Congratulations to Kaieteur News for opening the doors to the public on the brewing GuySuCo tribulations.
GuySuCo has responded to the effect that the losses are irrelevant. I suspect the persons who coined this response were referring to relevant and irrelevant cost in the field of accountancy, and this contextually can be misconstrued by the public in a very different light.
In accountancy, an irrelevant cost is one that cannot be affected by the decision to produce or not to produce. It is a fixed cost that had already been incorporated into the budget; it is a sunk cost, and cannot be affected by future decisions. Unfortunately, there is no revenue to be garnered from the test supplies of cane, only sunk costs.
Let us now dissect GuySuCo statements:
1. GuySuCo stated that there will be losses during the commissioning process. In any testing phase, the cost will outweight the revenue, resulting in a net loss.
2. GuySuCo stated that 35,000 tons of cane were budgeted for the commissioning process. It is expected that feedstock would be required to test the factory. However, the pertinent concern is what methodology was used to arrive at a figure of 35,000 tons. To date, GuySuCo used in excess of 50,000 tons of cane in the testing phase, and more tests need to be conducted before the factory can be certified as functional. At this rate, the variance from the budget will soon pass 100%. In any private sector environment, an adverse variance of over 100% would be untenable. So why should the decision makers at GuySuCo be treated any differently as they mismanage the assets of the people of Guyana?
3. GuySuCo stated that it is not reasonable to expect normal conversion rates in a factory in the test phase. Reasonable and understandable!
4. GuySuCo stated that the loss of US$3 million is not relevant, and the revenue was never planned. I am disappointed in the persons who drafted this statement.
They have let down the British and Guyanese system of education. In this context, there are costs and revenue.
In any new factory, the revenues are under budgeted and the costs are over budgeted, and it is expected to be a drain on the finance of the company preliminarily. However, what is of greater concern is the levels of losses this factory is having on GuySuCo’s finances? Was this situation projected and planned?
Was a sensitivity analysis done on the most optimistic, most liked and worst case scenarios? Are these numbers within that bandwidth of the sensitivity analysis?
Were the financial statements stress-tested under different scenarios to assess the possible impact on GuySuCo in the immediate future? Were these numbers put to the Board of Directors, and did they give the green light to proceed? Unfortunately, there are more questions than answers.
My current work in insolvencies as a Banker has exposed me to larger companies than GuySuCo in worst situations; but with expert help, they are on the road to recovery. It can be done with GuySuCo, but it requires a team of local technical experts to be the change instruments to move this forward.
5. GuySuCo stated that the old factory was held in reserve with no maintenance in the event of the current situation. I thought they should have done minimal maintenance rather than no maintenance to the old factory. Who made the decision to have no maintenance verse minimal maintenance?
These people should be found and asked to take responsibility for their actions, since those actions are costing the people of Guyana. I, however, found GuySuCo statement of re-spraying a car very childish. No one wanted a repainted old factory, but at least the oil should have been changed. These chaps are amateurs!
6. I am happy that GuySuCo clarified that the losses in the field were only 6,400 tons of cane.
My concern was that Guyana cannot afford to lose 10 tons in the field, much less 6,400 tons (loss of G$60 million). It is unfortunate that we did not have enough cane in the field to run both the old and the new factories simultaneously, and it may not have been feasible to divert the cane to Albion. This will now be added to the cost overruns.
7. Now my favourite topic, the Cane Dumpers. Facts – Cane Dumpers were not to be supplied by the Chinese. However, Chinese have to install them. Yet there was no need to consult Chinese on the Cane Dumpers. Amazing stuff! Who conceived this bureaucratic nonsense? I implore the Government to investigate this procurement contract, to assess why the Chinese were being excluded from the negotiations when they have to install the Dumpers. Was some vested interest being protected here? Was there something that was being deliberately hidden from the Chinese?
Now, let us look at the strategic issues. What are our key threats and weaknesses, and how do we mitigate those with our strengths and opportunities? Any company under financial stress can survive once it has the appropriately skilled management team.
Even though, theoretically, the 6M theory, the LEPEST theory and the Porter 5 Forces theory are useful, I have found in practice it is all about the management and the Board.
Regrettably, there are serious credibility issues with the senior management team (both local and Booker Tate) both in competence and in accountability for their actions. It is great news that the Government is moving to remedy this vital weakness in the industry.
On a final note, we can plan and strategise as much as we want, but without Divine intervention, GuySuCo and Guyana will remain a challenge. It is time we have prayer services for GuySuCo, so that it can overcome these obstacles.
I call on all the Pandits, Moulvis and Priests to pray for GuySuCo and Guyana since, as I said before, Guyana’s success as a national is directly intertwined into GuySuCo’s success.
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