Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11657-GUA STAFF APPRAISAL REPORT GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT AUGUST 27, 1993 Country Department III Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EOUIVALENTS Currency Unit = Dollar (G$) Official Exchange Rate Effective December 1992 US$1.00 = G$ 125.00 US$0.008 = G$ 1.00 WEIGHTS AND MEASURES Long Ton = 2240 lbs Metric Ton = 2204 lbs (The Guyanese sugar industry accounts for its production in long tons) GLOSSARY OF ABBREVIATIONS BT - Booker Tate CDB - Caribbean Development Bank CDC - Commonwealth Development Corporation EEC - European Economic Community ERP - Economic Recovery Program ESOP - Employee Stock Ownership Program GOG - Government of Guyana GUYSUCO - Guyana Sugar Corporation Limited IDB - Inter-American Development Bank IFC - International Finance Corporation FISCAL YEAR OF THE GOVERNMENT OF GUYANA January 1 - December 31 FOR OMCIAL USE ONLY GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. 1. CREDIr AND PROJECT SUMMARY ..... .. .......... . 1 2. GUYANA AND THE SUGAR INDUSTRY ................ 4 Background .................................... 4 Economic Performance ............................. 4 The Agriculture Sector and the Sugar Industry in Guyana ... .... 6 Government Policies and Strategy in the Sugar Industry .... .... 12 IDA Agricultural Strategy ........................... 13 Lessons from Previous Bank/IDA Lending ................. 13 3. THE PROJECT .......... ....................... 15 Introduction . ................................... 15 Rationale for IDA Involvement ....................... 15 Objectives and Description .......................... 16 Capital Investment Component ....................... 17 Technical Assistance Component ...................... 18 The New Regulatory Framework ...................... 19 Cost and Financing .............................. 21 Procurement ................................... 21 Disbursement ........... ....................... 22 Accounts and Audits .............................. 23 Management, Implementation and Monitoring .............. 23 Financial and Economic Justification .................... 24 Environmental Impact ............................. 26 Benefits and Risks ............................... 27 4. AGREEMENTS REACHED AND RECOMMENDATIONS ..... 29 This report is based on the findings of an appraisal which visited Guyana in October 1991 and on a follow-up mission in November 1992. Both missions comprised Mr. Vicente Ferrer (Task Manager) and Ms. Aida Velarde (Financial Analyst). Messrs. Stephen Oliver (LA3DR), D. Berthelot (LATIF) and Donald Mitchell (IECCIT) reviewed the original feasibility study. The Department Director and Sector Division Chief for the operation were Messrs. Yoshiaki Abe and Nicholas Krafft, respectively. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - 11 - Table of Contents (cont) Page No. ANNEX 1 - DETAILED FEATURES OF THE PROJECT .... ....... 32 Table 1 - Sugar Production, Budget 1993 ................ 42 Table 2 - Summary of GUYSUCO's Capital Budget 1993 43 Table 3 - List of Equipment, 1993 ..................... 47 Table 4 - GUYSUCO's Operating Budget 1993 .... ......... 53 Table 5 - Procurement Table ........................ 56 Table 6 - Disbursement Table ....................... 57 Table 7 - Estimated Schedule of Disbursement of IDA Credit ... . 58 ANNEX 2 - STRUCTURE, OPERATIONS AND PROFITABILITY OF GUYSUCO ............................... 59 Appendix 1 - Sugar Markets, Quotas and Prices .... ........ 69 Table 1 - GUYSUCO Staffing ....................... 72 Table 2 - Booker Tate Management Team ............... 73 Table 3 - Historical Weighted Average Yields .... ........ 74 Table 4 - Cane Quality ........................... 75 Table 5 - Factory Performance ...................... 76 Table 6 - Cane Area and Sugar Production by Estate, 1992 .. .. . 77 Table 7 - 1992 Actual Sugar Sales and Expected 1993 Sales ... . 79 Table 8 - Projected Sugar Prices (1992-2002) .... ......... 80 Table 9 - Audited Financial Statements (1985-91) .... ....... 81 Table 10 - Key Financial Indicators (1985-1993) .... ........ 84 Table 11 - Projected Cash Flow Statement (With Project/without modernization) .... ......... 85 Table 12 - Projected Cash Flow Statement (With Project and modernization) ................ 89 Table 13 - Sugar Levy (1990-1995) .................... 93 ANNEX 3 - TERMS OF REFERENCE FOR FINANCIAL ADVISORS ... 94 ANNEX 4 - LETTER OF POLICY .......................... 104 ANNEX S - SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE .............................. 107 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT STAFF APPRAISAL REPORT 1. CREDIT AND PROJECT SUIMMARY Borrower: The Republic of Guyana Beneficiary: Guyana Sugar Corporation Limited (GUYSUCO) Amount: SDR 10.9 million (US$15.0 million equivalent) Terms: Standard, with 40 years maturity On-lending Terms: The Government of Guyana (GOG) would on-lend US$14.0 million equivalent of the IDA credit to GUYSUCO in dollars for 10 years, including 3 years of grace, at a rate equal to LIBOR plus two percentage points. GUYSUCO would assume the foreign exchange and the cross-currency risks. Project Description: The project is designed to assist GOG in securing GUYSUCO's present level of production and financial viability and in privatizing GUYSUCO under an agreed regulatory and policy framework which could ensure reasonable fiscal and foreign exchange revenues to GOG. The newly restructured company would be expected to provide the resources to finance the rehabilitation, rationalization and modernization of the sugar industry and ensure its long-term profitability. During the transition period before restructuring and privatization, the proposed project would finance a minimal two-year capital investment program for equipment and machinery urgently needed to help stabilize GUYSUCO's present sugar production level at about 240,000 tons and secure the EEC and USA sugar quotas. Under the supervision of its Board of Directors, GUYSUCO would manage the project using a private sector management team. -2 - Poverty Category: Not applicable Benefits: The limited investment program proposed under the project would help Guyana secure its EEC sugar quota and stabilize sugar production in the short to medium term. It would also help secure the long-term efficiency and sustainability of the sugar industry by restructuring and privatizing GUYSUCO under an agreed regulatory and policy framework. This would help attract technology and financing from the private sector to undertake a major rehabilitation and rationalization investment program and increase production levels to at least 250,000 tons per year. The larger investment program would permit the Government to retain adequate levels of foreign exchange and fiscal flows while allowing GUYSUCO to maintain a profitability level high enough to sustain the interest of the private sector in the industry. Risks: There are few implementation risks given the simple design of the proposed project. The main risk is that the proposed imited investment program may prove insufficient if a major breakdown or failure of factory machinery and equipment, agricultural field equipment or field infrastructure occurs during the next two years. This risk would be minimized by the built-in flexibility of financing and disbursements under the project. There are three major long-term risks to the industry. The first is the possible delay in privatizing GUYSUCO and hence, in implementing GUYSUCO's overall rehabilitation and rationalization investment program. The second is the financial risk related to world price levels and principally, the future of the quotas and prices in the EEC and USA preferential sugar markets. Related to both risks is the possible drop in the Government's fiscal revenues and foreign exchange earnings. The proposed project would attenuate the restructuring and privatization delay risks by establishing an enabling regulatory environment for private investment in the sugar industry. The risk of losing the preferential quotas is minimized through the implementation of the limited investment program proposed under the project. The risks of a reduction in the size of the quota, principally the EEC's (being by far the more important) are limited in the medium term by the fact that the Sugar Agreement does not run out until 1996 and the very real possibility, now under discussion, that -3 - Guyana may be allocated a higher EEC quota, beginning next year, to cover the Portuguese market. The risk of a drop in "world" or quota prices is limited by the low exposure of Guyana to "world" prices and by pressures to keep high domestic producer prices in the EEC and the USA, to which quota prices are linked. Furthermore, the eventual disappearance of the preferential markets on the world sugar market (and hence on Guyana and GUYSUCO) is likely to increase the world price of sugar to US$0.15-0.20/lb. The effect of such a price level on the profitability of an efficient and competitive GUYSUCO would be well within the bounds of acceptable commercial and financial risks. Project Cost: Foreign Local Total (US$ million) Agriculture and Field Infrastructure 7.7 6.0 13.7 Factory and Related Services Development 18.4 2.3 20.7 Administration 1.4 3.7 5.1 Financial Advisors 1.0 -- 1.0 Total 28.5 12.0 40.5 Financing Plan: IDA 15.0 -- 15.0 CDB 3.0 3.0 Suppliers 1.9 -- 1.9 GUYSUCO 8.6 12.0 20.6 Total 28.5 12.0 40.5 Estimated Disbursements: --------------Bank Fiscal Year--------- .1994 I2t2 ~ 1292 ------------(US$ million)--------- Annual 6.0 6.0 3.0 Cumulative 6.0 12.0 15.0 Economic Rate of Return: Not applicable. Map: IBRD 24649 2. GUYANA AND THE SUGAR INDUSTRY Background 2.1 Guyana's economy is mainly based on the production and export of bauxite, sugar and rice. Agricultural activity, which accounts for about 30% of GDP in 1991 (including forestry and fisheries), is concentrated along the coastal belt of the country, where most of the population resides; whereas the extensive mineral and timber resources within the densely tropical hinterland--with the exception of bauxite mining--remain largely unexploited. Because of the country's topography and uneven distribution of its small population, the country's infrastructural needs are substantial on a per capita basis. Guyana's population, estimated at about 800,000 in 1980, has been declining over the past decade as a result of a low birth rate and continuous emigration reflecting lack of economic opportunity. With an area of about 210,000 km2, the population density is a low 3.2/km2. Economic activity has been retarded by a difficult physical environment; by sharp fluctuations in output, stemming from the vulnerability of the economy to exogenous factors such as weather and fluctuations in international prices and demand; and by the Government's failure to address crucial macroeconomic policy issues until recently. Economic Performance 2.2 Since 1988, Guyana has been implementing a medium-term Economic Recovery Program (ERP) aimed at addressing serious domestic and external imbalances in the economy and establishing the basis for renewed economic growth. The ERP has been supported by an IMF standby arrangement and an IDA Structural Adjustment Credit, both of which were approved in June 1990, as well as by similar assistance from the Inter- American Development Bank (IDB), the Caribbean Development Bank (CDB), and bilateral donors. Under the ERP, Guyana has undertaken far- reaching adjustment measures and structural reforms, implying a fundamental shift in economic policies towards a market-oriented economy. The overall fiscal deficit has been reduced; the exchange and trade system has been liberalized and the exchange rate unified; virtually all price controls have been removed and consumer subsidies eliminated; the incentive framework for the private sector has improved and state intervention in agricultural, industrial, and commercial activities has been curtailed; progress has been made in restructuring and reducing the size of the public sector, including tax reform, strengthening expenditure controls and privatization of public enterprises; a shift to market-based instruments of monetary control has been -5- initiated; arrears to multilateral and bilateral donors have been cleared; and a social impact amelioration program has been introduced. While the Government is conscious that the process of adjustment must continue, if a sustainable recovery in economic activity is to be achieved, it is, nevertheless, concerned about the severe hardships currently faced by large segments of society and believes there is a need to address promptly the deterioration in social conditions as an important part of its adjustment program. However, Guyana's existing debt service burden continues to place a major constraint on the Government's ability to address the large social and infrastructural needs of Guyana. 2.3 Guyana's economic performance improved markedly in 1991. Recorded real GDP increased by about 6% after four consecutive years of decline. The exchange rate in the exchange market stabilized during the second half of 1991, and the rate of inflation slowed to about 20% on an annual basis during the last four months of the year. The overall deficit of the public sector (including the Bank of Guyana) narrowed from 65 % of GDP in 1990 to 45% in 1991, reflecting mainly a sharply improved performance of the Central Govemment and of the state enterprises and lower public investment outlays. The extemal current account deficit also declined, from US$148 million in 1990 to US$119 million in 1991, mainly as a result of higher export receipts, while gross intemational reserves exceeded the program target by a substantial margin and increased to the equivalent of more than six months of merchandise imports at end-1991. The recovery in economic activity continued during the first half of 1992 and real GDP growth for the year, as a whole, is expected to be about 6.5 %. Inflation slowed further, with prices increasing by about 12% during the first nine months, which is broadly consistent with the revised target of 15% of the year. There was a significant decline in interest rates, with the average yield on three-month treasury bills dropping from 31% at end-1991 to 24.5% in October 1992. At the same time, private sector financial savings expanded at a much faster pace than envisaged in the program, increasing by about 19% in real terms during the first nine months of the year. In addition, the overall deficit of the non-financial public sector amounted to about 70% of that envisaged in the program during the first half of the year, and gross international reserves increased by a further US$19 million during the first nine months of 1992, compared with a decline of US$5 million in the program. Some progress was made in reducing external debt and debt- service obligations with the cancellation of loans amounting to US$155 million by the United States, Canada, and the Netherlands, and a debt- reduction agreement was reached with Brazil. Guyana was also able to retire its entire commercial bank debt totalling around US$93 million, including - 6 - principal and past due interest, through the use of grant funds made available under the debt reduction facility for IDA countries. The Agriculture Sector and the Sugar Industry In Guyana 2.4 Agriculture remains of crucial importance to Guyana's economy despite its poor performance over the last decade resulting from interventionist and distortionary policies. The agriculture sector accounted for about 30% of GDP in 1991, 48% of merchandise exports, and 3540% of employment. Sugar and rice account for the lion's share of agricultural activity with sugar accounting for 15% of GDP, 40% of exports, 12% of Government's budgetary revenues and, with about 27,500 employees, more than 10% of employment. The importance of the sugar industry (including sugarcane and milling) in Guyana cannot be overemphasized. Its decline during the period 1981-1990 accounted for most of the almost 3% annual rate of decline of agricultural value added and for almost 60% of the decline in total GDP over the same period. It is, therefore, imperative to tackle the policy and institutional constraints of the sugar sector if the agricultural sector and the economy at large are to be revitalized. 