Jobs and earnings on the line as battle over licensing of Butali Sugar Mills intensifies

Corporate News

Workers packaging sugar at Butali Sugar Mills in Kakamega. PHOTO | ISAAC WALE | NATION MEDIA GROUP 

By GERALD ANDAE

In Summary

• The current battle is between two investors, Jagwant Singh Rai of West Kenya Sugar Company and Sanjay Patel of Butali Sugar Mills.
• The bone of contention is a rule made under the Crop Production and Livestock Act which requires that a factory should be set up at least 25 kilometres from the location of an existing one. Butali and West Kenya are 10 kilometres apart.

In December 2010, Sally Kosgey, then Agriculture minister, boycotted the laying of a foundation stone by former Prime Minister Raila Odinga to pave way for the construction of the Sh3 billion Butali Sugar Mills Ltd. The former powerful civil servant during President Daniel Moi’s regime, who turned politician, believed that the registration of the miller was in violation of the Sugar Act.

Four years later, Ms Kosgey has been vindicated after the Court of Appeal ruled that the lower court had made a “fundamental jurisdiction error of law by usurping the role of Kenya Sugar Board”, which is the only body mandated by law to license sugar factories.

And now the multibillion-shilling factory is at a crossroads. It is an issue that will bring to light the viability of Kenya’s fledgling sugar industry and relations between various stakeholders.

READ: Future of miller now lies in technical committee’s hands

The Court of Appeal’s ruling has also set the stage for the battle of the titans, with area MP Ayub Savula saying that he has asked Butali managing director Jayantilal Patel to seek recourse in the highest court of the land.

Milling capacity

“I have instructed the MD to move to the Supreme Court with the view to reverse the decision of the Court of Appeal,” Mr Savula told the Business Daily. The Lugari legislator sits in the Agriculture committee which last year questioned the licensing of the Butali factory, saying its registration was irregular and called for the withdrawal of its certificate.

Licensing of a sugar miller is a culmination of processes which comprise registration and issuance of an interim letter of operation before the applicant is eventually awarded a milling certificate by sector regulator KSB.

The current battle is between two investors, Jagwant Singh Rai of West Kenya Sugar Company and Sanjay Patel of Butali Sugar Mills. The bone of contention is a rule made under the Crop Production and Livestock Act which requires that a factory should be set up at least 25 kilometres from the location of an existing one.

Butali and West Kenya are 10 kilometres apart.

In 2000, the ministry of Agriculture had demarcated the zone to be operated by West Kenya Sugar and which included parts of Malava division. The firm also got another letter in 2004 authorising it to expand its milling capacity, with the assurance that no other white sugar mill would be allowed to operate within its 25-km radius — what is known as a mill command area.

But in 2004, Butali Sugar applied for a licence from KSB to operate a mill about 10 kilometres from West Kenya Sugar. Although their operations would be within West Kenya Sugar’s command area, a certificate of registration was issued on April 13, 2005 forcing the firm to move to court seeking an order to prohibit construction of a factory in its zone.

Before milling commenced, West Kenya Sugar, the Agriculture ministry and KSB agreed that no factory would be allowed to operate within its command area, forcing Butali Sugar to move to court claiming Sh590 million in loss of business.

In October 2008, KSB revoked Butali’s registration and asked the firm to “identify” a new location at least 25 kilometres from West Kenya Sugar. But 17 months later, KSB had a change of heart and reinstated Butali’s certificate on condition that removes KSB as a party in a suit pending in court, and on any other matters pertaining to its registration.

West Kenya Sugar, which claimed to have invested in excess of Sh3.5 billion in expansion, filed another suit saying its sugar mill would not be commercially viable if Butali Sugar went ahead with milling plans.