KENYA – Sugar miller Mumias has suspended four top managers in its marketing department for allegedly diverting ethanol meant for export into the local market, causing tax revenue leakage worth millions of shillings.
Mumias said it had suspended the commercial director, local sales manager, production manager and national sales manager to pave way for investigations into the alleged scandal.
The managers are accused of colluding with local buyers and a resident Kenya Revenue Authority (KRA) customs officer to fake documents and divert ethanol destined for Uganda and Tanzania into the domestic market.
Official letters sent to the senior managers said they were being “suspended for involving yourselves in criminal activities relating to ethanol sale.”
Kenya charges ethanol sold locally duty at the rate of Sh220 per litre while no tax is charged on ethanol meant for export, making the diversion a lucrative business.
A litre of ethanol destined for export sells at Sh93 while a similar quantity sold in the domestic market is priced at Sh313.
Dan Ameyo, the chairman of Mumias Sugar, confirmed the suspensions, adding that the matter is under investigation. Mr Ameyo said the company will release full information on the scandal once the probe is completed in the coming days.
Mumias has a distillery with the capacity of producing 22 million litres of ethanol annually and was one of the first millers to venture into ethanol production as part of a diversification plan meant to secure its future as Kenya prepared to open its sugar market to external competition.
The diversification drive also saw Mumias enter water and electricity co-generation markets to reduce its reliance on sugar. About 50 per cent of the ethanol that Mumias produces is sold locally while the remaining half is exported, mainly to East African market.
Mumias earned Sh1.03 billion from the ethanol business in the year to June 30 2014, according to its annual financial report. East African Breweries Limited and Keroche Breweries are the biggest buyers of Mumias’ ethanol.
Mumias’ ability to produce ethanol has, however, suffered in recent months as the company’s sugar milling declined because of acute shortage of raw materials.
The company has been producing about 15 million litres of ethanol annually against installed capacity of 22 million litres.
The ethanol diversion syndicate was busted by the firm’s security detail who traced two of the trucks that left Mumias with ethanol for export but left the designated route to Uganda.
The matter was then reported to the company’s chief executive and the board who responded by suspending the officials to pave the way for investigations.
Mumias has in recent months been at the centre of mega corruption scandals in which the sugar miller has lost billions of shillings, leaving it with huge losses that continue to threaten its own existence.
Mumias has in the past two years descended deeper into the loss-making territory, mostly blamed on mismanagement and theft by past executives.
Consultancy firm KPMG’s forensic audit of the miller revealed massive misuse of funds, pilferage and tender manipulation that cost the company Sh1.1 billion in illegal sugar imports.
The report has since caused heads to roll at Mumias including that of chief executive Peter Kebati and commercial director Paul Murgor who were sent packing last year.
In February, the miller suspended 52 employees in connection with the loss of an estimated Sh400 million through irregular termination of cane supply contracts with farmers.
The employees were accused of causing Mumias loss by irregularly terminating the farmers’ cane contracts, making it difficult for the company to recover debts that the growers owed it.
Mumias usually supplies cane growers with farming inputs in form of credit and recovers the same by deducting the money from the farmers’ earnings when the cane is harvested.
The sugar miller’s financial troubles have seen it ask the government for bailout cash half of which has already been disbursed.
Mumias, which had 1,689 permanent employees at the end of June last year, had asked the government for Sh2.3 billion bailout cash but the Treasury only agreed to provide Sh1 billion, leaving the management to raise the remaining cash from shareholders.
The company held an Extra-ordinary General Meeting in Kisumu a fortnight ago where the shareholders approved a Sh4.6 billion rights issue.