2.5 The Industry's Enviromment and Background. Guyana is situated at a latitude some 5-10° north of the equator and is subject to the equatorial convergent zone rain belts which give two rainy seasons each year. Heavy clay soils and low lying topography (often below sea level) present a whole range of problems concerning soil moisture levels and the management of both regional drainage and conserved water. The sugar industry, which has been operating in Guyana for more than 300 years, has developed a unique agricultural system and an infrastructure to suit this natural environment. Inland areas have been created to conserve rainwater and thence to direct it to the arable areas of the coastal belt. This has been done by constructing a comprehensive reticulation of canals and drains. As a result, the productive lands are laid out in rectangular strips extending from the sea defenses to the limits of the forest. The canals within these areas provide both irrigation water and drainage and, in the sugar estates, a navigable route for supplying inputs to the fields and transporting the crop to the sugar factories. A protective sea wall has been built along the full length of the Atlantic coastline and inland along the principal river estuaries. Drainage water is discharged into the sea either through sluices at low tide or through low-lift pumps. -7- 2.6 The sugar industry in Guyana, which dates back to the early seventeenth century, was principally owned (80%) and operated by Booker Plc of Englandl' until 1976. In that year, the industry was nationalized and the two sugar producing groups (Bookers Sugar Estates controlled by Booker Plc, with nine factories, and the Demerara Sugar Company, which had been nationalized in 1975, with two factories) were consolidated into a parastatal company, the Guyana Sugar Corporation Ltd. (GUYSUCO), fully owned by the Government and operating eight factories producing 350,000 tons of sugar annually. Following the nationalization, Booker Plc was retained under a contractual agreement with GUYSUCO to act as the marketing agent for the company. Tate & Lyle' continued as the purchaser of all of GUYSUCO's sugar production destined to the EEC market. The total area under GUYSUCO's control is some 146,000 acres, of which about 122,000 acres are potentially available for sugarcane. Of the total 146,000 acres under GUYSUCO's control, some 50,000 acres (34%) is freehold and about 96,000 acres (66%) leasehold. The leasehold arrangements were fixed following nationalization in 1976, and provide for a 99-year term expiring in 2075. Where leases were not appropriate, licenses to use the land were issued covering the same period. All fixed assets are on freehold land as are various other properties in the environs of Georgetown. The productive structure of the industry is covered in more detail in Annex 1, Part A. GUYSUCO also purchases sugarcane from about 2,200 small holders outside the estates who produce on about 12,000 additional acres. 2.7 In addition to the estates, other significant assets of GUYSUCO include: (a) head office in Georgetown (leased); (b) Demerara Sugar Terminals (DST), the bulk storage and export shipping terminal on the Demerara River; (c) Guyana Agricultural Research Unit (GARU), the industry's central agricultural research center; and (d) the Port Mourant Apprentice School. 2.8 Industry Performance and Structure of Production to 1990. Because of the drop in the world price of sugar in the 1980s, production was reduced to about 250,000 tons in 1985 from 350,000 tons at the time of nationalization in 1976. Since then, under continued Government ownership and management, GUYSUCO's output fell to a low 130,000 tons in 1990. The 1990 output level of 130,000 tons was well below Guyana's combined 1/ Booker Plc is a well-known British company with strong worldwide sugar interests and close historical links to Guyana. 2,/ Tate & Lyle is another well-known British company with interests in sugar refining. - 8 - quota of 164,000 tons to the EEC under the Lome Agreement, and 16,000 tons under the USA quota. Highly attractive prices are paid for sugar produced and exported under these quotas (about US$0.25/lb under the Lome Agreement and approximately US$0.21/lb under the USA quota compared to about US$0.09/lb in the world market) (Annex 2). With the drop in production and efficiency, GUYSUCO's sugar production costs crept up to about US$0.18/lb by 1990 in real terms from levels of US$0.14-0.15/lb in the early 1980s (the most efficient mills worldwide produce at about US$0. 12/lb). In 1990, total cane production in the eight estates was 1,885,000 tons, with a yield of 22.3 tons/acre. Daily nominal crushing capacity in the factories was 19,600 tons/day, with an overall capacity of 71.9% and a tons cane/tons sugar (tc/ts) ratio of 15.4. Additionally, farmers produced 122,500 tons of cane in 1990 (about 6% of total output), down from almost 15% of total output in 1979. 2.9 Industry Issues and Constraints. The decline in output from 250,000 to 130,000 tons was due to a combination of: (a) inappropriate Government policies which drained resources from the company and limited its access to scarce foreign exchange resources (para. 2.13 (a)); this reduced the company's ability to replace and maintain capital equipment, and to obtain other agricultural inputs, thereby negatively affecting agricultural practices, infrastructure and factory capacity; and (b) loss of management personnel and declining labor participation and increased unrest due, in part, to low salaries and wages. 2.10 The strict salary and wage guidelines that were imposed on parastatals and Government enterprises since the early 1980s have adversely affected GUYSUCO's industrial relations, resulting in low rates of pay intensified by inflation factors; weakness of bonus and incentive schemes; a growing reluctance to perform strictly manual tasks; a shrinking workforce at all levels; a management policy of not provoking the labor force, in the interest of peace at the work place; inexperienced foremen and supervisors in matters of labor relations; collapse of established procedures to resolve disputes; Government's take-over of management's function to negotiate and set rates of pay; and political opportunism by the trade unions. 2.11 At the field level, the use of fertilizers and agrochemicals was curtailed and, in some areas, eliminated or could not be purchased and applied at the right time to give maximum benefit to the crop. Land replanting to cane, which, for best results, should be done every five years on average, declined to a range of eight to fifteen years due to the lack of land preparation equipment and declining labor force. This resulted in a considerable decline in cane productivity. Because of the reduction in -9 - productivity and the consequent need to maintain all available land under cultivation, the practice of "flood fallowing", which requires land to lie flooded and fallow for 6-9 months to improve the structure of certain soils, reduce the need for nitrogen fertilizer and assist with the control of weeds, pests and disease while allowing planting to be done at the correct time, was eliminated. Drainage, irrigation and field infrastructure also suffered. In the period of expansion of production before the mid-1970s, infrastructure, especially the drainage and irrigation pumps and the sluices to the sea, was not increased correspondingly. Even when land was subsequently abandoned, the drainage loads continued to be received by the unimproved drainage systems. Compounding the problem, maintenance of the drains, usually done by machine at the same time as fields were replanted, failed to be carried out for lack of machines in good working order. This increased the water table and also contributed to a reduction in productivity. For the same reasons, the road systems into the estates have often been inadequately repaired, hindering efforts to move the labor force to its work front. Other good cultivation practices also were abandoned with the effect of delaying regrowth of cane and increasing the fibre and trash content, hence reducing the cane quality delivered to the factory. The overall effect of all these factors was a deterioration of the sugar content of cane (polarization) from 11.2% in 1965 to 8.7% in 1990 and of the cane/sugar ratio from 10.9 in 1985 to 15.37 in 1989. Of the latter, 80% of the reduction was attributable to the poorer quality of the cane delivered to the factories and only 20% to a fall in factory performance (overall recovery). 2.12 At the factory level, a large proportion of the equipment was in disrepair, inoperative or unreliable due to the lack of reinvestment and of spare parts. The problems at factory level are revealed by the fact that overall sugar recovery levels in Guyana had averaged 80% (sugar content in sugar produced as a percentage of sugar content in cane). The average in 1990 was 72.5%. To illustrate the importance of this indicator, if overall recovery had been 80% in 1990, the industry production would have been 143,000 tons sugar, rather than the 130,000 tons actually recorded. Despite this indicator, the problems in the industry were mainly due to labor shortages in the agricultural side of the operation. In effect, while stoppages originating in factory causes have been fairly consistent at between 11 % and 16% of the net available grinding time over the last ten years (still excessive when compared to the company's target of 5%), stoppages for "out-of-cane" rose from 17.5 % to 25% of gross grinding time, and time lost because of strikes rose from 3% to more than 7%. Overall, in 1990, factories were grinding for a mean time of 74 hours per week, just 44% of the time the factories were in crop. By intemational standards, net grinding time (for all reasons) should not be less than 80%. - 10- 2.13 Present Regulatory Framework. The present regulatory framework in regard to foreign exchange retention, sugar levy, corporate tax and sugar importation is as follows: (a) Foreign Exchange Retention. GUYSUCO is one of the few companies in Guyana not allowed to retain its foreign exchange earnings, beyond an agreed 17.5%, nor to access the parallel free foreign exchange market. This has been one of the many contributory reasons for the running down of the physical infrastructure of GUYSUCO and the decapitalization of the industry over the past 10 years; (b) Sugar Levy. The sugar levy is based on a formula which allows the Government to retain 70% of the differential between the EEC preferential price and a value equal to the world price of sugar plus 11.5%. While the Government has frequently, in the past, rebated a proportion of the levy in view of the bad financial situation of GUYSUCO, the levy has two problems. First, the "world" price is influenced by well documented cases of dumping and the thinness of the export markets; hence, the tax is higher than what it would be if the world price was truly market determined, and the revenue level is extremely volatile. Second, the formula itself has the perverse financial effect on the company that when the "world market" price declines, it increases the revenue to the Government, i.e, the tax on the company, precisely at the time the revenue to the company is declining; (c) Corporate Tax. The corporate tax in Guyana is presently 35% (GUYSUCO has not paid corporate taxes so far, even though it is not legally exempted because of the existing levy system); and (d) Sugar Importation. GUYSUCO has a monopoly on the production, import and sale of sugar in the domestic market, which has resulted in a relatively high price of domestic sugar, compared to "world" parity prices. 2.14 Industry Reactivation Efforts Since 1990. In order to redress the declining production trend of the industry, the Government sought Booker's assistance in December 1989. As part of the agreement, the Government signed, on October 1, 1990, a management contract with Booker Tate (BT)V' to: (a) take over all day-to-day operations of GUYSUCO; (b) prepare a feasibility study to rehabilitate and rationalize the industry; and (c) take steps to identify private and official financing sources for the investment program under the feasibility study. The contract, originally scheduled to run until September 30, 1992 has been extended to December 31, 1993. h/ Booker Tate is an internationally known sugar management company operating several sugar estates and mills worldwide. It is a wholly-owned subsidiary of Booker Plc and Tate & Lyle. - 11 - 2.15 Under the management contract, BT fielded a team to manage the operations of GUYSUCO and also increased wages by over 200% from 1990 to 1992, to an average level of around US$3.25 per day. This reduced labor unrest and resulted in the return of the labor force (personnel has increased to about 27,600 by 1992 from about 24,200 in 1990, with the increase coming primarily from cane harvesters and other field workers, Annex 2, Table 1). With the arrival of a qualified management team, agricultural and processing practices improved. An IDB loan for general imports also eased the financial and foreign exchange constraint enabling a small amount of investment. This, together with two years of good weather, allowed BT to bring production to around 160,000 tons in 1991 from 130,000 tons in 1990, an increase of about 25% which allowed GUYSUCO to meet the EEC quota for the first time in four years. Production reached 243,000 tons in 1992, near the expected optimal market for Guyana sugar of about 250,000 tons4'. This production level has been sufficient for GUYSUCO to meet all its yearly quota obligations to the EEC and USA markets, 'catch-up' with the unfulfilled EEC and USA quotas, supply aU domestic sugar requirements and export a balance of about 9,000 tons to the Caribbean region or other world markets (Annex 2). However, sugar production costs remain high at US$0.17/lb and both the BT feasibility study, prepared as part of their contract with the Government, as well as independent reports by sugar management consulting firms, concur that for GUYSUCO to improve efficiency and reduce costs while reaching the optimal production level or even maintaining, in the medium to long term, present production levels would require a large investment program to rehabilitate, rationalize and modernize the industry. Over a period of three to four years, the cost of the incremental investment program has been variously estimated at about US$100 million (Annex 2, Table 11). While GUYSUCO's cash flow may be sufficient to fund such large investment, this could only be done by drastically reducing the flow of foreign exchange and budgetary resources to GOG. It is imperative, therefore, that GOG attract private capital. 4/ There is a strong possibility, now under discussion, that beginning in July 1994, Guyana may be allocated an additional EEC quota of about 28,000 tons to cover the Portuguese market. This allocation would be part of a total additional quota for the Caribbean countries of about 76,000 tons. Since some of the Caribbean countries are not able to meet even their present EEC quotas, Guyana may get up to a total 42,000 tons additional allocation to the EEC. The price, expected to be set at the world market price plus 15% of the normal EEC sugar price, would be lower than the present EEC price, but still very favorable to Guyana. - 12 - Government Policies and Strategy In the Sugar Industry 2.16 The Government's main policy objective for the sugar industry is to maximize its long-term financial profitability and technical productivity, at a level of output, in the medium term, capable of efficiently meeting the demands of the preferential export markets (EEC and US), of the domestic market and of other potential regional Caribbean and world markets. At the same time, the industry should provide reasonable levels of fiscal revenue and foreign exchange to GOG. Because of the industry's strategic importance, GOG was initially reluctant to privatize GUYSUCO, instead deciding only to install private sector management as a first step towards privatization. IDA has been working with GOG to help draw up a program of restructuring and privatization that would overcome GOG's concems about possible loss of foreign exchange earnings and fiscal resources, and receipt of a "fair' price for an industry with strong long-term potential, all in the context of a transparent and competitive system to privatize GUYSUCO. 2.17 The Government's intent to privatize GUYSUCO was further buttressed by the large investment program required to set and maintain the sugar industry in the desired, efficient long-term production path (para. 2.15). On this basis and as agreed under the contract with the Government, BT sought additional sources of financing in the form of debt and equity from private investors and, on behalf of the Government, approached IDA, the International Finance Corporation (IFC) and the Commonwealth Development Corporation (CDC) to help put together a financing package to support the investment program, restore the confidence of private sector investors in the industry, and to provide an incentive for their participation in the operation. The findings and recommendations which emerged from the feasibility study undertaken by BT in 1990-1991, together with an independent valuation analysis of GUYSUCO carried out by Price Waterhouse (U.K.) on the recommendation of IDA, and IDA's own appraisal (October 1991) of a proposed operation which would have helped to simultaneously rehabilitate, rationalize and privatize GUYSUCO were the basis of the negotiations with all the interested parties for the buy-out of GUYSUCO. Following protracted discussions, negotiations with BT as the lead investor of an interested consortium of private sector investors and CDC broke off in July 1992 due to the lack of agreement between the Government and BT on the buy-out value of GUYSUCO and the lack of an appropriate financing package. 