Estate closures
…says “incompetence” of decision-makers caused downfall of sugar
The recent announcement by Government that more sugar estates will be closed has been described as a move which lacks transparency by economist Sasenarine Singh, who believes that the downfall of the sugar industry is as a result of the incompetence of decision-makers.
Last week, Minister of State, Joseph Harmon admitted that more estates would be shut down as Government moved to finalise its options with regard to the future of the sugar industry. “Well, there are proposals with respect to diversification; and in the diversification plan, there is a proposal to that effect,” the State Minister told reporters at the post-Cabinet press briefing.
However, Singh pointed out that the premise upon which such a decision was taken was “totally non-transparent” and lacked “a comprehensive understanding of the social impact on rural Guyana”.
The economist explained that if the intention was to reduce the drag on the fiscal performance of the economy, then the first thing any skilful policymaker would have done was conduct a full-blown Socioeconomic Impact Assessment (SIA) on different options available to Government.
“No one has priced in the loss of the sugar earnings on the national reserves. No one has priced in the social cost and drain on the social security system because of a trimmed [Guyana Sugar Corporation] GuySuCo operations. The focus all along should have been on cutting out the fat from the industry – the non-value added cost, not kill the goose all together to get rid of the fat,” he stated.
Singh added that if this move reflected the reality in the minds of the decision-makers in the Cabinet of Guyana, then Tuesday ,February 28, 2017, would be “a date which will live in infamy” in the Cooperative Republic, he said, paraphrasing Roosevelt.
Moreover, the economist believes that the treatment of the Skeldon Estate reveals the deficiency of proper management capabilities at the helm of GuySuCo.
He noted that the reason given for the recent abandonment of the first crop at Skeldon – that the co-generation plant was unsafe to operate was nothing but a lame excuse. He pointed out that the situation exposed a deep deficiency in the project planning and engineering skills in GuySuCo, laying the blame at the feet of co-Chief Executive Officer Errol Hanoman, whom Singh said should be fired forthwith for “gross negligence and incompetence”.
“Did the senior team at GuySuCo in 2016 not developed a project plan for Skeldon for the first crop? Did they not identified and inspected their assets at Skeldon (their pool of available technicians, their equipment, the field are scheduled for reaping during the first crop of 2017 and most importantly the factory)? From that assessment, any skilled executive will then clear know what they can do and what they cannot do,” the economist posited.
Losses
He went on to question who would take responsibility for the losses in the field since some 4000 acres of mature cane was now left to dry in the field. This, he noted, is a permanent loss of some $2 billion.
“So, you see these decisions cannot be made lightly, because they result in billions of dollars in opportunity losses, which then translate into socio-economic deprivation in the local area – the Upper Corentyne. So when the local businesses would have expected a bump in their financial transaction in the first half of the year, they must settle for a season of “beri-beri”. Who is going to feed, clothe and pay the mortgage for the sugar families of the upper Corentyne now?” he argued.
Nevertheless, when it comes to saving the Skeldon Estate, Singh is of the opinion that “boat done gone a falls”. He explained that back in May 2015, he was convinced without a shadow of doubt that the situation was recoverable, but this was not so anymore because of the high level of executive incompetence and bungled decision-making at the highest levels within GuySuCo for years now – not only under Hanoman but Raj Singh as well, who was ‘doubly worst’.
Moreover, the economist outlined that he was advised that the decision was made to sell the entire operations at Skeldon and that the son-in-law of a senior Government official was eligible for a finder’s fee of US$1 million if he could structure a deal for the Skeldon Estate with the co-generation plant.
“I was also reliably advised that as a precondition, investors want the balance sheet assigned to the Skeldon Estate to be stripped of the US$200 million debt that funded the factory. But anyone involved in any business acquisition will know that the valuation of a business is three-fold – the future cash flows, the expected rate of returns and the net asset value of the balance sheet. Everyone is focused on the fact that the factory is a mess, but no one is focusing on the intangible losses,” he posited.
According to Singh, if the debt for the factory is extricated from the deal, then the people of Guyana will get pennies on the dollar when this deal is done, with limited access to the future cash flows, most of which will be shipped out of the country for the investor, and the equity built up will all be owned by the investor.
To this end, the economist noted that it was imperative that deal or no deal, Skeldon should be formed into its own joint stock company and listed on the Guyana stock exchange. This way, he added, Government would be able to sell 75 per cent of the shares to private shareholders, not just the international investors, but to local companies such as Demerara Distillers Limited (DDL) or anyone else who can afford to buy the shares.
