Guysuco needs drastic surgery to ensure survival

Introduction

Today’s column is my conclusion of GuySuCo’s Strategic Blueprint prepared by a special taskforce appointed by the President following the disastrous performance of the state-owned entity in 2008, recording its lowest sugar production since 1992 and the highest financial losses ever. Following the presentation of the blueprint, the government terminated its contract with Booker Tate but then recruited its top Caribbean executive and one of Booker Tate’s nominees to the board as its CEO – a decision that baffles observers and insiders alike.

To recap, parts one and two which appeared on March 14 and March 21, dealt mainly with a review of the 2008 audited financial statements, drew attention to the huge loans which were soon to mature but which would require significant help from the government for the corporation to repay. In part three, I sought to reduce to reality the economic contribution of sugar to the country which had for years been placed in the high teens. In fact, measured in terms of constant prices, in 2008 sugar contributed 5.9% of GDP, placing it seventh in ranking, while in terms of export earnings it earned the country considerably less than the earnings from gold. In 2009, sugar’s contribution to GDP was unchanged, but in terms of export earnings, sugar earned less than half that of gold. Even in rural Guyana, sugar is an old and ailing king, gradually giving way to commerce, other economic activities, or simply waiting on Western Union.

With respect to taxes, sugar makes a negative contribution, receiving from the treasury a host of subsidies, exemptions and concessions. In 2010 direct cash injections to the corporation are likely to exceed $10 billion on top of the $4 billion paid to GuySuCo to help it meet its debts. Ostensibly the $4 billion was to purchase a yet to be determined area of land, for a yet to be determined price per acre, and fully under cultivation. Part four dealt with issues of corporate governance as well as the corporate governors many of whom were brought in, like Horace’s dei ex machina, and given the task of turning around the corporation under the chairmanship of sugar unionist turned politician turned public servant, Dr Nanda Gopaul. In part five we began a review of the plan itself, and in this final part we look at some of the most important elements of that plan.

The production target

The plan revolves around a production target of 400,000 tonnes of sugar by 2013, including 110,000 tonnes from Skeldon. Optimis-tically the architects of the plan indicated that “initiatives were in place to bring this forward.” They also expect direct consumption sales from 10,000 tonnes of sugar in 2009 to 60,000 tonnes in 2013 with the major increase.

I say optimistically because even under the new direction, the corporation has found it almost impossible to achieve its targets, despite being in possession of constant data about the acreage under standing cane. For example, in May 2009, production for 2009 was projected at 250,000 tonnes, still short of the 290,000 January latest estimate, but described as secure. Production for the year turned out at 233,000 tonnes. 2010 production in the plan was stated at 321,000 tonnes, but a few months later the Minister of Finance announced a target for the year at 280,000 tonnes. For their optimism the Minister will sink close to G$10 billion in 2010, in addition to the G$4 billion in the land deal referred to above. It is hard to avoid the conclusion that targets are the result of circular guesswork than of any serious cooperative efforts by the field managers and the army of accountants now in control of the corporation.

Hercules or Don Quixote

Indeed it seems that the turnaround artists were themselves confused because Table 17 of both the April and May versions of the plan project production to rise to 439,000 tonnes in 2014. This will require not merely a Herculean effort but a miracle on the scale of the Second Coming.

Equally optimistically, the plan assumes no problem in disposing of all the sugar produced, whether in domestic, value-added, refined or bulk form. Caricom sales are expected to increase between 2009 and 2015 from 5,700 tonnes to 200,000 tonnes. Of this refined sugar sales are projected at 120,000 tonnes by 2016. This will have to be achieved even as the corporation lost its marketing director in a bizarre incident in which she was allegedly excluded from a meeting for being no more than a couple of minutes late. If that action was intended to teach the incumbent a lesson, it backfired damagingly for the corporation is now without this most important resource.

One further comment on the refined sugar sales: the plan assumes the invoking of the CET at the rate of 20% and the continuation of the sugar refinery in Trinidad for the duration of the plan period. Basic research would have alerted the plan’s architects that the Trinidad refinery was coming to the end of its extended life. That refinery was shut down completely at the end of April 2010. With this information, perhaps we will see another version of the plan and worse for taxpayers, a request for still more billions of taxpayers’ dollars.