2.18 Following the October 1992 elections, the new Administration has confirmed that the objectives for the sugar industry remain unchanged. The commitment to restructure and privatize GUYSUCO has been spelled out - 13 - in the Government's "Privatization Policy and Framework Paper" (PPFP) of June 1993, recently approved by the Cabinet. The overall objectives, including privatization, are contained in the letter of policy submitted to IDA (Annex 4). The Govemment's strategy is to develop a policy and regulatory framework for the industry aimed at attracting private investors within an efficient and competitive environment, while allowing appropriate participation in the ownership of the company by the workers. In the context of the above strategy, the immediate need for a minimal level of capital investment in GUYSUCO to stabilize present levels of output would be partially met by the immediate mobilization of funds under the proposed IDA project. The project would also support the Government's efforts to privatize and restructure GUYSUCO through the recruitment of independent financial advisors, to be financed partially under an IDA-administered Japanese Grant and partially under the IDA credit to ensure that the policy and regulatory environment for the industry enhances its long-term sustainability and provides a "fair price" for the Government at privatization. The Government has accorded high priority to this project in its current development plan. EDA Agricultural Strategy 2.19 The Bank Group's country assistance strategy for Guyana seeks to support the Government's economic recovery efforts, of which the privatization of public holdings, particularly in key productive sectors (which require skilled management and major rehabilitation), is a critical element. The proposed operation would provide direct support to the ownership restructuring of the sugar industry, the country's main generator of foreign exchange and budgetary resources, while helping stabilize present sugar production levels. IDA's overall agricultural strategy is shaped by the conclusions and recommendations of a recently concluded Agricultural Sector Review (Report No. 10410-GUA, June 1, 1992) and by the results of an on- going Public Sector Expenditure Review. Lessons from Previous Bank/IDA Lending 2.20 Experience with sugar industry rehabilitation projects in several countries demonstrates that the subsector is faced with a number of financial and institutional challenges. As in other commodity-oriented projects, a sudden decline in sugar prices could make an entire project uneconomic (Bangladesh Sugar Rehabilitation and Intensification), but this is unlikely here given that a large share of Guyana's sugar production is marketed under quota agreements with the EEC and the US and the expected improvement in efficiency once GUYSUCO is privatized and modernized. The generally poor policy and managerial environment of state-owned - 14 - production and industrial facilities also contributes to the shortfall in project performance (Jamaica Sugar Rehabilitation and Dominican Republic Sugar Rehabilitation). Specifically, the general poor performance of prior sugar industry projects financed by the Bank was due to fundamental weaknesses in public sector management which resulted in delays in the installation of machinery, equipment and spare parts financed with Bank funds, mismanagement of factory and estate operations and the general lack of proper maintenance, shortages of fertilizers and other inputs (related to foreign exchange and credit constraints), poor agronomic practices and inadequate price incentives to farmers. Recognizing these shortcomings, the Bank's strategy in sugar related projects has been increasingly to support the transfer of publicly-owned sugar industries to private management and ownership, while limiting its financial involvement to a minimum during the process. 2.21 The problems with implementation of IDA projects in Guyana in the recent past have reflected the overall economic problems of the country. In effect, implementation of IDA projects was negatively affected by an unsupportive policy environment (until the end of 1989), a lack of foreign exchange, insufficient counterpart funds and institutional shortfalls, the latter partially due to the departure of many qualified Guyanese for economic reasons, including low salaries. Some of these constraints remain today as the country seeks to emerge from the economic crisis of the past years. Any and all investment operations in the public sector will be faced by such constraints. GUYSUCO, however, has been run since 1990 with a certain degree of financial autonomy and in technical aspects as a de facto private sector company by Booker Tate. The work of the management firm has helped palliate the institutional weaknesses and the scarcity of well- trained management staff in the country as demonstrated by the remarkable recovery in output in 1991 and 1992. Their continued participation should ensure a smooth transition to the privatization of GUYSUCO. - 15 - 3. THE PROJECT Introduction 3.1 The findings and recommendations which emerged from the feasibility study undertaken by BT in 1990-91 were jointly reviewed with the Government by an IDA mission and the Commonwealth Development Corporation (CDC) and BT (both as managers of GUYSUCO and as potential investors) in October 1991, during the appraisal of the project. Following unsuccessful negotiations for the buy-out of the sugar industry with a BT-led consortium of potential investorsl' (para. 2.17), an IDA follow-up mission visited Guyana in November 1992 and agreed with the new Government (appointed following the October 1992 elections) on the need to provide a minimal amount of funds for urgently required equipment and machinery to stabilize prevailing production levels. IDA also agreed to assist GOG to: (a) develop a regulatory framework for the sugar industry; and (b) seek additional private sector investors to finance the overall rehabilitation and rationalization program and change the ownership structure of GUYSUCO. Negotiations were held in Washington, D.C., during April and July, 1993. The delegation of Guyana was led by the Honorable Asgar Ally, Minister of Finance. Rationale for IDA Involvement 3.2 Improving the efficiency of the sugar industry is vital to the country's economy because of its effects on balance of payments, fiscal revenue and employment. IDA's involvement in the operation would: (a) ensure that these macroeconomic considerations are taken into account and that privatization and policy changes (for example, on foreign exchange, sugar levy, etc.) are done in such a way that they do not adversely affect balance of payments or fiscal revenues; and (b) help privatize GUYSUCO in a fair and transparent way and restructure the industry's ownership to encompass the participation of workers through an Employee Stock Ownership Program (ESOP). IDA's participation would also help restore the confidence of the private sector in investing in Guyana and facilitate its involvement in the sugar industry, on a long-term basis, by ensuring the S/ The consortium included CDC. IFC was also interested as potential investor and creditor, but did not participate in the negotiations. IDA funds would have been also included as part of the financing package to partially finance the overall rehabilitation and rationalization of GUYSUCO. - 16 - establishment of a sound sugar policy framework and regulatory system (sugar levy, foreign exchange retention, corporate taxes) which have macroeconomic effects, as well as implications for the financial viability of the sugar industry. Objectives and Description 3.3 The key objectives of the proposed project are to: (a) help secure GUYSUCO's present level of production and financial viability through a minimal two-year capital investment program for urgently needed equipment and machinery to help GUYSUCO meet its basic capital and maintenance requirements; and (b) ensure the long-term technical and financial viability of the sugar industry by, inter alia, helping the Government restructure and privatize GUYSUCO under an agreed regulatory framework which ensures private sector participation within an efficient and competitive environment, while safeguarding reasonable government revenues, under an appropriate fiscal regime. The newly restructured company or companies would be expected to undertake an investment program to rehabilitate, rationalize and modernize GUYSUCO, aimed at improving the long-term efficiency of the sugar industry and ensuring its long-term technical and financial viability. To reach these objectives, the proposed project would comprise two major components: (a) capital investment in priority operating factory equipment and machinery over a two-year period to stabilize sugar production at the present 240,000 tons (US$14.0 million equivalent or 93% of credit funds); and (b) technical assistance, involving contracts for financial advisory services, to help GOG restructure and privatize GUYSUCO, while allowing participation in the ownership of the company by the workers. The financial advisors would also help establish the policy and regulatory framework for the industry, particularly in regard to the level of the sugar levy, foreign exchange retention, sugar import policy and land tenure (US$1.0 million equivalent or 7% of credit funds). They would also make recommendations to GOG on the most appropriate company structure for privatization. The main features of these components are described below. 3.4 Under the project, sugar production is expected to stabilize at about 240,000 tons, based on the parameters shown below (see also Annex 1). - 17 - Cape and Suitr Productionl Actual AcUal Actual Egt 1222 12 19 93 Aea of cane harvesed ('000 acres) 84 86 92 94 Amount of cane milled ('000 tons) 1,8S5 2,124 2,863 2,942 Cane yield (tons cane/acres harvesed) 22.32 24.58 31.06 31.42 Estate sugr production ('000 tons) 122 149 227 224 Farmer contribution ('000 tons) S 11 16 18 Sugar yield (tons sugar/acre) 1.44 1.77 2.46 2.40 Cane/sugar rtio (1C/TS) 15.45 14.29 12.62 13.11 Molasues production ('000 tons) 75 87 119 112 Capital Investment Component 3.5 As a short-term objective, while the process of restructuring and privatization is undertaken, it is imperative that production be stabilized thereby enabling GUYSUCO to meet the EEC and US quotas. Accordingly, the project would provide about US$14.0 million equivalent, to finance a proportion (about 51%) of GUYSUCO's 1993-94 essential foreign exchange capital budget expenditure, estimated at about US$27.5 million, on the basis of the 1993 budget, to stabilize production of sugar at the levels reached in 1992 (Annex 1, Table 2). The equipment and machinery to be financed under the project would replace key factory items that are old and unreliable and well past their economic life throughout GUYSUCO's eight factories. The proposed investment would provide for the normal maintenance and replacement of equipment; it does not provide for expansion or modernization of the factories. In the second half of 1993, the proposed project would finance the following equipment, amounting to US$2.0 million, or 7% of the proposed capital investment budget of GUYSUCO: (a) a battery of three (3) fully automatic high grade centrifugals for Blairmont factory (US$0.5 million equivalent); (b) a 2.5 mw Turbo-Alternator Set for Skeldon factory (US$1.4 million equivalent); and (c) parts for the rehabilitation and transfer of the Skeldon 1 mw Allen Turbo-Alternator Set to Wales factory (US$0.1 million equivalent) (Annex 1, Table 3). 3.6 Additional factory capital requirements to be financed under the project in 1994 would likely include three (3) additional 2.5 mw Turbo Alternator sets for Albion, Blairmont and Enmore, a 750 kw high-speed Cat Diesel alternator for Albion and the replacement of obsolete mill and knife turbines also in Albion. The final requirements for IDA funds for 1994 and - 18 - early 1995 would be determined annually on the basis of priorities to be agreed with the Government and GUYSUCO as part of the annual capital budgeting exercise and in view of the state of the equipment and machinery at that time. Assurances were obtained at negotiations that the Government and GUYSUCO would furnish to IDA an annual capital budget for GUYSUCO, including a specific list of equipment, machinery and spare parts to be financed out of the proceeds of the credit, and an annual operating budget for GUYSUCO, both for the upcoming calendar year and providing for amounts sufficient, in IDA's opinion, to implement the component and to cover GUYSUCO's normal operating costs, including the required foreign exchange. Agreement on the annual budget, satisfactory to IDA, would be a condition of IDA disbursements (para. 4.1 (a)). Technical Assistance Component 3.7 Fmancial Advisory Services. The project would provide US$1.0 million equivalent (about 2% of total project costs) to contract financial advisors to assist the Government in restructuring and privatizing GUYSUCO. The work of the advisors would be divided into two phases. In the frst phase, they would: (a) provide recommendations to restructure the sugar industry and develop a strategy for its privatization in full or by breaking it up into several packages, including the capital share of GUYSUCO to be offered for sale; (b) carry out a benchmark valuation of GUYSUCO; (c) prepare an Employee Stock Ownership Plan (ESOP); (d) recommend a regulatory framework for the industry (para. 3.9-3.10) and advise on issues that would impinge on the future viability of the sugar industry. These issues are likely to include, inter alia: (i) leasing by Government of access to the preferential sugar markets in the form of sugar levies; (ii) access to foreign exchange; (iii) land and water use and ownership/lease; (iv) corporate taxes; (v) labor relations; (vi) cane payment formula; and (vii) sugar importation policy and local sugar prices. In the second phase of their work, the advisors would: (a) assist in implementing the ESOP; (b) prepare all necessary materials for the implementation of the restructuring and privatization strategy adopted for the industry; (c) develop criteria for the assessment of proposals from private placement offerings; (d) prepare a promotional strategy and campaign for public offerings; and (e) assist the Government during negotiations with prospective investors. The advisory assignment is expected to require about 100 staffweeks, including a limited number of medium-term coordinators/program managers and short-term consultants (financial analysts, valuers, accountants and lawyers). The above financial advisors would be contracted by December 31, 1993, under terms of reference satisfactory to IDA (Annex 3). Some of the initial expenditures would be partially financed under an IDA- - 19 - administered Japanese Project Preparation Grant. Assurances were obtained at negotiations that the Government would: (a) contract the financial advisors, whose selection would be satisfactory to IDA, by December 31, 1993, under terms of reference satisfactory to IDA; (b) provide all the support required by the consultants to complete phase one, including a regulatory framework, by July 31, 1994, and the second phase by October 31, 1994; (c) submit to IDA the proposed regulatory framework, including the elimination of sugar import restrictions by July 31, 1994 and issue a regulatory framework or submit proposals to Parliament, satisfactory to IDA, by September 15, 1994. In case of proposals submitted to Parliament, these would have to be decided by October 31, 1994; and (d) take all action necessary or advisable by March 31, 1995 to privatize GUYSUCO (para. 4.1 (b)). 