Report puts Kidero and top managers on the spot over rot in Mumias Sugar Company

BY Paul Wafula

Nairobi County  Governor Former Mumias Sugar Company MD Evans Kidero
Nairobi County Governor and Former Mumias Sugar Company MD Evans Kidero

Eight people, among them Nairobi Governor Evans Kidero and his successor at Mumias Sugar Company Peter Kebati, have been adversely mentioned in commercial, procurement and importation scandals that have sunk Kenya’s biggest sugar miller to its knees. Others mentioned in a forensic investigation by audit firm KPMG are the firm’s former business development manager Peter Hongo, former commercial director Paul Murgor, finance director Chris Chepkoit, Warehouse manager Christine Cherotich and the national sales manager Fredrick Nzioki. The only outsider extensively mentioned in the report is flamboyant businessman Benson Ndeta, the face behind Savannah Cement. The eight are part of a list of 20 persons of interest highlighted in a 338-page expose as having had a hand in the near-collapse of the sugar miller. The Standard on Sunday, for the first time, reveals the culpability of each individual in Mumias’ struggle for survival. Evans Kidero: Managing director 2003 – 2014 Kidero is accused of awarding at least five questionable tenders at the company. Among them was a multimillion fertiliser supply tender to Shah Kanji & Sons, who had sent a quotation prior to the commencement of the tendering process. Kidero also awarded a tender for pest control and fumigation services to a company called Keybay without the approval of the management tender committee. Despite not being included in the management’s tender committee evaluations, Kidero handed Eldoret Packers the tender to supply urea — a substance that contains nitrogen and is used in fertiliser — to the miller. Other questionable dealings highlighted by the report include one of Kidero’s final acts as MD – the authorisation of the sale of strategic assets to a competitor, Soin Sugar. Kidero did not pick our calls to give his version of the story. Neither did he respond to numerous text messages sent to his phone since Friday. Apart from one instance when he called back this writer when he was on another line, Kidero did not return our incessant calls to him and his handlers. Apart from irregular tender allocations, the report alleges that Kidero approved three after sale discounts for three distributors amounting to Sh154 million, discounts that cushioned distributors at the expense of the firm he was managing, also against company guidelines.

Peter Kebati: Managing director 2012 – 2014 The former Mumias finance chief Peter Kebati took over after Kidero joined elective politics. The KPMG report accuses him of keeping the company’s board of directors in the dark on the existence of a special account — an escrow account — with Dubai Bank in which the miller’s customers had deposited over Sh244 million. While at the helm, Kebati signed a second agreement with a company, Dantes Peak, to import sugar on behalf of the miller, without the authority of the board. He signed a third agreement to buy sugar from Sudan’s Kenana Sugar Company without the board’s authority. Kebati also signed a letter of undertaking, which included an indemnity in favour of Dubai Bank, without the board’s authority. What’s more, Kebati signed another letter of undertaking, including an amount of 388,600 Euros (Sh40.4 million) payable to Dubai Bank that was not covered in the agreement between Mumias Sugar Company and Kenana. “He was aware that insufficient due diligence had been carried out on Dantes Peak and he oversaw the award of sugar importation contract to Dantes Peak,” the report notes. Kebati also misinformed the board that the management was no longer selling the imported sugar yet he authorised discounted sales. He is also mentioned as having authorised several credit notes and discounts at the detriment of the firm. It has also been mentioned that he approved a duplicated credit note whose net effect was the customer enjoying double credit while Mumias lost Sh5.7 million. Kebati was linked to five instances where he approved credit notes and price variance analysis valued at Sh343 million despite communication of new prices. “He (Kebati) was responsible for ensuring that the issues raised by internal auditors or the directives from the board were implemented. He did not,” the report also finds on Kebati. Asked to comment on the allegations, Kebati replied in a text message: “I have never seen the report so I am unable to comment.” Kebati neither answered our calls nor responded to subsequent text messages.
mumias
Peter Hongo: Business development manager According to the report, Mr Hongo was responsible for the recommendation of post-sale discounts. Credit notes valued at Sh154 million were issued to affect after sale discounts following his recommendations. “We found three instances of this resulting in extra discount amounting to Sh19 million… Three instances of approving price variance analysis in support of credit notes to affect old prices despite communication of new prices,” the report notes. The three were valued at Sh301 million. Hongo, the report says, also continued to engage with blacklisted distributors. When we reached him for comment, Hongo said: “To be fair, I haven’t read the report, and I cannot comment on the things in it.” When asked if he could comment on the issues if we read them to him, he said he would need some background to be up to speed. Paul Murgor: Commercial director He is accused of failing to implement a pricing policy and the board’s directive on discounts, credit notes and pre-sales. There were three instances where he approved credit notes that enabled customers to enjoy extra discounts of Sh9.9 million. There was a single instance when he approved a price variance analysis in support of a credit note valued at Sh9.7 million issued to customers to affect old prices despite communication of new prices. “He (Murgor) was aware that transporters were diverting goods meant for inter-warehouse transfers yet he did not surcharge those transporters. The transporters were paid Sh62.9 million for transport services, yet goods were diverted,” says the report. Murgor also failed to implement a separate transportation policy from the sales and distribution policy. The policy was to include a penalty clause on late deliveries and diversion of sugar. He was aware that the process of renewal of transporter contracts had been triggered before the expiry of the existing contracts, the report adds. Contacted, Murgor said he could not comment on the issues touching on him on grounds that he had not read the report. “I am not in a position to comment on the report since I have not seen neither (sic) read it. It is also in court, hence not possible to comment,” Murgor replied to one of our text messages.
Murgor is also accused of being at the centre of the importation scandal at the sugar miller. Probed further, Murgor said: “I was on leave and only came back to be informed that an importer had been selected. I learnt from the email conversation about the importation as I was in Nairobi taking exams while the deals were signed in Mumias.” . “Under my docket I rejected everything that I felt was wrong but if the MD approves then there is nothing I could do. The board is being malicious. I could never overturn what the MD had given directions on, considering he sits on the board,” he added. Christine Cherotich: Warehouse Manager As warehouse manager for Nairobi, the report says Christine Cherotich was aware that transporters were diverting goods meant for inter warehouse transfers yet she did not surcharge them. Instead, those transporters ended up being paid Sh62.9million for undelivered goods. When The Standard on Sunday reached he for commentr, Ms Cherotich said she was aware of the accusations we read to her and had explained herself to the investigators who seemed to have already determined her fate. “It is disappointing that no one wants to listen to my side of the story. When they came, they looked like they had a predetermined position,” she said before referring us to the current warehouse manager. Chris Chepkoit: Finance Director According to the report, Chris Chepkoit was the one who informed Dantes Peak that they were the winning bidder to supply imported sugar before the board’s approval. He is accused of allowing the miller to get into the import contract with the firm while aware that it lacked the financial muscle to meet its contractual obligations. Chepkoit was aware that customers had paid funds in the escrow account but failed to include this information in the financial statements. He also did not inform the board on the opening of the account. He further provided the Ethics and Anti-Corruption Commission (EACC) with an inaccurate set of minutes relating to a board meeting.

