Fri | Sep 21, 2018

PB Scott fights for changes as sugar losses climb to $4 billion

Published:Friday | September 7, 2018 | 12:00 AM
Chairman of Musson Jamaica Limited and Seprod Limited, Paul B. Scott.
The Duckenfield sugar factory in St Thomas as seen in May 2007, two years before Seprod acquired it. After pumping substantial funds into upgrades through Golden Grove Sugar Company, the sugar factory has been a big lossmaker for the company.
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The experts hired to crunch the numbers on Seprod's sugar adventure have sounded the death knell for at least the factory operations of perennial loss-making subsidiary Golden Grove Sugar Company.

Seprod Chairman Paul 'PB' Scott says shuttering the sugar business would send Seprod's profits soaring by 20 per cent.

He declared that ramping down the St Thomas-based factory "would be a very easy decision to make," in an interview with the Financial Gleaner, but still came across as somewhat reluctant to take the final step, suggesting that sugar could be sweet again were the Government to revise the regulatory structure.

Seprod reported net profits of $648 million last year, 26 per cent above 2016 levels, but still weighed down by $302 million in sugar losses. The year before that, sugar losses amounted to $752 million.

"We've lost an obscene amount of money," Scott said of the annual financial haemorrhaging at Golden Grove, Jamaica's smallest sugar factory, which Seprod acquired from the Government in 2009.

Total losses have now topped $4 billion.

In their annual report to Seprod shareholders last year, Scott and CEO Richard Pandohie both spoke of a plan being developed to reverse the sugar losses. But neither man has since provided details of the plan for exiting sugar making.

There are likely be few, if any, interested buyers for the factory as other investors, such as the Chinese, who bought Frome, Monymusk and Bernard Lodge, have been similarly challenged. Seprod could opt to sell off its factory machinery, having reportedly invested some $5.4 billion in equipment upgrades over the three years to December 2017.

Privatisation legacy

The experiences of the 2009 cohort smacks of history repeating itself, as previous efforts to privatise sugar have ended in failure, and losses, for the private companies that took the plunge.

At Seprod, which recently entered the retail sugar market, Pandohie in his annual statement signalled that the company is not giving up on the sector entirely, noting that while the company was looking for a way to exit the factory operation, it wanted to continue farming sugar cane.

Scott acknowledged, in his own words, that Seprod had "kicked the can down the road" as Golden Groves' losses piled up.

"Possibly I have been guilty of being affected by a sort of emotional attachment to the asset," the chairman offered. Luckily for the business, he pointed out, there are people in his organisation who can separate themselves from that emotional attachment. Scott is also CEO and chairman of Musson Jamaica, a conglomerate that owns the largest block of shares in Seprod.

"The second aspect is that when you invest that much money in something, it's hard to say goodbye to the money. You've lost $3.5 billion or whatever it is, and you think you're just around the corner and there are just one or two things that can change to make a difference; you kick the can down the road and hope that it will be better," he reflected.

One of the things Scott wants changed is the current structure under which the industry is regulated, which he suggested is costly and inefficient. Licensing and oversight are provided by the Sugar Industry Authority, SIA.

Paralysis of analysis

"The Sugar Industry Authority costs a lot of money and takes a lot of revenue from the industry, which makes the industry unprofitable. It's one of the reasons - not the only reason," he asserted.

The SIA was established by the 1970 Sugar Industry Control Act. Among other things, it advises the government on sugar industry policy, on licensing for the introduction of mechanisation in the industry, and on dealing with redundancy as a consequence of mechanisation to replace manual labour.

Scott said nothing tangible has happened to change the situation despite 10 years of discussions, spanning different administrations. Instead of improvements, he said, the sector has shrunk from producing 200,000 tonnes of sugar in 2009 when Seprod entered the market, to producing just 80,000 tonnes last year.

There has been, he noted, a "paralysis from analysis.

"We are tripping over ourselves in terms of regulations. At some point the stakeholders will say, 'Hang on, change needs to dramatically happen and it needs to happen now'! Otherwise, there will be no sugar industry to regulate. And it's a shame, really," he said.

"It's like watching a car crash. It's horrible. You know it's going to hit the wall. You know it's going to be painful, but you have no control over it because you are not the person making those decisions."

huntley.medley@gleanerjm.com