Sat | Sep 23, 2017

Editorial | Lurking moral hazard

Published:Monday | May 9, 2016 | 5:00 AM

Karl Samuda knows fully of moral hazards and why they are best avoided, especially by governments. Which is why we are concerned that he appears blissfully unaware or unconcerned that he may be setting himself - and, by extension, the Holness administration - up to embrace that very risk.

Almost immediately after Prime Minister Andrew Holness' Jamaica Labour Party took office in March, it was confronted with the closure of the Appleton Estate sugar factory in St Elizabeth because of an injunction preventing the plant from discharging water into the Black River, whose quality didn't meet regulatory standards. That directive by a judge was on the basis of a downstream complainant, who claimed that the factory's discharge was hazardous to its operation.

It means that Appleton won't operate during the current sugar harvesting and processing season. So the sugar from the Appleton region will have to go elsewhere. Appleton's closure has another knock-on effect.

Last year, Everglades Farms, which owns the Long Pond Sugar Factory in Trelawny - one of those divested by the Government in 2009 - announced that the factory wouldn't operate this crop season. Having spent more than J$1.3 billion on the facility since its acquisition, Everglades' owners said they were losing too much money on the business. They needed to reorganise.

The former Government agreed to subsidise, to a value of J$215 million, the transportation of sugar cane from Long Pond to Appleton in St Elizabeth. But with the latter facility not in operation, Mr Samuda, the minister of agriculture, says the Government will operate the Long Pond factory for three months, or just enough time to complete the crop.

But there is another problem. COMPLANT, the Chinese company that bought three of the Government's sugar factories, has stopped growing sugar cane on the land it acquired in Clarendon, Monymusk. And it won't operate the factory in 2017, but possibly after that. The Government has said it will run the plant while it helps COMPLANT to find partner(s) for its factory operations, which could be problematic.

Mr Samuda has insisted that the Government has no intention of returning to the ownership of sugar businesses. That is good. By the time of the Government's latest exit, and its third in three decades, the business was losing nearly J$5 billion a year and the operating firm had debts and accumulated deficit of around J$30 billion. It was a drag on the public purse.

 

Willing to give support

 

But Mr Samuda told parliamentarians last week: "We will stand ready, willing and able to give support to anyone in the industry who finds himself, or herself, in a difficult position, such as is now the case with Long Pond and Monymusk."

We are wary of such declarations, as the minister could find a lengthening line asking for assistance.

The Seprod Group, another of the companies that acquired a divested sugar factory, has already lost more than J$3 billion on its Golden Grove Sugar Factory in St Thomas, whose operation it is reorganising in the hope of turning a profit. The privately held Worthy Park factory in St Catherine is also believed to be in difficulty. And the J. Wray & Nephew-operated New Yarmouth Estate in Clarendon announced last Friday that it was reducing its acreage under cultivation, outsourcing aspects of its business and cutting jobs.

We understand the motivation behind Mr Samuda's statement, not least the fact that the sector employs around 30,000 people, most of them on a seasonal basis. And Jamaica has a more than 300-year history in the industry, unprofitably so for most of the last 100 years. But the cash-strapped Government cannot continue to throw good money after bad.