- still seeking buyers
Measures in the sugar industry’s turnaround plan had set a timeline of June this year for the disposal of several underper
The crippling $3 billion loss from 2008 and projected cash deficits going forward had resulted in the Interim Board examining effective cost management in the industry. In addition to the cost restriction policy for all estates–set at $490,000 per cultivation hectare–the blueprint focused on selling off marketable assets. “In time of cost and spending restrictions, the corporation cannot afford to carry an underperforming asset. Use of Herdmanston House is very minimal. However, the property requires payment of staff, utility bills and repairs and maintenance. The property is currently in need of significant repair, funding for which cannot be a priority,” the plan said.
Still on cost cutting, the plan said the distance of the Diamond cultivation from the factory and the attendant overheads contribute to the poor financial performance of the LBI estate and it recommended that the lands be sold given the proposed reorganisation of the East Demerara Estates. Further, it mentioned land at Ogle which is also to be sold. According to the turnaround plan, relocation of personnel from the Ogle compound to Enmore is expected to significantly reduce operating costs such as electricity, security and water treatment. It said too that the Ogle compound is prime real estate, adding that its sale could generate significant cash inflows.
Essentially, the disposal of land is to be pursued by the corporation as a cash inflow initiative. The plan stated that GuySuCo has land at Diamond and in other locations that are “highly marketable”. It said the Diamond area has been transformed into a housing area, and noted that locations in the Berbice region in proximity to the Berbice bridge are now heavily in demand. “It is essential that the corporation be able to see these lands at market rates,” the plan said, while pointing out that in the past GuySuCo has failed to benefit in any significant way from the sale of lands. It said land currently being recommended for sale “could have a significant impact on the corporation’s cash inflow as a consequence.”
Potentially, the plan said, the corporation could pocket in excess of $32 billion if the property and lands identified for sale are purchased. It stated that of this value, cash earnings of $3 billion have been included in 2010, with a profit on sale of land of $1.5 billion. In terms of what the industry could gain, the plan projected sales at Herdmanston house ($130 million); Ogle compound ($1.4 billion); Diamond lands at ($30.6 billion).
But in a letter to Stabroek News recently, the Guyana Agricultural and General Workers Union (GAWU), queried the decision to close Diamond cultivation, saying the land at Diamond is a sizable area of some 2,600 hectares (6,424 acres) of prime arable land requiring no drainage pumps, “unlike many of the industry’s other cultivated areas.” It pointed out that the sugar corporation has proposed the expansion of the East Demerara cultivation in order to offset the production loss resulting from the closure at Diamond, but observed that the proposed “new land area” was previously retired by GuySuCo because it was established that the soil was not adequately productive and, as marginal land, it was not economically viable to cultivate.
The union questioned who would buy the land at Diamond, asking rhetorically, “Will squatters take it over? Or will it be acquired without compensation by the government?”
However, GuySuCo in a rebuttal letter said that if the sale of the Diamond lands fails to materialise then the borrowings for the corporation will be considerably greater, assuming lenders could be found. It added that if the land sales do not materialise, a loss of $4,900 million is projected.
It was pointed out in the plan that the corporation has fallen behind in its planting repeatedly since 2005 and yields have suffered through accumulation of older ratoons.
To solve this problem, the Interim Board said planting would need to be aggressively pursued and ideally needs to be no less than 20% yearly for the foreseeable future–a strategy that has apparently been employed from the first crop for this year. The plan also mentioned the inadequate supply of cane in the industry, saying that the new factory at Skeldon is designed for continuous cane supply. It noted that the start and stops that currently exist because of short cane supply will increase costs and could cause damage to equipment, adding that the strategic focus will therefore be to accelerate land development of both estate and farmers.
Despite calls by President Bharrat Jagdeo for cane supply in the industry to be ramped up, GuySuCo has projected that the required supply is not likely until 2011. The plan points to increased land development by the corporation and farmers, but it also focuses on the expansion of the Blairmont estate, which it said has a long-standing reputation for good soils, excellent cane yields and low cost production. It said also that the Blairmont area is considered to have significant land areas suitable for development. “The Interim Board considers expansion of Blairmont to be the right direction for the estate,” the plan said.
Further, it noted that there will be a concentration on increased supply where it makes commercial sense. It said also that the replanting exercise throughout the industry will take into consideration the need for a fully mechanised layout process, adding that conversion will be closely linked to the replanting programme as is currently the case at Enmore.
