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By George Obulutsa
NAIROBI, May 15 (Reuters) - Kenya has approved the sale of the government's stakes in five sugar companies and expects to sell 75 percent stakes in transactions that will be completed in the next nine to 12 months, the Privatization Commission said on Friday.
The five companies are in urgent need of modernisation to survive competition from the entry of other sugar producers and an impending end to sugar import limits from the Common Market for Eastern and Southern Africa (COMESA) trade bloc after the end of a one-year extension given early this year.
The government will sell shares in millers Nzoia, South Nyanza, Chemelil, Muhoroni and Miwani, the commission said in a statement published in the Daily Nation newspaper.
Two of the businesses, Muhoroni and Miwani, are in receivership.
The Privatization Commission said it plans to sell 51 percent of each of the millers to strategic investors with a track record of managing sugar companies.
"The proceeds will fund the rehabilitation and modernisation needs of the sugar companies," it said.
A further 24 percent of the companies will be sold to employees and outgrowers -- farmers who grow sugarcane on contract for the mills.
The East African nation is also struggling to improve output because of relatively high production costs and produces a total of 600,000 tonnes of sugar a year, compared with annual consumption of 800,000 tonnes.
The deficit is covered through the strict import quotas from COMESA.
The leading sugar producer, Mumias Sugar, reported a 2014 pretax loss of 3.4 billion shillings ($38 million), compared with a 2.2 billion shilling loss the previous year, blaming weaker sugar prices.
The government has reached a 5 billion shilling ($54.9 million) deal with banks to help cash-strapped Mumias as it implements a reorganisation involving heavy job cuts and a halving of its board of directors.
The Privatization Commission said that the government ultimately aims to sell its remaining 25 percent stake in the sugar companies by other means, including initial public offerings, while reserving a 6 percent stake for farmers. (Editing by David Goodman)