3.8 Management Services. The management role of BT during project implementation would continue to involve the day-to-day management of the company, including the formulation of operational plans covering the technical, human resource, financial and commercial aspects of the company's activities to ensure the optimal operation of the sugar industry. GUYSUCO comprises about 27,600 staff and workers and the management team includes a chief executive and 24 other specialists covering all aspects of the operation of GUYSUCO (Annex 2, Tables 1 and 2). During 1993, and as GUYSUCO's situation stabilizes, 7 of the 24 specialists are expected to be withdrawn. The chief executive assumes overall responsibility for GUYSUCO in accordance with the existing acceptable job description and is responsible to the Board of Directors of GUYSUCO. BT would retain final responsibility for the performance of the management team. The present contract between the Government and BT expires on December 31, 1993. In order to maintain effective management, assurances were obtained at negotiations that, by October 31, 1993, the Government would enter into a new contract with an external, professionally qualified management team, satisfactory to IDA, or would extend the contract of the present management firm, to run GUYSUCO through the life of the project or until the conclusion of the privatization process, at which time, the new Board of Directors would make a decision on this matter. The management team would be financed by GUYSUCO but under terms and conditions satisfactory to IDA (para. 4.1 (c)). The New Regulatory Framework 3.9 To create the incentive environment that would be conducive to restructuring and privatizing GUYSUCO while preserving adequate foreign exchange earnings and fiscal revenues for the Government, and to provide - 20 - protection to domestic consumers of sugar, the present regulatory framework (para. 2.3) should be changed. An appropriate set of regulations would be based on the following principles: (a) no foreign exchange restrictions; (b) a flat sugar levy, based on a percentage of the EEC preferential price, possibly 10%0. This levy level would guarantee annual revenues to GOG estimated in present conditions at about US$9-10 million, from a transparent and easily identifiable source (this compares with levy revenues of about US$25.0 million in 1992, but does not include the up-front lump sum co- payment GOG would receive for the privatization of GUYSUCO); (c) retention of the 35% corporate tax; and (d) elimination of GUYSUCO's monopoly in regard to domestic importation and sales of sugar in Guyana. 3.10 Under the proposed project, the financial advisors would review the present regulatory framework of the sugar industry (para. 3.7 (c) (i-vii)), and with due regard to the principles above, propose to the Government alternatives for the level of the levy, as well as on the timing to liberalize domestic imports and sales of sugar in Guyana. The proposals would be based on detailed quantitative and qualitative analysis of the effects of the different alternatives, principally on foreign exchange eamings and fiscal revenues to the Government. This initial preferred policy framework would then serve as the basis for negotiations with interested investors (refer to footnote 6). Because of the important macroeconomic impact of the future regulatory framework, IDA would be closely involved with the financial advisors and the Govemment during the process of preparing the final regulatory framework (para. 3.7). 6/ From a financial perspective, the Government and the potential investors would be indifferent to the level of the levy, since the value of the company would be modified by an equal [discounted] amount. For instance, reducing the levy, i.e., increasing future cash flow income of GUYSUCO, would increase the up-front [discounted net present] value of the company and this would be reflected, in principle, in an increase in the price of the shares to be sold by the Government to the future investors. And conversely in the case of an increase in the level of the levy. However, because of the time variable, there are elements of risk attached to the value of levy versus the net present value of the company which may be perceived differently by each party, and which could affect the choice of alternatives. These, however, cannot be quantified in advance of the negotiations. -21 - Cost and Financing 3.11 For the purposes of the proposed project, total costs are defined as GUYSUCO's expected fixed capital requirements in its existing eight estates/sugar mills and headquarters for normal replacement of vehicles, machinery, equipment and field infrastructure over the 1993-95 period plus the cost of the financial advisors to be hired under the project. The costs have been estimated at US$40.5 million equivalent based on GUYSUCO's 1993 and expected 1994 capital budget (Annex 1, Table 2). The direct foreign exchange component is about US$28.5 million or 70% of project costs. Some of the capital expenditure proposed under the project could be incorporated as part of the long-term investment program. No allowances have been made for price or physical contingencies. 3.12 An IDA credit of US$15.0 million equivalent is proposed, which would finance 53% of the foreign exchange component of the project or 37% of total project costs. The balance of financing requirements would come from: (a) GUYSUCO's internally generated cash from operations, US$20.6 million equivalent (51% of total project costs), of which US$8.6 million equivalent would be in foreign exchange and US$12.0 million equivalent in domestic currency; (b) foreign suppliers, US$1.9 million equivalent (5 % of total project costs); and (c) an expected CDB loan, US$3.0 million equivalent (7% of total costs). The IDA credit would be made available to the Republic of Guyana which, in turn, would on-lend US$14.0 million equivalent of the credit proceeds to GUYSUCO in dollars at LIBOR plus two percentage points over 10 years, including a grace period of 3 years. GUYSUCO would bear the foreign exchange and cross- currency risks. GUYSUCO would use the proceeds of the IDA credit to cover the costs of imported machinery and equipment for GUYSUCO's factory operations. GUYSUCO would cover the costs of maintenance, including insurance for the machinery and equipment and the cost of the management team, as well as all the other required capital and recurrent costs (paras. 3.6 and 3.8). The Government would bear the foreign exchange risk on the remaining US$1.0 million equivalent, corresponding to the cost of consulting services. As a condition of effectiveness, the Borrower would sign with GUYSUCO a subsidiary loan agreement, satisfactory to IDA, reflecting, inter alia, the terms and conditions for the on- lending of IDA funds (para. 4.2). Procurement 3.13 Procurement procedures in the country have been reviewed by IDA and found generally acceptable and not in conflict with IDA - 22 - procurement policies and guidelines. Booker Tate, the consulting firm presently managing GUYSUCO has ample experience in international procurement. Contracts for machinery and equipment estimated to cost more than US$500,000 equivalent and expected to involve in the aggregate about US$19.0 million or 57% of total machinery and equipment costs would be procured following ICB procedures satisfactory to IDA. Of these, IDA is expected to finance about US$10.5 million. Individual contracts for machinery and equipment, vehicles, goods and services estimated to cost between US$100,000 to US$500,000 equivalent up to an aggregate of US$11.1 million (of which IDA would finance up to US$3.5 million) may be awarded on the basis of limited international bidding. In view of the need to maintain standardization with existing machinery and equipment in GUYSUCO in order to reduce the need for excessive inventories of spare parts, maintenance standards and workers retraining, contracts for miscellaneous equipment and spare parts valued at US$100,000 equivalent or less, in the aggregate not to exceed US$2.0 million equivalent would be procured under international shopping or by direct negotiation in cases of proprietary components/spares. International shopping would require, whenever appropriate, comparison of at least three responsive price quotations from suppliers/contractors from at least three eligible countries. IDA would not finance the rehabilitation of support buildings or other minor civil works, estimated to cost in the aggregate about US$3.0 million over the life of the project (Annex 1, Table 5). Prior review by IDA would be required for all contracts valued at US$100,000 equivalent or above and for all directly negotiated contracts above US$50,000 equivalent. For contracts below these limits, IDA would review on a selective basis the documentation during project supervision. Consultants. The financial advisors (para. 3.7) would be recruited in accordance with the "Guidelines for the Use of Consultants by World Bank Borrowers." The contract with the firm managing GUYSUCO would not be financed with credit proceeds. Assurances were obtained at negotiations that GUYSUCO would follow these procurement procedures (para. 4.1 (d)). Disbursement 3.14 The proposed credit would be disbursed over a period of three years to take into consideration the special disbursement characteristics of the proposed credit. IDA would disburse 100% against foreign exchange expenditures for vehicles, machinery, equipment and spare parts, and financial advisory fees (Annex 1, Tables 6 and 7). Disbursements for all contracts for goods or services would require full documentation in accordance with IDA guidelines. The credit closing date would be June 30, 1997. IDA would deposit an initial US$1.5 million in the Special - 23 - Account to be established in the Central Bank upon receipt and approval of the withdrawal applications. Subsequent replenishments by IDA into the Special Account would follow normal procedures. Accounts and Audits 3.15 GUYSUCO's financial statements have been audited heretofore by independent auditors acceptable to IDA. The audits have been presented on time and without qualifications. Under the project, separate accounts would be kept for all expenditures under the project, which, together with GUYSUCO's own accounts and the Special Account, would be audited annually. GUYSUCO would maintain separate accounts for the capital investment. The subsidiary agreement to be signed between the Borrower and GUYSUCO would provide for GUYSUCO to submit to IDA: (i) necessary data and information on the project and its operating results and financial position through quarterly progress reports, submitted 60 days after the completion of the quarter beginning February 28, 1994 for the quarter ending December 31, 1993; and (ii) not later than six months after the close of its fiscal year, starting with the audit report for the year ending December 31, 1993, GUYSUCO's annual audited financial statements, and such other information as IDA might reasonably request (para. 4.2). The Ministry of Finance, which would maintain separate accounts for the technical assistance component, would coordinate the submission, no later than six months after the close of its fiscal year, starting with the audit report for the year ending December 31, 1993, of an audit report on all project accounts. Assurances to this effect were obtained at negotiations (para. 4.1 (e)). Management, Implementation and Monitoring 3.16 The Ministry of Finance would be responsible for the overall implementation of the project. The day-to-day management of the capital investment component of the project would be handled by GUYSUCO using BT's services. The financial advisors would be supervised by the Privatization Unit under the overall guidance of the Privatization Board, established pursuant to the Government's 'Privatization Policy Framework Paper' of June 1993. Its main responsibility would be to review the findings and recommendations of the financial advisors to be engaged under the project, formulate proposals for the restructuring of GUYSUCO and be responsible for implementing them thereafter. The Government provided assurances at negotiations that: (a) the Privatization Unit, in a composition, form and with responsibilities satisfactory to IDA, would be established by no later than November 30, 1993; (b) the Privatization Board, through the - 24 - Privatization Unit, would keep IDA informed of the progress of the financial advisors' work and of the privatization process through the submission of a quarterly progress report, starting January 31, 1994, for the quarter ending December 31, 1993; (c) GUYSUCO would submit to IDA quarterly progress reports as indicated in para. 3.15; and (d) a mid-term review of the project would be carried out at the time the regulatory framework for the industry is agreed upon (September 15, 1994), which would also review overall progress in the privatization process, confirm the steps in the second phase of the financial advisors' work and agree on a capital share of GUYSUCO, satisfactory to IDA, to be offered for sale for the privatization of GUYSUCO (paras. 3.7 and 4.1 (f)). Financial and Economic Justification 3.17 GUYSUCO's Financial Performance (1990-92). The overall performance of GUYSUCO improved considerably during the last two years (1991 and 1992), as shown in the key financial indicators in Annex 2, Table 10. Operating profit (before levy and tax) was about G$ 5.0 billion in 1992 versus G$ 1.0 billion in 1990 and G$ 4.8 billion in 1991. Net income amounted to G$ 35.7 million and G$ 44.4 million in 1990 and 1991, respectively. This represents a return on assets of 1.5% and 0.5%, respectively. Government net revenue from the sugar levy (applying the agreed formula in para. 2.13 minus rebates) was G$ 711 million and G$ 4,264 million in 1990 and 1991, respectively (Annex 2, Table 9). Net 1992 Government revenue from the sugar levy is expected to be G$ 3,000 million in 1992 (about US$25 million), allowing GUYSUCO to retain about G$ 2,500 million (before taxes). While still inadequate to attract private sector investors, the 1992 results provide a higher return on assets to GUYSUCO (about 18.5%) and permit a level of capital investment in 1993 under the project adequate to maintain present sugar production levels. 3.18 GUYSUCO's Projected Financial Performance and Rate of Return. Under the proposed project, GUYSUCO's operating profit before levy and tax is expected to amount to G$ 3.6 billion and G$ 2.3 billion in 1993 and 1994, respectively (Annex 2, Tables 11 and 12). The decline in operating profits, compared to 1992, is due to the latter having been an extraordinary year in terms of sales to the EEC, as GUYSUCO was allowed to "catch up" with some of the unfulfilled quota of previous years. On the basis of the agreed formula, the sugar levy would be expected to result in Government revenues of about G$ 6.6 billion and G$ 6.3 billion in 1993 and 1994, respectively, which is clearly unsustainable (Annex 2, Table 13). On the basis of previous years' experience, the rebate on the levy is expected to - 25 - be in the order of G$ 3.3 billion and G$ 3.1 billion, respectively (Annex 2, Table 13). The final rebate would be agreed during the year, as the results of operations are confirmed, and in view of the Government's revenue needs and proposed capital budget requirements for the ensuing year (para 3.12). 3.19 Beyond 1994, there are two realistic financial scenarios. The first assumes that privatization effort fails and GUYSUCO remains in the hands of the public sector. This is the "no-modernization" scenario. The second, or "modernization" scenario assumes that GUYSUCO is privatized during 1994 and the new owners undertake the investment program required for its modernization (Annex 2). 3.20 Under the "no-modernization" scenario, the 1992 production level of 240,000 tons would be maintained in 1993 and 1994. However, starting in 1995, with negative cumulative cash generation allowing no further expansion and modernization, GUYSUCO would operate under increasingly difficult constraints, which would affect agricultural yields, areas under cane, and overall sugar recovery at the factories. The impact of these factors on production is difficult to quantify but deterioration would tend to accelerate because strategic and critical spares and replacements would fail to materialize, decreasing production, which would lead directly to a reduction in foreign exchange earnings. GUYSUCO would operate at a lower level of 200,000 tons starting in 1995, and would accumulate losses, resulting in the erosion of its equity base starting in 1997. 3.21 Under the "modernization" scenario, GUYSUCO, now a majority private sector owned firm, would initiate a modernization and rationalization program in 1995, under the regulatory framework described in para. 3.9. GUYSUCO would operate at 250,000 tons of sugar by 1995, versus 240,000 tons in 1994. Operating costs would decline by about 31% over the 1994 level of US$93.0 million to US$71.1 million as a result of the modernization and rationalization program. With high production and sales, the company's profitability would be satisfactory, with net income of over 10% of sales and of average equity. Cash generation is forecast to be positive. The debt/equity ratio would remain well below 1:1, and financial liquidity would improve considerably, with current ratio increasing from 0.8:1 in 1995 to 2.2:1 in 1999. Debt service coverage would be very satisfactory at 3.6:1 and 8.6:1 during the same period. The incremented financial rate of return on the investment under the modernization program is calculated at about 39%. The IRR to equity investors at a 20% payout ratio is estimated at 17%. - 26 - 3.22 Assuming that sugar prices settle from 1995 onwards to the level of world sugar prices forecast in the absence of preferential markets (averaging US$0. 