Monday, November 30, 2009

GuySuCo plagued by run-down equipment

GuySuCo plagued by run-down equipment

Posted By Stabroek staff On November 30, 2009 @ 5:19 am In Local News | 14 Comments
-Interim Board

The deplorable state of field and factory assets within the sugar industry has been blamed by the Interim Board as a factor responsible for the current troubles plaguing GuySuCo.

The corporation has been unable to expend capital for the past four years, the Board said in a turnaround plan earlier this year, noting that this resulted in very low expenditure for replacement of the assets. The board observed that currently many assets are over their economic lives, and said this is impacting on production and operations.

The Board noted that a concerted effort has to be made to increase the level of capital spending within the industry and improve the state of its assets. The issues raised in the turnaround plan are that the run-down assets are increasing the length of time taken to complete tasks within the industry, such as longer transport routes due to inaccessible roadways and bridges. It is also blamed for increased fuel and material costs as well as low productivity. Additionally, the plan said the poor state of the assets is impacting on the ability to improve programme targets, and also resulting in the de-motivation of staff.

For the period 2009 to 2011, factory capital for the industry has already increased as per the indicators agreed between the government and the EC delegation to an average of US$9M annually, according to the turnaround plan.

Thereafter, factory capital will be as per the factory review concluded in 2007 that assessed the industry’s needs over a 10-year period.

The plan also noted that the MOU signed by GuySuCo with the Government of Guyana on December 31, 2008 agreed to defer US$8M annually on SSMP interest/loan repayments from 2009 to 2011. However, the plan said this increased expenditure is required by the EU to be placed in additional factory capital expenditure. Thus, it observed the deferral involves no significant cash saving for the corporation.

According to the Interim Board, the capital programme will require a Project Management team to plan and implement the expenditure programme for both the fields and factories. It pointed out that agriculture capital requirements were determined based on a detailed assessment of the state of agriculture assets and their useful lives. Based on this, it said, high levels of capital are needed from 2009 to 2011.

The Skeldon factory is currently contributing around 14% of the industry’s sugar, according to the plan. It is expected to generate 26% by 2013 but this hinges on cane supply that is currently inadequate. The plan envisages that the industry will produce some 312,000 tonnes of sugar in 2011 and 410,000 tonnes in 2013.

The refinery, which the Interim Board said is now on the back-burner, is not being considered at present because of the reduction in production, among other factors. The Board said the significant reduction in the industry sugar production means that any refined sugar sales will not erode sales in another market.

It said also that the refinery would be a distraction from rehabilitation, noting that managing the construction of a refinery in the same period when concentration would be on rehabilitation is problematic. “The Interim Board considers it wise to concentrate on rehabilitation of the core business before embarking on the construction of a refinery.

A refinery will therefore not be included in the forecasts from 2009 to 2013,” the plan explained. It said too that it could be difficult to produce an investor friendly prospectus before the industry shows sign of a turnaround.

The refinery appears to be an unprofitable venture based on current economic assumptions, the plan said, and it also called for a review of this project based on an updated feasibility study.
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