The new Skeldon Sugar Factory ruined the sugar industry

Jan 11, 2024 Features / Columnists, Peeping Tom

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Kaieteur News – From the moment the European Union began to phase out its preferential regime for sugar, Guyana should have begun the process of downgrading the production of sugar. Instead, former President Bharrat Jagdeo embarked on a highly questionable plan to increase sugar production and reduce costs.

The decision to build the factory was a reckless gamble. The numbers were not in Guyana’s favors following a decision in late 2005 by the European Agricultural Council to reduce the guaranteed price of sugar by some 36% from 2006 to 2010.

At the time the decision was announced, half of Guyana’s sugar production was being exported to Europe and 70% of its revenues came from these sales. As a result of the reduction of the guaranteed price of sugar, the Guyana Sugar Corporation estimated that it would lose annually US$22M for 2005-2006 and 2006-2007 and an additional US$M 37M the following year.

Instead of moving away from the production of sugar, the Jagdeo administration pursued the pipe dream of building a new costly factory on the presumption, as the World Bank noted, that even without preferential prices, the sugar industry could survive if operational efficiency was improved and production costs lowered.

The result was the construction of a calamity, the Skeldon Sugar Factory, into which US$187M was sunk. The malfunctioning factory effectively sunk any hopes about the viability of sugar, increasing, rather than decreasing costs. Guyana accrued debt on the costs for the construction of the factory, having borrowed from the Exxim Bank of China and the Caribbean Development Bank. These debts have to be repaid. A report in this newspaper in 2017 gave the annual debt payments (principal plus interest) at some US$3.8M.

A number of private cane farmers also suffered losses. These farmers had believed the promise of increased production and lower costs and had borrowed from the banks to expand private cultivation. What is also not highlighted was the effect of the failed factory on the Guyana Bagasse Cogeneration Project. Using bagasse waste from the factory this project was supposed to supply some 10MW of power to the Berbice area thus assuring residents of a stable supply of electricity. With the collapse of the factory, it was inevitable that this project would go into remission.

Jagdeo’s project had a run-off effect on other sugar factories. Because it deprived the other factories of essential financial resources, the Skeldon Modernization Project had a debilitating effect on the overall industry. As the COI reported noted, the contagion effect of the project led to declining yields, reduced factory efficiencies, and the loss of experienced staff. The loss of the experienced workers meant that “the quality of leadership at all levels was compromised.”

The Skeldon Modernization Project ended up being a calamity. It worsened the liquidity and financial problems of the sugar company. As the Report of the Commission of Inquiry into the Sugar Industry unearthed, the government had ignored the warnings of Booker Tate about the financial woes of the corporation as a result of this investment.

The COI was critical of the decision to contract the Chinese firm that built the factory. It argued that sourcing a contractor from Brazil or India may have been a better choice. The COI reported that when Booker Tate urged that the contract with the Chinese contractor be terminated this suggestion was ignored. To date, no one, including in the political directorate, has been held responsible this calamitous state of affairs.

The PPPC has not failed to highlight the fact that it was the APNU+AFC which sent home 7,000 sugar workers. However, it has never accepted responsibility for the fact that it was the Jagdeo administration that contributed in no small measure to the ruining of the industry and the eventual decision to downsize and right-size the industry.

Under the right-sizing of the industry, the APNU had planned to produce 150,000 tons of sugar annualy. Despite pumping billions of dollars into GUYSUCO since it resumed office in 2020, the PPPC government is only producing about 60,000 tons annual. The government is now considering expanding the mechanizing of harvesting since enough works are not available. Well, if it was the employment of worker that was the main rationale for resuscitating the industry and if employment is not forthcoming, perhaps the government needs to take a hard look as to whether the industry should not be closed. During last week’s press conference Jagdeo was asked about his government’s plan for the assets of the now defunct Skeldon Sugar Factory. He dodged the question by claiming that the President would deal with this issue. He forgot that he had once promised to fix things.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• European Union, former President Bharrat Jagdeo, Guyana, Peeping Tom, Sugar industry

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