Sugar deal that can’t fall through
When it came to the attention of Barbados TODAY last week that the much touted proposed multimillion-dollar Sugar Industry Restructuring Project (SIRP) had ground to a halt, and the sector itself was on the verge of collapse, senior journalist Emmanuel Joseph contacted Minister of Agriculture Dr David Estwick for Government’s perspective on this turn of events. Following is that interview.
I understand that the Japanese, the IDB [Inter-American Development Bank] and the World Bank have pulled out of the Andrews Project and that this could result in the collapse of the sugar industry. Is this true?
The Barbados Sugar Industry Restructuring Programme has two elements to it. That is, you have to enhance the production of sugar cane. So yuh got to provide money for the independent farmers to bring their yields back and to bring back the lands that are idle back into production.
In order to do that, you have to increase the funding made available for them so that they can plough back in new lands and put in new cane plants. That money was coming from Ansa Merchant Bank. Cabinet approved those funds to be raised by Ansa Merchant Bank. But wuh Ansa has done, is that Ansa has decided now to give us the money in two pieces.
The first piece is supposed to becoming very shortly. But, the second piece, they tied it to raising the money to build the multipurpose factory. So that if we then allowed the offer to lapse, when Ansa second tranche to help the independent farmers to start bringing back old lands, rabble lands into production will fall through.
That would mean essentially that there would be no crop available by 2016 and the sugar industry in this country would be dead, and the opportunity to transform it into a value added would be gone. That means 4,500 people or more out on the streets and obviously those businesses that supply all the inputs into the sugar industry –– for example, supply all the fertilizer, those that provide all the chemicals, all the lubricants for the tractors, all the others. All of those would be severely affected.
Usually it’s about 12,000 to 16,000 people that are linked to the industry indirectly, about 4,500 that working in it directly; all of those would be seriously affected.
We are in a very, very ticklish position, and the reality is that this notion about you can allow the sugar industry to die is rubbish. The reason for that is this: our food security is tied to the sugar industry. People rotate sugar cane growing with root crops and other vegetable crops growing. So if you allow the sugar industry to fall through and let all the lands to go into bush, you then damage obviously the rotation and production of food crops.
The other element here is this: if you allow the industry to die, and you say, ‘Okay, we gine use all the plantation lands to plant food’, if you planted ten plantations in Barbados and they only planted foods, Barbados would be flooded with food.
So therefore the farmers would get next . . . to nothing because of a glut and oversupply, and obviously they would come out [of] the industry –– and yuh back to bush. And because of our tourism industry and the damage obviously to yuh soil and the environment, we cannot allow that to happen.
So the ball is now in the hands of the Ministry of Finance to make the appropriate decision so that we can accept this offer of funding from the National Standard Finance.
The National Standard Finance is a massive operation. It is well respected and regarded in the whole business of sovereign financing. So we feel we are close to resolving this long-standing issue in transforming the sugar industry . . . . When it is finished, all I am doing is applying the adaptation strategy that was agreed by the Cabinet in 2004.
In 2004 the adaptation strategy . . . when the Government realized that we were going to be facing the EPA [European Partnership Agreement] . . . and you had new arrangements with regard to cutting down the quota of exportation to the European Union and a massive fall off in price, it meant essentially that the production of sugar and the selling of sugar to the European Union would become totally unprofitable; and the Government therefore set about putting together an adaptation strategy.
That adaptation strategy was done by Shafer & Associates, and I think the strategy is the right one. The strategy is essentially [to] take the sugar industry and convert in into a sugar cane industry; produce all the value added products from high-end molasses for the rum industry, the electricity, speciality sugars; stop the exportation of bulk sugar and so on and so on. So that is all that we are doing.
How much time do we have now, considering we have had an extension [of the loan offer from the United States financing company]?
Right now, the letter for the extension just simply indicated that they were giving us a month . . . . I don’t have the document before me. That extension, we probably have about two weeks or so on top of that extension. So we are really cutting it close and running a risk of losing the opportunity for funding.
The reason behind the Japanese pull-out from financing the Sugar Industry Restructuring Project?
When you have the World Bank indicating that they are not taking any further risks for Barbados, and their insurance arm pulling out; and also the IDB. The Japanese decided . . . they were going to cut their losses and gradually started to pull out of this whole operation. It then forced us to have to look for alternative funding, but at a very good rate.
Now once National Standard Finance came in the picture, MIGA [Multilateral Investment Guarantee Agency] Insurance and the World Bank agreed to become involved again with the [Andrews Project]; and MIGA’s final approval is dependent on the Cabinet simply approving that the funding would now be raised, instead of through Japan, through National Standards [Finance].
