The Pan Paper Story
On the twenty seventh of January, two thousand and nine, an officer of Kenya Power and Lighting Company walked into a substation on the edge of a small Western Kenya town called Webuye, and threw a switch. The power line he disconnected fed a single customer. That customer was a paper factory called Pan African Paper Mills. The unpaid electricity bill, by that morning, was two hundred and one million Kenyan shillings.
Inside the factory, two giant Fourdrinier paper machines that had run, almost continuously, for thirty five years went still. By the end of that week, the largest paper factory in Eastern and Central Africa had stopped producing paper. By March, the company was in receivership. Total debt, nine billion Kenyan shillings. Direct workers retrenched, one thousand three hundred. Dependents in Webuye who had built their lives around that factory, an estimated thirty thousand. By the end of the year, the town of Webuye, which had been built by Pan African Paper Mills, was being killed by its closure.
This is the story of a factory that built a town and then killed it. And the Kenyan industrialist who, seven years later, bought what was left for nine hundred million shillings against a peak book value of eighteen billion, and is now in the middle of the most ambitious industrial restart Kenya has seen in a generation.
THE ORIGIN
To tell the story of Pan African Paper Mills, we have to start with a political problem that the Kenya of nineteen sixty four did not yet know how to solve. The country had been independent for less than a year. Its economy had been built by colonial design to do one thing. Export raw materials through Mombasa. Import everything else through Mombasa. Including paper. Every form, every textbook, every newspaper page in independent Kenya was, in those first years, an imported product. The foreign exchange that left the country every year just to keep schools and government offices supplied with paper was a real and unromantic line item on the national balance sheet.
The young government’s answer was a doctrine the rest of the post colonial world was also embracing. Import substitution industrialisation. Build, at home, what you had been importing, behind a tariff wall, with development finance and a foreign technical partner. Sessional Paper Number Ten of nineteen sixty five, the foundational document of Kenya’s economic policy, made it explicit. A national paper mill was at the top of the wish list.
The site that emerged from the feasibility studies of nineteen sixty four was Webuye, a small railway stop in what was then Trans Nzoia District, also called Broderick Falls. Three things made it the right answer. The Nzoia River, for process water. The Western Highland softwood plantations, planted by the colonial forest department since the nineteen thirties, for fibre. And the politics. The single largest industrial investment in independent Kenya was going to anchor itself in a part of the country that Nairobi and Mombasa industrial policy had historically ignored.
By nineteen seventy, the deal was structured. Three sponsors. The Government of Kenya, holding the largest equity bloc and providing the land, the forestry concessions, the railway spur, and the power line. The Birla family of India, through Orient Paper and Industries Limited, the dominant Indian newsprint maker, taking twenty nine per cent of the share capital and the technical management contract. And the International Finance Corporation of the World Bank Group, providing the long term dollar denominated debt that would buy the German and Finnish kraft pulp machinery that formed the technical core. It was a textbook tripartite development deal of its era. A young state. An Indian industrial dynasty. A multilateral bank.
On the second of November, nineteen seventy two, President Jomo Kenyatta laid the foundation stone at Webuye. Two years later, in nineteen seventy four, the first paper machine was commissioned and commercial production began. At that moment, Pan African Paper Mills was the largest paper factory in Eastern and Central Africa. The largest single industrial complex in Kenya. A vertically integrated kraft mill on three hundred acres on the banks of the Nzoia, with its own chipping plant, its own pulp line, its own recovery boiler, its own paper machines, its own finishing line, its own fleet of trucks, and very soon, its own residential township.
Webuye in nineteen seventy four had been a frontier railway stop. Webuye by the early nineteen eighties was an industrial town. The mill built its own housing, its own primary school, its own hospital, its own sports club. The population trebled. Mechanics, lorry drivers, woodcutters, schoolteachers, hospital nurses, kiosk owners, all earned their living, directly or indirectly, from the factory on the river. By the middle of the nineteen nineties, the company claimed it had saved Kenya eight point one billion shillings in import substitution and earned four hundred and seven million shillings in foreign exchange from paper exports to Uganda, Tanzania, Rwanda, Burundi, eastern Congo, Egypt and the Middle East. Whatever you make of parastatal accounting in that era, the directional truth held. For the better part of two decades, this was the most important industrial success story the new Kenya had.
