Questions on the land GuySuco is selling to raise money
Dear Editor,
Your article captioned “GuySuCo in US$410M debt, selling 2,000 acres to raise cash –CEO Errol Hanoman” in your September 2 edition is not only mind-boggling, but rather frightening with respect to the future of the sugar industry and the perpetuity of government’s subsidy.
Editor, GuySuCo’s current debt of US$410M or G$82 billion needs to be carefully analyzed. First, we must recall that in 2014 the then CEO of GuySuCo, Paul Bhim, reported to the National Assembly’s Economic Service Committee that GuySuCo had incurred a debt of G$58 billion. It means that for 2015 and 2016 year-to-date, the company has incurred an additional $24 billion debt. In 2015 and 2016 year-to-date, the government has provided 12 and 9 billion dollars to GuySuCo, respectively; a total of 21 billion dollars.
In 2015 the company produced 227,000 tonnes sugar. Assuming that the average price for bulk and packaged sugar was US$420 (using a more-than conservative price for bulk raw at US15 cents per pound or an overall US21 cents), the revenue from the sale of sugar would have been US$95M or G$19 billion, an amount that’s barely sufficient to cover its annual employment cost. The company’s total operating expense was in the vicinity of G$30 billion, as such the subvention from the government last year of 12 billion dollars went towards subsidizing the company’s operating expense. It means that there was no major capital works, and of course there was no increase in pay for the workers.
An agriculture-based company as geographically diverse and operationally complex as GuySuCo, being starved of capital investment will have far-reaching deleterious effects on its operations and potential productivity, and a company that’s labour intensive and managerially complex being deprived of adequate pay increase will suffer from low morale, declining productivity, low attendance, shortage of suitable and talented human resource and poor labour relations. All of which are anathematic to the progress of the sugar industry.
With the poor 1st crop 2016 of 57,000 (a drop in estimated target by 30%), this year the situation wouldn’t be any better. It’s highly unlikely that this year’s production will exceed 200,000 tonnes, for to even achieve this, the company has to produce 143,000 tonnes in the current 2nd crop, and the production for the 4 weeks since the crop started is only 9,000 tonnes, which is not encouraging. 200,000 tonnes is estimated to yield a revenue of G$16 billion.
If the annual production is about 200,000 tonnes this year, the G$9 billion approved for this year as government’s subsidy will be woefully inadequate, together with the company’s own revenue, to meet the total operating expense of G$30 billion. It means that there will be the need for an additional $G5 billion from the government’s coffers (a total of G$14 billion this year), unless the company endeavours to borrow the amount from commercial banks and thereby increasing its current debt of G$82 billion. It will be exacerbated if production falls below 200,000 tonnes.
The question to be asked is, what are the reasons for the company incurring an additional G$24 billion in the last 18 months (2015 and 2016 year-to-date), if the government’s subsidy together with its own revenue was adequate to cover its total operating expense? Editor, on the selling of 2,000 acres of land to “raise cash” to offset G$82 billion it would require selling an acre of land for $41,000,000 or $941 per square foot. If bought by land developers for housing schemes, a modest 8,000 square feet of house-lot would have to be bought at $7½ M each; so at what price will this be re-sold to a potential homebuyer?
GuySuCo’s main problem is its low sugar production and high operating costs, and these factors are by no mean mutually exclusive. Unless, there is a dramatic increase in sugar production, a reduction in its operating expense, and expansion of its value-added sugar products with aggressive marketing strategies, the scenario cited above will continue in perpetuity, which is the government will have to continuously subsidize the sugar company each year in the vicinity of 12 to 15 billion dollars. Diversification will not salvage it from its dilemma. It will only add to its woes.
Dmithri Ramsunai
Tain, Corentyne