As farmers of the rich sugarcane western belt continue to bare saturated pain of impoverishment without raking in the supposed benefit from the profitable commercial commodity, sugar barons from within and outside the country have sustained a well financially-oiled law suit in the corridor of justice fighting for a takeover of the ran down Mumias Sugar Company.
The fall of Mumias, which controlled nearly 60 per cent of the country’s total sugar production at its prime, and the collapse of some state-owned millers have left the space that is now being filled by the private sector.
At the center of the vicious battle is the Dubai based and little known director of Vartox Resources Inc. Kristian Khachatourian in the United Arab Emirates whose trail is traced to the infamous Panama Papers.
Khachatourian is also linked to Jankle Group Limited as a shareholder which is said to be an intermediary firm of Mossack Fonseca & CO. (UK) Limited.
Khachatourian accuses Ponangipali Ramana Rao, the receiver manager for Mumias and Kenya Commercial Bank of participating in a syndicate that sells distressed companies’ assets for significantly less than they are worth.
The Rai family has been a dominant figure in the sugar industry both in the country and neighbouring Uganda.
Vartox asserted that this is a blatant instance of fraud and corruption through attorney Abbas Ishmael.
This was contained in an affidavit submitted to oppose an appeal filed by Gakwamba Farmers to overturn a high court decision that had annulled the lease granted to Sarrai Group.
However, Justice Alfred Mabeya dismissed the document filed by Gikwamba farmers questioning how Mumias assets that had secured loans from Eco Bank and French Development Agency Proparco shifted from the two banks to Victoria Commercial Bank.
The two assets – co-generation plant and Ethanol – ended up with a private company, Vartox Resources Inc allegedly based in Dubai.
The judge said the papers were filed too late in the day.
In his affidavit, Khachatourian says that the company has discovered a market pattern where Rao is a prevalent factor in large corporations where assets of great worth are at stake.
The two assets – co-generation plant and Ethanol – ended up with a private company, Vartox Resources Inc allegedly based in Dubai.
The judge said the papers were filed too late in the day.
Despite the dismissal, Gikwamba filed another case over the same issue.
Rao denied the claims, saying he was complying with court orders.
The judge is set to determine whether Uganda miller Sarrai Group will continue with the lease.
The second case was filed by farmers Lambert Ogochi, Augustino Saba, Prisca Ochacha, Robert Magero and Wycliffe Ng’onga, who want the court to reverse Rao’s decision to lease Mumias to Sarrai, saying he flouted procurement rules.
“The court in its ruling of November 19, 2021, said courts cannot micro-manage the receiver-manager and will allow the rules of commerce to settle the issue. To clear indebtedness is an issue of money. Rules that must apply recognise this is a capitalist economy,” their lawyer Kibe Mungai said.
The five supported West Kenya Sugar Company’s argument that it ought to have been the preferred bidder after quoting the highest amount of Sh36 billion.
Rao and KCB said Sarrai emerged the best while West Kenya had floated a spoiler bid. He continued that the Kenyan miller would be the most dominant sugar firm in the country if it clinched the deal.
Tahir Sheikh Said Grain Millers Limited (TSS) is said to be one of KCB and Rao’s victims.
There are ongoing court proceedings against Rao, KCB and the buyer about the dealings with the TSS assets and assets worth enormous sums were sold for 50 per cent of their value.
“In the case of Tahir Sheikh Said Grain Millers ltd (TSS), it is evident that KCB, Rao and the persons behind Sarrai were part of a scheme to defraud creditors as well as shareholders and,” Khachatourian said.
The company claims that following the judgement of April 14, 2022, it has come to light that TSS was a distressed company whose Rao was appointed administrator in 2016, and whose administration has been continually extended by the high court year after year.
The court was informed that TSS was the owner of a number of assets, including a grain milling facility, equipment, silos, and other mobile assets.
“All of TSS’ grain milling assets were erected or operate on an immovable property known as land Reference No. Mombasa/Block I/316 (the property),” Ismael added.
Despite receiving an offer of Sh810 million for all of the movable goods two years before, Rao allegedly sold them all for Sh350 million in December 2019.
Ismael noted that the property appears to have been transferred by KCB to a third party in 2017 under circumstances that are unknown.
KCB was then charged with the property in order to get a facility for Sh600 million.
The buyer of the real estate and transportable property, according to the attorney, was Jamii Flour Millers Limited.
Less than a month after obtaining the movable property and the assets, the firm allegedly changed its name to Ustawi Grain Millers limited (Ustawi) in January 2020.
According to Khachatourian, Sarbjit Singh Rai, Amaanraj Rai and Rajbir Rai who led the Sarrai group own and control Ustawi.
In addition, the court was informed that the shareholders of Sarrai are the same people, and less than a year after Ustawi purchased the property for Sh300 million, Ustawi used it as collateral to receive a loan for USD 14,715,000 (about Sh1.4 billion).
Vartox claims that Rao and KCB’s conduct in the TSS case is reminiscent of their sinister goals in the Mumias case.
Ismael questioned the choice of Sarrai as the lessee of Mumia’s assets despite having made the lowest bid.
The company fears that Mumias may have the same outcome as TSS and have its assets pillaged if Rao and KCB are granted permission by the Appellate court to obtain the directives they desire.
At least half of the sugar produced in Kenya is now controlled by one man after the billionaire Rai family opened their fourth milling plant in Bungoma.
Naitiri Sugar Company which started milling in May this year is the new addition to the family’s sugar conglomerate that now spans the country.
The new plant extends Rai’s position as the leading sugar manufacturer from a combined capacity of his existing three mills of West Kenya, Olepito, and Sukari.
The new player is adding at least 6,000 tonnes of sugar per day, a move that will increase the supply of the commodity in the country and cut cheap imports.
Data from the Sugar Directorate indicates that Rai’s sugar factories controlled up to 43 per cent of the total production in the country in the 10 months to October last year.
Rai’s appetite for investment in sugar was manifested last year when through his West Kenya Sugar Company, placed a bid for lease of Mumias Sugar Company.
However, KCB’s receiver manager, in court documents said he refused Rai’s bid to lease the ailing miller as the move would have given him a dominant position in the sector.
The controversial lease was given to his brother’s Uganda-based conglomerate, which also operates a number of sugar plants in the neighbouring country. The tender was later stopped by courts after West Kenya moved to challenge the award.
Sarrai Group is a Ugandan conglomerate consisting of different agro-manufacturing companies, which run three factories in producing about 170,000 tonnes of sugar annually. It also has operations in Malawi.
The family is not new to conflict.
Last year, Sarjij Kaur Rai (now deceased), the wife to Tarlochan Singh Rai, teamed up with her sons, Jasbir and Iqbal, objecting to the will claimed to have been written by the matriarch, saying he could have been coerced in crafting the document that distributed his assets among the eight beneficiaries.
In 2020, West Kenya was among the investors who eyed the leasing deals for the five State-owned sugar factories.
The Kabras-based miller showed interest in running Chemelil, South Nyanza, Nzoia, Miwani and Muhoroni sugar mills on lease terms as part of reforms by the government aimed at reviving the ailing factories.
Between 2019 and last year, West Kenya Sugar Company invested more than Sh1 billion in cane development largely in Nyanza, western and parts of the Rift Valley to create a sustainable supply of to its factories.
The Kabras-based miller has contracted more than 200,000 farmers who are spread across nine counties of Busia, Kakamega, Bungoma, Trans Nzoia, Uasin Gishu, Kericho, Kisumu, Vihiga and Nandi, giving it the largest sugar catchment in the country.
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