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The closure of Chemilil takes toll on Nyando sugar belt economy

By Kepher Otieno
Muhoroni Sugar Company in Kisumu county.(Collis Oduor, Standard)

Thousands of locals in the cane growing Nyando sugar belt face a bleak future following the closure of Chemelil Sugar Company in March this year.

The factory has remained shut with no immediate signs of re-opening. As a result, thousands of workers fear they could lose their jobs. Others have started to scout for new job listings as the firm’s fortunes continue to dim.

Nucleus estates have also been abandoned and out-grower farms unattended or left fallow.

The closure of the factory has affected more than 20,000 contracted farmers from Nandi and Kisumu regions who supply cane to the miller and businesses in neighbouring towns.

Even the once flourishing Chemelil roundabout, Miwani, Kibigori, Kopere trading centres have remained shadow towns with reduced business activities.

The towns have for ages relied on the operations of Chemelil and proceed to flow from the miller.

With the factory shut, local business cash flow has been affected too.

Traders who spoke to Financial Standard said things have worsened in the sugar belt.

“People want to buy goods on credit. This is not viable for us because we also need money to restock,’’ said John Onyango, a trader.

“A number of us are even contemplating closing shop or moving to the neighbouring markets.” 

Every week, while operating at 3,000 tonnes of cane per day, Chemelil usually rakes in about Sh84 million from sugar sales.

This is now in the past.

Raw material

So serious is the crisis that even Chemelil Managing Director Gabriel Nyangweso is no longer at ease.

Despite the current crisis, Mr. Nyangweso reports to work daily to secure the assets of the company.

According to Nyangweso, the factory could not sustain its daily operations due to the shortage of raw material.

The woes come after the miller failed to raise sufficient operating capital to offset workers’ dues amounting to Sh845 million as at the end of July this year.

Of the sum, former employees are owed about Sh152 million in retirement benefits and terminal dues, while Sh438 million is gross staff salary arrears.

The miller has about 800 permanent employees and 470 contracted workers. The main reason for the indefinite closure is erratic cane supplies.

Sugar Campaign for Change secretary Mr. Michael Arum said the State-owned sugar millers, which was previously a market leader, has over the years suffered from erratic cane supplies and obsolete technology.

The miller has also been undone by weak extension and insufficient funds as well as underinvestment in sugarcane research.

Chemelil Sugar uses 16 tonnes of sugar cane to produce a tonne of sugar, while optimally, about 10 tonnes of the cane should be used to produce the same amount of sugar, according to MD Nyangweso.

Technically insolvent

This saw them stop operations in March after accumulating losses and failing to get an adequate cane to sustain their production.

Chemelil spends about Sh106,396 to produce one tonne of sugar, which rakes in about Sh68,880 averagely, making its operations untenable.

“This has made the company technically insolvent because liabilities are greater than the assets,’’ said Nyangweso.

Kisumu Governor Anyang’ Nyong’o proposed that the management of the State-owned factories reverts to the counties.

“There is no economic rationale of seeing the sugar industry collapse yet we can help or bail them out,’’ said Prof Nyong’o.

Chemelil, which last made a profit in 2001, is hoping for an Sh258 million bailout. Mr. Arum said mismanagement and inefficiency of State-owned millers are to blame for their current woes.

Chemelil Sugar factory owes creditors Sh6.1 billion, while Muhoroni Sugar Company is indebted to the tune of about Sh24 billion.

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