LINMINE - a closer look
Guyana Chronicle
August 17, 2003
HEAD of the Privatisation Unit and Executive Director of the National Industrial and Commercial Investments Limited (NICIL), Mr. Winston Brassington, recently discussed the future of the Linden Mining Enterprise (LINMINE) with the Government Information Agency (GINA).
The interview follows:
GINA: Briefly review the key events that have contributed to the current position of LINMINE?
BRASSINGTON: LINMINE has been losing money for decades. In the 1970’s, poor reliability and supply allowed the Chinese to get into the market. By the early 1990’s, Guyana’s share of the refractory market had dropped from over 80 per cent in the 70’s to less than 25 per cent. During this time, Brazil also entered the market. Today, its share is less than 10 per cent.
At the beginning of the 1990’s, significant sums were invested to make LINMINE viable.
Under the Initial Restructuring Phase (IRP) that took place from 1992-1994, various international institutions (the World Bank, SYSMIN, and the European Investment Bank) provided a total of US$23M in credits to the Government for use in the IRP. Prior to the IRP, the Government of Guyana took over US$30M in debt owed by GUYMINE and issued 12-year bonds. These bonds come due from next year.
Employment reduction has been significant over the years. In its heyday, bauxite employed over 6,000 persons. By the end of 1991, employment was 3,100; at the end of 1994, following the 1993/1994 MINPROC-led restructuring, it was down to less than 2000. Since that time, levels have fallen with the gradual transfer of social services and privatisation of the power plant. In October of last year, the figure was down to 1250 persons.
The continued subsidies of LINMINE by Government were unsustainable. Privatisation was attempted in 1999 but no bids were received although a number of firms had been short listed. During this period, the production and assets of LINMINE continued to deteriorate. The support of the MFIs via debt relief required the Government of Guyana to cease subsidies. This was expected to end at the end of last year with the privatisation to Cambior. Delays in completing the financing for the privatisation resulted in the timeframe being extended to end of June 03rd.
GINA: July 31st is an important date in the history of LINMINE. Briefly, what events led to the restructuring that occurred on that date?
BRASSINGTON: The key drivers that affected the restructuring on July 31st, 2003 were:
* The critical need to improve management and marketing;
* The limitation on financial subsidies for LINMINE operations beyond June 30th, 2003;
* Since June of last year, Cambior’s involvement in Linden has been expanding with positive benefits. These positions, however, needed to be consolidated.
* The Heads of Agreement was signed on June 6th, 2003
* Last December, LINMINE engaged OMAI in a contract for stripping and mining. This has reduced the operating costs of this segment of the operation and also eliminated the need for significant capital investment in the “bucket wheel and dragline”.
* In March of this year, there was a joint management arrangement for the operation of LINMINE
* In June of this year, OMAI proposed that they take over the management of the production. This was duly accepted with an exchange of letters on the subject, a press release by the Prime Minister, and finally a Management Agreement dated 24th July.
* Essentially, the benefits of the current arrangement are expected to get beyond some of the project risks that may affect the financing. These are:
* Financial - LINMINE is projected to be operating on a cash neutral basis in the second half of the year
* Markets - during this half year, with inputs from OMAI, LINMINE projects to produce and sell more than all of 2002; July was a record month of production for at least the last three years
* Social - the level of transition of the reduction of employment and the manner in which this occurred; we cannot ignore the events earlier this year.
* Power - the issues of power are expected to be settled.
GINA: What are the Government of Guyana’s overall objectives for LINMINE and Linden?
Essentially, the Government of Guyana is looking to:
* Ensure that LINMINE becomes internationally competitive and thus sustainable via the joint-venture with Cambior.
* Encouraging and facilitating diversification
* Develop and improve the social and physical infrastructure-this also has high employment effects in the short term.
* Enhance the social services
These efforts involve many different agencies and programmes. The challenge and focus will be to create as many alternative jobs in Linden through diversification and other projects. The benefits package paid out will help in generating new self-employment and increased employment.
GINA: What is the status of the Cambior’s investment in Linden?
BRASSINGTON: Cambior remains committed to investing in Linden. The Heads of Agreement of June 2002 have been extended from May 03 to the end of this year - this is the current timeframe for completion of the joint venture (70/30) in Linden.
Some have questioned whether Cambior intends to go into the project. We believe this position is borne out by the evidence:
a. Cambior has already transferred and invested in the stripping and mining operations through Omai Bauxite Company; this represents a significant commitment; it has assets invested, mobilisation costs, and employees for this operation
b. Cambior has spent considerable funds to do due diligence and to complete a feasibility study.
c. Since earlier this year, Cambior has had manpower in the form of management involved in assisting the ongoing operations
d. The current management arrangements make no profit for OMAI/Cambior;
e. Modest investment will take place by Cambior/OMAI in the course of the overall management contract
As mentioned earlier, the project risks are reduced with this new stage and the current measures are intended to help in securing the financing. The investment by Cambior was always premised on equity from Cambior of US$10M and about US$20M in debt. The debt financing is therefore critical. Cambior and the Government of Guyana are still pursuing this approach.