THE STRUGGLE
The decline began quietly, in nineteen ninety two, with a policy decision made not in Webuye but in Nairobi and Washington. Kenya signed on, formally, to the structural adjustment programmes prescribed by the International Monetary Fund and the World Bank. Import tariffs began to come down. The protected market that Pan African Paper Mills had been designed to serve began, slowly, to be exposed to subsidised Asian and European paper imports. The unit economics that had worked in the seventies and eighties did not survive the nineties.
The second problem was deeper than tariffs. The technical heart of the mill, the recovery boiler that turned waste chemicals from the pulp line back into usable inputs, was ageing past its economic life. A pulp recovery boiler is, in a kraft mill, the single most expensive component to replace. Doing so requires shutting the mill down for months. Throughout the two thousands, every cabinet that considered Pan African Paper Mills considered the same question. Recapitalise the recovery boiler, at a cost of billions of shillings of public money, or run the existing equipment harder for another year and hope that next year would be different. Every year, the answer was the same. Run it harder.
The third problem was that the mill was poisoning the town. By the early nineteen nineties, the documented effects of Pan African Paper Mills on Webuye were severe. The kraft pulp effluent discharged into the Nzoia River caused recurring die offs of fish, phytoplankton and macroinvertebrates downstream toward Lake Victoria. The air over Webuye carried caustic, chlorine, and sulphuric acid emissions, and the pulp mill stench that everyone driving through on the Nairobi to Kampala highway remembers. Drivers wound up their windows. Iron roofing sheets in the town rusted from acid deposition. A community survey conducted in nineteen ninety four reported that more than sixty per cent of children born in Webuye after nineteen seventy four had experienced breathing problems between the ages of one and five.
Formal complaints reached the World Rainforest Movement, the IFC’s own Compliance Advisor Ombudsman, and after nineteen ninety nine, the new National Environment Management Authority of Kenya. Each cycle of complaint generated a press response from the mill’s management, a NEMA inspection, a promise of remediation, and then a return to the same status quo. The mill was too important to close. The pollution was too persistent to fix without billions of shillings that nobody was willing to put in.
And then, sometime in two thousand and eight, the operational management of Pan African Paper Mills, contracted from Birla and Orient Paper of India, began quietly preparing to leave. The Indian managers who had run the mill for thirty five years had, by their own later admission, run it down to the point where it could no longer pay the most basic operating bills. The technical advisory contract had become, by then, a contract to manage a slow descent. By late two thousand and eight, the senior Indian operating personnel were boarding flights home.
In January of two thousand and nine, an unpaid electricity bill of two hundred and one million Kenyan shillings hit the threshold at which Kenya Power and Lighting Company is required, by its own internal rules, to disconnect a defaulting customer. On the twenty seventh of January, the power was cut. The paper machines, designed to be shut down only with engineered cooling procedures, stopped under load. Two months later, on the petition of Kenya Commercial Bank, Barclays Bank Kenya, Ecobank Kenya and Bank of Baroda Kenya, jointly owed one point four billion shillings of short term debt, with a further seven point six billion in long term debt and supplier obligations behind them, Pan African Paper Mills was placed in receivership.
The aftershock travelled out from the factory gate in months. One thousand three hundred direct employees lost their jobs. Roughly thirty thousand indirect dependents lost their household incomes. Shops closed. School enrolments dropped. The Pan Paper hospital ran out of consumables. The company housing estate emptied. The town of Webuye, which the mill had built, began to die.
THE FAILED REVIVAL
The first attempt to bring the mill back was made by the Government of Kenya itself. Between two thousand and ten and two thousand and fourteen, the Treasury injected approximately one point two billion shillings into the receivership process to pay down short term lenders and prepare the asset for a restart. Not a single paper machine started up. By the time the Parliamentary Public Accounts Committee got around to auditing the file in twenty fourteen, the report described the spend as a case study in how not to revive a firm in financial distress. The one point two billion shillings was substantively gone.
Through those same years, multiple consortia approached the receivers with restart proposals. Some were Kenyan industrial families. Some were Indian and South Asian paper businesses. At least one was an earlier Rai related entity that, by some accounts, took a look and walked away. None of them produced a sustained restart. Every quarter that passed without paper coming off the machine added to the depreciation of the asset.
