The World Bank is calling misleading its own document posted on its web site that suggests inefficient sugar mills could be sold off to private investors as part of a restructuring of the industry.
The posting, entitled the "PSIA (Poverty and Social Impact Analysis) Summary Sheet- Sugar Sector Privatisation", looks at the progress being undertaken "to reform the profitability, productivity and sustainability of the sugar sector."
The sheet says restructuring means the government will retain ownership of industry assets "while relying on private sector management and privately grown sugar cane to reduce production costs. The government will improve the regulatory framework and open new regional export markets by funding the construction of a new plant at Skeldon."
The summary, that was updated in August, also refers to the threats to the preferential trade regime and possible changes in European Union sugar policy that could make Caribbean producers uncompetitive and facing closure.
The World Trade Organisation has ruled that the EU's sugar regime violates trade rules while the EU itself has proposed changes that might see a reduction in prices paid for Guyana sugar starting next year.
The sheet says the Poverty Reduction Strategy paper, a document prepared by the government with considerable input from the World Bank, recognises that "privatisation of sugar operations will contribute to sustained macro-economic growth and stability by generating jobs over the long tem and focusing government expenditure on public infrastructure projects rather than subsidies. It also places priority on expanding social safety nets for displaced workers."
However, the sheet also notes that the key concerns are if the government should fail to find private investors for its less productive mills it will be forced to close them. Closure of those mills will result in the loss of 8000 jobs and affect a total of 33,000 people including neighbouring communities that depend on the mills for income.
A Guysuco official said that was the first he was hearing of mills being sold off.
The sheet goes on to say "Furthermore the construction of a new sugar mill at Skeldon may increase productivity but is not expected to generate new jobs. The vulnerability of the poor in the sector may increase over time if the price of sugar continues to drop and real wages of farmers and workers continues to shrink."
The sheet predicts that the stakeholders affected positively by the restructuring could be the Ministry of Finance which would gain from increased revenue. Large private landowners would benefit from increased production capacity. The reform could also generate more jobs over the long term by expanding the supply chain
Negatively affected would be employees of sugar mills who would lose their jobs as a result of closure of inefficient sugar mills. Small businesses that depend on the sugar industry workers as a market would suffer from reduced demand. Small farmers would not be able to benefit from the reform because they cannot compete with the large private landowners.
The summary also suggests that labour unions could strike against state closure of mills. The government could also impede reforms by continuing to support inefficient mills through sugar levies. Parliament voted to repeal the sugar levy in July
The issue of closing all or some of the Demerara estates has long been a spectre hanging over the industry. The World Bank had commissioned a study by LMC International report in 1999 that concluded that Guysuco's original plan to invest US$200m was high cost and high risk, generating low returns to the industry. Guysuco rejected the report as simplistic. LMC had suggested that "If the marginal cost of production for Guysuco (from the highest cost division Demerara) exceeds the marginal revenue received by the corporation (the lowest price it receives), the actual income for the entire company will be less than the potential income which could be received by the government for Guysuco's operations. In other words there would be a financial loss at the margin."
The report suggested that "if better opportunities can be found in other sectors, then it would be to the advantage of Guyana as a whole to restrict sugar output at the margin and invest the resources that are saved in this manner in other parts of the economy." It states that closing the estates would enable the government to invest an additional 2.16% of 1999 GDP in infrastructure.
The government, which has followed a strategy of removing the burden of loss making state enterprises, most notably in the bauxite sector, has repeatedly denied ever considering closing the Demerara estates. When contacted about the summary, World Bank official Emmanuel Skoufias said "we have examined closely the document... and realised that it was quite misleading (especially since the word privatisation is in the title of the summary of the Poverty and Social Impact Analysis study). Privatisation of the sugar sector is not the position of the World Bank. The Bank advocates a restructuring of the sugar sector." Skoufias said the bank has taken the appropriate steps to correct this in the PSIA summary sheet posted on the Web.
It has since changed the sheet by removing the word privatisation and the reference to selling off mills.
He also said the recent developments in Europe were already taken into consideration. "The Bank prepared some analytical work in 2002 which included an economic model for the sugar sector. One of the scenarios of the model took into account the lower price of sugar. The proposed EU sugar reforms simply hasten the pace and put more pressure for reform of the sugar sector. It remains to be seen whether the EU actually implements these new measures and the Bank will be following these issues closely."
He also said the Bank has not discussed nor agreed with government on the closure of inefficient sugar estates and mills. Furthermore, the restructuring of the sugar sector is not part of the core conditionalities for the PRSC-II.
(Poverty Reduction Support Credit)"
The summary also refers to a quantitative baseline study, completed in August, of 1300 households. This covered villages on the East Coast and on the East Bank that were dependent and not dependent on sugar mills. Eskoufias said "it is hoped that the findings from the survey will provide help for the design of an effective safety net in the event that there are retrenchments of workers as part of the effort to restructure the sugar sector."
A focus group survey is to be conducted over the next few months with a full report to be completed by December after which dissemination of the findings will take place soon after a workshop seminar is held in collaboration with the PCMU (project cycle mnagement unit) of the Office of the President.
Eskoufias said the base line study was to find out the standard of living of households in sugar communities.
He added that, "The way focus groups will be conducted has not been decided yet. We are in the process of doing so. However, we can say for sure that the focus groups will be from the communities where the household survey took place.
As for the macro modelling study (T21) he said it had concluded that "Continuing 'business as usual' in the bauxite and sugar sectors will lead to a continued slow-down in growth, rising poverty and increasingly unmanageable public sector deficits. The proposed reforms in these sectors will benefit the economy and reduce poverty in the medium term. However, in the short term, there are significant costs in terms of lower employment and higher poverty. By instituting a safety net for those laid off and by directing the savings from subsidies into highly productive investment, the growth rate can be increased substantially beyond the pure reform program. The social costs in terms of employment losses and slower poverty reduction will be fully offset. More jobs will be created and poverty reduced more rapidly and further than either of the base cases. This analysis is useful in looking at the longer-term implications of different policy paths. It also illustrates how prospects differ between the short term and medium term under different policy assumptions. What seems preferable in the short term may not be the best in the longer term, as demonstrated in these scenarios."