The Joint Venture with Tana/Athi River Authority (TARDA)
The Company is in discussions with TARDA on the development of a parcel of land for a sugar factory with capacity to crush 6,000 tons of cane a day. The joint venture may require more funding than can be provided by internal sources. The venture is expected to include co-generation and ethanol production. The venture will be supplied by a nucleus estate. The sugar cane will be grown by irrigation instead of the rain fed system currently in place in Western Kenya. The management of the venture should have more control on variables such as planting, harvesting, water supply, transport and plant maintenance. Sugar cane growth requires favorable warm temperature for optimal growth therefore the locality should also reduce the average time required to grow cane.
Newer sugar factories are usually more efficient than older varieties. The most efficient rain fed factory could possibly produce sugar at Kshs.24,000 a ton. The more efficient factories in the COMESA have production costs of less than Ksh.20,000 using irrigation. The irrigated cane is normally early maturing variety of 10 – 12 months of age. The yields from irrigated estates record from 120 – 150 tch compared to the 70 – 100 tch from rain fed farms. A regime of water control can boost sucrose content in the irrigated sugar cane to 15% compared to 13.5% average for rain fed sugar cane. Overall the costs of cane are lower for irrigated cane due to higher efficiencies.
Mumias is on the look out for expansion through acquisitions of sugar mills that can add shareholder value. The GoK’s desire to divest from the sugar companies may provide MSC with an opportunity to acquire one or more state owned factories. The East African Community may also offer opportunities with Uganda and Tanzania Governments respectively reducing their participation in private enterprises.
The Board of Directors and Management are cognizant of the challenges facing the industry and the Company. There are strategies in place to introduce new products such as ethanol production, expanding co-generation, new packages for various market segments, capacity expansion and modernization, investment in computer technology and improved supply chain management for overall efficiency in the Company