The PPP government has become the colonial slave masters and plantation owners they denounced prior to Guyana’s independence. And they have taken the massa mentality up a notch further now that they are in the role of lords.
selling should be a last resort.this should not be employed strategy for the industry.what are going to sell next..PEE AND SEE sold all our important revenue earners…
-G AND T…WE ARE STILL PAYING THE HIGHEST RATE TO CALL GUYANA
-BARAMA CONCESION-THE SIZE OF BARBADOS TO MALAYSIA COMPANY
-ATE THE TATA BUS
-ATE THE RAIL TRACKS
-OMAI
-AND TONS OF COMPANY……
PLEASE” THINK SMART”NOT LIKE PEE AND SEE.
J.J. tell me when P.P.P. is going to sell the state land in Mahaicony River?
I am not so sure that Guysuco will survive and be turned into a profitable business. The basic concepts of this turnaround plan are fine but the strategy needs work. One more article like this and I will go out on a limb and say outright that the company will fail or become a long-term ward of the state, perhaps becoming the ministry of cane planting.
i)More than 9 out of 10 companies fail because the culture within the organization is bad. To fix that it requires a take no prisoners approach by the people doing the turnaround. The person leading the turnaround must be ruthless and should not let their emotions get in the way. The union at Guysuco seems to be a major opposing power center within the company and will likely resist or drag out the changes necessary to make the business profitable. Guysuco’s management needs to start removing much of that power from the union and not giving them that raise they want will be a good way to start. If I were the CEO I would be smiling with the union president in the open and plotting his and his agents’ demise in private. A strong message needs to be sent through out that organization and early that “it is not business as usual;things will be different from here on out”.
ii)The strategy which the management seems to be using is turnaround and growth/diversification occurring simultaneously. I have never seen or employed such a strategy before nor would I recommend it. Scarce resources and attention need to be focused on stopping the cash burn immediately. That means laser focus on the core business and building the cost structure and breakeven point around today’s reality of 200,000 ton production. The ethanol plants and the likes should be made to wait remembering that for ethanol to be viable, sugar and cane must first be viable.
Trying to get cash income from sale of assets is good and should be vigorously pursued. I’d also recommend that the management try to convert as much debt and other liabilities into equity by negotiating with most of the debt holders. Options of postponing debt payments and shortening the accounts receivable cycle should also be pursued in order to immediately improve the cash position. The sales department should focus on the customers and reassuring them since maintaining revenue strength is important at this time.
Remember guys, it all starts and ends with your balance sheet and cleaning up that balance sheet in the shortest possible time is the way to start the turnaround. Stop talking about your plan in vague terms and be more specific. Offer numerical targets when you speak.
I am still watching and hoping you guys there get it right because the country and the poorest including the workers need for it to happen. I am backing you all.
These actions are short a term fix they need to be more creative. This shows the neglect in creating new revenue streams they should have been look at investment in the sweetner production market. As the western world has changed it sugar habbits what have they done to ajust to market change. good luck the horse is out of the stable.
I am wondering, would it also be wise for the ministries of Agriculture, Trade and commerce to insist that at least 40% of the property sale (land mainly), should be restricted to commercial, industrial or agricultural use only. Rather than residential only!
Yes, residential will bring the highest value to Guysuco, but what about the nations economic long term sustainable interest ????? And how did Guysuco get this land in the first place should be a reminder from the government to guysuco’s board.
cummins i see you gat de slave master mentality, to work the workers to death and pay them little, not even enough for them to live on.
Guyanese need to demand TRANSPARENCY in the sale of the assets of Guysuco.
The reduction of the size of GUYSUCO is desirable. It is good the lands would be available for sale. Private enterprize would emerge and make more productive use of the properties.
Cummins, I agree with you on this one. I stayed away from this one until I did some research. Guysuco’s strategy is lopsided. And it seems as if Mr. Hanoman’s notion of financial sustainability for Guysuco is about accounting rather than growth and strategies for development. His many letters and information to the press points to a confused position. It is not about a short term financing of current deficits but rather a long term financial plan of how Guysuco is going to secure it’s future.
Guysuco is a loss maker and I think it will continue to do so for some time. Financing operating deficits by depleting asset base only serves as a stock reduction in debt but the current deficit problem will still remain….covered for one or two years financed by capital inflows. This is where a imaginative strategy is needed to boost the revenue earning capacity and at the same time reduce expenditure.
The IMF/WB stabilization and structural adjustment programmes are instructive here. Commercialization is only one element and commercialization is a strategy that usually preceeds privitization…restructuring to get the best price in the short term….make the books look good….so this strategy might expose what is in the pipeline for sugar.
My preference of a strategic approach to Guysuco sustainability is more along the line of an expenditure management approach in the short to medium term and growth strategies to be applied over the longer term. The definition of short and long term depends on how critical the situation is.
