The Skeldon factory

In keeping with one of its major manifesto promises, the PPP/C government is moving ahead with plans to reopen the East Demerara, Rose Hall and Skeldon estates. As part of this process, there have been visits to the various estates by the new Minister of Agriculture, Zulfikar Mustapha and officials of the government holding company, the National Industrial and Commercial Investments Limited.

The hasty closure of these estates in addition to the one at Wales and the callous retrenching of 7,000 workers will remain one of the major blunders of the APNU+AFC administration. It was not as if APNU+AFC should not have taken steps to rationalise the sugar industry. There were clearly good grounds to make a critical examination of the industry and embark on consolidation and transformation considering the vast losses that were being registered and the bailouts this required. However, the manner in which it was done exposed the inability of the administration to take on complex issues and devise solutions. The sending home of the 7,000 workers without any significant option for them to continue earning a living underlined an uncaring streak in the government which was also in evidence during the five-month elections crisis. The closing of the four estates also ignored the deeply entrenched infrastructural and other services provided to the economy and the historic social benefits that accrued to sugar communities.

Insofar as the move to reopen the estates will be wildly popular in its constituencies, the PPP/C government must, however, proceed with caution. Reopening of estates must be founded on a solid plan to lift the industry out of the deep red that it is in and offer the prospect of sustainability. The three estates that are still functioning: Uitvlugt, Blairmont and Albion continue to struggle to meet production and yield targets and this should be a cautionary tale for those engaged in the reopening discussions.

One particularly problematic area is the Skeldon factory and the government has to show an awareness that it recognises the gravity of the problem. During his visit to the Skeldon estate and factory on Saturday, Minister Mustapha announced that a team had been established to determine the way forward.

“We’ve appointed Mr. Vishnu Panday, who is the former estate manager for the Skeldon estate as the point person/General Manager to move forward at this particular point in time. He will have a small team of technical officers working with him to develop an immediate plan of action to urgently determine what is needed at this estate right now. GuySuCo has already sent a team here and they have supplied me with

a detailed plan on the current state of affairs here,” Mr Mustapha told reporters.

He added that a survey of the condition of the estate will be done and this will include an analysis of the factory and that private farmers will be engaged to boost cane supply as the Skeldon estate was heavily dependent on farmers’ cane.

“We have to consult the cane farmers because they contribute greatly to the operations of this particular location. They contribute over 33% of the cane used at this factory so we will work with them and GuySuCo to ensure we have enough cane for the factory,” Mr Mustapha added. He said that the team was expected to submit a plan of action to the Government within a week.

The Skeldon factory, built over several years by the Chinese company CNTIC and commissioned in 2009 by the Bharrat Jagdeo administration at a cost of around US$187m turned out to be the largest failed public sector project in the country’s history. It led Mr Jagdeo to warn in October, 2010 that if the factory failed then “sugar was dead”. He vowed to take a hands-on approach. “So even if it means personally I have to get involved, I will get involved to ensure that it is fixed…that it’s delivering the kind of results that it should deliver so that we can safeguard the sugar industry.”

Unfortunately, his interventions were to no avail and the disastrous Skeldon factory drained GuySuCo of money and resolve. The factory’s annual projected output of 116,000 tonnes of sugar was never met despite costly remedial interventions by a South African firm. Its highest annual output of 39,153 tonnes was achieved in 2015.

It got nowhere near to its intended grinding figure of 350 tonnes of cane per hour and the situation persisted all through the succeeding Ramotar administration and the first two years of the Granger administration until the factory was shut at the end of 2017 preparatory to divestment/privatisation.

The Skeldon factory also had a high cost of production of sugar – around US 40 cents per pound – far higher than world market prices at a time when Guyana has lost access to preferentially priced markets.

The Commission of Inquiry (CoI) into sugar that had been convened by the Granger administration in 2015 reported the following: “From the commencement of the Skeldon project in 2005, when GuySuCo had to initially contribute US$25m from its EU (European Union) 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 CoI 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 report found.

These realities cannot be wished away by the examination that is now underway at Skeldon. The government must proceed with extreme caution in relation to the Skeldon factory, consult with experts and level with the people of the country. It cannot allow the waste of resources on a badly executed project which has not delivered results and doesn’t appear likely to do so.