By twenty fifteen, the receivers were running out of options. The asset was decaying physically. The original book value of the going concern, once estimated at around eighteen billion shillings, had been eroded by six years of standing idle. A formal auction was structured. Five bidders presented offers. The winning bid came from the Rai Group of Companies, the Kenyan Punjabi industrial family chaired by Jaswant Singh Rai. The agreed price, nine hundred million Kenyan shillings.
The local press framing landed almost immediately. The Standard ran the headline that everyone in Kenyan business remembers. A factory once worth eighteen billion shillings, sold for nine hundred million. The framing oversimplified. Eighteen billion was peak going concern value, not distressed realisable value. Six years of asset decay had eaten most of the gap. A competitive auction with five bidders is, on paper, a fair price discovery mechanism. But the headline carried political weight, because the buyer was not an anonymous strategic investor. He was a man whose family already controlled close to half of Kenya’s sugar industry, and whose name had been at the centre of some of the most politically charged industrial controversies of the previous decade.
Jaswant Singh Rai, the chairman of the Rai Group of Companies, is one of the most important and most controversial industrialists in Kenya. The Rai family business empire spans sugar, edible oils, timber, paper, and real estate. By twenty twenty, the four Rai family sugar mills together accounted for roughly forty five per cent of total sugar sales in Kenya, making him the single most powerful figure in the country’s sugar industry. None of this disqualified him from acquiring Pan African Paper Mills. All of it shaped how the acquisition would be read.
In December of twenty sixteen, the Rai Group took formal possession of the Webuye mill. The operating entity was renamed Rai Paper. The first eighteen months were spent doing what nine years of receivership and government bailouts had not done. Walking the plant, machine by machine, deciding what could be restarted and what could not. Hiring back former Pan Paper engineers who had moved to Nairobi or to Uganda. Negotiating fresh supply contracts for softwood pulp. Talking to Kenya Power, very carefully, about a new electricity account.
THE RESTART
In the middle of twenty eighteen, the first paper machine started up again. One line operational, after nine years of silence. Initial workforce, two hundred and eighty people. Initial annualised output, around twenty one thousand tonnes. By any pre crisis benchmark, modest. By the benchmark of the previous decade of failed restarts, transformative. Paper was coming off the Pan African Paper Mills machine again. For the people of Webuye who had been waiting since two thousand and nine, that was a fact that mattered more than any spreadsheet.
In November of twenty twenty one, the Rai Group commissioned a second paper machine. Five hundred million shillings of capital expenditure. Capacity targeted to between thirty five and forty thousand tonnes per year. Workforce rebuilt from two hundred and eighty to approximately four hundred and forty. Three quarters of the new hires were local youth under thirty five years old. Through the twenty twenties, Rai Paper would report cumulative production of more than thirty nine thousand tonnes, three hundred and sixty two million shillings paid in taxes, and seven hundred and fifty four million shillings paid back to Kenya Power. The same utility whose disconnection notice had killed the mill in two thousand and nine was now its single largest service provider.
Then, around twenty twenty two and twenty twenty three, the Rai Group began executing on the most elegant single piece of risk management in the whole revival. Kenya’s Energy Act of twenty nineteen had liberalised parts of the electricity transmission and distribution industry, opening the door to private wheeling of power between two industrial sites. Rai announced a thirty kilometre dedicated power line that would run from the West Kenya Sugar Kabras factory in Kakamega County to the paper mill at Webuye. The sugar mill’s cane crushing operation generates excess electricity from its bagasse boilers. That excess would now run, directly and privately, to the paper mill. The factory whose first life had been ended by an unpaid bill to Kenya Power would, in its second life, be substantially insulated from Kenya Power tariffs and reliability.
Then came twenty twenty five. The Rai Group announced a comprehensive three billion shilling industrial revival plan for Pan African Paper Mills. The centrepiece of the plan was the replacement of the legacy pulp mill and the legacy recovery boiler, the same recovery boiler that successive governments had spent two decades deferring on, the same component whose decay had been the technical heart of the original collapse. Replacement, not refurbishment. A modern recovery line designed for both recycled fibre and sustainably sourced wood pulp. The post revival capacity target, seventy four thousand one hundred tonnes per year, roughly three times the current level. The product roadmap, the existing kraft and tissue lines, plus a return to newsprint production, plus a new specialty packaging line aimed at the growing East African e commerce and consumer packaged goods markets.