In other words, what the World Bank and those fellows are saying is that the risk to projects done by Government is too high. If the projects are done by the private sector, they would get involved. That is basically wuh duh saying: so long as the private sector banks were funding the project and we moved it from a government-to-government project to a PPP [public/private partnership]. So it’s now a PPP; and the insurance companies of the World Bank now have stepped back in.
So what that is telling you is that Government is the problem. So the project is not the problem; Government is the problem. That is Government’s economic circumstances.
Did you discuss that at Cabinet today [last week Thursday]?
No it was not on the agenda of Cabinet today again. But this is part of the concern that we have. Because by the time this thing leaves [the Ministry of] Finance and comes to Cabinet, I would hate to think that the second offer would have lapsed. If it lapse, I don’t know what I can tell you. I have done all I can do as the minister to make sure this industry was rescued.
It would be unfortunate, but the industry would collapse. Basically that is what would happen. So I hope that Minister [of Finance Chris] Sinckler, I spoke to him today [last week Thursday] . . . . I sent the Prime Minister certain information. I said . . . we have to act now; [that] this cannot lapse.
In fact, when the Prime Minister left Barbados [last week] and he asked me to fill in for that day; before he left, I said to the Prime Minister, “Prime Minister, we got an issue here we got to resolve”. and I discussed with him about the funding lapsing and he was of the opinion that we cannot allow it to happen.
So I am hoping to God that they stop all the talking and get the . . . approval for the funding offer from National Standard Finance to Cabinet so that Cabinet can approve the term sheet, and let us get on with getting the money and turn the industry around.
How much is it you are looking for?
The total funding that was offered from National Standard Finance is US$250 million. That is down from the US$270 million that we would have had Cabinet approval for. And the reason for that is that once MIGA Insurance got involved and we agreed to build a completely new factory . . . in other words, it was costing us more money to renovate an old factory and add new parts, the World Bank insurers said that do not make any sense, because you can’t guarantee that the old parts will stand up to the rigour of the new situation.
So as a result, the insurance costs were significantly higher for the . . . renovation than if you were to build completely new, when the people know that everything there new. So as a result of that, the cost came down from the US$270 million that was the original figure and is now down to US$250 million, and that is the offer that came in from National Standard Finance to fund [the project] . . . .
The US$250 million [project] is going to be done as a triple net lease private public sector partnership; and I think that is the best option for us now; and I hope to God the Ministry of Finance gets the thing to Cabinet and let’s get on wid it.
Has Cabinet agreed to the PPP?
Well, that’s the point. I sent the Cabinet papers to Finance a while ago to comment on the terms –– the term sheet that was offered from National Standard. The Cabinet paper would have that term sheet in it. So once Finance comments on the term sheet and say, “Look, either the rates too low or too much fees or whatever, whatever”, then the Cabinet paper leaves Finance and goes to Cabinet for Cabinet to approve the entire PPP and the offer from National Standard for US$250 million.
But it has to go to Finance first because it is a loan and Finance has to comment on the terms of the loan. And then the entire Cabinet paper which speaks to the PPP arrangement shifting from the Japanese government-to-government arrangement to a PPP strategy would kick in after Cabinet approves the PPP and the new term sheet.
So the Japanese have literally pulled?
Let’s say that we have not had any communication from the Japanese for last three months. There were things that the Japanese were supposed to do to get back to us and they have not honoured them. But we knew that once MIGA Insurance pulled out from the discussions that we had, it was clear that the Japanese were going to eventually not carry forward any further activity basically.
So they are not involved any more in lending you any money?
At this point in time I would simply say we had to shift funding from an arrangement where Government was borrowing the money from Japan to an arrangement where a private sector entity is investing money in the factory and leasing it to the Government. So the investor is National Standard Finance. And that is why it is a PPP. So the Japanese technically are not involved in it at this particular point in time, given the fact that MIGA pulled out.
What is the time frame given by the finance company to Government for it to make a firm decision on going ahead with the new arrangement?
I know that a letter [not available at the time of the interview] was written from InterSugar Partnership, the principal being Edward Martson, and Edward Marston and the InterSugar Partnership was hired by Barbados Cane Industry Corporation (BCIC) because Edward Marston is an expert in PPPs, and an expert in engineering procurement and contract-type operations –– EPC operations with governments.
And Edward wrote a letter to me and that is the letter that indicated the time frame that we had.
The first offer from the finance company has lapsed and they have given an extension. If the extension lapses, then the entire industry could collapse.
The farmers in Barbados were very concerned recently when BAMC had no money to pay staff. So the farmers, up to now, have a lot of back arrears of money owed to them because Government owed them money for the cane industry replanting programme; Government owes them also money for wages for the people at the plantations.
If this thing falls through, all the people who the BAMC can’t provide those fundings for are going to be in a much worse situation because all duh gine lose their jobs.