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Petrojam asset sealed sugar deal - Ethanol plant 60% of sale price - Energy parent had no say
published: Friday | July 11, 2008
John Myers Jr, Business Reporter
Ruth Potopsingh, group managing director of the Petroleum Corporation of Jamaica, says decision to sell the [COLOR=orange! important][COLOR=orange! important]ethanol[/COLOR][/COLOR] plant was "made at a higher level". - File
Petrojam Ethanol Limited, which is controversially among the assets being acquired by Brazil's Infinity BioEnergy in its takeover of the Government's sugar interest, will account for 60 per cent of the value of the one quarter stake Jamaica will have in the new entity, officials have indicated.
But the transfer of the high-profitable alcohol dehydration facility was apparently crucial to sealing the deal with Infinity, which will free the Government of a state-owned sugar [COLOR=orange! important][COLOR=orange! important]business[/COLOR][/COLOR] that lost over $1 billion a year, had accumulated losses of nearly J$20 billion and whose modernisation the govern-ment could not afford.
"It (the transfer of PEL to Infinity) was an important part of the contract," said Aubyn Hill, the [COLOR=orange! important][COLOR=orange! important]banker[/COLOR][/COLOR] who led the negotiations for the sale of Sugar Company of Jamaica assets to Infinity.
Difficult to sell
Hill explained that on its own, the SCJ, with hits heavy flow of red ink, would be difficult to sell.
"As a going concern, it was not the most exciting thing," Hill told the [COLOR=orange! important][COLOR=orange! important]Financial[/COLOR][/COLOR] Gleaner.
"Ethanol is the industry of the future."
SCJ's state unclear
It's unclear whether the SCJ will be dissolved once the deal is consummated in September, or become the holding company for Jamaica's quarter share of the divested entity.
"That's a decision still to be made by the prime minister and Cabinet," said Hill.
Under the deal with Infinity, the Government will embrace the SCJ-accumulated losses and out-standing [COLOR=orange! important][COLOR=orange! important]debt[/COLOR][/COLOR], as well as meet up to $3 billion in separation costs for 13,000 to be made redundant.
Pledge of investment
However, Infinity Bio-Energy, whose main interest is the production of ethanol, is pledged to invest at least US$100 million for the upgrade of the five sugar factories and fields that it will inherit and the Government will not have to up-front any cash for its 25 per cent share of the venture.
Ruth Potopsingh, the CEO of the Petroleum Corporation of Jamaica (PCJ), until recently the ultimately owner of PEL, told the Financial Gleaner that the ethanol plant was valued at US$15 million for its transfer from the PCJ subsidiary, the Petrojam oil refinery.
That would account for 60 per cent of the US$25 million in imputed capital investment the Government would have had to pump into NewCo, the vehicle to be used by Infinity for its Jamaica operations.
Senior administration officials have not commented on this aspect of the deal, over which there have already been calls for explanation of how and why it was struck.
Central to operation
Last week, agriculture minister Dr Christopher Tufton confirmed that PEL was not originally part of the divestment, but pulled in at the last minute since the production ethanol from sugar cane would form the central part of Infinity's operation here.
This week in Parliament, for instance, shadow energy minister, Phillip Paulwell, pointed out that in the current financial year, PEL will, in the current financial year, have sales of J$5.8 billion and profit of J$770 million.
Essentially echoing a Sunday Gleaner editorial, he asked for an explanation of the deal "to satisfy taxpayers ... that the transaction is indeed fair and transparent".
High-level decision
PCJ's Potopsingh made clear that the divestment decision was not one made by the management of her organisation.
"It was taken at a higher level," she said.
PEL was initially developed in the 1980s to take advantage of America's concessions, under its Caribbean Basin Initiative (CBI) to allow Central America and Caribbean countries to supply up to seven per cent of the US market for fuel-grade ethanol duty-free.
It worked for a while until the unavailability for feedstock, lower prices for the product and local management decisions drove the plant into mothballs.
The plant was resuscitated earlier this decade when another Brazilian sugar/ethanol producer, Coimex, put up the cash for its rehabilitation and provided the feedstock for the 40 million gallon a year facility. Coimex was repaid out of profit as was considering a deal for PEL's expansion to 100 million tonnes a year.
