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The Government has negotiated interim funding, totalling US$15 million(J$1.3 billion), with Italian firm, Eridania Suisse, to ensure the continued operation of three of its sugar estates- Frome, Monymusk and Bernard Lodge.
The money will be used to undertake field maintenance work on the three estates, as well as preparatory works for the Frome and Monymusk factories. Frome is in Westmoreland, Monymusk in Clarendon and Bernard Lodge in St. Catherine.
Agriculture and Fisheries Minister, Hon. Dr. Christopher Tufton, told Wednesday’s (July 15) sitting of the House of Representatives that Cabinet has approved the arrangement, which should “effectively ensure” the factories’ sugar production output for the 2009/10 crop year, while the process of divestment continues.
Eridania and Energen Development Limited are the two short-listed entities with which the administration is pursuing negotiations toward the sale of the factories and Petrojam Ethanol Limited (PEL).
“In keeping with the Government’s strategic thrust for a self sustaining sugar industry, a way had to be found to finance the operations of these three estates with little or no Government subsidies,” Dr. Tufton stated.
He advised that the US$15 million will be used to undertake the necessary preparatory and field maintenance work at the properties for the upcoming crop year, inclusive of fertilisation of the fields and installing the appropriate irrigation infrastructure. The first tranche of the funds is expected “within two days”.
He said that, in return, the Government will supply Eridania with some 79,000 tonnes of raw sugar for the 2009/10 crop year. The US$15 million is a pre-payment on the supply of this quantum of sugar, which will be sold to Eridania at a minimum price of Euros 335 per tonne.
Dr. Tufton was optimistic that the target will be met by the factories.
“The projection is to deliver some 43,000 tonnes at Frome, and at Monymusk we are projecting about 36,000 tonnes,” he told the House. He explained that cane reaped at Bernard Lodge will be processed at the Monymusk factory.
He added that between the two estates recently divested in Trelawny and St. Thomas, and the privately owned Worthy Park and Appleton Estates, there should be enough cane to support a production target of some 144,000 tonnes of sugar next crop.
Dr. Tufton also said that a costing by the Sugar Company of Jamaica (SCJ) placed the production figure at just under US$21 million, resulting in a US$5-6 million gap, raising the possibility that the Government may have to “intervene” to fund the shortfall.
“The best case scenario is that the divestment process is concluded long before we reach the stage where there is going to be the need to deliver that 79,000 tonnes. If that is in fact the case, that will provide for us a restructuring arrangement that we believe would avoid the Government coming up with that US$5-6 million,” he pointed out.
Regarding the sale of the remaining estates, Dr. Tufton said that Eridania will share, on a 50-50 basis with the Government, any profit made on the final sale price, less agreed cost. He advised that Eridania has dispatched a team to Jamaica to continue the negotiations, inclusive of the “possibility” of the construction and operation of a 150,000-tonne sugar refinery.
The Agriculture Minister was also quick to point out that the arrangements for interim financing are independent of the continuing negotiations with Energen and Eridania.
“The agreement with Eridania will be effected through the Sugar Company of Jamaica Holdings Limited, trading as the Sugar Divestment Company Limited. This company will be charged with the responsibility of managing the three estates, with the objective of ensuring the delivery of the committed 79,000 tonnes of raw sugar by the end of the 2009/10 crop, as well as to bring the divestment process to completion,” he outlined.
He undertook to give full details of the negotiations with Eridania in a Ministry Paper which, he said, would “hopefully” be tabled at the next sitting of the House.
Dr. Tufton also informed Parliament about Cabinet-approved changes in the institutional arrangements relating to the Government’s involvement in the sector, as part of the ongoing restructuring of the sugar industry. This will result in the separation of the existing debt of the SCJ from the future activities of the three estates.
The Sugar Divestment Company Limited will be adequately staffed to run the estates efficiently, to ensure delivery of the amount of sugar targeted. He also advised that the SCJ will be restructured and charged to manage accumulated debts. This arrangement will exist for the period required to liquidate the debts, or transfer them to other institutions.
He said that Cabinet has approved two new boards to guide the strategic direction of the restructuring exercise.
Dr. Tufton also told the House that a team has been established to review and recommend to Cabinet, an appropriate policy framework to guide sustainable development of the industry. This is in keeping with the strategic direction of the administration to facilitate a private sector-driven sugar cane industry, based on market conditions for a range of value-added products.
“The Government remains optimistic regarding the successful divestment of all the public sector sugar estates, and we continue to engage the potential investors,” Dr. Tufton stated.
He assured the Members that they will be kept abreast of the developments.