Sony Sugar On The Spot For Misappropriating Ksh335 Million Loan

The South Nyanza Sugar Company, Sony is on the spot over the misappropriation of Ksh335 million loan secured from the Commodities Fund last year.

The company, got the cash from the Agricultural sector financier but has not done the intended Annual Planned Maintenance (APM) of the factory and its auxiliary facilities, and only Ksh607,007 is remaining as balance, while part of the money was diverted to fund other activities.

Although the company was expected to have commenced servicing the loan, it has not started paying, and has accrued interests. The bank guarantee also expires in seven months, with trustees fearing that the maintenance process may not be completed at all.

The state corporation applied for funding on January, 26, 2016, to enable it undertake the APM of the factory and its auxiliary facilities, an application that was approved by the Ministry of Agriculture on September, 26, 2016.

A bank guarantee secured the loan, and disbursed the funds on three tranches, in the months of March, April and May, 2017.

This would be the first time the corporation would receive a loan since 2009. The company has been using internally generated funds.

The loan was meant to enable the company optimize the cane yard, improve steam generation and improve extraction and boiling facilities among others, an exercise that was slated to cost Ksh402 million but the company projected that it would raise Ksh67 million for the same.

Annex 1 – APM Requirements Checklist for Commodities Fund Request – Sony Sugar

Although the initial plan was to have the APM conducted mid-May 2017, the Ministry of Agriculture through the Agriculture and Food Authority – Sugar Directorate postponed the activities basing it on the fact that there was a sugar shortage of sugar in the country.  The proposal was to have the exercise conducted in September and October 2017.

The company on October 3, again rescheduled the exercise, stating that it “shall be done anytime between December 2017 and February 2018. This is based on the operating reality of the need to bring in overseas contractors and the anxiety around the post-elections events around Migiori.”

However, the company started withdrawing and transferring the monies as early as May 11, 2017, when it made transactions worth over Ksh90 million in one day, despite the postponement. The monies, totaling to Ksh 238,562,378 was used to fund projects some of which were not part of the APM project

This, despite the Commodities fund in a letter dated January, 18, 2018 notified Sony Sugar that the Cooperative Bank guarantee provided as the Security for the loan would expire on February, 24, 2018.

In its reply, the sugar company negotiated with the bank and the guarantee was renewed and up scaled by Ksh754,844 on March 2018, to cover interests up to June,30,2018, since payment of monthly installments was expected to start before the end of June 2018.

Because of the delays, the Board of Trustees resolved that management undertakes a monitoring and evaluation exercise to establish if the maintenance had been undertaken and the status of the project.

The monitoring and evaluation team in its audit report stated that the company made 12 bulk withdrawals totaling Ksh238,652,378 to its bank accounts, on diverse dates between May 2017 and March 2018.

A review of the bank statements showed that not all the purchase orders indicated in the procurement status report were reflected in the bank statement and vice-versa.

“The company paid for some of the items from their own funds and therefore the payments were not reflected in the bank statements,” the report prepared by the team showed.

The factory is yet to shut down for the planned maintenance. The last maintenance was done at the facilities in 2015.

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An Audit report dated September, 9, 2017, states that “as at the time of the audit, rehabilitation had not been undertaken yet Ksh190,642,680.00 out of Ksh335 million disbursed for purposes of factory rehabilitation had been utilized”.

Documents available at the Ethics and Anti-Corruption Commission, EACC, showed that the company also diverted funds into procuring things that were not reflected in the Purchase Orders, among them, Ksh48 million paid for fuel.

 

This was done without communicating the same to the Fund which is contrary to the agreement on the letter of offer which states that “The loan shall be applied towards its intended purpose, and MUST not be diverted to un-authorized use failure to which the whole loan will be recalled”

Funds were also set aside under power generation for the 2.5 MVA Transformer and Sub-station switch gear rehabilitation which was budgeted at Kshs20 million but reallocated to purchase to 2 packing machines valued at 12 million.

The company also claimed to have reimbursed itself, Ksh2.8 million meant for items it had purchased in 2015, before the funds were even applied for, approved or reimbursed.

Further the audit stated that some of the unit process budget were understated leading to increased cost for undertaking the project leading to a variance of Sh76 million. They include the installation of a rock removal system, mill-roller re-shelling, mill for electric drive and boiler tubes.

Over Ksh10 million could not be accounted for, as there were payments in the bank statement that no purchase orders and payment vouchers were availed. They were said to be locked in the Head of Internal Audit’s office and he was away on official duty.

Some budgeted activities that were in the plan were yet to be concluded to the
tune of Ksh82,752,101.95.

As things stand, there are no sufficient funds remaining for the completion of the APM which already has balances to be paid to the suppliers to the tune of Ksh133,530,014.24 and yet the bank statement reflects a balance of Kshs. 607,007.90.

Sony Sugar is among six sugar companies which have accrued Ksh16.5 billion loan debt from the government, yet employees and farmers still keep complaining of unpaid dues, through the Kenya Sugar Plantation Workers Union.

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