From its inception, the Skeldon sugar modernisation project proved to be an enormous financial burden on GuySuCo and the government ignored advice from the company’s manager, Booker Tate to fire controversial Chinese contractor, CNTIC, according to the report of the Commission of Inquiry (CoI) into the industry.
The Chinese-built Skeldon factory has been seen as a major millstone around the industry and there have long been questions about the wisdom behind the project and the choice of the contractor, China National Technology Import and Export Corporation (CNTIC).
Tabled in the National Assembly last week, the report of the CoI into the Guyana Sugar Corporation (GuySuCo) addressed these issues.
The report said that GuySuCo’s financial position worsened with the “harsh negative impact” when the Skeldon Sugar Modernisation Project (SSMP) came on stream. The brainchild of former President Bharrat Jagdeo, the project started in 2003, two years after his first full term as President began. Output from the factory has been far below expectations and at a very high cost.
The CoI report said that given warnings by the European Union (EU) that preferential sugar prices would be cut from 2006 and in the following years “it seems, in retrospect, that from a business and economic standpoint, the decision to pursue the Skeldon modernisation project may not have been logical and based on sound considerations”.
Initially estimated to cost US$165m, the CoI report said that the project eventually ended up costing US$187m with funding from the World Bank of US$56m, Exim China Bank – US$32m, the Caribbean Development Bank (CDB) – US$24m and GuySuCo – US$53m. The report noted that GuySuCo’s contribution of US$53m was intended to come from the sale of lands.
However, this did not materialise and the sugar corporation used its own resources thereby depleting its working capital. The escalation in the cost from US$165m to US$187m was also funded out of GuySuCo’s own resources.
“From the commencement of the Skeldon project in 2005, when GuySuCo had to initially contribute US$25m from its EU receivables over a period of (18) months commencing in 2005, the corporation’s liquidity declined rapidly. As a consequence, GuySuCo became heavily dependent on bank overdrafts, and extended credit periods to maintain the operations of the business.
This was the start of the decline of GuySuCo’s financial position leading to its present state of insolvency”, the report declared.
It said that GuySuCo’s expenditure on the Skeldon factory to the tune of US$72m, the slide in the EU price and the drop in sugar production resulted in reliance on expensive overdrafts for working capital, delays in meeting creditor’s payments resulting in creditors refusing to supply or demanding payments in advance, minimal capital expenditure on the business, late purchasing of critical inputs leading to late fertilising and application of chemicals, significant loss of revenues and dependency on the Government for bailouts. Furthermore, the report said that US$7m had to be spent on corrective work on the factory.
This financial impact had a debilitating effect as essential work could not be done on the other sugar estates.
“The effect was not only evidenced in declining yields and reduced factory efficiencies but led to demotivated and demoralised staff at all levels. With the earlier exodus by way of migration of staff, especially those knowledgeable managers, and the sending off of experienced staff, upward mobility and re-designation of persons led to a lack of needed skills at various levels in the industry. The quality of leadership at all levels was compromised”, the report said.
The report noted that many questions were raised about the SSMP and in particular the selection of the contractor. The CoI report said that the international standards of formal tendering, evaluation and selection were followed and the decision makers were Booker Tate, GuySuCo’s top executives and government officials.
“Given the poor performance of the Chinese company selected – CNTIC for the Skeldon factory project, on looking back it was not a good decision. Problems plagued the project and the many technical/operational problems could not be resolved by CNTIC”, the CoI report said.
It added that a contractor from Brazil or India may have been a better choice. This has long been an argument of critics of the decision to hire CNTIC. It has been argued by critics that CNTIC had never built such a factory before and that there was ample expertise in India or Brazil to tap for such a major investment by the government.
The CoI report noted that Booker Tate’s complaints were not settled, “including their recommendation to terminate the contract with CNTIC and Booker Tate taking over as contractor”. Their advice to GuySuCo, the report said, was ignored.
The previous PPP/C government has not answered why stiff penalties were not applied against CNTIC over the Skeldon factory. It is unclear whether CNTIC is still owed money for the turn key factory it was supposed to have delivered.
The CoI report noted that after CNTIC exited, difficulties with the factory persisted, “necessitating much expenditure in replacing poor quality equipment”. The report said that the choice of the diffuser system, instead of mills for juice extraction also brought its own special problems with inexperienced personnel to handle it.
Booker Tate was cited by the CoI report for supervision of the Skeldon field and factory works that was below expectation. The report noted that up to October, 2015 some of the land development involving conversion and layouts at Skeldon were yet to be completed.
As reported earlier, the CoI’s key recommendation is that GuySuCo should aim for full privatisation within three years. The CoI also deemed as “impractical” in the short term, the prospect of bringing the industry back to profitability. It therefore avoided the mandate given to it to develop a 15-year plan for the industry and limited its attention to privatisation.
The government last month said the parliamentary committee on economic services will be entrusted with the report. This move however leaves the government with the immediate challenge of acting swiftly on the privatisation recommendation as urged in the report while at the same time assuring thousands of sugar workers that they won’t be out of jobs. Privatisation has been opposed by the main sugar union, GAWU.
The privatisation recommendation in the report commissioned by the David Granger administration brings the industry full circle after its nationalisation in the 1970s under the PNC government and the exit of previous long-time owners, Bookers Sugar Estates Limited and others. GuySuCo was founded in 1976.
The CoI was chaired by former Minister in the Ministry of Agriculture, Vibert Parvatan.
