Facing Reality – GUYSUCO

Jun 25, 2017 APNU Column, Features / Columnists

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In the run-up to the May 2015 elections the Coalition promised the nation that if elected to office it would find a way forward for GUYSUCO. A promise was made that a Commission of Inquiry into the operations of the Guyana Sugar Corporation would be convened and with the support of an expert multi-disciplinary group, review, analyze and recommend the way forward for the sugar industry.
The COI interviewed several persons with expertise in various areas and made site visits to the estates owned and operated by GUYSUCO. It conducted desk reviews and used sub-committees to delve into specific aspects of GUYSUCO’s business units. The report of the COI is available online and contains the findings about the condition of the industry.
A pattern of persistently poor performance by GUYSUCO was observed between 2006 and 2015. During that time period, average annual output of sugar declined by 14 percent and annual average foreign earnings went down by six percent.
The output projections suggested that the company would have to produce 305,000 tonnes of sugar annually over the next 10 years to earn an average income of G$29billion per annum for the period. However, GUYSUCO accumulated a total net loss of income of G$40 billion by the end of 2015.
Given the present condition of the industry and its past financial performance, GUYSUCO was unlikely to meet those production and financial targets. Further, the company estimated that it would incur a total loss of G$96 billion from 2015 to 2025, an annual loss of G$10 billion per year, rendering its production objectives futile under present conditions.
In addition, the cash position of the company was precarious and reflected an inability to meet its short-term debt which amounted to G$37.7 billion at the end of 2015.
Given the financial projections for the period 2016-2025, the company has no hope of meeting its current or future debt obligations without radical changes to its operations. Further, the total equity of GUYSUCO declined from G$60.3 billion in 2006 to G$20.5 at the end of 2015, a significant loss of 65 percent of its ownership.
With a capital structure of G$140 billion and claims on only 30 percent of the assets, it is evident that creditors and not the government of Guyana are in control of the enterprise;(if the creditors feel insecure about the future of the industry, they can force GUYSUCO into involuntary bankruptcy). With the future financial projections, the Government of Guyana was likely to lose total control of the company if it tried to keep it as is.
The woes of GUYSUCO became apparent many years ago, but the starkness of the crisis in which the corporation was mired raised its ugly head in 2008 (during the Jagdeo administration) when it recorded a net loss of G$4.1 billion. The loss–making trend continued through 2012. GUYSUCO turned a profit in 2013 before resuming its loss-making habits in 2014 and in 2015.
While GUYSUCO was still making a small contribution to GDP through 2010, the corporation became a complete drag on the economy from 2011. Buying high and selling low is no strategy for success. It is a recipe for disaster since the company is unable to cover operating costs and critical fixed costs, including those such as drainage and irrigation.

CRITICAL DECISIONS
Like any other business GUYSUCO has three critical decision points, namely profit maximization or sales maximization; breakeven and shutdown of operations; or make radical modifications to the business model.
The negative gross margins exhibited in the financial performance of estates have significant meaning for the relevance and future of the sugar industry to the Guyana economy. Negative gross margins mean that the marginal revenue of GUYSUCO is below its variable costs. Therefore, GUYSUCO is in no position to maximize profits or to maximize sales. Nor is it breaking even. Instead the government has opted to search for the most reasonable manner to resolve the crisis in the industry.
This positive attitude has led to the desire of saving the profitable operations of GUYSUCO and as many jobs as possible while modifying or divesting the unprofitable components of the corporation for the benefit of all stakeholders. This approach makes sense, since negative gross margins mean that GUYSUCO is contributing virtually nothing to GDP.
Given the vision that the Government of the Cooperative Republic of Guyana had for GUYSUCO, on December 31, 2016, the government commenced consultations with key stakeholders, the opposition Party (The Peoples Progressive Party-PPP) and the Unions – the Guyana Agricultural and General Workers Union (GAWU), Guyana Labour Union (GLU) and the National Association of Agricultural Commercial and Industrial Employees (NAACIE).
The government made available the options for GUYSUCO as stipulated by the Commission of Inquiry (COI) report, the Corporation’s proposals and the Task Force’s report. The government also requested stakeholders to submit their ideas for the future of GUYSUCO. Further consultations were conducted on the 3rd and 17th of February 2017.
Even though the leader of the Opposition now boasts that he has a plan to fix GUYSUCO, there was no submission by the PPP, but the Guyana Agricultural and General Workers Union made a presentation on February 17, 2017.
Given the financial and technical evidence presented, the government has decided to (1) retain sugar production as the core function of GUYSUCO at three factories and five cultivating estate sites; (2) divest the remaining parts of the industry; (3) Invite sugar workers and cane farmers to undertake agro-based activities on lands to be made available to them. This is the way forward.

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