19/lb) as a proxy for the economic value of sugar, and assuming that the economic prices and costs of the remaining inputs and outputs are similar to their financial values (not an unreasonable assumption given the open nature of the Guyana economy), the "modernization" scenario provides a satisfactory incremental economic rate of return of about 12%. This rate would also provide a lower boundary for the incremental financial rate of return. Environmental Impact 3.23 The situation in regard to insecticide and herbicide use at field level is satisfactory in that they are used in small quantities, and biological methods of pest control are under development. GUYSUCO has an adequate Sanitation Policy for Estate houses and it has under consideration proposals for a "Policy and Programme in Respect of the Health Services in the Sugar Industry' emphasizing prevention of waterbome diseases (a reorientation of the previous exclusive treatment approach) and covering evaluation of work sites and the handling of toxic materials, pre-employment and periodic medical examinations, nutrition, provision of a Medical Board, Community Health and screening of workers children, Treatment services, Health Education, Employee Assistance programmes, and Training courses. Once this program is in place, the health conditions, already among the best in the country, should be more than adequate. Despite the best efforts of GUYSUCO's management, the use at present of outdated, inefficient and unreliable machinery and equipment by GUYSUCO, the lack of financial resources available to the company to modernize and rehabilitate its capital stock and the lack of national standards has resulted in insufficient effluent treatment and excessive fuel oil usage (due also to insufficient bagasse). 3.24 Under the original project proposal which included a broad program of rehabilitation, rationalization and modernization of the sugar industry (para. 2.17) and with the advice of IDA's and CDC's environmental experts, Booker Tate initiated the preparation of a program for the reduction and treatment of effluents as part of the overall investment program. Efforts were to be intensified, particularly in regard to controlling effluent treatment, through a two-step approach of lagooning followed by conventional aerated biological processes and reduction of fuel oil usage through the improvement in the operation of boilers throughout the eight factories which would result in an increased availability of clean steam energy and a considerable reduction in the use of fuel oil. Hence, assurances were obtained at negotiations that: (a) terms of reference, satisfactory to IDA, for an updated - 27 - Environment Assessment (EA) would be prepared by December 31, 1993; the EA, including the review of possible contingent liabilities of GUYSUCO for environmental issues, would be carried out by May 31, 1994, in a manner satisfactory to IDA, and appropriate mitigatory measures would be implemented thereafter; (b) the "Policy & Programme in Respect of the Health Services in the Sugar Industry" would be completed and submitted to IDA by October 1993 and subsequently implemented; and (c) GUYSUCO would implement the mitigatory measures that may be agreed in the EA (para. 4.1 (g)). Benefits and Risks 3.25 Benefits. The main benefit of the limited investment program proposed under the project would be to help GUYSUCO secure its present level of sugar production and stabilize the operation of the sugar industry in the short to medium term, while preparing the grounds for restructuring and privatization. It would also help the industry continue to provide GOG with crucial foreign exchange earnings and fiscal resources, while anchoring GOG efforts to improve the long-term efficiency and sustainability of the sugar industry (and therefore boosting in the long term, Government fiscal revenues and foreign exchange earnings). This would be achieved by changing GUYSUCO's ownership structure and attracting financing from the private sector and, possibly, multi and bilateral financial institutions, with workers and, possibly, a small GOG participation. Under the new structure, GUYSUCO would be expected to undertake a major rehabilitation, rationalization and modernization investment program to improve efficiency and increase sugar production to about 250,000 tons per annum. The increased efficiency would permit the Government to retain adequate levels of foreign exchange and fiscal flows while allowing GUYSUCO to maintain a profitability level high enough to sustain the private sector's interest in the industry. The project would also help improve the standard of living for the approximately 27,000 workers of GUYSUCO, or about 10% of the active population of the country, some of whom, particularly unskilled labor and women, rank among the most poorly paid wage earners in Guyana. The broadly defined project would also have indirect effects on poverty by permitting more adequate financing of poverty-oriented, education and nutrition programs which otherwise would have difficulty obtaining counterpart financing. 3.26 Risks. Implementation of the proposed project comprises few risks in that it has a simple design. Perhaps the major risk is that the proposed limited investment program may prove insufficient to stabilize production in the short run if a major break-down or failure of factory - 28 - machinery and equipment, agricultural field equipment or field infrastructure occurs during the next two years. To minimize this risk, IDA would allow acceleration of disbursements under the proposed credit. The major long- term risks facing the future of GUYSUCO, which could not only adversely affect the probability of improving the long-term efficient sustainability of the sugar industry, but could seriously undermine the probability of the industry's survival are: (a) a slowdown in implementing GUYSUCO's ownership restructuring and privatization and hence in carrying out the overall rehabilitation and rationalization investment program; and (b) a decline in world sugar price levels and a reduction of quotas and prices from the preferential sugar markets in the EEC and the USA. Related to both risks is the risk that Government fiscal revenues and foreign exchange earnings may drop substantially below past levels. Under the project, these long-term risks would be reduced by: (a) creating an appropriate enabling environment for investment in the sugar industry, aimed at promoting the mobilization of adequate private sector resources; (b) the low dependency of GUYSUCO revenues on world sugar market; (c) the unlikely reduction in the volume of EEC and USA preferential quotas to Guyana (the Sugar Agreement does not run out until 1996; Guyana may even be allocated a higher EEC quota to cover the Portuguese market); and (d) unlikely negative effects on GUYSUCO's profitability of even a drastic reduction of preferential quota prices, provided the industry has been able to undertake the large scale rehabilitation and rationalization investment program it requires. World sugar prices, in the absence of preferential markets, would be expected to settle at a level of US$0.15-0.20/lb; the effect of such a price level on GUYSUCO's profitability would be well within the bounds of acceptable commercial and financial risks. - 29 - 4. AGREEMENTS REACHED AND RECOMMENDATIONS 4.1 During negotiations, assurances were obtained from the Borrower that: (a) the Government and GUYSUCO would agree with IDA by December 31 of each year starting on December 31, 1993, on the annual capital budget and the specific list of equipment to be financed by IDA during the following year and that GUYSUCO would be allowed to retain enough funds and foreign exchange to provide the required counterpart funds for the investment program under the project and their normal capital and operating costs (para. 3.6); (b) the Government would: (i) contract the financial advisors, whose selection would be satisfactory to IDA, by December 31, 1993, under terms of reference satisfactory to IDA; (ii) provide all the support required to ensure that the consultants complete the first phase of their work, including a regulatory framework by July 31, 1994 and the second phase by October 31, 1994; (iii) submit to IDA the proposed regulatory framework, including the elimination of the sugar import restrictions, by July 31, 1994, and issue a regulatory framework or submit proposals to Parliament, satisfactory to IDA, by September 15, 1994; and (iv) take all action necessary or advisable by March 31, 1995 to privatize GUYSUCO (para. 3.7); (c) it would enter into a new management contract, or extend the actual one, by October 31, 1993, to have GUYSUCO managed by a professionally qualified team, satisfactory to IDA, for the duration of the project or until the conclusion of the privatization process (para. 3.8); (d) GUYSUCO would follow the agreed procurement procedures (para. 3.13); - 30 - (e) the Ministry of Finance would coordinate the submission, no later than six months after the close of its fiscal year, starting with the audit report for the year ending December 31, 1993, of an audit report on all project accounts (para. 3.15); (f) (i) the Borrower's Privatization Unit in a form, composition and with responsibilities satisfactory to IDA, would be established by November 30, 1993; (ii) the Privatization Board through the Privatization Unit would submit to IDA quarterly progress reports of the financial advisors' work and of the privatization process, starting January 31, 1994 for the quarter ending December 31, 1993; (iii) GUYSUCO would submit quarterly progress reports on project implementation and the overall status of its operations, starting November 15, 1993 for the quarter ending September 30, 1993; and (iv) a mid-term review of the project would take place by September 15, 1994 to inter alia, agree on a capital share of GUYSUCO, satisfactory to IDA, to be offered for sale for the privatization of GUYSUCO (para. 3.16); and (g) concerning the environmental impact: (i) terms of reference for the EA, satisfactory to IDA, would be prepared by December 31, 1993 and the EA, including the review of possible contingent liabilities of GUYSUCO for environmental issues, would be carried out by May 31, 1994 in a manner satisfactory to IDA; (ii) GUYSUCO's proposed 'Policy and Programme in respect of the Health Services in the Sugar Industry" would be completed and submitted to IDA by October 1993 and subsequently implemented; and (iii) GUYSUCO would implement the appropriate mitigatory measures that may be agreed in the EA (para. 3.24). 4.2 As a condition of effectiveness, the Borrower would sign with GUYSUCO a subsidiary loan agreement, reflecting, inter alia, the terms and conditions for on-lending IDA funds to GUYSUCO, all satisfactory to IDA, and which would also provide for GUYSUCO to submit to IDA: (i) necessary data and information on the project and its operating results and financial position through quarterly progress reports, submitted 60 days after the completion of the quarter beginning February 28, 1994 for the quarter ending December 31, 1993; and (ii) no later than six months after the close of its fiscal year, starting with the audit report for the year ending December 31, 1993, GUYSUCO's annual audited financial statements (paras. 3.12 and 3.15). - 31 - 4.3 Subject to the above, the project provides a suitable basis for an IDA credit to the Republic of Guyana for SDR 10.9 million (US$15.0 million equivalent). The terms would be standard, with 40 years maturity. C:\wpSl\Guyana\Maintext.sar Augut 27, 1993 - 32 - ANNEX 1 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Detailed Features of the Project 1. This annex has three parts: the first part provides a brief description of the overall field and factory structure of the sugar industry to provide the setting for the proposed project; the second part summarizes the overall status of GUYSUCO's present physical capital, which provide the basis for the capital investment component of the project, including its 1993 capital budget; and the third part summarizes the administration of the financial advisory service under the technical assistance component of the project. A. THE SUGAR INDUSTRY'S OVERALL OPERATIONAL STRUCTURE 2. The sugar industry currently involves eight sugar estates and factories--four in Berbice and four in Demerara. The gross area of the estates total about 122,000 acres. In addition to the estate land, about 2,180 private cane growers hold some 11,700 acres of cane, either individually or as cooperative groups. The heavy soils, topography and lack of a convenient source of road building materials do not allow conventional road transport, and a water-borne cane transport system has been developed. The structure of cane cultivation by estate in 1991 and 1992 is shown in Table 1 of this Annex. Below is the projected structure of production for 1993. - 33 - Projected Cane Area and Sugar Production 1993 Maximum Area Area Cane Sugar for Cultivation Harvested Production Production Estate (Acres) (Acres) (rons) (Tons) Berbice Skeldon 11,867 10,482 351,102 26,823 Albion 19,907 18,272 601,374 49,288 Rose Hall 15,731 14,464 438,228 35,259 Blairmnont 13.488 11502 421.045 32.485 Subtotal 60.993 54.719 1.811.479 143.855 Demerara Enmore 12,992 9,408 278,350 17,555 LBIlDiamnond 23,013 12,571 365,240 25,870 Wales 8,830 7,121 213,630 15,942 Uitvlugt 16.171 9.82 272.832 21L232 Subtotal 61.006 38L921 L130.032 80.599 Estate Total 121,999 93,640 2,941,801 224,454 Farmer Contribution 9.028 241.271 18.128 Industry Total 102,668 3,183,092 242,582 Cane Yield (tc/a) 31.42 Sugar Yield (ts/a) 2.40 Cane/Sugar Ratio (tc/ts) 13.11 Source: Annex 1, Table 1 Physical Environment and Layout 3. Climate. The prevailing climate presents a number of problems to cane cultivation in Guyana. Mean annual precipitation increases westward from 66.11 in at Skeldon to 103.12 in at Uitvlugt. Rainfall peaks occur in June and December so that the harvesting periods are concentrated in the drier months, February - April (the "Spring" Crop) and August - November (the "Autumn" Crop). However, the occurrence of dry weather is unreliable and considerable precipitation can take place during the harvests. The unreliability of the rainfall pattern causes the commencement and - 34 - termination of harvest periods to vary from year to year; it also can cause severe dislocation of both harvesting and husbandry practices, particularly mechanical tillage. At other times, this can lead to serious drought conditions which cause significant irrigation demands in some years. Maximum and minimum daily temperatures show little variation and average around 85 and 75 degrees Fahrenheit, respectively. Temperatures low enough to influence cane ripening do not occur. Insolation averages some 2,600 hours sunshine per annum with a mean monthly variation between 183 hours in June to 268 hours in October. 4. Soils. The differing soil types occupying the sugar estates are generally found as narrow strips of land running parallel to the shore line and extending for long distances of between 10 and 40 miles. The frontlands, only a few miles wide in Demerara but some 10 miles wide in Berbice, comprise alluvial clays of marine origin. The backlands are mostly thick acid peat (pegasse) deposits, encountered within six miles of the coast between the Essequibo and Demerara rivers, but generally some 7-15 miles inland between the Demerara and Berbice rivers and still further inland some 18 miles between the Berbice and Corentyne rivers. Between the frontlands and the backlands, there exist alluvial silty clays and clays of mixed and riverain origin. Historically, the highest sugarcane yields have been obtained from the Berbice frontland soils. 5. Field Layouts. The cane lands in Guyana are laid out in three designs (camber, ridge and furrow and broad beds). Cambered beds are the traditional in-field layouts in sugarcane in Guyana, which help achieve the required standard of drainage. They, however, inhibit the use of in-field machinery, with majority of cultural operations carried out manually. In the mid-1970s, a layout, described as "traditional" ridge and furrow, was devised to permit some mechanization of planting and inter-row tillage while continuing to permit manual cane cutting and loading. This layout comprises flat beds of approximately 75 ft wide, running from cross canal to cross canal of some 400 ft. This form of ridge and furrow was extensively developed on several estates--3,000 acres of new land at Blairmont and 2,000 acres of new land at Skeldon. Significant areas of cambered bed lands at Albion, Rose Hall, LBI and Wales were converted to this layout. The areas in cane under the above layouts are provided below. - 35 - Field Layout Camber Beds 73,470 Traditional design for manual systems. Ridge and Furrow 11,472 Conversion which facilitates mechanized land preparation and cultivation, and permits manual (but not mechanized harvesting and loading). Broad Bed 8,942 Modified design of ridge and furrow which facilitates mechanized (but not manual) harvesting and loading, as well as mechanized TOTAL 93,884 cultivation. 