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Saw the press-reported outline of this transaction and was dismayed. Terms to Infinity Bio-Energy seemed excessively generous as reported.
This entire issue needs ventilation for sure.
Explanation needed on Petrojam Ethanol
published: Sunday | July 6, 2008
It seems, at last, that the Government is on the verge of extricating itself from one significant burden. But we keep our fingers crossed and await a far more detailed explanation of the divestment of the Sugar Company of Jamaica (SCJ), given some of the obvious questions about the terms of the deal and the recent history of such sales. The arrangement concerning Petrojam Ethanol Limited is of particular interest.
The circumspection over the announced deal regarding the SCJ is understandable. For over the past decade and a half, we have had similar build-ups, only to suffer bigger let-downs. We once thought, for instance, that major weight was lifted from the backs of taxpayers when Air Jamaica was ostensibly privatised. The Government retained a minority stake.
government control
But government control returned by accretion. Taxpayers assumed the bills and are now faced with the airline's accumulated losses of US$1.2 billion and debt of over US$500 million.Similarly, in the mid-1990s, majority ownership in SCJ was sold to a consortium of Jamaican and foreign companies. In short order, the SCJ was back in government hands, the private interests saying that they could not make a go of the business because of inimical government policies. In that regard, we believe that it is important that there is some assurance, if not water-tight guarantee, that in a couple of years, taxpayers will not again be asked to provide heavy subsidies for the SCJ.
Moreover, we feel that it is important that the administration outline the specifics of the transaction with Infinity Bio-Energy and its net effect on the national Treasury.
Jamaicans, of course, know that the SCJ is not in great shape and that anyone who bought the operation would have to pump a fair bit of cash into the rehabilitation of the business. Indeed, in its 2005-2006 financial year, the last period for which its unaudited financials were published, the company, on sales of $3.67 billion, lost an estimated $405 million. It lost $1 billion the previous year.
The company was essentially bankrupt, with its net worth being around minus $720 million. It kept going because the Government provided subsidies and guaranteed its loans, on the assumption that the business was important to the national economy.
It is clear, therefore, that any purchaser of the SCJ would have to pump a fair bit of cash into its operation to modernise plans and enhance efficiencies. A buyer would also be in a position to bargain hard - which, apparently, is what Infinity did.
accumulated losses
The Government, not unexpectedly, has had to assume the SCJ's accumulated losses of $18 billion and will meet the redundancy costs to workers of around $3 billion - a total of $21 billion, or approximately US$300 million. Based on the so-far-available information, Infinity will invest US$100 million in the reconstituted company, in which the Government will have 25 per cent. Apparently, the Government will get no cash - all of which appears reasonable.
Where there are questions, is in the transfer of the profitable Petrojam Ethanol to Infinity, as the Government reported is the case. In this financial year, Petrojam Ethanol is projected to have sales of nearly $5.8 billion and a profit of $770 million, an increase of 85 per cent.
The Government needs to explain that transfer and the method used for pricing the entity.
This entire issue needs ventilation for sure.
Explanation needed on Petrojam Ethanol
published: Sunday | July 6, 2008
It seems, at last, that the Government is on the verge of extricating itself from one significant burden. But we keep our fingers crossed and await a far more detailed explanation of the divestment of the Sugar Company of Jamaica (SCJ), given some of the obvious questions about the terms of the deal and the recent history of such sales. The arrangement concerning Petrojam Ethanol Limited is of particular interest.
The circumspection over the announced deal regarding the SCJ is understandable. For over the past decade and a half, we have had similar build-ups, only to suffer bigger let-downs. We once thought, for instance, that major weight was lifted from the backs of taxpayers when Air Jamaica was ostensibly privatised. The Government retained a minority stake.
government control
But government control returned by accretion. Taxpayers assumed the bills and are now faced with the airline's accumulated losses of US$1.2 billion and debt of over US$500 million.Similarly, in the mid-1990s, majority ownership in SCJ was sold to a consortium of Jamaican and foreign companies. In short order, the SCJ was back in government hands, the private interests saying that they could not make a go of the business because of inimical government policies. In that regard, we believe that it is important that there is some assurance, if not water-tight guarantee, that in a couple of years, taxpayers will not again be asked to provide heavy subsidies for the SCJ.
Moreover, we feel that it is important that the administration outline the specifics of the transaction with Infinity Bio-Energy and its net effect on the national Treasury.
Jamaicans, of course, know that the SCJ is not in great shape and that anyone who bought the operation would have to pump a fair bit of cash into the rehabilitation of the business. Indeed, in its 2005-2006 financial year, the last period for which its unaudited financials were published, the company, on sales of $3.67 billion, lost an estimated $405 million. It lost $1 billion the previous year.
The company was essentially bankrupt, with its net worth being around minus $720 million. It kept going because the Government provided subsidies and guaranteed its loans, on the assumption that the business was important to the national economy.
It is clear, therefore, that any purchaser of the SCJ would have to pump a fair bit of cash into its operation to modernise plans and enhance efficiencies. A buyer would also be in a position to bargain hard - which, apparently, is what Infinity did.
accumulated losses
The Government, not unexpectedly, has had to assume the SCJ's accumulated losses of $18 billion and will meet the redundancy costs to workers of around $3 billion - a total of $21 billion, or approximately US$300 million. Based on the so-far-available information, Infinity will invest US$100 million in the reconstituted company, in which the Government will have 25 per cent. Apparently, the Government will get no cash - all of which appears reasonable.
Where there are questions, is in the transfer of the profitable Petrojam Ethanol to Infinity, as the Government reported is the case. In this financial year, Petrojam Ethanol is projected to have sales of nearly $5.8 billion and a profit of $770 million, an increase of 85 per cent.
The Government needs to explain that transfer and the method used for pricing the entity.
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