“A beacon of employment, innovation, and pride for Webuye.” — Rai Paper Management Statement, twenty twenty five
The framing in the announcement was deliberate. Rai Paper was no longer presenting itself as a salvage operation rebuilding an old asset. It was presenting itself as a long term industrial bet on the second life of Kenyan paper, anchored in Webuye, financed by Rai family equity, powered by Rai owned sugar mill electricity, and operated by a workforce that was three quarters local youth.
TODAY AND TOMORROW
Today, at the end of June twenty twenty six, Pan African Paper Mills, trading as Rai Paper, is running both of its machines. Output is trending toward the upper end of the thirty five to forty thousand tonnes per year band. The workforce is between four hundred and forty and five hundred direct employees, three quarters of them local youth, supporting an estimated twenty five hundred dependents in Webuye. The three billion shilling pulp mill and recovery boiler replacement is in active execution. The thirty kilometre power line from Kabras Sugar is in construction. The product roadmap that includes a return to newsprint is in commissioning.
The town of Webuye has not yet returned to where it was at the peak. Commercial property prices and tenant occupancy are still below pre two thousand and nine benchmarks. Schools and clinics that the original Pan Paper had built are receiving CSR support again, but the catchments they serve are smaller than they were at the boom. The mill restart has stabilised the town. It has not yet rebuilt it.
The structural questions are the ones that did not have clean answers in two thousand and nine, and they still do not have clean answers in twenty twenty six. Whether a kraft pulp mill should be operating on the Nzoia River at all in twenty twenty six, given the documented environmental legacy of the first thirty five years. Whether the captive power line from Kabras Sugar genuinely insulates Rai Paper from the cost base that killed the original mill, or merely shifts the dependency from Kenya Power to a Rai owned sugar mill whose own political controversies are unresolved. Whether the unit economics of a seventy four thousand tonne East African paper producer can survive against subsidised Asian imports on a continent whose import tariff regimes have been steadily liberalised for thirty years.
The environmental question is the most important and the least resolved. The original Pan African Paper Mills was, by every available external measure, one of the worst point sources of industrial pollution in Kenyan history. The Rai Paper revival is being asked to do something the original operators conspicuously failed to do. Produce paper, at three times the current scale, without poisoning the river or the air. The replacement of the legacy pulp mill and recovery boiler is the central technical bet that this is possible. NEMA permitting under Kenya’s modernised environmental regime is in process. The local community is more environmentally aware in twenty twenty six than it was in nineteen seventy four. Every output tonne the new mill adds raises the political stakes.
The political question is almost as important. The Rai family already controls close to half of Kenya’s sugar industry. With Pan African Paper Mills running at three times current scale, the family will, simultaneously, control the most strategically important paper mill in the country and the country’s largest sugar producer. That is a level of single family concentration in Kenyan agro industry that the country has not previously experienced. The political settlement around that concentration is being negotiated in real time, every week, in the spaces between the Rai Group, the Bungoma County government, the Cabinet, the Energy and Petroleum Regulatory Authority, NEMA, and the Webuye constituency itself. None of those negotiations is over.
The future of Pan African Paper Mills will be written across those three questions. None of them has a clean answer. All of them are in motion. What is no longer in question is whether the mill can be brought back at all. In twenty twenty six, for the first time in seventeen years, paper is coming off the Pan African Paper Mills machines again, in real volume, with a real workforce, in a town that is, slowly, hearing its industrial heartbeat restart.
In nineteen seventy two, a newly independent Kenyan state, an Indian industrial family, and a World Bank arm built a paper factory on the banks of the Nzoia River that became the largest industrial complex in the country. In two thousand and nine, an unpaid electricity bill killed it. In twenty sixteen, the most controversial sugar industrialist in Kenya bought what was left, against a peak book value of eighteen billion shillings, for nine hundred million. Today, ten years later, both paper machines are running again, a three billion shilling revival is under way, and Webuye is, slowly, learning what it means to have its industrial heart beating for the second time in two generations.
This is Asili Africa. Every empire has an origin.
Key Takeaways
- THE ORIGIN. To tell the story of Pan African Paper Mills, we have to start with a political problem that the Kenya of nineteen sixty four did not yet know how to solve.
- THE FAILED REVIVAL. The first attempt to bring the mill back was made by the Government of Kenya itself.
- THE RESTART. In the middle of twenty eighteen, the first paper machine started up again.
- TODAY AND TOMORROW. Today, at the end of June twenty twenty six, Pan African Paper Mills, trading as Rai Paper, is running both of its machines.
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