6. Estate Layout. The layout of the sugar estates has been influenced predominantly by the dual requirements for both a drainage and a transport/irrigation system. Guyana is the only country in the world which grows sugarcane below sea level. The water table is high and drainage can be restricted, especially when high sea tides are coincident with high rainfall. On such occasions, it is necessary to keep both the sea and river water out of the frontlands and to prevent the accumulated rainfall in the backlands from flooding the cultivated areas. Some 30 to 40 miles of sea wall are protecting the present extent of the industry. The cultivated lands, which are also protected by a conservancy dam, are divided up into regular uniformly sized fields. These have been provided with an intensive reticulation of drainage and navigation/irrigation canals. Each estate has, on average, about 400 miles of navigation/irrigation canals and about 80 miles of drainage canals. 7. Water Resources. The estates obtain their water supplies from four different sources. The Berbice estates (Skeldon, Albion and Rose Hall) receive their water supplies from the Canje Creek, while Blairmont receives its water from the Mahaica/Mahaicony/Abari (MMA) Conservancy. The East Demerara estates (Enmore, LBI/Diamond) are supplied with water from the East Demerara Water Conservancy, while Wales and Uitvlugt receive their water from the West Demerara Water Conservancy (Boeraserie). The Canje Creek is linked to the Berbice River by the Torani Canal, which was constructed in 1958 and was meant to supplement the dry - 36 - weather flows in the Canje Creek. The Torani Canal has never been able to supply the 1,000 cusecs for which it was designed and it has subsequently been shown that the levels in the two rivers would not permit continuous gravity operation. There are no water shortages in Demerara, while present water resources are adequate in Berbice to irrigate the area under production but would not permit anything more than a nominal expansion. Large-scale expansion of agriculture in Berbice cannot be contemplated unless expensive storage facilities are provided on the Canje Creek, or a pumping station is constructed at the head of the Torani Canal. Field Infrastructure 8. The scope of field infrastructure covers navigation/irrigation system and layout, drainage system and layout, dams/roads network, field structures (intake kokers, navigation sluices, check sluices, drainage sluices, aqueducts, culverts, drainage boxes, peal-off and bridges) and other miscellaneous items (field buildings, airstrips, cultivation fences, river denfences, waterpath and pumping stations). Cane Harvesting and Transport 9. The layout of sugarcane fields in Guyana has required a manual system of cutting and loading cane and its transportation to the factory on water. While the manual cane harvesting operation has the advantage of being relatively independent of soil moisture conditions, it does require large numbers of cane cutters. At present, manual cane cutting operations are mainly impeded by problems of transporting cutters to and from fields and by difficulties in burning cane under conditions of heavy rainfall. These difficulties led to much experimental work on mechanizing the cane harvesting system. However, owing to the high cost of mechanized harvesting, depressed cane yields and the very high costs of increasing factory capacity, it is evident that mechanization should only be carried out where labor shortages make it absolutely necessary. 10. On the existing Guyana sugar estates, cane is transported in small barges, known as punts, which are towed in trains of 20-25 units by a 45 hp tractor. These punts are pulled into the cross canals by draught animals for manual loading by the cane cutters. The principal difficulty with the punt transport system is haulage in wet weather. The dams on which the haulage tractors travel are normally bounded by water on both sides, with the dam top only 1-1/2 to 2 feet above the water level. As a result, the unsurfaced dams rapidly become waterlogged in wet weather, giving severe - 37 - difficulties for the transport tractors. On some estates, this problem is overcome by the use of crawler tractors for cane transport, but this practice can cause increased rates of damage to the punts in addition to very severe damage to the dam surface. Tugs serve as backup substitutes for tractor haulage in wet conditions when canal conditions are suitable. Central Services 11. GUYSUCO's central service activities include: (a) Electrical and Instrumentation Shop (LBI), whose electrical motor rewinding facilities are inadequate; (b) Central Laboratory (Head Office). This unit is not ideally placed, being located in the same type of building as the GUYSUCO clerical and administrative staff and away from the main center of the laboratory's activity, namely the analysis of sugar and molasses loaded for export; (c) Demerara Sugar Terminal, which has sufficient capacity to handle an annual production in excess of 300,000 tons of sugar. Under the current reduced production regime, only one of two main bulk sugar warehouses is maintained in operation, and the other one has been used to supply essential spares for the other. B. STATUS OF GUYSUCO'S PRESENT PHYSICAL CAPITAL AND BUDGETARY REQUIREMENTS Field Equipment 12. The decline in cane and sugar yields has resulted partly from the failure to replant sufficient cane lands each year, increasing the percentage of older ratoons. The inability to replant has been caused, to a large extent, by restricted replacement of old agricultural machinery and equipment. The ages of the heavy crawlers and draglines are of particular significance as these units are vital to the replanting operation on the cambered beds, which still make up 80% of the cane area. The normally accepted maximum economic age for agricultural equipment is 8-10 years. Sixty-six percent of existing equipment has exceeded its normal economic life and serviceability is correspondingly low at 50-60%. 13. The infrastructure throughout GUYSUCO has suffered in common with the cane cultivation from lack of labor, machine inputs and the foreign exchange to ensure spare parts, and replacement equipment were purchased to maintain it in good condition. Lack of sufficient maintenance equipment and material has resulted in a situation where most agricultural activities are severely disrupted due to deteriorating navigation/drainage - 38 - system and impassable road conditions. Urgent repairs and replacements are required for many structures, especially bridges and peal-off. The pumping stations where much of the plant is now very old and inefficient. Some pumps are over 60 years old and many of the diesel engines powering the pumps are over 20 years old and in a very poor condition requiring frequent costly maintenance. 14. The extent of deterioration varies from estate to estate. Skeldon, Albion and Rose Hall would need to make significant expenditures on their water supply pump stations. With regard to drainage and side lines, Albion, Enmore and LBI/Diamond are worse than average, while for roads and dams, Albion, Rose Hall, Blairmont and LBIVDiamond are in worse condition than average. Factory Equipment 15. All factories either lack the necessary equipment or have existing equipment in poor condition to operate efficiently. Many prime movers are in poor condition. Various cane knives and mill turbines are in poor condition, with numerous carbon ring land leaks and unconventional nozzle plate modifications. These types of problems, together with the use of low efficiency single stage turbines on many turbo-alternator sets, results in an unbalanced factory steam system and the use of auxiliary fuel to supplement factory turbo-alternator capacity. 16. All factory laboratories have inadequate equipment to conduct the proper amount of analysis. Process control equipment, such as juice scales, imbibition water scales and molasses measuring equipment are poorly maintained or totally absent. Factory control is made very difficult under these circumstances. 17. A further common feature throughout all factories is the dilapidation of low grade massecuite crystallization equipment. Despite the modernization of some of the low grade sugar curing stations, notably Skeldon, Rose Hall, Enmore and Uitvlugt, low grade crystallizers are all but ineffective, resulting in increased sugar losses. 18. In addition to the above common features, processing bottleneck exists due to outdated technologies and designs. Evaporator operation, clarification plant, batch machine curing of low grade massecuites and manual de-ashing designs of boiler furnaces are all examples of the type - 39 - of plant that require rationalization if productivity is to be increased and operating costs reduced. 19. The 1993 capital budget (Table 2 of this Annex) includes funding to replace some of the more critically inefficient or wom out equipment. IDA financing in 1993 would be concentrated to finance factory equipment as follows: (a) Battery of three (3) Fully Automatic High Grade Centrifugals for Blairmont Factory. The existing High Grade Centrifugals at Blairmont were installed in 1967. These machines after 25 years of operation are becoming unreliable and difficult to maintain. Renewal of this mainstream plant is required to safeguard ongoing operations at Blairmont; (b) Rehabilitation and transfer of the Skeldon 1 mw Allen Turbo- Altemator Set to Wales Factory. The only steam generators at Wales Factory are two Fraser and Chalmers Turbo-Alternators manufactured in 1948 and 1957. These sets have become most unreliable and due to their age are now obsolete. To safeguard short-term operations at Wales, replacement of these units has now become urgent. However, due to the uncertain future of this factory and limited space within its powerhouse, a short-term solution is to transfer a relatively new 1 MW Allen Turbo- Altemator from the Skeldon Factory. This altemative is now proposed. (c) 2.5 MW Turbo-Alternator Set for Skeldon Factory. Power generation at Skeldon comprises a relatively new Allen 1 MW Turbo-Alternator and a 25 year old 960 KW set driven by a Weir Turbine. This turbine is now obsolete and due to its age has become inefficient. Skeldon Factory is now very marginal with respect to steam power generation. (d) It is proposed to install a 2.5 MW multi-stage Turbo- Altemator at Skeldon to replace the 1 MW Allen Set the latter to be rehabilitated and installed at the Wales Factory. - 40 - For 1994, it is expected that IDA would finance additional Turbo-Alternator sets for Albion, Blairmont and Enmore, as well as the replacement of obsolete mill and knife turbines and the purchase of a diesel alternator, both for Albion (Table 3). Capital and Operating Budget for 1993 20. GUYSUCO's 1993 capital budget, involves a total of US$19.1 million (Table 2 of this Annex). The capital expenditure by sugar estate/mills, totalling about US$15.8 million, is summarized below: GUYSUCO's Capital Budget for 1993 (US$'000) Estate/ Agriculture Factory Administration Total Factory Skeldon 0.7 0.8 0.2 1.7 Albion 1.4 0.7 0.3 2.4 Rose Hall 0.9 1.7 0.2 2.8 Blairmont 0.9 1.6 0.1 2.7 Enmore 0.6 0.7 - 1.4 LBI 0.7 0.6 0.1 1.5 Wales 0.7 0.5 0.2 1.4 Uitvlugt 0.8 0.9 0.2 1.9 TOTAL 6.7 7.4 1.3 15.8 The proposed project would cover above US$2.0 million of the above factory capital requirements in 1993 (Table 3, of this Annex). The proposed operating budget for 1993 is shown in Table 4 of the Annex. - 41 - C. FINANCIAL ADVISORY CONSULTANIS 21. Recruitment. The recruitment of the finandal advisory consultants was launched under an IDA-administered Japanese Grant, including the preparation of the terms of reference and the letr of invitation to engage the financial advisors. 22. Terms of Reference. The main twhst of this technical assistance would be the identification of potential investors to implement the long-term rehabilitation plan of GUYSUCO. Annex 3 provides in greater detail the scope of work of the financial advisors. 23. Administration. The work of the financal advisor will be supervised by a Privatization Board, chaired by the Minisr of Finance, and a Privatization Unit to be established under the mandate of the Government's 'Privatization Policy Framework Paper' of June 1993, recently approved by Parliament. The Unit, under the guidance of the Board, would review the findings and recommendations of the financial advisors, formulate proposals for the restructuring of GUYSUCO and be responsible for implementing them thereafter. The Privatization Board through the Unit would also keep IDA informed of the progress of its work through the submission of a quarterly progress report. GUYANA SUGAR CORPORATION sCHMtXE 21 BUDGET 1993 SUGA PRODUCTiON GUYSUCO ESTATES CANE FARMERS CANE INDUSTRY TOTAL ESTATES Hue Tons TOns IHiw.t Tons TOnM Hwavi TOMn Tore _________ ~Acres .s.,. care 7 TShA~ ITC/TS Acrs Sug Cwns ICA TISA TfjJ Aaus S,, Cans J7CI TS 1C/T ~S1kWdn 4,213.1 10.627 134.810 32.00 2-52 1269 85.0 244 3.0W6 35.90 2684 12.68 4,299.1 10.671 137.905 32.08 2.53 12.as AbIon 6,996.8 18.249 219,900 31.43 2.61 12-05 495.1 150 9,100 16.36 1.51 12.13 7,491.9 18.98 M9,00O 30.57 2.54 12-05 Ross H'd 8,151.7 14,350 172.247 28.00 2.33 12-00 647.0 1,510 18J,122 28.01 233 12.00 6,7U&7 15.860 190,309 28.00 233 12.00 BiaarKWnt 46544.11 1395 178.020 36.75 2. 86 12.78 - ____ 4.4. 1395 17&2 38.75 2.a86 1278 BERBICE 2Z2205.7 157,178 704,977 311.75 2-57 12.33 1,228.1 2Z504 30,317 24.69 2.04 12.11 23,433.8 59.682 73294 31.38 2.55 12.32 Ernmore 3,893.6 7,055 112.920 29.00 1.81 16.0 102.0 105. 1.785 17.50 1.03 17.00 3,995.8 7,160 114,705 28.71 1.79 io0n LERL 5,000. 2 10,300 147,325 29.00 2.03 14.30 9092 1,95 27.295 30.02 2.14 14.00 5,989.4 12Z250 174.820 29.15 2.05 14.25 vw"le 3,411.3 7.837 102Z339 30.00 2.24 '13.40 1,085.0 1,907 2.8,25 25.00 1.87 13.40 4,476.3 9,824 128,984 28.811 2.15 13.40 Uimuo 3,9. 8576 110,19 29.00 2VI 12-85 - 10,19 j 2000 2.28 12.85 DELERARA 18,185.2 33,560 47Z.781 29.21 2 07 14.08 2,076.2 4,042_j55,705 26.83 1.95 13.76 18,261.4 37,610 528,486 28.94 2.06 14.05 INDOUSTRY 38.390.9 90,744 1,177,758 30.68 236 1298 3,304.3 6,546 86,022 26.03 1.98 13.14 41,695.2 07,29 1,283,780 30.31 2.33 12.99 2- - a - - a -9-3 Skskion 8,268.4 1a,196 218,292 34.51 2.56 13.35 621.9 1,310 17,410 27.99 2.11 13.29 6,8903 17,506 233,702 33.92 2.54 13.35 . Albon 11,774.9 31,039 381,474 33.83 2.75 12.29 705.3 1,163 14,435 20.47 1.65 12.41 1 1,960.2 32,202 395,909 33.05 2.a0 1229 Bose HeA 8,311.9 20,900 265,961 32.00 2.52 12.72 898.0 2,287 26,736 32.00 2.52 12.68 9,209.9 23,170 294,717 32.00 2.52 1272 Blkuimiot J.68. 1.5 24.2 36.50 2 78 13.11 _____ 3 18!,53 I 4,2 36-50 2.78 13.11 BERBiCE 32,513.5 86.677 1,106,772 34.04 287 12.77 Z,225.2 4,740 60,581 27.22 2-13 12.78 34,738.7 91,417 1,167,353 33.6 2.63 12.77 Ernx" ~ 5,51 4.4 10,500 185,430 30.00 1.90 15.76 195.5 215 3,8f70 19.80 1.10 18.00 5,709.9 10,715 1a9,300 29.65 1.88 15.80 LELL 7,491.1 15.570 217,915 29.09 2-06 14.00 1,549.5 3,355 46,955 30.30 2-17 14.00 9,040.6 18.925 284.870 29.30 2.09 14.00 vweIs 3,709.7 8,305 111,291 30.00 2.24 13.40 1,75-3.7 3,272 43,843 25.00 1.87 13.40 5,463.4 11,577 155,134 28.40 2.12 13.40 U0L 0 .2. 2.5 6-S 2.1. 6.020.5 8 2,56 162,835 27.0 210 12.85 _____ __ __~~23 71 2.10 1285 DEMERAPA 22,735.7 47,031 857,271 28.91 2 07 13.98 3,498.7 8,842 94,668 27.06 1.96 13.84 26,234.4 53,873 751,939 28.68 2.O5 13.96 IN4XJSTRY 55,.249.2 1133,708 1,784,043 31.93 J2.42 13.19 5,723.9 11,582 155,249 27.12 202 13.40 60,973.1 145,290 1,919,292 31.48 238 13.21 YEAR - i 9 a Skwldon 10,481.5 26.823 351,102 33.50 256 13.09 107.9 1,554 20,506 28.97 2.20 13.19 11,189.4 28,377 371,607 33.21 2.54 13.10 Abion 18,271.7 49,286 601,374 32.91 270 12.20 1,200.4 1,913 23,535 19.61 1.59 12.30 19,472.1 51,201 624.Wg 32.09 2.63 12.21 ROSe Hall 14,483.6 35,259 438,228 30.30 2 44 12.43 1,545.0 3,T777 46,858 30.33 2.44 12.41 16,008.6 39,036 4815,086 30.30 2.44 1243 Blffairot 11,50. 3485 42.4 3.60. 282 12.98 11.502.4 - j~ 32.485 42.4 350 2.82 12.96 8ER8KCE 54,719.2 143,855 1,811,749 33.11 2.63 12.59 3,453.3 7,244 90,896 26.32 2.10 12.55 58,17-2.5 151,099 1,902,647 32.71 ZO60 12.59 O nri Ernmor 9,408.2 17,555 278,350 29.59 1.87 15.86 297.5 320 5,655 19.01 1.08 17.67 9,705.7 17,875 284,005 29.28 1.84 15.19- >< L81I. 12, 571.3 25.870 365,240 29.05 2 06 14.12 2,458.7 5,305 74,250 30.20 216 14.00 15,030.0 31,175 439,490 29.24 2.07 14.10 ,, WeIss 7,121.0 15,942 213,630 30.00 2.24 13.40 2,816.7 5,258 70,488 25.00 1.87 13.40 9,939.7 21,201 284,096 28.58 2.13 13.40 ui gt 21 232 27.3 27.78 2-18 12.85 ____20A 2123 272.832 27.78 2.16 1285S DEkIERAFIk 3B,92.9 a0,599 1,130,052 29.03 2097 14.02 15,574.9 110,884 150,373 26.97 1.95 13.82 44,495.8 9 1,483 1,260,425 28.78 2.06 14.00 INDUSThY 9,4. 