurement of the four firms followed broad-based engagement with stakeholders across the sugar sector, dating back to 2015 when Parliament approved the process. Due process was followed in selecting leasing as the model for the transformation and rehabilitation of the 4 sugar factories as earlier guided by Parliament and the Cabinet.

The process included the following:

• In November 2018, the government established a task force on the sugar industry.
• In 2020, the task force recommended mobilizing resources for capital injection through strategic investors, as approved by Parliament in 2015.
• In May 2023, the Ministry of Agriculture and Livestock Development and the National Treasury hosted elected leaders, who agreed to the leasing model, which 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.
• 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.
• In September 2023, the departmental committees held meetings with various stakeholders at Kisumu. Stakeholders endorsed the proposal to revive and commercialize the sugar companies through leasing.
• The National Assembly adopted and approved the views from stakeholders, vacated the 2015 privatization model, and approved the leasing model and the cabinet decisions to write off the debts owed by the sugar companies. The National Assembly also rejected the proposal to merge Chemelil and Muhoroni sugar companies.
• The High Court, in Milimani, ruled that the tender notice for leasing under the Public Private Partnership Act did not violate the Privatisation Act, and that there was public engagement that led to the recommendations that the sugar companies be put on leasing.

The Ministry has reassured stakeholders that no public land will be sold or acquired under the leasing agreements. All assets will remain the property of the national government and will be leased out annually at prevailing market rates. Proceeds will be collected by the Kenya Sugar Board for reinvestment into communities around the four factories and for cane development.

Awarding of leases:

The four firms were competitively procured by the government. The leases have been awarded as follows:

1. Nzoia Sugar Company: West Kenya Sugar Company
2. Chemelil Sugar Company: Kibos Sugar & Allied Industries Ltd
3. Sony Sugar Company: Busia Sugar Industry Ltd
4. Muhoroni Sugar Company: West Valley Sugar Company Ltd

The CS however has assured the public and all stakeholders that the negotiated terms represent the best possible outcome to ensure the revival of the sugar sector as he called upon continued support in realizing the vision.