Sacked Mumias staff get Sh20,000 termination pay

KCB Group #ticker:KCB has offered each of the 743 sacked Mumias Sugar Company #ticker:MSC employees Sh20, 000 as termination package after the lender took over the debt-ridden miller.

The miller’s head of human resources, John Shiundu, said Sh15 million had been released to the affected workers who had gone for 30 months without pay as their termination dues. “Each of the workers who were on payroll as at September 20 2019, when the receiver manager was appointed by the lender, received Sh20, 000.”

He added that the law provides for the employees to be paid last because they were not secured creditors when a firm has been placed under administration or is being liquidated.

The Sh20, 000 pay came as a shocker to the Mumias Sugar employees who are owed Sh2.4 billion in salary arrears and pension dues.

KCB, through receiver manager Ponangipalli Venkata Ramana Rao, terminated the workers’ contracts on September 20 when the lender placed the miller under administration after it defaulted on loans amounting to Sh12.5 billion, effectively kicking out the company’s board and management.

The Sh20, 000 pay is equivalent to 0.625 percent of the Sh2.4 billion salary arrears that the Mumias workers are owed.

The receiver manager has engaged some employees on a temporary basis as it works to revive the company that once controlled more than 60 percent of Kenya’s sugar market.

Mr Rao has opened talks with Kenya Power to reconnect electricity to the factory in a bid to partially restart operations from next month. Power supply to the factory was disconnected over a Sh1.1 billion bill

He said the workers would be considered for available jobs when the miller starts ethanol production in January and milling of sugar from March 2020. Engineers brought in by the receiver manager are currently repairing the mill.

The struggling miller was placed under administration in September after it defaulted on loans amounting to Sh545 million owed to KCB.

Mumias, which was suspended from trading on the Nairobi Securities Exchange, joins a growing list of distressed firms that have gone into administration.

Its loans stood at Sh12.5 billion at the end of June 2018. It owed KCB Sh545 million, Ecobank Kenya (Sh2 billion), French development finance institution Proparco (Sh1.9 billion) and Commercial Bank of Africa (Sh401 million).

Other creditors are the Treasury (Sh3.1 billion) and Kenya Sugar Board (Sh1.6 billion). Mumias was also operating on bank overdrafts worth Sh2.7 billion from various lenders.

Mumias, majority-owned by the government, has not been producing sugar for close to a year and had mainly been relying on ethanol production for its survival.

Reviving the miller, however, will require an injection of substantial new capital.

A task force set up by the Kakamega County government said the miller requires at least Sh5 billion to resume operations.

Mumias had urged the lenders to restructure their loans but the plea was rejected, with the government also balking at providing additional bailout funds to the firm.

The government, which owns a 20 percent stake in the company, had given the firm Sh3.5 billion in bailout funds. But the billions failed to boost the miller’s earnings and capital.

Mumias is technically insolvent to the tune of Sh6 billion after sinking further into losses that have seen its total liabilities surpass total assets.

The firm’s losses in the year ending June 2018 rose to Sh15.1 billion from Sh6.8 billion the previous period. It is yet to release the 2019 results.