Five government-owned sugar companies are steeped in debt amounting to Ksh100 billion ($1.1 billion) due to mismanagement and dumping of illegal sugar in the Kenyan market.

The money is owed to the government, banks, suppliers, the Kenya Sugar Board and cane farmers.

Nzoia Sugar Company, for example, owes Ksh37 billion ($411.1 million), Miwani Sugar Company (in receivership) Ksh28 billion ($311.1 million), Muhoroni Sugar Company (in receivership) Ksh27 billion ($300 million), Chemelil Sugar Company Ksh5 billion ($55.6 million) and Nyanza Sugar Company Ksh3 billion ($33.3 million).

“All public-owned mills are heavily indebted and lack the capital required to expand, modernise and automate their factories for the required efficiencies and economies of scale,” said a report compiled by the Parliamentary Committee on Agriculture, Livestock and Co-operatives.

In the recent past, Mumias, the best performing sugar firm, whose sugar accounts for about a third of the country’s annual output, also joined the troubled companies list.

The company’s financial troubles have increased since last year forcing the government to inject Ksh1 billion ($11.1 million) to save it from collapse. Like its sister companies, Mumias also owes the government, farmers and suppliers millions of shillings.

To save the sector from ruin, the Agriculture Ministry is now recommending the establishment of a new inter-agency surveillance and enforcement unit to curb the illegal sugar importation, that is choking the ailing industry. It also wants those responsible for the near collapse of the industries prosecuted.

“The gazettement of a permanent inter-agency surveillance and enforcement unit on the sugar trade that reports directly to the director general of the Agriculture, Fisheries and Food Authority made up of the Sugar Directorate, Kenya Bureau of Standards, Public Health, Kenya Revenue Authority and the Kenya Police is needed. This should be done immediately,” the ministry said in a memorandum presented to the committee, which also formed part of the findings of the report.

The report was recently tabled in parliament, following the completion of the investigations into the crisis facing the sugar industry in Kenya, conducted by members of the committee.

The ministry blamed a complex syndicate of corrupt managers at the sugar companies working in cahoots with unscrupulous businessmen, Kenya Revenue Authority officials and security officers for the continued flooding of the market with illegal sugar.

According to the ministry, the sugar stocks held by factories at the start of the financial year 2013/14 were 27,392 tonnes up from 19,205 tonnes at the end of 2012/13 period. The stock level later increased to a high of 42,845 tonnes in February, 2014, against optimal level of 9,000 tonnes.

The increase in stocks was the result of importation of uncustomed sugar due to the high cost of local production, depressed prices in the world market and carrying forward of huge stocks from the previous year among other reasons.

Kenya produces about 600,000 tonnes of sugar annually against a domestic demand of 800,000 tonnes, leaving a deficit of 200,000 tonnes, which is offset by imports that are now threatening the very survival of the industry.

The sugar sector is one of the most important in the country, supporting more than six million people directly and indirectly, representing 16 per cent of the country’s entire population.

The industry contributes about 7.9 per cent of the country’s GDP and is considered the engine of the economies of Western Kenya and Nyanza. The sector is also expected to play a major role in the development of the Coastal region, once the Kwale Sugar Company becomes operational.

The committee said uncustomed sugar imports are normally repackaged in local bags to conceal their identity and evade the surveillance network.

“In the period January to July 2014, the market had experienced declining sugar prices to a low of Ksh3,200 ($35.6) for a 50Kg bag against an average industry break-even of Ksh3,800 ($42.2),” said the report.

Of particular concern was the increased importation of the product from partner countries in the Common Market for Eastern and Southern Africa (Comesa) categorised as net deficit sugar producers, with little enforcement of the rules of origin.

READ: Comesa grants Kenya extension on sugar imports

“Egypt, for example, despite being a net importer, is a significant supplier of sugar to Kenya,” said the committee report in reference to the sugar trade between the two countries.

The Agriculture Ministry, according to the report, wants the government send verification missions to some of the deficit countries exporting large amounts of sugar to Kenya “to satisfy authenticity and harmonisation of regulatory/administrative processes within the trading bloc.”

The ministry also recommended that Kenya proposes the establishment of competent authorities in partner states to ease co-operation on sugar matters.

To stop the imported sugar finding its way into the market, the committee recommended a ban on sugar auctions, adding that impounded consignments should be destroyed publicly and that sugar millers/manufacturers should not be allowed to import the product.

The committee said there was an urgent need to inject approximately Ksh58 billion ($644.4 million) into the non-performing sugar companies either by way of public-private partnerships, auctions or private treaties with willing investors to save them from collapse.