As planned, last week I completed the examination of GuySuCo’s key performance indicators. This examination is covered in my columns May 29-July 31. In last week’s column I also began to examine the Skeldon Sugar Modernization Project (SSMP), which I have already described as GuySuCo and the government’s principal response to the disastrous rot in the sugar industry. I also indicated there that I planned to commence the examination of the SSMP by looking at three preliminary considerations.
Too long in the making
The first of these is that the general public does not seem to be aware that the SSMP has been far too long in the making. Given its size and scale, it has had an overly long gestation period, even by the snail-pace standards of agricultural projects in developing countries. Indeed, up until now it is not yet fully functional. Yet, as far back as 1998, GuySuCo had produced a ten-year Strategic Plan (approved by the Government of Guyana) in which the SSMP was listed as the first priority in efforts to restructure the sugar industry and put it on a globally competitive footing. From the outset, therefore, the authorities intended to continue the industry on an export basis; global competitiveness was therefore their foremost consideration.
Concretely, this intent manifested itself in two key decisions. One was to construct a new factory at Skeldon, and the other was to substantially expand the cultivation of sugar cane there. The latter was to be designed in a manner that involved the local farming community, especially in regard to 1) canal and drainage arrangements, and 2) the development of a cadre of private independent cane farmers.
Both Booker Tate and IMF documents, refer to the late 1990s as the time the decision was taken to embark on the SSMP. Booker Tate stated that the aim was to increase the planting/cultivation area to 13,000 hectares ― a three-fold expansion of the existing cane growing area, and more importantly, one quarter of the cane produced would be supplied by private farmers. As such, this formed the key feature of the GuySuCo Agricultural Improvement Plan.
The construction of the Skeldon factory began in 2005, after GuySuCo and the China National Technical Import Corporation (CNTIC) signed contracts for this purpose in June 2004 at Beijing, China. The factory was to be delivered on a ‘turnkey basis’ and CNTIC was selected after an international tendering process. Booker Tate Ltd was appointed Project Manager. President Jagdeo commissioned the factory on August 22, 2009.
Soon after the handover of the factory, hundreds of defects emerged. This led to both legal and very heated public controversies between the Government of Guyana, Booker Tate (Project Manager), and GuySuCo. As matters now stand the principal defects are scheduled to be remedied by CNTIC imminently.
It is instructive to note that GuySuCo did not only report the SSMP as starting in 1998 but also indicated: “As regards timing, the initial priority will be given to the new Skeldon factory. Assuming completion of detailed planning in early 2000, the new factory could be commissioned in time for the first crop in 2003”! Further, in its review of the 1998-2008 Strategic Plan it indicated that by 1999 the necessary geotechnical, demographic and environmental impact assessment surveys had already been concluded!
Onwards to Albion expansion (and Rose Hall closure)
As regards the second preliminary consideration listed last week, it is also not widely appreciated that the SSMP was intended to be the immediate precursor to the expansion of Albion and the related closure of Rose Hall. This area was considered very suitable for expansion because of its favourable agro-climatic features. The intention was to expand the harvested area by one-fifth. The then harvested area was 14,394 hectares and the expansion was projected to raise this to 17,115 hectares (yielding about 1.4 million tonnes of cane per year). The expansion of Albion combined with the closure of Rose Hall would have created a factory capacity of 415 tonnes cane per hour. This was evaluated by GuySuCo as superior to other options, namely to 1) expand Albion and secure Rose Hall; 2) create a New Albion factory as a stand-alone; or 3) provide a new factory at Rose Hall. The projected capital cost to construct the expanded Albion and Rose Hall closure option was substantially lower than the
others.
Of perhaps the greatest significance for readers is the observation that the Albion project was scheduled for completion four years ago. It should be recalled that I have indicated the SSMP was scheduled for completion eight years ago! To quote GuySuCo’s Review of its 1998-2008 Strategic Plan: “The Albion expansion would be scheduled for completion by 2007” (page 25).
The politics of sugar
Turning to the third preliminary consideration, I can say with the benefit of 20/20 hindsight it is evident that the impetus for expanding the sugar industry substantially (that is well beyond 450,000 tonnes of sugar) lacked clear economic logic because of two factors the authorities could not control. One of these was the potential threat (which the authorities later allowed to become real) against the ACP-EU sugar protocol.
Remember, this market accounted for about 90 per cent of the country’s sugar exports. The other factor is the high and rising unit cost of producing sugar in Guyana. Although the planned expansion to over 450,000 tonnes of sugar represents a substantial increase in local terms, on a world scale, which is where our export sugar is competing, this offered negligible opportunities for economies of scale.
It is my conviction that GuySuCo and Booker Tate’s naïve and self-serving rationalizations in support of the SSMP seduced the government because these were falsely premised on garnering substantial economic and social benefits for the government’s largest and most vibrant constituency of political supporters.
I shall return to these issues later as I move to a general assessment of the sugar industry based on the details already examined and present suggestions about a way forward.
