THE ATIAK SUGAR DEAL LEAVES A BITTER TASTE IN THE MOUTH

We all know someone like this. You come together as group to contribute to a business venture, but they despite their initial enthusiasm for the project, are reluctant to contribute to the endevour. The rest of you get it off the ground with the little you have managed to put together and what in patient hope for the coming of their contribution.

It doesn’t come and there is always an excuse why. It is beginning to get on your nerves because the defaulting member is benefitting from the project disproportionately to his contribution. You could have let them freeload – after all we are all friends, but the sheer injustice of the situation is beginning to poison the friendship. And the freeloader seems totally unbothered by the situation he has put you people in, oblivious to the risk of jeopardizing the project all together.

Last week the Auditor General released his report for the year that ended in June2023. Wading through the inane stuff that included air supply in local governments, our ballooning public debt, ghost works in government I happened upon a report about our interest in Atiak Sugar Company.

"If lack of capital is a reason for most business failures in Uganda there is no way, absolutely no way, Atiak Sugar Company will collapse...

The project is located in Amuru district, northern Uganda and has the potential to process 1650 tonnes of cane daily for a production of 66,000 tonnes of sugar annually on the 7,900-acre plantation.

 They have struggled to get off the ground, with production being pushed back from 2016 before limited production begun in 2020, but had to be shut down in 2022 for lack of cane to run the plant following a burning of 3000 acres of their fields. Observers think it won’t be until 2025 when they resume operations.

Industry players in private are not surprised by the teething problems the project is suffering as the promoters thought they would circumvent certain key processes in setting up an operation as they had envisaged.

For a project of this magnitude to take almost a decade after its initial commencement to take off is mind boggling.

But maybe not.

Over the last six years government has pumped sh459b into the project in equity and loans through Uganda Development Corporation (UDC). But also an additional sh69b has been received from NAADS (National Agricultural Advisory Services) for such things as slashing, weeding and planting.

But to break it down even further these monies at sh14m a classroom, build about 40,000 classrooms or almost 6,000 primary schools. This would  put a dent in our horrific number of more than 1.4 million kids dropping out of school annually....

These funds, which are more than were allocated to the manufacturing and tourism sector – sh491b, in the last budget, is five times more than government’s commitment to the project. Government is a 40 percent shareholder in the project for which they were supposed to contribute sh80b.

But it gets better.

John Muwanga the Auditor General reported on government’s partners in the project, Horyal Investment Holding Company (HIHC), “There was no evidence to confirm that the private shareholders had provided their capital contribution to the company.”

All I could say was, Wow!

But not only has government given HIHC a blank check to set up this financial black hole, but also was not adequately represented on the board. Government has only one instead of two board members. This kind of negligence is criminal.

To simplify several of us got together raised money and then handed over the money to the one among us who has not contributed to the business and we are not bothered what he is doing.

Where is the incentive for Atiak to work?  The promoters are already being paid hand over fist before the project starts, why suffer with staffing and operations, when we can just be paid for twiddling our thumbs?

I would love to be wrong but it is not rocket science to see what is going to happen.

"The promoters will throw their hands up in the air in defeat, walk away, government will take over the project to make a show of trying to recoup their investment and eventually give up as well, let the bush grow back and let the machines rust away....

It goes without saying that this country cannot afford this kind of waste on such an industrial scale.

Government actions in this project make one wonder whether they really wanted the project to succeed. If they really wanted it to succeed, the obvious thing to do would be to contract someone who has experience in this business, pay them probably a tenth of what they have already shoveled into this doomed project and just maybe we would have sugar from northern Uganda within a finite time.

And now its on to the next scandal.

 

 

 

GOVT, KINYARA SWEETHEART DEAL SOURS INDUSTRIAL SUGAR SECTOR

 A deal to discourage importation of industrial sugar is set to make Kinyara Sugar Ltd windfall profits, as the only producer of industrial sugar, but has distorted the market leading to reduced production, job losses and increased imports of confectionaries.

Industrial sugar is used in the production of soft drinks, pharmaceuticals, icing sugar, sweets and other confectionaries. It is more highly processed, whiter and finer than the sugar we use domestically.

Kinyara started producing industrial sugar in 2021 and in that same year, government suspended a duty remission of 10 percent, industrial sugar users were allowed in the importation of the critical input.

Under the East African Common External Tariff (CET) goods, which are essential for production but unavailable in the region, are allowed 10 percent off the import duty -- duty remission, as a way to support industries that use it in production. A suspension on the duty remission means the importers would pay 100 percent of the import duty, forcing their costs up and maybe the price of their products up as well.

"Kinyara has an industrial sugar plant that has an installed capacity of 60,000 tons, though actual production has not exceeded 30,000 tons, way below the local demand of 98,000 tons....

The industrial sugar consumers have complained about the suspension of the duty remission as a way to force them to buy industrial sugar from Kinyara.

The government in two meetings held with the sector said local production of industrial sugar was to be supported and users would be “encouraged” to buy from local producers rather than import.

In a meeting convened at the finance ministry in March 2022 it was reported that the suspension of the duty remission was “sneaked in”.

“The importers of industrial sugar informed the meeting that they had made orders based on the gazette notice dated 30^th June2021 that run for the entire financial year ending 30^th June 2022. And therefore, their imported refined industrial sugar is currently stuck in bonded warehouses and factories are bound to close,” according to minutes from the meeting.

Under the terms of the suspension the importers had been given import quotas lasting until March 2022 and by the time of the meeting on 29^th March 2022,

“URA informed the meeting that the importers of industrial sugar had exhausted their quantities under the duty remission quotas, as provided for under the amended gazette dated August 2, 2021,” according to the minutes which Business Vision saw.