Cambior has as much a stake in making the investment occur as the Government of Guyana.
GINA: What are Government’s expectations out of this Management Agreement?
BRASSINGTON: The Government of Guyana views this Management Agreement as an interim step that will assist in the debt financing efforts while ensuring that LINMINE does not require subsidies from the Government of Guyana. No subsidies are a key IMF condition to securing the benefits of the HIPC relief expected this year. We hope that by year-end, we move to concluding a transaction with Cambior.
GINA: The issue of staff reduction often accompanies capital investment projects such as LINMINE’s, and therefore contentions will surface. Let’s talk about the redundancy package paid out to workers:
BRASSINGTON: Every worker of LINMINE has received a redundancy package which came out of the agreement signed last October between two bauxite unions representing LINMINE and the Government of Guyana. This provided for up to two years’ pay plus a 10 per cent training grant, all tax-free. Given that out of gross pay, one pays PAYE, NIS, pension deductions, etc., this package, at the maximum, has been equated to almost three years’ take home pay and at least two times the annual gross salary.
In financial terms, the Government of Guyana has or will pay close to G$2Bln in terms of separation costs. These are broken down as follows:
Severance/training grant - already paid - $1.2 Bln. Also note the recent settlement for the 1993 redundant workers that will cost the Government of Guyana over G$30M.
Outstanding PAYE and NIS - already paid - $433M
Payment of outstanding leave - already paid - $65M
Outstanding employee pension contributions - being paid this week.
The pension fund deficit - to be paid once the actuarial report is updated to the July 03.
In December of last year, in keeping with our commitment to fund the deficit, the Government of Guyana settled the outstanding matter of the IAST building, pending for over two decades with the Government of Guyana and NICIL paying almost G$100M
On August 2nd, an agreement with the unions, the GNCB Trust and the Government of Guyana was signed in a process of consultations via a survey to determine how best to handle the BIPP benefits
Please also note that the Government of Guyana continues to subsidise the electricity situation in Linden via payment to LPC for the community. These subsidies have been significant. Additionally, the Government of Guyana has four MACORP units totalling 6 MW on lease standing by to support LPC if the power collapses. This also carries a cost.
GINA: Some are claiming that it was insufficient, coupled with the claim that the lay-off creates uncertainty with regard to their future employment prospects in the mining Region. Your comments Sir? Please include likely re-employment figures in this response.
BRASSINGTON: There is no precedent for these payments - two years plus a training grant is significant. The magnitude of the payout is significant as most workers have many years’ service.
However, we all recognise the situation with unemployment. Employment today resulting from LINMINE operations can be broken down into the following categories:
LINMINE - production related employee - about 300
LINMINE Secretariat - over 50 persons; 30 security, others Watooka, Linden Electric Company, Bridge, etc
Fire Service - over ten. Eleven went over to the Fire Service.
OBC - employs about 50 on the mine contract
Total employment therefore exceeds 400 persons.
GINA: What actions are being taken to address the unemployment problem in Linden?
BRASSINGTON: There are a menu of measures that are being taken by Government of Guyana and various agencies of Government.
PU/NICIL, in collaboration with other agencies, has some specific projects that are expected to generate significant employment benefits:
a. First, the Linden Call Center. This project is being done using the former GSL building, now owned by NICIL. Based on an agreement signed last year, NICIL is rehabilitating this building. Tenders for the rehabilitation are expected at month-end with construction starting in September. Employment benefits can be expected during the construction period. Additionally, the employment initially for the Call Centre should be 150 persons with the capability to more than double this figure over a period of time
b. Former GNEC wharf at Wismar now owned by NICIL - this has been handed over to GNSC and will be rehabilitated and used to provide service to the community.
c. Former GNEC building on Main Street, now owned by NICIL - this building will be rehabilitated for use by LEAP for a Business Development Centre and Business Incubator
d. Surapana Farm - we have privatised 50.1 per cent to the management and employees
e. Linden Airstrip - an agreement has been signed on this with Lex Barker for the management and development of the aerodrome and also associated development around the area.
f. Bulkhan - some years ago, we leased most of the former Glassworks Complex to Mr. Bulkan for various lumber related projects - a wallaba shingles operation and wood operation obtains most of its material inputs from Linden and Region 10
g. The Government of Guyana/NICIL will continue to look to utilise its properties to assist in productive investment in Linden
GINA: Do you envision a return to profitability in Guyana’s bauxite industry with specific regard to LINMINE?
BRASSINGTON: Yes. The second half-year of 2003 should be cash neutral. Once the investment is in place, we expect profitability shortly thereafter.
GINA: How do you see Linden a year from now?
BRASSINGTON: I would expect the transaction with Cambior to be completed and the scheduled investment programme to have started .
The power situation would have been resolved with a new power plant to be in place via OMAI .
Much of the diversification would have occurred or started - new areas of employment would have been developed and would be operational, and finally, critical infrastructural works would have been completed or underway; linkages would also have been developed, particularly in respect to the Brazil-Guyana corridor.
