Insurance settlement
FSC investigates payout claim
THE Penang Sugar Mill has been the subject of intense political debated since its closure in 2016.
After severe Tropical Cyclone Winston in March 2016, the government and Fiji Sugar Corporation decided not to repair and reopen the mill.
On July 23, 2016, former prime minister and minister for sugar, Voreqe Bainimarama stated at a meeting at Penang Sangam School that government was assessing the future of the mill.
The prime minister said: “We are currently assessing whether Penang mill should be rebuilt as a syrup mill or the full sugar mill that it was before the cyclone.
“Many sugar-producing countries have smaller mills that produce only syrup.
“It reduces the time it takes for crushing and the syrup is taken to a bigger mill where it is crystalised into sugar.
“We have been given some assistance by the Indian Government to assess the best course of action and we will be making a decision on Penang in the next two months.
“But whichever way we go, a full mill or a syrup mill, it will not affect your ability to supply cane.
“And the work will commence immediately when the assessment is completed.”
That two months never came, and the Penang Mill was dismantled and sold off as scrap metal.
Now information has surfaced that the Penang Mill’s plants, equipment, office and buildings suffered damage of about $16million and Fiji Sugar Corporation received $8.5million from its insurers for the damage.
Cyclone Winston insurance settlement
FSC took-up Material Damage and Business Interruption (MDBI) insurance cover for the period, January 1, 2016 to December 31, 2016.
The underwriters for the cover were Lloyds of London that provided primary-layer while QBE Fiji Ltd provided the excess-layer.
The policy covered all of FSC’s assets at the four sugar mills and the Head Office.
On February 20, 2016, Tropical Cyclone Winston caused severe damages to FSC’s assets, including Penang, Rarawai, and Lautoka mills, residential and service buildings, as well as rails and bridges.
Minister for Sugar, Charan Jeath Singh said, in response to the losses incurred, that FSC, in consultation with AON (FSC’s insurance brokers), enlisted the services of engineering consulting company, Erasito Beca, to prepare an insurance claims report.
The report detailed estimations of material-damage losses, incorporated supporting documentation (including cost estimates and expenditures) that were incurred, encompassing invoices, payroll records, and other relevant evidence pertaining to various losses due to the cyclone.
Erasito Beca, an engineering consulting firm, in conjunction with AON indicated that the claim could be in the range of $65m to $100m, while final claim was still being prepared for submission to the board.
Mr Singh has revealed following the deliberation of the board at the meeting held on August 24, 2016, the board of FSC had agreed to accept a cash insurance payout of $35m, inclusive of deductible.
On September 11, 2016, Erasito Beca completed a claims report for $84,172,513 VEP ($91,748,039 VIP) and the same was lodged with underwriters through AON, Mr Singh said.
Subsequently, after negotiation with the underwriters, the management of FSC agreed to a VIP payout of $37m (including the deductible of $5m), leading to the signing of an insurance settlement agreement on October 7, 2016 by the then CEO, Abdul Khan. Allocation of VIP$32m (VEP$29.4m) was as follows: Penang asset write-off $8.5m Repairs & Maintenance 2016 & 2017 (from Income Statement) $7.6m
Sugar reprocessing cost (damaged sugar – remelt cost) $1.2m Allocated to carrying $12.1m VAT $2.6m
Penang mill closure
Penang Sugar Mill was allocated $8.5m for the repairs and reinstatement of the asset damage for factory plants in the insurance payout of $35m.
The consulting firm EB Beca had assessed Penang’s reinstatement to be about $11m.
In other words, for an additional $2.5m additional investment, Penang could have been restored to full operational capability.
Minister for Sugar Charan Jeath Singh claims this would have saved at $60m in transport subsidy given to Ra farmers, millions of dollars of fuel, parts and foreign exchange, retained an additional 300 cane farmers and another 250 employees in Ra.
“The Ra economy and livelihoods of its people have been suffering since then,” he said.
“There was not a single budget or feasibility study done in respect of the repair and revival of the Penang Mill in the last seven years. Bainimarama, Abdul Khan and later Graham Clark — both on milliondollar packages — kept misleading and lying to the people of Ra that the mill be recommissioned. There is not a single report to prove any such misleading claim.” FSC investigates insurance claim
The chairman of FSC, Nitya Reddy, said they are looking into this matter in more detail, and they would be sharing more details with the people of Fiji.
“My question is why was the rush to surrender and settle for $60m less in 6 months after the TC Winston. It is reckless and irresponsible to settle for $35m, before even the estimates have been finalised and claims lodged,” he said.
“It becomes even more, indeed, criminally reckless when your own FSC paid assessors have estimated the damage to be $97m. What is the rush in settling it and then signing a confidentiality agreement.
“For very compelling reasons relating to good governance, transparency and accountability, public sector entities like FSC should never have entered into such restrictive agreement. No single person has the rights to bind a taxpayer owned company and subsequent governments to mortgage its rights to question the validity of the settlement.
“There was no new unsustainable cash flow pressure caused by Cyclone Winston to justify this.”