The place of the people

Human resource is as important to production as marketing capability is to sales. The plan seeks to reduce departmental labour cost as a percentage of total departmental costs from 54.4% to 41.0%. It is expected that this will be achieved as a result of increased mechanisation, the restriction of costs of cultivation of one hectare from approximately $640,000 to $490,000, and an accompanying decline in labour numbers from 18,541 in 2009 to 15,660 in 2010, falling eventually to a precise 12,599 in 2015. While the plan recognises the corporation’s labour force as critical to its objectives, it seems particularly weak on human resource management. There is little or no understanding, as is evident in the document, of people being the most important resource in the industry. This is probably because there is no relevant human resource interest or competence to be found amongst the authors. While production and its related activities are only possible through people, only grudging references to employer/union relations have been made and interestingly enough, the management and supervisory ranks are not identified as stakeholders.

Such a perception can hardly motivate these groups of employees to buy into a plan hinged on production, rather than productivity and people. There is a deafening silence about the rate of voluntary departures of critically skilled personnel, while incidental reference is made to training – not necessarily based on any needs analysis or identified in a normal training and development plan.

The intention to off-load health centres and community centres respectively to the government and the Sugar Industry Labour Welfare Fund (of all places – an indication that not many of the plan’s authors know what the fund does), is clearly symptomatic of the corporation’s apathy towards the communities amongst whom it operates and who supplies its workers and its managers.

The trees from the forest

At times the plan seems to think that operational decisions of a routine nature are a substitute for real strategy. How else does upgrading the curricula at the Port Mourant Training Centre, revising training programmes for management trainees, and filling the position of Drainage and Irrigation Engineer get elevated from routine management activity to strategy?

The plan makes some strange decisions about the authority of the HR and IR functions which is now to be concentrated at the head office. This, according to the authors, is to allow estate managers to concentrate on yields and field and factory production. As if labour takes a back seat in all of this. One can only assume there is a superior collective intellect for the high-flight decision to remove HR from under estate managers, and for placing in a grey area the accountability for the state of industrial relations on the respective estates.

Political choices and moral hazard

The plan restructures the eight estates into two regions and Skeldon. The regions are headed by a regional director who reports to the deputy CEO, Mr Rajendra Singh, a hurried appointment in 2009 of someone with no experience or expertise in sugar or high-level management, other than having been a non-executive director of the corporation earlier. Given his resumé, Mr Singh is unlikely to display the skills indicative of a capability of moving up, and the government may find itself in the uncomfortable and reluctant position that it will have to prolong the services of Mr Hanoman. When the story of GuySuCo is told, the cost of political decisions will rank far higher than the cost of labour.

Underlying the thinking behind the plan is the assurance that the government will be there providing the financial brace and shielding the authors from any scrutiny of their quixotic assumptions and follies. The authors could confidently assume that the government will convert more than G$27 billion into equity, funded by the workers of the country to whom the government refuse to give more than US$175 per month as a tax-free allowance to cover their mortgage interest relief, children, dependents and educational allowances, and of course their cost-of-living basket.

That assumption comes from the assurance by Agriculture Minister Robert Persaud that Guysuco is too big to fail. I take a very different view: Guysuco is too big to save. As long as Guysuco retains its existing configuration, it will continue to remain in intensive political and financial care – courtesy of mind-boggling ineptitude indecision by the President who had ignored the readings of the tea leaves by Booker Tate, and the irresistible and pathological tendency of the political administration to interfere in everything.

Conclusion

This is not the first turnaround plan done within the past few years. Many of the same recommendations had been made by Booker Tate over the past couple of years, but the difference is that the new and not improved one comes with a demand and an expectation of such huge billions to keep afloat some estates and activities that should have been terminated years ago. The plan is an act of cowardice – no bold independent decisions but strictly following political instructions to the letter. With this high-powered board, one would have expected something with more courage, substance and vision. None of these is present. No wonder that GuySuCo would not share the plan with stakeholders or subject it to any independent scrutiny.

The 2010 first crop will soon come to an end and it is likely that production will again be off-target. We should prepare ourselves for the excuses, to be followed by another turnaround plan. And possibly more taxpayers’ money.

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