No Cause for Alarm in Sugar Divestment

Government says that there is no cause for alarm in the divestment of state-owned sugar assets to a joint-venture company in which Infiniti Bio-Energy of Brazil, is to be the majority stakeholder.
A statement from Jamaica House explained that Infiniti Bio-Energy, is a new company which commenced operations only two years ago and it was not unusual for companies to record losses in their first few years of operation, before revenues catch up with the initial capital expenditure and outlays, to meet operational expenses. It is to be noted that Infiniti’s revenues in its second year of operation, jumped from US$32.4 million to US$141 million, despite reduced market prices for both ethanol and sugar, the two commodities traded by the company.
The company’s financial results were also impacted by:(1) The acquisition of three sugar mills in Brazil at a cost of US$110M, two of which will commence operations in the 2008/09 crop while the other is to be relocated and rebuilt and is not scheduled to become operational until 2009/10.(2) The holding of large inventories of sugar and ethanol in anticipation of an upturn in market prices, which has already started to materialise and will enhance its revenues in the current financial year.(3) The under-utilised cane-grinding capacity which recorded 50% throughput in Year 1 but increased to 62% last year and is expected to increase further to 78% in 2008/09, thereby improving operating margins.(4) The fall in market prices for ethanol and sugar to lows of US$1.50 per gallon and US$0.09 per lb, respectively, last year, both of which have now rebounded to US$2.20 for ethanol and US$0.14 for sugar, with both expected to increase further.
The statement from Jamaica House noted that comments reportedly made by Opposition Spokesmen, Dr. Omar Davies and Mr. Roger Clarke, are surprising since Infiniti Bio-Energy, was one of 8 companies pre-qualified under the previous administration, after due diligence involving a thorough evaluation of its financial soundness and prospects. The Sugar Enterprise Team established by the previous Government to manage the privatization process, was retained unchanged by the new Government.
Infiniti Bio-Energy is a company with strong corporate shareholders and has undertaken a number of major acquisitions, to strengthen its capacity to be a major player in the ethanol market. As recently as last month, it raised US$38 million in private placement and the Government is satisfied that it is in a position to inject the capital required under the Heads of Agreement with the Government, for the modernisation of the factories and the revitalisation of the estates, the statement said.
The Jamaica House statement said the inclusion of the Petrojam Ethanol plant in the divestment package, was informed by the natural synergy that exists between the operation of the ethanol plant and the planned operation of the sugar assets, which will see more cane being devoted to ethanol and less to sugar. This is of particular importance since the guaranteed price for sugar exported under preferential arrangements to Europe, will come to an end in September of next year.
It said the inclusion of the plant was negotiated at a value in excess of its replacement cost and contributed significantly to the 25% equity which the Government will have in the joint-venture company, to which the sugar assets are to be divested.
Discussions with Coimex of Brazil for the acquisition of the plant pursuant to the Master Agreement entered into between the Government and Coimex, are well advanced and it is expected that all outstanding issues will shortly be resolved, the statement said.