224,454 Z,941,801 14 4 13.11 19,028.2 118,126 [ 241,271 _26.72 2.01 13.31 10,8.322582_ 3,163,07 31.00 2.36 113.12 -43 - ANNEX 1 Table 2 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT GUYSUCO CAPITAL BUDGET 1993 SUMMARY Foreign Foreign Local Total Total Exchange Exchange Currency G$M Equivalent US$'000s G&M G&M II Capital expenditure to be financed from GuySuCo's operating income 10,624 1,328 930 2,259 18.1 Factory capital expenditure to be financed through suppliers' credits 3,733 467 31 487 3.9 Factory capital expenditure to be financed through World Bank 1,986 248 25 274 2.2 Rehabilitation of drainage and irrigation pumps to be financed through Caribbean Development Bank 1,981 248 12 260 2.1 18,324 2,291 998 3,280 26.3 Agriculture and Field Structure 5,105 639 501 1,140 9.1 Factory 12,272 1,534 188 1,712 13.7 Administration 948 118 309 428 3.4 18,325 2,291 998 3,280 26.2 ===== ==== =-==-, . SUMMARY OF CAPITAL BUDGET, 1993 Table 2 44 T Foreign Foreign Local Total Total Exchange Exchange Cuirrency G$M equiv. US$'000s G$M G$M in US$M …________ ---------.____. _ Berbice Region Agriculture 1,576 197 313 510 4.1 Factory 4,093 512 97 609 4.9 Administration 0 0 107 107 0.9 5,669 709 517 1,226 9.8 Demerara Region _______________ Agriculture 1,548 194 176 369 3.0 Factory 2,459 307 35 343 2.7 Administration 0 0 67 67 0.5 4,008 501 278 779 6.2 Central Services ________________ Administration 948 118 135 254 2.0 GLUYSUCO Agriculture 3,124 391 489 879 7.0 Factory 6,553 819 132 951 7.6 Administration 948 118 309 428 3.4 10,624 1,328 930 2,259 18.1 Source: GUYSUCO 16-Jan-93 GUYANA SUGAR CORPORATION 45 X 1 --------------~~~~~~~~ 45 TaNNeX 2 CAPITAL BUDGET 1993 Table 2 ___________________ BERBICE REGION ______________ Foreign Foreign Local Total Total Exchange Exchange Currency G$M equiv. US$'000s G$M G$M in US$M Skeldon Estate ______________ Agriculture 217 27 57 84 0.7 Factory 763 95 8 103 0.8 Administration 0 0 30 30 0.2 980 122 95 217 1.7 Albion Est-te _____________ Agriculture 593 74 105 180 1.4 Factory 598 75 19 94 0.7 Administration 0 0 31 31 0.3 1,191 149 155 304 2.4 Rose Hall Estate ________________ Agriculture 331 41 73 114 0.9 Factory 1,241 155 55 210 1.7 Administration 0 0 25 25 0.2 1,572 197 152 349 2.8 Blairmont Estate ________________ Agriculture 345 43 74 118 0.9 Factory 1,491 186 16 202 1.6 Administration 0 0 16 16 0.1 1,836 229 106 336 2.7 Regional Management Agriculture 89 11 4 15 bv1 Factory 0 0 0 0 0.0 Administration 0 0 5 5 0.0 89 11 9 20 0.2 BERBICE REGION Agriculture 1,576 197 313 510 4.1 Factory 4,093 512 97 609 4.9 Administration 0 0 107 107 0.9 5,669 709 517 1,226 9.8 16-Jan-93 _ _ _. v GUYANA SUGAR CORPORATION - 46 - ANNEX 1 Table 2 CAPITAL BUDGET 1993 …_ __ _ _ _ _ _ _ _ _ _ _ _ DEMERARA REGION _______________ Foreign Foreign Local Total Total Exchange Exchange Currsncy G$M equiv. US$'O00s G$M G$M in US5M Enmore Estate _____________ Agriculture 337 42 37 79 0.6 Factory 672 84 4 88 0.7 Administration 0 0 3 3 0.0 1,009 126 45 171 1.4 LBI Estate- __________ Agriculture 387 48 43 92 0.7 Factory 545 68 8 76 0.6 Administration 0 0 17 .17 0.1 931 117 68 185 1.5 Wales Estate Agriculture 337 42 44 86 0.7 Factory 459 57 5 62 0.5 Administration 0 0 24 24 0.2 796 99 73 172 1.4 Uitvlugt Estate _______________ Agriculture 461 58 45 102 0.8 Factory 784 .98 18 116 0.9 Administration 0 0 23 23 0.2 1,245 156 86 241 1.9 Regional Management ___________________ Agriculture 27 3 6 10 0.1 Factory 0 0 0 0 0.0 Administration 0 0 0 0 0.0 27 3 6 10 0.1 DEMERARA REGION _______________ Agriculture 1,548 194 176 369 3.0 Factory 2,459 307 35 343 2.7 Administration 0 0 67 67 0.5 4,008 501 278 779 6.2 16-Jan-93 ANNEX 1 Table 3 -.47- a GUYANA SUGAR CORPORATION LTD 1993 FACTORY PROJECT RANKING January 18. 1993 Rxchange Rate GS 125 * US $1.00 t.n.n, 2 .......= ........ l .... *ISSSSSUUUSax ... *SUCSSSSU.3t3. Sa ........... Capital : : U.S. :U.S.DOLLAR Description : budgt :Quantity Dollars Local Total [CUMULATIVE :Idont N0 US,000 06,000 C6,000 I TOTAL ............... ..... ....... 1 :Punt dumper, feed table, cross carrier, : sC : 1,603530 11,471 140,883 1,127.07 2 2 HU Turbo alternator met RH 1 1,050.00 11,563 142,813 2,269.57 3 Steam receiver boil-r manifold AN I 48.30 302 6,339 2,320.28 4 :Powerhouse steam receiver AIN 1 36.75 230 4,823 2,358.87 5 :3 sets Boiler water management controls AN 3 267.75 1,673 35,142 2,640.01 6 :3 met. Boiler water sanagement controls sC? 3 267.75 1,673 35,142 2,921.14 7 2 mets Boiler water management controls CNP 2 212.00 1,325 27,825 3,143.74 8 :Boiler low level trips RH 3 3.00 11 394 3,146.89 9 :Low level trips for boilers 2 a 3 SYR 2 1.70 11 223 3,148.68 10 Pressure reducing/desuperheating station: AN 1 17.00 106 2,231 3,166.53 11 Alternator synchronising panel : AN 1 4.00 25 525 3,170.73 12 750 KW High speed Cat diesel alternator t EHP 1 234.00 1,463 30,713 3,416.43 :st (electrification of drainage pumps) : 13 :Low grade Broadbent continuous fugala Cv 2 150.00 2,938 21,688 3,589.93 14 High Grade Centrifugal$ (Battery of SWR 3 520.00 8,250 71,250 4,151.93 Three) 15 :Turbine driven boiler feed pump AN 1 S4.40 340 7,140 4,217.05 16 :Boiler feed pump (Electric) L.B.I. 1 46.00 2868 6,038 4,26S.35 17 :Electrical driven boiler foed pump SWR 1 32.30 202 4,239 4,299.26 18 Boiler feedwater pump (Electric) IC6u 1 47.60 298 6,248 4,349.24 19 Turbo driven boiler feed pump V 1 46.60 t91 6,116 4,398.17 20 75 HP Woutid rotor motor for bagasse carr: N 1 5.00 31 656 4,403.42 21 :Rebuild No 1 Chimney L.B.t. 1 112.00 5,700 19,700 4,561.02 22 'Screened Juice pumps AN 2 21.25 133 2,789 4,583.34 23 NH.G. assecuite pumps AN 2 28.00 175 3,67S 4,612.74 24 General mervice water pumps AN 2 1.30 96 2,008 4,628.80 25 :Nill sump pump H 1 7.65 48 1,004 4,636.83 26 :General service water pump RN 2 13.60 8S 1,785 4,651.11 27 :Screened Juice pumps L.3.I. 2 38.00 238 4,988 4,691.01 28 Clear Juice pumps L.B.3. 2 40.00 250 5,250 4,733.01 29 :Surplus condensate pump L.I.I. I 11.00 69 1,444 4,744.56 30 :nud pump L.B.I. 2 18.00 113 2,363 4,763.46 31 :Hot water pump L b 2 .00 S0 1,050 4,771.86 32 Raw water pump L.b.I. 2 21.50 134 2,822 4,794.44 33 :naosecuit* pump & drive L.B.I. 1 34.20 214 4,481 4,830.35 34 Vacuum pump & drive tCL403) L.B.I. l 3 55.40 346 7,271 4,888.52 35 :L"'; grade mollasss pu m Lp : I 1 14.00 U 1,838 4,903.22 36 ''iltrate pumps L..I. 2 14.40 s0 1,890 4,918.34 37 :H.G. molasses punp cv 1 11.00 61 1,444 4,129.89 38 :Injection water pump CV I 28.00 17S 3,675 4,959.29 39 Magma pump Cv I 33.60 210 4,410 4,994.57 40 :Juice mupply pumps (clarified Juice) ICIu 2 40.00 250 S,250 S,036.57 41 namsecuite pump IC3u 1 34.20 214 4,489 5,072.48 42 :Mud pumps (weaco) ICu 2 18.00 113 2,363 5,091.38 ANNEX 1 -48- Table 3 43 Filtratp pumipoi iwemco) ICau 2 14.40 go 1,890 5,106.50 44 :Mill bed pimpn SWUR 4 31.28 196 4,106 : 5,139.34 45 :C1n^irfiol JtC Aic umln swR 2 14.45 90 1,997 5,154.51 46 :Syrup pumps sla 2 _t.1.58 47 995 5,162.48 47 :InJection water pumps SWR 2 8.50 53 1,116 5,171.40 48 :Condensate pumps SWit 2 8.50 53 1,116 5,180.33 49 General servico water pumps SWRI 2 14.45 90 1,897 5,195.50 50 :L.C. Mnnqoc uite pumps sWa 1 23.80 149 3,124 5,220.49 Sl :Molasses shipping pump CV 1 18.00 113 2,363 5,239.39 52 :Potabla woiter pump cv 1 15.00 94 1,969 5,255.14 53 :Blanco Directo sugar filtration system ICBu 1 250.00 3,563 34,813 5,533.64 54 :Broadbent white sugar centrifugal ICBu 1 180.00 2,125 24,625 5,730.64 55 4500 RPM Skato Skalo machines AN 5 8.30 52 1,089 5,739.35 5 s 4snO RIl'! Skatr) Skit](, mniclii,e L.B.I. 2 3.60 23 473 5,743.13 57 4500 RP'l Skato SkRlo machines SWR 6 10.00 63 1,313 S,753.63 58 Automatic baggintg scales S'lR 2 9.45 S5 1,240 5,763.56 59 :Stitchinq marhii,e & conveyor swit 2 15.75 98 2,067 5,780.09 60 Reverniblt st,.ckitng co,iveyor SUlt 2 20.00 125 2,625 5,801.09 61 Automatic bagging scale Rcr 2 9.45 59 1,240 5,811.02 62 :Stitching macihine & conveyor 8cr 2 15.75 98 2,067 5,827.55 63 Reversible stacking conveyor scr 2 20.00 125 2,625 5,848.55 64 AuLomatic bagging scales L.B.I. . 2 9.45 59 1,240 5,858.48 65 Stitchirig machine & conveyor L.B.I. 2 15.75 98 2,067 5,875.01 6G Reversible stacking conveyor L.B.I. 2 20.00 125 2,625 5,896.01 67 Automatic bagging scale RH 1 4.73 30 620 5,900.97 G8 SLichiliq machln,l & coniveyor RH 1 7.88 49 1,034 5,909.24 69 Reversible stacking conveyor RH 1 10.00 63 1,313 5,919.74 70 :Automatic bagging scales ICEu 2 9.45 S9 1,240 5,929.67 71 :Stitching machine & conveyor ICiu 2 15.75 98 2.067 5,946.20 72 :Revernihle. stncking conveyor IC3U 2 20.00 125 2,625 5,967.20 73 :Ceneral sevice air compressor 300cps AN l 37.02 231 4,859 6,006.07 74 300 PSI Air compressor RCr I 13.00 81 1,706 6,019.72 Hope Pumo station : 75 :Starter for Hope drainage pump EHP I 14.80 93 1,943 6,035.26 :Foulis pump station 76 Electric driven priming pump IEH l 4.80 30 630 6,040.30 IStrathsoev yump station : 77 Electric driven priming pump EHP 1 4.80 30 630 6,045.34 :Annandale Pump station 78 Diesel Iriven air start compessor EMP 1 9.00 56 1,181 6,054.79 'C ood11pe Dump satat io 79 :Diesel driven air start compessor EHN 1 9.00 56 1,181 6,064.24 IL.R. pump station 80 :Rotor resistance for 250HP motor L.8.1. 15.00 94 1,969 6,079.99 81 vacuum priming pump L.9.1. 5.00 31 656 6,085.24 :Montrose pump station 82 :Diesel air start compressor L..I. 1 9.00 56 1,181 6,094.69 83 :Vacuum ptriming pump L.9.1. 1 5.00 31 656 6,099.94 OC1le p my statinn 84 Vacuum priming pump L.9.1. 1 5.00 31 656 6,105.19 85 :Modifications to bagasse distribution :system IC8u 1 10.00 7,063 8,313 6,171.69 86 :ACB for Elliot IOOOKVA T/A *-t I H? I 38.00 238 4,988 6,211.59 87 1600 asmp ACB's for the power house mAin Ipanel tHP 3 S.00 56 1,181 6,221.04 Rl :A00 nml, Air * I-iuil b reaker Ip/hn.,n*) IClu I 3.20 20 42n 6,224.40 ANNEX 1 49 Table 3 89 Revetment for water intake AN 1 15,000 15,000 6,344.40 90 Repairs to revetment RH 12,000 12,000 6,440.40 91 :Repairs to factory cold water inlet duct: cr 1 1,550 1,550 6,452.80 92 :T.I.G. Welding set for welding atainl-ass C.C.C. 1 : 4;76 17 362 6,455.70 93 Portable balancing machin- (Shi-nk) .c.c. I 4.14 26 544 6,460.05 94 2 tonne Light truck i.C.C. 1 24.61 154 3,230 6,485.89 95 :High speed power metal saw i.C.C. 1 10.00 63 1,313 6,496.39 96 :Pneumatic hand grinders C C.C. 4 3.10 19 407 6,499.64 97 :Knife grinding machine i.C.C. I 10.00 63 1,313 6,510.14 98 :Extentini to building for rehabilitating: carrier chain C .C.c C I 5,000 5,000 6,550.14 99 :Horizontal boring machine (second hand) I.C.C. 1 51.00 319 6,694 6,603.69 100 Service vehicle for iCC fabrication Eng. t.C.C. 8.00 50 1,0SO 6,612.09 101 :100 toune llyydraulic press E.C.C. I 11.00 69 1,444 6,615.24 102 Welding plants PROJECT 4 15.00 94 1,969 6,630.99 103 Lifting Tackle PROJECT 1 4.00 25 525 6,635.19 104 iHydraulic Jacks PROJECT 2 2.50 16 326 6,637.82 tOS tMagietic base dIrill., PROJECT 2 3.50 22 459 6,641.49 106 Angle grinders PROJECT 4 3.00 19 394 6,644.64 107 Dumpy level PROJECT 1 1.50 9 197 6,646.22 108 :Concrete mixers PROJECT 2 15.00 94 1,969 6,661.97 109 Dumper PROJECT I 12.00 75 1,575 6,674.57 110 Oxy-acetalene cutting equipment PROJECT 1 1.50 9 197 6,676.14 111 Air compressor PROJECT 1 20.00 125 2,625 6,697.14 112 Vibrators PROJECT 2 2.00 13 263 6,699.24 113 Pumps PROJECT 2 10.00 63 1,313 6,709.74 114 Woodward governor test rig DIESEL I 36.00 225 4,725 6,747.54 115 :High pressure hot water cleaners DIESEL 2 5.00 31 656 6,752.79 116 Alfa Laval oil centrifuge DIESEL 1 10.00 63 1,313 6,763.29 117 rPortable balancilig machine (Shienk) DIESEL I 2.50 16 328 6,765.92 118 Crystalliser drives RH 5 27.00 169 3,544 6,794.27 119 Low grade crystaliser drives SWR 1 20.40 128 2,678 6,815.69 120 worm & Wheel drives for crystallisera cv 3 17.50 109 2,297 6,834.06 121 lSS HP Resistance starters AN 2 11.80 74 1,549 6,846.45 122 Replacement boiler ID fan motors CHP 2 88.80 55S 11,655 6,939.69 123 Powerhouse roof replacement BCF 1 47.25 295 6,202 6,989.30 124 40HP motors for cane carrier drives ICBu 2 15.00 94 1,969 7,005.05 125 Size 914 H&F eddy current couplings ICu 2 31.60 198 4,148 7,038.23 12G Cnthodic piotection system for steel piles, piemilling, boilers, wharf. cv 3 27.00 169 3,544 7,066.58 127 Engine for tug friendship cv I 12.00 75 1,575 7,079.18 128 Replacement boiler ID & FD damper :controls EHP 2 22.60 141 2,966 7,102.91 129 Sootblower valves 6BC 12 60.00 375 7,875 7,165.91 130 Farval Crease lubrication pump BCF I 3.00 19 394 7,169.06 131 Digital clip on ammeter :ELECT/INS: 4 1.90 12 249 7,171.06 132 Digital megger :XLECTlINS: 4 18.00 113 2,363 7,189.96 133 Light meter :ELECT/INS: I .60 4 79 7,190.59 134 Dual DC voltage stabiliser :ELECT/INS: 1 2.10 13 276 7,192.79 135 Anologue AVO motor CELECT/INS: 3 4.00 25 525 7,196.99 136 Industrial semi conductor tester :ELECT/INS: I 3.00 19 394 7,200.14 137 :Digital multi tester :tLECT/INs: 3 8.00 50 1,050 7,208.54 138 Precision slide wire potentiometer :ELECT/INS: 1 3.00 19 394 7,211.69 139 Vacuum tester IELECT/INS: I 1 .80 5 105 7,212.53 140 :Low resistance ductor :ELECT/INS: 1 2.00 13 263 7,214.63 141 Sorte toqt-r EI.ECT/INS: I 16.00 100 2,100 7,231.43 so ANNEX 1 Table 3 142 :Core tester :ELECT/INS: I 16.00 100 2,100 7,248.23 143 H.T. Live line tester :ELECT/INS: 2 4.00 25 525 7,252.43 144 High voltage *egger :CLZCT/INS: 1 3.00 19 394 7,255.58 145 Earth loop resistance megger :ELZCT/INS 2 _2.00 13 263 7,257.68 146 :L100 Pick up vehicles :ELECT/INS: 2 28.00 175 3,675 7,287.08 147 :Electric motor stripjing tank :ZLECT/INS: 1 12.00 75 1,575 7,299.68 148 Platform scals for weighing copper wir.s:zLECT/INS 1 4.50 28 591 7,304.41 149 :Steam traps AN 20 27.00 169 3,544 7,332.76 150 Power house fuel pumps AN 2 10.71 67 1,406 7,344.01 151 Rehuilding molasses tank :ICDu 1 30.00 3,188 6,938 7,399.51 152 :Boiler steam manifold ICBu I 24.00 150 3,150 7,424.71 153 Power house steam receiver ICBu I 19.00 119 2,494 7,444.66 154 :ISKVA transformer for security lighting ICBu 1 3.00 19 394 7,447.81 155 Emergancy lightinig nystr, L.B.I. I 20.00 125 2,625 7,468.81 156 :Emergancy Lighting unit CV 1 20.00 125 2,625 7,489.81 157 :Water flow meter (Magflow) cv 1 6.00 38 788 7,496.11 158 :Molasses shipping tank cv I 40.00 250 5,250 7,538.11 159 Portable welding plant (engine driven) RH I 7.00 44 919 7,545.46 160 :Repairs/Rebuild housing (pump stations) RH 25,000 25,000 7,745.46 161 Dead weight pressure gauge tester RH 1 7.00 44 919 7,752.81 162 :Vncuum gauge tester RH 1 5.00 31 656 7,758.06 1G3 :Sugar hag cho,ck scale : RH 1 8.00 50 1,050 7,766.46 164 :Fuel meters RH *S 4.80 30 630 7,771.50 165 ,Laboratory water still RH I 2.00 13 263 7,773.60 166 Slurry mill RH 1 3.00 19 394 7,776.75 167 :Miller welding plants EHP 2 6.60 41 866 7,783.68 168 Vacuum tester L.B.I. 1 3.00 19 394 7,786.83 169 Dead weight tenter L.B.I. 1 2.60 16 341 7,789.56 170 Gas Detector cv 1 1.00 6 131 7,790.61 171 Vacuum gnuge tester CV I 3.00 19 394 7,793.76 172 Dead weight, pressure gauge tester V 1 2.60 16 341 7,796.49 173 Office Furniture & equipment :HiOrFICE 150 150 7,797.69 174 ,Desktop computers c/w with printers :HIOFFIC: 2 3.00 150 525 7,801.89 175 'Airror,ditio,ern :HIOvrIC: 3 1.50 150 338 7.804.59 176 'Office furiniture RECIONAL 500 500 7,808.59 177 Desk top computer & printer :RECIONAL 2 3.00 19 394 7,811.74 178 Referen,ce text books :RECIONAL 2 2.00 13 263 7,813.84 179 Drawing board :RECIONAL 2 .50 3 66 7,814.36 180 :Boiler chemical dosing system SWR I 5.00 31 656 7,819.61 181 :Wet disintigrator SWR 1 15.30 96 2,008 7,835.68 192 Moisture teller SWR 1 4.46 28 585 7,840.36 183 :Wet disintigrator AN 1 15.30 96 2,008 7,856.42 181 Moisture teller AN I 4.46 28 585 7,861.11 185 Wet disintigrator RH 1 15.30 96 2,008 7,877.17 186 tMoisture teller RH 1 4.46 28 585 7,881.85 187 75 HP' Wutiid rotor motor for bagasse RH I 5.00 31 656 7,887.10 :carrier 7,887.10 118 Wet disintigrator : C? 1 15.30 96 2,008 7,903.17 189 :MoIstil,,* tellrr : BC 1 4.46 28 585 7,907.85 190 'uet disittigrator cv 1 15.30 96 2,008 7,923.92 191 Over head hoist for H.C. fugal cv 1 14.00 88 1,838 7,938.62 192 Wet disintigrator ICBu 1 15.30 96 2,008 7,954.68 193 :Mnisture teller ICBu 1 4.46 28 585 7,959.37 SUB TOTAL: 6,884 135,496 995,971 7,967.77 ...........S.....22 2..lSS ANNEX I Table 3 : SUPPLIERS CREDIT 194 2 sets Superheater tubes (boilers 1 2): AN 2 79.80 499 10,474 2 83.79 195 21 set Superhester tubes for boiler S Rif 1 2 :00 306 6,431 135.24 196 Retube No4 boiler : RH ' 70.00 438 9,188 208.74 197 :Replacement main bank tube. boilers L.I.I. 1 163.00 1,019 21,394 379.89 3 & 4 2 198 2Retube No 3 Boiler C? 1 : 122.00 763 16,013 507.99 199 Generating bank & superheater tubes ICBu 2 359.00 2,244 47,119 884.94 :Nn I . 