Bailing out GuySuCo is like raiding the Treasury

Nov 21, 2016 News

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– Prime Minister

By: Kiana Wilburg

The ritual of annual billion dollar bailouts to the sugar industry cannot continue. According to Prime Minister, Moses Nagamootoo, this “habit” must change as he is of the firm belief that bailing out the Guyana Sugar Corporation (GuySuCo) every year is tantamount to raiding the national purse.
The First Vice President made this, among other comments, recently at his party’s bi-weekly press conference held on Friday last. There, he spoke about the prevailing state of affairs within the sugar industry. He assured that Government will only do what is best for the sector while stating that sugar production will remain the remit of GuySuCo.
The Prime Minister told the media corps that in order to save the industry, one would have to be able to disaggregate certain functions.
He said that this is necessary “because it has now become oppressive to hand out or do the annual ritual called bailouts of the industry.”
The Prime Minister said, “So far, about $40B has been spent on bailouts in the last five years and …if there is any raiding of the treasury, then it is really raiding the treasury to pay sugar workers and I hope they could appreciate that.”
With the aforementioned in mind, the Prime Minister said that some of the functions of the sugar industry will now have to be diversified to accommodate other activities that would earn foreign exchange and will earn revenues for the nation.
Turning his attention the ailing US$200M Skeldon Estate, Nagamootoo said that the factory has not performed to its expectations. He said that this is in spite of the fact that millions of dollars had been spent on consultants from India to fix Skeldon.
“We knew we had a limping elephant, not even a white elephant. It is a failed elephant. So this elephant we inherited was not producing sugar in accordance with what was envisaged originally. So what do you do with Skeldon if it is not performing? You will have to have a method that would allow other things to come in either to refurbish the factory, to diversify crops there or to work out an arrangement with private cane farmers … so there are a combination of several activities.”

As currently structured, the Guyana Sugar Corporation cannot be sustained. If the status quo remains, subsidies exceeding $18B and $20B would be required in the next two years and thereafter.
In short, GuySuCo’s board members have come to terms with the reality that the price to turn sugar around is too high. A high level team has since communicated this to Cabinet.
During that meeting, members of government were told that even if all the capital was to be provided for the state entity, GuySuCo would remain a significant loss maker. The estimated operating losses would be more than $10B annually.
In the circumstances, two Government Ministers told Kaieteur News that based on presentations made by GuySuCo officials, funds injected into the sugar industry would be wasted, if such injection is made in the absence of any plans for restructuring and diversification.
The Government officials agreed that radical reorganization and diversification are urgently needed.
Recently, GuySuCo Chairman, Dr. Clive Thomas, said that the assets of the industry are “rundown”. He noted that factories, agricultural fleet and field infrastructure were all inherited in a terrible state.
GuySuCo Board members said that compounding the issue is the fact that the sugar management and technical support are weak and inexperienced.
But one of the priority issues for the Chairman remains reducing the sector’s heavy reliance on bailouts. Dr. Thomas said that the entity hopes to do this through diversification.
“What we are projecting is that we would use some funds to pursue the diversification of the industry. We see bailouts rising for about two to three years and then falling dramatically by 2020.The bailouts, or need for it, can fall by 2020. We hope to pursue diversification of some of the estates, one of which includes Wales.”
Lending much credence to the Chairman’s position was Anthony Vieira. Vieira who once served as a GuySuCo Board member has been appointed head of the state entity’s Diversification Unit.
Vieira agreed that diversification of the sugar industry can bring an end to the sector’s reliance on billion-dollar bailouts. He said that the Unit is currently in the process of coordinating a diversification process with regard to aquaculture and the cultivation of rice.
Vieira said that the Unit is awaiting a USA study on the feasibility of GuySuCo’s proposed aquaculture venture.
“For the time being, I can say that the people conducting the study believe that this is a very feasible project, and that aquaculture can be many times more profitable than growing cane,” Vieira added.
A number of options on the way forward for the sugar industry were presented to Cabinet, recently.
Speaking on the discussions that occurred in this regard between Government and the team from GuySuCo was Minister of State, Joseph Harmon.
Harmon said that the officials presented a number of alternatives regarding the way forward with the sector. He however declined to reveal what those “options” were.
The options up for consideration include privatization – as recommended in the Commission of Inquiry into GuySuCo – and the most extreme being the closure of the sector.
Another recommendation made to Cabinet was on the need to bring an end to the production of bulk sugar at the Skeldon Sugar Estate. Kaieteur News understands that the US$200 million factory is in dire need of costly repairs.
“If you only knew the cost to refurbish the factory, it would blow your mind,” the GuySuCo Chairman asserted.
“Skeldon needs to be divested. We thought it would have been saved or salvaged by a mechanization project and that was not helpful. Then to get the costs down to competitive levels, moves were made to involve private cane farmers in supplying cane to Skeldon. That, too, did not work. The reality before us is that the factory has lots of faults; it is badly designed and poorly constructed.”
Thomas added, “The factory is deteriorating. New steel is needed, some of the furnaces don’t work, some of the boilers don’t work…the factory is just not properly built. The cost for the repairs needed is about, if not over, US$60M ($12B). It is that big of a disaster.”
Just recently the sugar sector received a whopping $2B in assistance from the national purse. This financial support is to help meet routine expenditure, and is in relation to the second crop for the sector. The cost to repair Skeldon alone would be six times that bailout.
The amount needed to fix the problems facing Skeldon is also more than the $11B ploughed into the sugar industry for the entire year.

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