But beyond the ambush, importers of industrial sugar questioned the quality of Kinyara’s product and complained that its supply was erratic at best.

Users complained that Kinyara’s in tests done by the Uganda National Bureau of Standards (UNBS) and Chemiphar had among other short comings shown that the sugar had a high moisture content unsuitable for making icing sugar and caused machine damage because of the existence of water insoluble matter.

One company complained in a November 2022 meeting, “Locally sourced white sugar has hard particles and causes damage to machinery”

Another company complained that “They are faced with challenge of limited supplies and this is because they require over 125MT a month, but Kinyara can only supply 60 metric tons per month.

“In addition, local sugar prices have increased from sh165,000 to sh240,000 (per 50kg bag wholesale).”

This situation will open the door to importation from regional confectioners who are still enjoying the duty remission denied Ugandan counterparts.

In response Kinyara admitted it cannot supply the whole market.  It reported that the demand for its sugar is mostly coverd by Coca cola, Pepsi and Riham “Who take up 90 percent of its production and are therefore given priority when orders are placed.”

However, sources familiar with the operations of the Coca Cola Beverages Uganda and Crown Bottling company – Pepsi, dismissed these claims as lies and said they had ever only got samples for testing.

“The quantities they refer to would only run the factory for 20 minutes and was not up to scratch in quality,” he said.

"Part of Kinyara’s inability to produce at full capacity is an industry wide shortage of cane caused by the unplanned licensing of millers by the trade ministry mainly in the Busoga region. While there has been an explosion in the number of millers there has not been an attendant increase in sugar cane production....

This situation has led to poaching of cane by millers from as far as Atiak in Busoga or in Bunyoro from Busoga. As a result the industry expected sugar production is not expected to meet the target of 600,000 tons in 2022.

Both companies have urged government to go slow on suspending the duty remission until after their parent companies have tested Kinyara’s sugar and given the green light to use it.

In both finance ministry meetings they in addition, said that they – Coca Cola Beverages and Crown, are locked into long term contracts with foreign suppliers that cannot be terminated without suffering penalties.

Following the end of quotas last March importers have had to lobby intensely to government to allow the duty remission continue until at least Kinyara can supply the market with better quality sugar and more consistent quantities.

But they complain that their imports can be frustrated and it takes more lobbying to have them released under the duty remission.

As if that is not enough industrial sugar users complain that Kinyara’s product is significantly pricier than the cost of landing industrial sugar here from traditional sources.

In November Uganda Manufacturers’ Association (UMA) pointed out to the finance ministry that “It has come to our attention that the international price for sugar is $533 per ton, price landed at Mombasa is $729 per ton interior freight cost is $74 per ton and EAC duty remission is 10% bringing the price of a ton of sugar at $883, (Ugx. 3.4 million). A ton of sugar from Kinyara as at 9^th November, 2022 was at Ugx 4.1 million (Ugx. 205,000 per 50 kg bag). Kinyara sugar is priced 17% higher than the rest of the region.”

 “While the global prices have generally been on a decline, Kinyara prices have taken an opposite trend rising with every different consignment ordered,” UMA complained.

 That was in November last week an industry player said, “We buy off the futures markets so we have already established the price for our next shipment in 3 month’s today… this can easily be around USD 550 per ton… so a guy from Bujenje Masindi selling his at USD 1,200 is having a laugh.”

 

"Industry players complain on the sidelines that this deal was intended to favour Kinyara and talk of other producers is a red herring...

 Industry players are adamant they are not against locally produced industrial sugar.

“You would be mad to forego a competitively priced locally produced product for an imported one. It does not make business sense. We are saying that let government consult industry players, let us know their plans and we work towards them together. This situation has been handled badly, unnecessarily,” an industry player told Business Vision.

 

 

COMMENT REGARDING KINYARA WHITE SUGAR PRODUCTION 

Kinyara white sugar refinery has an installed capacity of 60,000MT per annum. Plans to expand the refinery to produce 75,000MT per annum are underway expected to be operational by end of March 2023. This expansion brings the refined industrial sugar production capacity to 120,000 MT per annum which includes other producers like Mayuge Sugar and GM Sugar. 

After commissioning the first sugar refinery in the whole of East Africa in Q3 of 2021; in line with the Uganda Manufacturers Association (UMA) and Ministry of Finance, Kinyara Sugar embarked on obtaining the UNBS Certification in Q4 2021. The refined industrial sugar is therefore certified by UNBS and Kinyara follows all the international sugar production norms and standards. 

The available refined industrial sugar stocks are enough to supply the local market needs and no single product went off the shelf because of lack of sugar. As a matter of fact, the company has exported more refined industrial sugar than what has been sold locally so how can one claim that there isn’t sufficient capacity? 

It’s also worth noting that the existent import duty remission scheme is being abused by some industrial users who claim higher consumption than what they actually use and later divert the cheap imported white sugar into the retail market. This usually happens at a time when domestic sugar prices experience a temporary spike which presents an opportunity to import and sell to make profits. 

The quota scheme is being abused by the many importers who are exaggerating the quantities of sugar to sell in the retail market. Some of the importers who actually use the brown sugar are now importing refined industrial sugar as a substitute for the brown sugar especially when the sugar prices rise and this ends up in the retail market. Currently, only carbonated beverage companies make up 90% of the market for the refined industrial sugar. Other purported users over state their refined industrial sugar requirements and later divert it into the retail market. The abuse of the import duty remission scheme is affecting the export market for the light brown and brown sugar within the East African Community partner states hence causing a big challenge to the entire sugar industry and the related value chains. 

The concerns raised by EAC partner states are pertaining production of surplus sugar in Uganda yet the country still imports refined industrial sugar. It’s therefore important to put in place some measures that protect the local refined industrial sugar production in the country and stop the abuse of the import duty remission scheme.