Here is a policy framework:
1. What are the cost drivers and escalators – identification of the reasons why cost are going up faster than the revenue growth rate….wages, economic conditions, debt servicing (servicing and amortization…new Skeldon factory), productivity gaps, investments to provide long term revenues, decreasing skills, migration, contributions to pensions and sugar welfare funds, corruption, procurement policies, application of technology and pace of introduction, government’s political interference because of political expectations and considerations, burden caused by traditional service delivery, such as, financing sports clubs, managers clubs, senior and junior staff housing and compounds.
2. What are the challenges to managing expenditures: impossible to impact savings by reducing staff; communication challenges (Mr. John aluded to this a few days ago); reduction in spending without impacting service levels like field equipment readiness, dispensaries; wages and incentives policies; ‘discretionary’ spending; strategic operational plan focus on increased production rather than efficiency; other existing social commitments.
How do we actualize the above to support an expenditure management plan? I’ll suggest immediate cost optimization in the shrot term and restructuring and investments to cut medium and long term costs respectively. How do we do this? By moving from discretionary spending to non-discretionary spending over the short to long term.
Here is a suggested framework for doing this:
1. Implement administrative efficiency and reduce discretionary spending.
2. Restructure policies and ensure more efficient implementation…introduce performance targets at all cost centres to measure performance vs costs.
3. Identify realistic strategic options, one area has to do with how we can centralize some services, eg, medical, equipment repairs and servicing…horizontal initiatives rather than vertical. Vertical initiatives like energy generation, distillary etc can only stand as integrated businesses and not stand alone so we need horizontality to support vertical scaling.
4. A comprehensive review of the factories and whether we can carry all or some needs to be closed, sold. I do not support guysuco diversifying its activities outide of sugar based products….again here is a source of capital revenus…sell to private sector to convert to other type of production facilities.
5. Finally, a look at the dispersed structure, governance and see wher costs can be cut in management…having brebice and demerara locations might not be cost effective.
There are just thoughts on generating cost savings. Revenue generation is also included but needs its own pragmatic approach(es).
This might be boring to some but nevertheless, is my little bit to the debate.
Evan & Cummings one of the most outstanding contribution to the SN blog.Well done and just to add you only have to look at how water has been branded though out the world. These guys have not evolved the sugar business most business have bought up the source product market it in the relavent area. They could be making sweetners for starbucks and hotels and reducing carbon foot prints.
Evan, I would like to add a more long-term strategic view to all the points you mention above.
The Rice industry is doing all the above through a private initiatives with individual farmers, factories, middle-men, exporters etc. This was developed over a period of time.
The longer Guysuco and the government delay that decision, the more of a burden the nation will have to carry for little or no rewards.
The sale of land, for supporting a loss making activity, is poor strategy as you rightly stated. When all valuable assets are sold what would be the next strategy? Bankruptcy? Thus, as a critical economic instruction for the economy, and the government, the land sale or a significant portion of it should be conditional to non residential use that generate an income and create employment. There should also be some minimal targets such as 10- 35 jobs per hectare for purchases larger than 1000 hectares. These are just general suggestions that can be further investigated.
Moderator – can you please replace my previous comment with this. The previous comment is still awaiting your ‘moderation’. Thanks
Evan, I would like to add a more long-term strategic view to all the points you mention above.
The Rice industry is doing all the above through a private initiatives with individual farmers, factories, middle-men, exporters etc. This was developed over a period of time.
The longer Guysuco and the government delay that decision, the more of a burden the nation will have to carry for little or no rewards.
The sale of land, for supporting a loss making activity, is poor strategy as you rightly stated. When all valuable assets are sold what would be the next strategy? Bankruptcy? Thus, as a critical economic institution for the economy, and the government, the land sale or a significant portion of it should be conditional to non residential use that generate an income and create employment. There should also be some minimal targets such as 10- 35 jobs per hectare for purchases larger than 1000 hectares. These are just general suggestions that can be further investigated.
don’t worry they will make another sale next year, to show profitability.
Typical Management Consultant approach, Evan. I like the plant and equipment initiatives. Now, submit your invoice for payment.
How could this happen? Where did we go wrong as a country? One thing I learned from my father and the Bible, is that you must NEVER sell yu land!!!!! Why not lease the land to developers? There are so many questions here…..who will buy the land? Someone once said that the PPP big ones and their rich friends will own every piece of land in Guyana before they remit office.
The grass roots PPP members and supporters who supported the sugar industry with their sweat and blood are being left out in the cold. Why not give the land to these sugar workers who are working to help build Guyana? WHO WILL GET THE LAND? Land is a thousand times more precious than gold. How could happen in beautiful Guyana……the rich getting richer and the poor getting poorer?
At a time when green fuels such as ethanol is in great demand and is expanding in most agricultural based economies, it seems unwise to be selling prime agricultural lands.