January 23, 2018

Privatising closed sugar estates

In view of the universally acknowledged (save for some members of the Government) acceptance that the contract negotiated with ExxonMobil for our oil was very poorly handled by the Government in the person of the Minister of Natural Resources, Raphael Trotman, the Private Sector Commission (PSC) opined that for all new contracts in the oil sector, the Government should utilise the services of more expert negotiators.
On the surface, even though it is clear it is playing “catch up,” the Government appears to have learnt that lesson as it prepares to negotiate contracts for the sale of the four estates/factories in the sugar industry which it unilaterally decided to close. Ideally, it should have followed the recommendations of its very expensive Commission of Inquiry (CoI) into the industry, which suggested the Government inject funds to improve all GuySuCo’s assets to a point of sale within three years.
During that time, it would have been able to accomplish more efficiently, even the putatively modest downsizing it has embarked on:- selling Skeldon factory and fields of some 16,000 acres; Wales 8000 acres; Enmore factory with over 10,000 acres, and Rose Hall (Canje) factory and an unknown number of acres of land.
The Government has established a Special Purpose Unit (SPU) under the state’s National Industrial and Commercial Investments Limited (NICIL), its divestment arm, to take care of the sale. Since all other assets besides those at Uitvlugt, Blairmont and Albion have been transferred from GuySuCo to the SPU, it is assumed that the headquarters and other properties would also be on the block.
After a meeting with GAWU, the field and factory sugar workers union, it was revealed that the SPU evidently has decided to operate the sugar entities under its remit, until they are sold. In the meantime, it hired an international accounting and consultant firm, PricewaterhouseCoopers (PWC), to conduct a valuation of all assets under the control of GuySuCo, in addition to providing other advisory and financial services. Following the valuation exercise, PWC will develop an investment prospectus, and through the SPU, distribute to all interested investors.
At this point, there have already been several “expressions of interest” (EoIs) from several investors, domestic and foreign.
It would appear that PWC has already justified its hiring, since, prior to its services being contracted, there was no word about the SPU operating the estates that were announced as being “closed”. If that were actually the case, then the value of the latter would have become seriously depreciated in the one year or so it would have taken for any serious valuation and negotiation to consummate the sales. In case this did not occur to the Government officials who decided on the unilateral closures, they should take a look at the condition of Wales, which has now been closed for a year. Not only the factory — which has been described as “cannibalized” — but the fields that were abandoned. They have already reverted to “bush,” with the canals becoming clogged up and impassable with vegetation. Savvy investors will have to factor this into their assessment, and reduce their offers accordingly.
For the SPU officials to attempt to keep its other estates as viable entities, they will have to do much better than GuySuCo has been able to achieve for the last decade. And it will not just be a matter of their own inexperience in the sugar industry. All the factories, for instance, are designed for a certain level of throughput, which cannot fluctuate since the boilers etc are designed to run continuously, and can only be shut down and restarted at tremendous cost, which add to the already high unit production costs. And there is the matter of selling the sugar that would be produced at these high costs. Will the SPU be finding sugar markets on their own, or will GuySuCo be purchasing the high-priced sugar and further increasing their need for subsidies?