Contacted for comment, Mr Chepkoit said: “What do you want me to do They have written what they have written, I have not seen the report, so I don’t know what to say about that matter.” Emily Otieno: Company secretary While the company secretary, the report says Ms Emily Otieno instructed Murgor to provide fewer facts to the board regarding the importation of sugar. She failed to pick out conflicting clauses in the first agreement with Dantes Peak. Ms Otieno is accused of providing an insufficient review of the three agreements between the importer and Mumias. In addition, KPMG found that she was involved in negotiating an agreement with Kenana without the board’s authority. She is also accused of preparing legal documents for a company that had tendered for fumigation services – Keybay and advised Lydia Ng’ethe, her junior, to fast track payments to the company. Her husband is one of the directors of Kebay. Reached for comment, Emily said: “I do not have the benefit of the report. I have not looked at it and I would not wish to comment on what I have not read,” she said in a phone interview. Fredrick Nzioki: National sales manager As the national sales manager, the report says Fredrick Nzioki recommended discounts on three occasions at percentages of 13.5 per cent, 15 per cent, and 13.5 per cent that were above the maximum percentage allowed of 10 per cent. Our efforts to contact Mr Nzioki to comment on the allegations were futile. He did not pick our calls and had not replied to our text messages by the time of going to press. Benson Ndeta – Sugar Importer Flamboyant businessman Benson Ndeta is the outside link to the importation scandal at the sugar company. Ndeta owns Dantes Peak which in December 2012 was awarded the sugar importation tender. According to KPMG, Dantes Peak lacked the financial muscle to deliver but Mumias executives went ahead to vary the quantities to be imported to the detriment of the miller. Speaking to The Standard on Sunday, Ndeta refuted the claims. “Mumias approached me to import sugar on their behalf. They gave me a contract of 100,000 metric tonnes of sugar. I brought the first 10,000 metric tonnes with my own money and Mumias was supposed to sell and give me back my money. I am the one who ended up losing money,” Ndeta said.
In this transaction, according to the report, Mumias lost Sh531 million without taking into account contingent costs of Sh233 million. KPMG says that when these losses crystalise, the total losses in the importation racket alone would be approximately Sh765 million. “I am 100 per cent sure that I assisted Mumias and in the process ended up losing Sh80 million. When I delivered, my responsibility ended. Mumias was to pay for the taxes and the rest,” Ndeta said. According to the KPMG forensic audit, Dantes Peak was selected by finance director Chris Chepkoit without due diligence. “It was clear that management at MSC knew that Dantes Peak had never imported sugar before and had encountered challenges in securing financing for the imported sugar. These two critical facts were not highlighted to the board and in fact, misrepresentations were made to the board that Dantes Peak was experienced in the sugar importation business,” reads the report. Ndeta, in his defense said: “I import large quantities of clinker per day. So I may never have imported a kilogramme of sugar but that is a nullity because I delivered the sugar in the time frame agreed,” he said. After the firm was unable to deliver, Mumias agreed to receive less bags of sugar than what they had actually paid for. The management then went ahead to “tone down their reports to the board on the sugar importation transaction” to make it look as if all was well, the report says. Despite making a second and third adjustment to the contract, the firm eventually failed to deliver, forcing Mumias to enter into a direct contract with the supplier – Kenana Sugar Company of Sudan. Current Mumias board chairman Dan Ameyo confirmed that the audit was company sanctioned and that the board had already acted on the findings. “We have charged them in court,” he said of those adversely mentioned in the report.
Sunday Standard

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