The story below gives a demonstration of the behavioral function of the market. Read it carefully and give a policy brief on what should be done to resolve the impasse. This is a class seminar session which requires each student to participate.

Someone must pay for Butali fiasco By KWENDO OPANGA

Posted Saturday, October 16 2010 at 17:55: Daily Nation Newspaper.

There is a huge controversy over the Butali Sugar Factory in Kakamega county and it is bound to grow even bigger. The foundation stone for the factory was laid in December of 2007 by President Kibaki, deep in the campaign period and just days before Kenya’s 10th General Election.On the surface, the issue is that until recently the future of the factory was assured and it was just a matter of time before it began milling. Now that is not the case. The factory is not supposed to go on. That is political and business dynamite. Now why should the factory not go on?Because, says the Ministry of Agriculture, the factory should not have been licensed in the first place. Ministry sources point out that there is a communication from the office of the Prime Minister advising the Kenya Sugar Board against the licensing of the factory. But why?

The legal argument is that Butali Sugar is hardly 15 kilometers away from West Kenya Sugar Factory yet, according to the Sugar Act, such a facility should not be built within a 40-kilometre radius of the West Kenya Sugar. So who authorized the licensing of the factory? Of course, the Kenya Sugar Board which is the statutory body that regulates the milling, storage and distribution of sugar in the country. When was this done? The entry of the PM’s office in the matter suggests the President laid the foundation stone before Butali Sugar was licensed. If this is the case, then the matter of the license came up with the coming into office of the coalition government. That in turn means Butali Sugar was licensed when Mr William Ruto was at the helm at Kilimo House, which then means that it was Mrs Rosemary Mkok who was the chief executive at the Sugar Board. Mr Ruto revoked the appointment of Mr Andrew Oloo and appointed Mrs Mkok on December 29, 2008. Did Mr Ruto and Mrs Mkok, therefore, break the law in licensing Butali Sugar? Did they, therefore, act in disregard or defiance of the advice from the Prime Minister’s office?

If the answers to these questions are in the affirmative, then the current goings-on at the Sugar Board and Butali Sugar begin to make sense. It is Dr Sally Kosgei who is now at the helm at Kilimo House. And, it would appear that she and Prime Minister Raila Odinga are on the same wavelength. In their view, a new factory in Western Province should be situated in Nambale in Busia county and not Butali in Kakamega county.Indeed, only last month suspended-then-reinstated Agriculture permanent secretary Dr Romano Kiome wrote to the Sugar Board advising that the Butali factory be relocated to Nambale. This must have been music to the people of Nambale who have been waiting for a factory promised them in the Moi era. But this development predictably and justifiably elicited a sharp and angry reaction, especially from Mr Soita Shitanda, the MP for Malava in whose jurisdiction Butali falls. Mr Shitanda’s anger finds ready support among his people and politicians in his county. Again, predictably, this matter was raised in Parliament by Dr Boni Khalwale, the MP for Ikolomani. What cannot pass for the predictable is the fact that the move by Dr Kiome was the subject of heated debate in Kakamega even before a letter had been dispatched from the Sugar Board to Butali Sugar.

When Mrs Mkok was suspended by Dr Kiome last week, Dr Kosgei told the media that, as the political head of the ministry, she would rather let the two civil servants sort themselves out. It cannot be that simple. When a parastatal head is accused – rightly or wrongly – of defying ministerial positions, the axe usually looms ominously large. Now that Mrs Mkok is out of the way, Dr Kiome and Dr Kosgei must turn their attention to the political storm and expected fall-out the Butali Sugar saga has spawned. They must also tackle the investors who, naturally, are in a foul mood. They must take charge of the reform and rehabilitation of Kenya’s sugar industry. At the core of this saga is a simple question: Was the law and the mandatory policy processes followed in licensing Butali Sugar? If they were not, then Butali Sugar is an illegal entity and the culprits must pay for this flagrant disregard of the law. But does that mean Butali Sugar be relocated? It is a weighty decision government must make and it must choose between political expediency and the rule of law.

The writer is a media consultant diplospeak@yahoo.com