The government has outlined a plan to lease New Kenya Co-operative Creameries (New KCC) to private operators if the latest bailout does not yield positive results.

•Over the past three years, the State has injected about KSh6 billion into New KCC in a bid to stabilise operations, clear farmer arrears and restore profitability.
•But President William Ruto says the financial support has yielded little, forcing the government to consider alternative models, including leasing, similar to reforms undertaken in the sugar sector.
•The push to restructure New KCC comes against the backdrop of a damning audit by the Auditor-General, which has raised serious concerns about asset ownership, debt management and the company’s financial viability.

“Despite releasing Sh6 billion to KCC, it still has financial problems. It is the same story we witnessed in the sugar sector where public money was pumped in repeatedly without tangible results,” President Ruto said.

The President announced that the Treasury will release an additional Sh2 billion this month, warning that it will be the last direct support to the processor unless reforms bear fruit.

“If we do not achieve the desired results, we will go the leasing way just like we did with sugarcane millers. I have given firm instructions to the line ministry to carry out reforms at KCC,” he added.

The proposed leasing model mirrors the government’s strategy in the sugar industry, where in May last year it handed over the operations of Nzoia, Chemelil, Sony and Muhoroni sugar companies to private millers under 30-year leases.

Under the arrangements, West Kenya Sugar Company took over Nzoia Sugar; Kibos Sugar and Allied Industries assumed control of Chemelil; Busia Sugar Industry Ltd took over Sony Sugar; while West Valley Sugar Company leased Muhoroni Sugar.

Agriculture and Livestock Development Cabinet Secretary Mutahi Kagwe said the leasing approach marked a departure from earlier privatisation plans that were shelved following public participation and parliamentary scrutiny.

“The idea is to allow private operators to bring in capital, technical expertise and efficiency, while the government focuses on oversight and accountability,” CS Kagwe said. “The sugar sector drained billions of shillings from taxpayers over the years. It was time to let strategic investment drive its transformation.”

The Audit Gaps

In her report for the year ended June 30, 2022, Auditor-General Nancy Gathungu issued a qualified opinion, saying she could not fully verify assets worth Sh3.65 billion due to missing ownership documents and unresolved land disputes.

The audit found that 18 properties valued at Sh853.9 million lacked title documents, while several other parcels, including disputed land in Nairobi and properties registered in third-party names, had neither been valued nor disclosed in the financial statements. At the coast, five acres of land belonging to the Miritini milk processing plant have been encroached by informal settlers, placing the company’s ownership at risk.

“As a result, the valuation and ownership of land balances reflected in the financial statements could not be confirmed,” the Auditor-General said.

Questions were also raised over trade and other receivables totalling Sh1.89 billion, with more than Sh1.01 billionoutstanding for over 120 days. An additional Sh175 million was owed by a company that has since ceased operations, while documentation to justify a Sh334.5 million provision for bad and doubtful debts was not provided.

The Auditor-General further warned that New KCC is technically insolvent, with current liabilities of Sh4.02 billion exceeding current assets of Sh3.3 billion, resulting in a negative working capital of Sh711.7 million, a material uncertainty that was not disclosed in the accounts.

“The Company’s ability to continue as a going concern is dependent upon support from the National Government and its creditors,” the report noted.

Additional concerns included unresolved erroneous bank debits amounting to Sh3.3 million dating back to 2015, under-collection of revenue by Sh2.8 billion, and under-expenditure of Sh1.95 billion, which the Auditor-General said may have undermined service delivery.

The audit also cited governance lapses, including 38 staff serving in acting positions beyond the legally allowed six months, earning Sh11.6 million in allowances, and payroll deductions that left dozens of employees earning below the statutory one-third of basic salary.

Despite the red flags, the Auditor-General concluded that internal controls, risk management and governance structures were generally effective, and that public resources were applied lawfully and effectively, save for the highlighted breaches.