The debt-ridden, loss-making, misdirected, mismanaged and ailing Guyana Sugar Corporation is the beneficiary of another bailout. This time we are told that Cabinet has approved a first tranche of $3.8 billion, or the equivalent of just under US$19 million. The announcement was made by Prime Minister Moses Nagamootoo at the observance of Enmore Martyrs Day, an occasion that has become a signature political event in Guyana. There was no indication whether the $3.8 billion is tied to any project, activity or otherwise, such as the payment of any debt obligations.
The PPP/C which gained the overwhelming support of sugar workers in the May elections had campaigned on a pledge to pump $20 billion into the ailing industry. And some days before the announcement of the bailout but after the elections, the now fired CEO of the Corporation had said that the Corporation needed $16B to avert an industry-wide shutdown.
Whatever the eventual bailout number will be, it is likely to be huge. Yet, the Granger Government could not risk a shutdown of the industry. Whether as the sole shareholder in GuySuCo, or as the Government, there had to be some decisive intervention. That however, does not make the circumstances any more comforting.
The announcement was made not by the Minister of Agriculture or the Finance Minister but by the Prime Minister whose portfolio centres around information. The use of the term first tranche obviously suggests further tranches and is not particularly reassuring. How many tranches can we expect and what would be the value? And significantly, where would the money come from?
Finance Minister Winston Jordan must have been shocked to learn that Petro Caribe funds had been diverted to unintended sources, mainly the electricity sector and, I understand, the Hope Canal. Since a large portion of the Petro Caribe funds is intended to pay for rice shipped to Venezuela in exchange for oil supplied to Guyana, the Minister now has to find further billions to meet those obligations. And this is from the Consolidated Fund which he learnt was in worse shape than he had expected, exacerbated by spending and losses by the Gold Board as well as expenditure by the PPP/C in government of expenditure expressly not approved by the National Assembly.
At the level of the Government, it must come as a supreme irony that the first major act of the government, of which the PNC-R is a dominant partner, is to meet inherited obligations to rice and sugar, the bedrock of the PPP/C. But no doubt that is what politics is made of.
The Government has fired the Board which has always been perceived to be more political than professional with the last two chairmen being a future and a former Minister. It has brought back two former executive directors, Messrs. Errol Hanoman, former CEO and Mr. Paul Bhim, former Finance Director, reinstating them in their old positions. The press had also mentioned an Interim Management Committee but there has been no further announcement on this and it is unclear whether Bhim and Hanoman constitute the entire IMC.
It was also reported that the Government would establish a Commission of Inquiry and cause a forensic audit to be carried out. Those are eagerly awaited. In passing, an IMC for an entity operating under the Companies Act is a tricky business since in law, the powers of management are vested in directors.
More than a corporation
GuySuCo is more than just a corporation. It is almost an industry but with key private sector players. Indeed, because of GuySuCo’s knack for stealing the headlines – all for the wrong reasons – the significance of private cane farmers is understated to the point of being unrecognised.
Much of the Skeldon expansion project was centred around private cane farming, but the ill-fated “modern” factory built by the Chinese has been far from helpful to them. Private cane farmers also play a major role in the West Demerara estates and it is of some significance that they make money while the estates themselves make huge losses.
GuySuCo also has a huge role in the economy: it has the largest number of employees, is a significant foreign exchange earner, plays a big role in rural Guyana and maintains a network of drainage and irrigation vital to the coastal belt. No one can deny its importance.
But that is one side of the coin. The other is the parlous and deteriorating state of the Corporation which ironically has been aggravated by what were supposed to be initiatives to address the problems. In a six-part series on the corporation I published on my blog in 2010, I referred to the quixotic turnaround plan prepared by the Board. I predicted that it would fail. And fail it did. In response to the assurance by then Agriculture Minister Robert Persaud that GuySuCo is too big to fail, I offered a different view: that GuySuCo is too big to save. I am even stronger in that conviction. See more at: http://www.chrisram.net/?p=422.
No easy choice
Despite the decision to inject the $3.8 billion into the company, there is no hard information on its current state, the losses it has incurred since 2009 when its last set of financial statements were laid in the National Assembly, its indebtedness to lenders, to the GRA, the NIS, employee benefits, the Sugar Industry Welfare Fund and to other creditors. In July last year, Mr. Paul Bhim told the Economic Services Committee (ESC) of Parliament that GuySuCo’s debt stood at $58 billion, which would no doubt be higher now, even after a $6 billion from the national coffers last year.
The problems of GuySuCo have been allowed to fester for far too long. The obvious requirement of a restructuring of the company was not only unpalatable, but no politician seeking votes could ever mention the inevitable necessity. And so the Corporation has moved from being an irritant, to a problem, to a burden and now a millstone.
We have been bemused into the mantra that not a job must be lost, even if it means that the workers will never be relieved of the uncertainty about their future employment, that they can never hope to enjoy real earnings increases, that they should not seek other and better opportunities. Or that persisting with that fallacy is at the expense of the rest of the economy.
Understandably, President Granger needs to be even more cautious than his own conservative style would dictate. Not only does he have to have regard to the need to avoid confrontation with any segment of the electorate at this early stage, he is also acutely aware that his main coalition partner the AFC had sought to court sugar workers with their own promises. The idea of a Commission of Inquiry is not bad but it must be appointed and begin its work very, very soon. And, hopefully, before another bailout tranche is paid over.
In my next post, I will offer my own thoughts on how to resolve the challenges of GuySuCo.