Skeldon construction contract for signing by month end
Stabroek News
June 4, 2004
A team from Guyusco is currently in China for final talks on the Skeldon Modernisation Project with the aim of signing the final construction contract by the end of the month.
Speaking with Stabroek Business, CEO Michael Boast says that after three months of technical planning, preliminary work could begin as early as September with the mill's foundations. He says there is an understanding with the Chinese corporation, CNTIC Trading Company Limited that local contractors would be involved and that wherever possible skilled and unskilled Guyana workers would be employed.
To date Guysuco has spent US$8M of its own resources on the US$110M project and is expected to come up with US$27M over the 3-year period and another US$20M from land sales which Boast admits have been going slowly (a new batch is set to go on the market shortly). The plant is set to open in late 2006, ready for the first crop in 2007. He says all the financing via the World Bank is now in place and the co-generation plant is to be financed by the Chinese government. A feasibility study on the refinery should be ready in a couple of months and Boast says the prospects look good. This would come on stream at the same time as the mill.
Boast adds that the Caribbean imports some 300,000 MT of refined sugar every year mostly from Europe and that if EU export subsidies are scrapped then the refinery would be in a good position to supply the market.
As for Guysuco's performance last year. Boast says the figures are still being finalised but the company did make an operating profit. However, new accounting procedures such as including existing standing cane may have a big effect on the bottom line.
He says the stronger euro helped mitigate what was "not a brilliant year" in terms of production with the target of 330,000 MT only coming in at 302,000 MT.
He says 2004 looks better although rainy weather and a brief strike at Albion and Rosehall has left around 600 hectares of the first crop in the field. This means the target of 338,000 MT is more likely to come in at 330,000 MT. Currency hedging has locked in better prices to Europe at the exchange rate of US$1.12 to the Euro and with some contracts as high as US$1.20. This practice looks to decrease the exposure of producers to sudden price swings by guaranteeing minimum prices for future sales.
The Euro has been on a tear against a faltering dollar since late last year reaching a high of $1.25. This contrasts to a record low of 82.25 cents in October 2000. Since Guysuco's costs are dollar-based the stronger Euro means higher earnings for exports to Europe, which accounts for 50% of its total production and 70% of its revenues. Guysuco's break-even level for its exports to Europe is said to be when the Euro is worth around 96-97 US cents.
Meanwhile Boast says sales to the Caribbean remain strong in particular to the Trinidad market and its refinery, although it is now having problems with its boiler. Regional sales in 2003 reached 100,000 MT, around one third of Guysuco's production, and this is up from 90,000 in 2002.
As for the European market, the offer by the EU to drop subsidies for its producers if the US follows suit may not have the catastrophic effect that some are predicting, says Boast, if it is managed properly and with the ACP producers in mind. He does not see Guyana losing access in terms of quantity but the prices may drop.
On the other hand he does not see the world price rising significantly if the EU and US drop subsidies as some have suggested. This is because low cost producer Brazil has a latent capacity of 80M hectares out of a current area of 5M and can easily increase production to take advantage of the higher prices. They currently export 17M MT out of the 40M MT that is freely traded on the world market.
He says the world price has edged up from around 6 cents per lb to 7.5 cents but that this has no current bearing on Guysuco which is selling all its sugar into protected markets. He says India has had a bad harvest and this has been behind some of the price rise.
As for productivity and cost control, Boast says Guysuco is now at the conciliation stage in its talks with the unions over putting in place a profitability based incentive scheme rather than the current Annual Produc-tivity Incentive. He says such a move is based on the aim that all the employees should be working towards the same goal. He notes that production and profitability are tenuously linked given that there have been bumper years where Guysuco made a loss. Meanwhile the company is on target to reduce its 17,000 plus workforce through attrition by 4% a year, a programme that started in 2003.
At the same time the company is closing the gap in yields between the Demerara estates and those in Berbice. Boast says work is ongoing in removing old rattoons with low yields and putting in new ones as part of a five-year cycle. Then it is a matter of proper crop management including weeding and timely fertilizer management. Yields have increased from 70M MT per hectare to 85M MT and Boast says when you look back at yields in the sixties and seventies there was little difference between the estates. But Berbice still has the edge followed by the East Demerara estates while the West Demerara suffers from higher rainfall. He says the issue of a new arrangement with private cane farmers in Berbice awaits the signing of the construction contract but he notes that it is an area Guysuco is still interested in maintaining its relationship as it sees it as a potentially cheaper way to grow cane.