Coimex had initially signalled an interest in bidding for the Jamaican sugar industry, but did not follow through.
john.myers@gleanerjm.com
The Petrojam Ethanol Dehydration Plant at Marcus Garvey Drive
published: Friday | July 11, 2008
John Myers Jr, Business Reporter
Ruth Potopsingh, group managing director of the Petroleum Corporation of Jamaica, says decision to sell the [COLOR=orange! important][COLOR=orange! important]ethanol[/COLOR][/COLOR] plant was "made at a higher level". - File
Petrojam Ethanol Limited, which is controversially among the assets being acquired by Brazil's Infinity BioEnergy in its takeover of the Government's sugar interest, will account for 60 per cent of the value of the one quarter stake Jamaica will have in the new entity, officials have indicated.
But the transfer of the high-profitable alcohol dehydration facility was apparently crucial to sealing the deal with Infinity, which will free the Government of a state-owned sugar [COLOR=orange! important][COLOR=orange! important]business[/COLOR][/COLOR] that lost over $1 billion a year, had accumulated losses of nearly J$20 billion and whose modernisation the govern-ment could not afford.
"It (the transfer of PEL to Infinity) was an important part of the contract," said Aubyn Hill, the [COLOR=orange! important][COLOR=orange! important]banker[/COLOR][/COLOR] who led the negotiations for the sale of Sugar Company of Jamaica assets to Infinity.
Difficult to sell
Hill explained that on its own, the SCJ, with hits heavy flow of red ink, would be difficult to sell.
"As a going concern, it was not the most exciting thing," Hill told the [COLOR=orange! important][COLOR=orange! important]Financial[/COLOR][/COLOR] Gleaner.
"Ethanol is the industry of the future."
SCJ's state unclear
It's unclear whether the SCJ will be dissolved once the deal is consummated in September, or become the holding company for Jamaica's quarter share of the divested entity.
"That's a decision still to be made by the prime minister and Cabinet," said Hill.
Under the deal with Infinity, the Government will embrace the SCJ-accumulated losses and out-standing [COLOR=orange! important][COLOR=orange! important]debt[/COLOR][/COLOR], as well as meet up to $3 billion in separation costs for 13,000 to be made redundant.
Pledge of investment
However, Infinity Bio-Energy, whose main interest is the production of ethanol, is pledged to invest at least US$100 million for the upgrade of the five sugar factories and fields that it will inherit and the Government will not have to up-front any cash for its 25 per cent share of the venture.
Ruth Potopsingh, the CEO of the Petroleum Corporation of Jamaica (PCJ), until recently the ultimately owner of PEL, told the Financial Gleaner that the ethanol plant was valued at US$15 million for its transfer from the PCJ subsidiary, the Petrojam oil refinery.
That would account for 60 per cent of the US$25 million in imputed capital investment the Government would have had to pump into NewCo, the vehicle to be used by Infinity for its Jamaica operations.
Senior administration officials have not commented on this aspect of the deal, over which there have already been calls for explanation of how and why it was struck.
Central to operation
Last week, agriculture minister Dr Christopher Tufton confirmed that PEL was not originally part of the divestment, but pulled in at the last minute since the production ethanol from sugar cane would form the central part of Infinity's operation here.
This week in Parliament, for instance, shadow energy minister, Phillip Paulwell, pointed out that in the current financial year, PEL will, in the current financial year, have sales of J$5.8 billion and profit of J$770 million.
Essentially echoing a Sunday Gleaner editorial, he asked for an explanation of the deal "to satisfy taxpayers ... that the transaction is indeed fair and transparent".
High-level decision
PCJ's Potopsingh made clear that the divestment decision was not one made by the management of her organisation.
"It was taken at a higher level," she said.
PEL was initially developed in the 1980s to take advantage of America's concessions, under its Caribbean Basin Initiative (CBI) to allow Central America and Caribbean countries to supply up to seven per cent of the US market for fuel-grade ethanol duty-free.
It worked for a while until the unavailability for feedstock, lower prices for the product and local management decisions drove the plant into mothballs.
The plant was resuscitated earlier this decade when another Brazilian sugar/ethanol producer, Coimex, put up the cash for its rehabilitation and provided the feedstock for the 40 million gallon a year facility. Coimex was repaid out of profit as was considering a deal for PEL's expansion to 100 million tonnes a year.
Coimex had initially signalled an interest in bidding for the Jamaican sugar industry, but did not follow through.
john.myers@gleanerjm.com
The Petrojam Ethanol Dehydration Plant at Marcus Garvey Drive