3 bollern 200 2One net gRererntting bank tubes for Sn 1 2 207.40 1,296 27,221 1,102.71 2hoilern I & 2 / 1/2 net each) 201 :Main bank tubes boiler Nol 1-set cv 1 16.00 1,163 24,413 1,298.01 202 DMain batik tube.n boiler No2 I-set cv 1 135.00 844 17,719 ' 1,439.76 203 Upgrade No S boiler lCBu 1 820.00 8,125 110,625 2,324.76 204 400 Kw stanby diesel generator set r.C.C. .1 180.00 1,125 23,625 2,513.76 205 :Hydraulic press for assembly of carrier chairl E.C.C. 1 51.00 319 6,694 2,567.31 206 Ovle replacement Cat engine for mobile Cn2 DIESEL 1 65.00 406 8,531 ' 2,635.56 207 Punt dumper, feed table, cross carrier, ICBu 1 1,246.00 12,788 168,538 3,983.86 & repositioned knife foundation. sstts. 5s.--a-t--. nasssa. .: . .a..at.... SUB TOTAL: 3,733.20 31,333 497,983 3,983.86 2 :DRAINAGE & IRRIGATION PUMP5 - CDB2 208 Cat 250HP Diesel & C/box Sandaka - CDBD SWR 1 61.50 384 8,072 64.58 ' 209 ,Electrification of water pump - CDB2 AN 1 319.90 1,999 41,987 400.47 , 210 2250 HP Cat engines - CDBD RH 3 153.00 9S6 20,081 561.12 ' 211 ElectrIc motors fov Bath pumps - CDB2 sC2 2 154.60 966 20,291 723.45 Strathspev nump station : 212 22 Sets of motors & starters 250HP - CDB2 EHP 2 395.70 2,473 51,936 1,138.94 :& Upgrade power transmission line : i Žt.E3fP t stAtioul ' 213 Drainage pump c/w motor & starter - CDR: EHP 2 176.60 1,104 23,179 1,324.37 100 tonnes/min 2 Montrose DumD station (Old * New) 214 :Replace prime movers - CDB2 4 194.40 1,215 25,515 2 215 :Replace pumps - CDB2 4 525.00 3,281 68,906 ' SUB TOTAL: 1,980.70 12,379 259,967 2,079.74 - ssaasas.ssa.aa.s..s....... 21993 WORLD BANK FUNDING 2 2 2 2 2 216 :High Grade Centrifugals (Battery of 3) sBC 3 520.00 6,347 73,284 2,911.04 217 22.5 NW Turbo alternator set Swi 1 1,400.00 13,750 188,750 218 Transfer SWR I Mw Allen T/A to CV cv 1 50.00 5,313 11,563 : * . I saasa.asa.....saa. a.a SUB TOTAL2 1,985.50 25,409 273,597 2,188.78 ~~~~.... xn... a..S. ... *..X.- -- :; : :f * 5 3 5 55 3 5 * 5 * :33:3:3:55 . . * . . .~~ ~ ~ ~ ~~~~~~~~~~ . * , : : : : : : : : : : : 5 ANNEX 1 -S52 - Table 3 :1994 WORLD BANK FUNDING 219 '2.5 KW Turbo alternator set dA 1 5 1, V0.00 13,750 188,750 220 '2.5 MW Turbo alternator set : ci : I 1,400.00 13,750 188,750 221 2.5 1W Turbo alternator not : KF : 1 1,400.00 13,750 188,750 222 'Replace obsolete mill & knife turbin-- AN : 4 : 674.10 9,213 93,476 : 223 :750 Kw High speed Cat diesel alternator AN : 1 : 234.00 1,463 30,713 .............................. ........... SUB TOTAL: 5,108.10 51,926 690,438 5,523.51 * .. * * .*. n * . . * . . , ~~~~~~~~~~~~~~~~~............a......... ..*...!... x.................-,-s CRAND TOTAL: 17,711 244,163 2,457,988 19,663.91 | ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~'asztsssmurstsz.:a:..ns:.z=::.,*.ssa=thr.r- SAH/Issue 3/January 18, 1993 Source: GUYSUCO Note: Small discrepancy with Table 2 of this Annex -53 ANNEX I Table 4 GUYANA SUGAR CORPORATION ________________________ OPERATING BUDGET 1993 _____________________ PROFIT & LOSS ACCOUNT _____________________ Latest US$ per Estimate Equivalent ton of 1992 Schedule G$M US$'000s sugar REVENUE 16,522 Sugar Sales 4 15,229 121,836 502 371 Molasses Sales 5 435 3,483 14 16,893 15,665 125,319 517 EXPENSES 9,622 Estates operating costs 6 9,566 76,531 315 1,600 Central costs 7 1,973 15,787 65 198 Interest 100 800 3 11,420 11,640 93,118 384 EXPENDITURE BY TYPE ___________________ Employment costs 5,107 40,854 168 Cane purchases 785 6,279 26 Materials 4,011 32,085 132 Services 1,358 10,866 45 Depreciation 449 3,591 15 Sundry revenue (170) (1,356) (6) 11,540 92,318 381 Interest 100 800 3 11,640 93,118 384 5,473 PROFIT BEFORE LEVY & TAXATION 4,025 32,201 133 ====== _____ ____ ____ _____ ____ __-= ====-=====-== 32.4% Profit as % of turnover 25.7% 100.8% Return on Capital Employed 57.2% - 54 - ANNEX 1 Table 4 GUYANA SUGAR CORPORATION ________________________ OPERATING BUDGET 1993 _____________________ ESTATES OPERATING COSTS _______________________ Cost per ton of Equivalent Production sugar Schedule G$M US$'000s tonnage US$ Skeldon 8 1,032 8,257 28,377 291 Albion 9 1,671 13,368 51,201 261 Rose Hall 10 1,382 11,055 39,036 283 Blairmont 11 1,103 8,826 32,485 272 Total Berbice Estates 5,188 41,505 151,100 275 -Berbice Regional costs 34 272 2 Total Berbice Region 5,222 41,778 151,100 276 Enmore 12 875 7,003 17,875 392 LBI 13 1,487 11,894 31,175 382 Wales 14 1;004 8,034 21,201 379 Uitvlugt 15 934 7,468 21,232 352 Total Demerara Estates 4,300 34,399 91,483 376 Demerara Regional costs 44 354 4 Total Demerara Region 4,344 34,753 91,483 380 TOTAL ESTATES OPERATING COSTS 9,566 76,531 242,584 315 ANALYSIS BY DEPARTMENT Agriculture 6,668 53,347 220 Factory 1,951 15,611 64 Administration 938 7,507 31 Diversified Crops 8 66 0 9,566 76,531 315 ANALYSIS BY TYPE Employment costs 4,167 33,333 137 Cane purchases 785 6,279 26 Materials 3,647 29,175 120 Outside services 595 4,756 20 Intra GuySuCo charges (net) 83 663 3 Depreciation 314 2,511 10 Sundry revenue (23) (186) (1) 9,566 76,531 315 - - ANNEX 1 GUYANA SUGAR CORPORATION. Table 4 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - OPERATING BUDGET 1993 _____________________ CENTRAL COSTS Latest Cost per Estimate Equiv. ton sugar 1992 G$M US$'OOOs US$ ANALYSIS BY ACTIVITY ____________________ 959 Marketing, Administration 646 5,170 21 & Services 467 Fiqance 384 3,076 13 70 Personnel & Industrial 780 6,237 26 Relations 258 Technical 195 1,559 6 45 Demerara Sugar Terminals 68 545 2 1,798 2,073 16,587 68 ANALYSIS BY TYPE Employment costs 940 7,521 31 Materials 364 2,909 12 Outside services 740 5,919 24 Intra GuySuCo charges (net) (59) (472) (2) Depreciation 135 1,080 4 Revenue (146) (1,170) (5) 1,973 15,787 65 Interest 100 800 3 2,073 16,587 68 - 56 - ANNEX 1 Table 5 GUYANA SUGAR INDUSTRY RESTRUCTURING PROJECT Procurement Table (US$ '000) Project Element ICB LCB Other & NBF Total 1. Vehicles, Machinery, 19.0 - 11.1 3.4 33.5 Equipment and Spare (10.5) (3.5) (.0) (14.0) Parts (includes 40% of administration costs) 2. Consultancies - - 1.0 - 1.0 (1.0) (1.0) 3. Civil Works - - - 3.0 3.0 (.0) (.0) 4. Administration - - - 3.0 3.0 (.0) (.0) TOTAL 19.0 - 12.1 9.4 40.5 (10.5) (-) (4.5) (-) (15.0) Note: Figures in parentheses are the respective amounts financed by the credit. i Limited international bidding and international shopping (US$11.1 million). Source: Mission - 57 - ANNEX 1 Table 6 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Disbursement Table Amount of the % of Expenditures Category Credit Allocated to be (US$'000) Financed (1) Vehicles, Machinery, 13.0 100. % of foreign expenditures Equipment and Spare Parts (2) Consultancy Services 1.0 100. % of foreign expenditures (3) Unallocated 1.0 TOTAL 15.0 - 58 - ANNEX 1 Table 7 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Estimated Schedule of Disbursements Projected Cumulative IDA Disbursements Fiscal Year Quarter Ending (US$'000) 1994 December 31, 1993 1.5 March 31, 1994 4.0 June 30, 1994 6.0 1995 September 30, 1994 7.0 December 31, 1994 9.0 March 31, 1995 10.0 June 30, 1995 12.0 1996 September 30, 1995 14.0 December 31, 1995 15.0 Source: Mission - 59 - ANNEX 2 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Structure, Operations and Profitability of GUYSUCO 1. This annex evaluates the impact of the project on the sugar industry's overall operations, including the financial rate of return on project investments. Background information on GUYSUCO, including its past performance is presented first. A. THE COMPANY Corporate Form and Ownership 2. GUYSUCO, which (following the nationalization of the sugar industry in 1976) was incorporated as a limited liability company, has an authorized capital of G$ 500.0 million, involving 500 million ordinary shares at G$ 1 of which 498.5 million shares have been issued, all being held by the Govemment. Management and Staffimg 3. GUYSUCO's decision-making body is the seven-member Board of Directors, which decides upon all matters of policy and reviews annual financial plans and budgets. It comprises a Chairman, who is appointed by the President of Guyana, three Government and two GUYSUCO nominees from the private sector and the Chief Executive of GUYSUCO as an ex-officio member. The Chief Executive, who manages the day-to-day operations of GUYSUCO, is supported by eight directors (Personnel, Industrial Relations, Marketing and Administration, Finance, Technical (one each for factories and agriculture) and Regional (one each for Berbice and Demerara). Each estate has an Administrative Manager which reports to the Regional Director. 4. The Regional Directors are responsible for the production and profitability of four estates. Estate Administrative Managers are, in turn, responsible to the Regional Directors for the production and financial targets of individual estates. Technical support for operations is provided through specialist staff based in the regions, who are responsible to the Regional - 60- ANNEX 2 Directors but receive technical guidance from their respective Technical Directorates. 5. GUYSUCO's current organizational structure was modified in 1991. Its total employees and workers of 27,588 include 9,757 cane harvesters, 11,196 other field workers and 1,828 factory workers (Table 1). About 80% of this number are considered permanent workers (i.e., those who work 75% of the time available to them). 6. Management Team. The current Chief Executive forms part of a management team of 25 experts provided by Booker/Tate under an existing contract of which 7 are scheduled to depart during 1993 (Table 2). The management team also fills four directorate positions (Finance Director, Technical Director for Factories Technical Director for Agriculture and Regional Director for Berbice). Management Systems 7. Estate management and financial accounts are decentralized. Each estate and factory maintains its accounting records and submits to the Head Office a monthly performance report. Each estate and factory maintains its accounting records and submits to the Head Office a monthly performance report. Based on these monthly data, the Head Office generates consolidated monthly financial statements, focusing on variances between actual and budgeted expenditures. 8. Accounts and Audits. GUYSUCO's accounts have been audited by Thomas, Stoll, Dias & Co., a member firm of DRT International (Deloitte Ross Tohmatsu). Audit reports for 1984-1991 have been unqualified. B. PAST OPERATIONS AND PERFORMANCE Cane Area and Yields 9. GUYSUCO's agricultural operation is based on a five-crop cycle (plant crop and four ratoons) over a 60-month period. Cane yields and quality have declined gradually over the last 30 years for reasons which are a combination of technological, financial and environmental and human resource factors (Table 3). Over the ten-year period 1980-1989, the average cane yield (tons cane/acre) amounted to 29.22 tons, as compared to 31.28 and 34.93 tons over 1970-1979 and 1960-1969, respectively. In the ten-year --- ---- ----- ----------_- - 61 - ANNEX 2 period prior to 1965, the pol % cane averaged 11.14%, but had fallen to 8.80% in 1989. It has since risen slowly to 9.90% in 1992 (Table 4). On the other hand, the tons cane/tons sugar (tc/ts) ratio has shown a sharp rise since 1968, averaging 10.8 over the ten-year period prior to 1965 and rising to 15.4 in 1989. With the increase in efficiency, the ratio has declined again to 12.62 in 1992 (Table 4). The deterioration of cane quality could be attributed to excessive burning/grinding intervals, poor cutting standards, the need for new cane varieties and the reduced drainage capability of some estates. Main indicators of GUYSUCO's performance in cane and sugar production are provided below. Further details are presented in Table 5. Key Perfonmance Indicators in Cane and Sugar Production 1987-1993 | 1987 1988 1989 1990 1991 1992 1993 Cane Harvested 95 77 79 84 86 92 94 ('000 acres) l Cane Milled 2,832 2,276 2,365 1,885 2,124 2,863 2,942 ('000 ts) I_ I I Cane Yield 29.2 28.9 29.6 22.1 24.6 31.1 31.42 (tc/acre harvested) l Sugar Production 221 167 165 130 160 243 242 ('000 ts) III Of which: n.a n.a n.a 8 11 16 18 farmers contribution Sugar Yield (ts 2.1 1.9 1.9 1.4 1.7 2.5 2.4 sugar/acre) I Cane/Sugar Ratio 14.0 14.8 15.4 15.5 14.3 12.6 13.11 (TCTrs) I I I 10. A combination of favorable weather conditions and improved management have improved the performance of GUYSUCO in 1991 and 1992, with sugar production increasing from 130,000 tons in 1990 to 160,000 tons in 1991, and to 243,000 tons in 1992. It is expected that the yields experienced in the 1970s can be realized, with the cane yield increasing from 24.6 in 1991 to 31.1 in 1992 and an expected 31.4 in 1993; and sugar yield from 1.7 in 1991 to 2.4 in 1992 and 1993. The structure of - 62 - ANNEX 2 cane cultivation and sugar production by estate in 1991 and 1992 is shown in Table 6 of this Annex. That for 1993 is in Annex 1. Labor Costs and Incentive Payments 11. In addition to the basic wages, GUYSUCO provides sugar production incentives, allowing workers to earn additional pay based on individual estate weekly production targets. Another major incentive is a profit sharing scheme, based on profit before income and corporation taxes. Basic minimum wages have been adjusted by 75% in 1990, by another 110% in 1991, and by 32% during 1992. The workweek was also reduced to 40 hours in July 1992. A summary of basic wages is provided below. Wages 1990-1991 (G$) .____ ____ __ _ 1990 199 1m 2 Planting (per acre) $136.59 - $239.03-$398.41 (lst March) $433.05 $227.66 $322.69 - $537.85 (Ist October) - $721.80 Cane Cutting and $55.07 $96.37 (1st March) $174.59 Loading (per ton) $130.10 (Ist October) Factory workers $9.38 - $16.41 - $28.70 (lst March) $29.73 $16.40 $22.15 - $38.74 (1st October) - $51.99 Source: GUYSUCO Labor Costs and Incentive Payments Comparison of Basic Wages (Minimum) -1990 -1992 Wages Percent Increase 1990 1st January $44 10% 1st July $50 15% 1st October $75 50% 1991 1st March 1 $131.25 75% 1st October | $177.20 _ _35X_l ~~~~~~~1992__ _ _ _ _ _ _ _ _ 1st March $216.18 22% 19th July $237.80 10%* * Adjustment following implementation of 40 hours workweek. Source: GUYSUCO - 63 - ANNEX 2 Sugar Market and Prices 12. The market for Guyana's sugar production falls into two categories: the first is the established market of the EEC and US quotas and the domestic market; and the second is the provisional market, i.e., the Caricom Community Trade Area and the world market (see Appendix 1 of this Annex for additional details). With the steady decline in sugar production during 1986 to 1990 from 245,000 tons to 130,000 tons, GUYSUCO failed to meet not only the export quota Guyana enjoys from the EEC but also the domestic demand for sugar and any opportunities under its US quota and its provisional markets (e.g. Caricom, Canada). A comparison of sugar shipments and prices for 1984-1992 are provided below. Expected shipments and prices for 1993.are shown in Table 7 of this Annex. Sugar Shipments Avg 1984-88 1989 1990 1991 1992 M d % LT % LT % LT LT - LT EEC 70 156,158 93 154,022 99.88 129,767 99.84 159,745 80 193,995 USA 6 12,798 4 6,957 0 0 0 0 12 28,217 World 8 18,472 0 0 0 0 0 0 3 7,824 Cancom 1 1,525 0 0 0 0 0 0 1 1,747 Local 15 34,810 3 3,821 0.12 153 0.16 260 4 10,591 TOTAL |T 100 223,763 1 100 | 164,800 100 129,920 | 100 | 160,005 100 T 242,374 - 64 - ANNEX 2 Sugar Prices (GS/t) EEC USA CARICOM Local WorW Year Canada Price Index Price Index Price Index Price Index Prke | 1984 1,268 100 1,726 100 1,086 100 731 100 - 1985 1,419 112 1,580 92 756 70 1,419 194 - 1986 2,009 158 1,632 95 779 72 1,580 216 - 1987 6,179 487 2,355 136 2,355 217 1,527 209 - 1988 5,296 418 - - 2,562 236 1,586 217 - 1989 14,280 1,128 15,445 93 - - 9,668 1250 - 1990 25,197 1,987 - 9,470 1295 - 1991 72,491 5,717 - 26,550 3632 1992 78,726 6,209 54,471 3,156 37,835 3,484 10,591 1449 24,304 13. Profitability. Due to low levels of production, profitability had been disappointing, with unit cost of production reaching a peak of US$465/ton in 1991 from a low of US$277/ton in 1987, as shown below. The substantial increase in production cost in G$ also stemmed from the major changes in exchange parities. Unit Cost of Production Production Rate of Exchange ('000 Tons) G$/T Index GS:USS USS/Ton 1984 242 1,565 100 3.86 405 1985 243 1,693 108 4.25 398 1986 245 1,684 108 4.27 397 1987 221 2,710 173 9.77 277 1988 168 3,331 213 10.00 333 1989 165 6,360 406 27.25 233 1990 130 15,678 1,002 39.00 402 1991 160 48,806 3,118 105.00 465 1992 243 44,500 2,843 127.50 349 - 65 - ANNEX 2 14. To improve the profitability of GUYSUCO, the Government, in addition to the waiver of the sugar levy from 1984 to 1986, had taken a series of actions over the past five years, including the: (i) injection of G$ 225.0 million (US$52.7 million) cash equity in 1986; (ii) closing down of two factories in 1986 and 1987, which reduced the number of sugar mills from 10 to 8; (iii) increase of the foreign exchange retention rate from 10% to 15% in 1984 and to 17.5% in 1990; and (iv) increase in wage rates by 75% in 1990. These measures, however, did not produce the desired improvement in the efficiency of GUYSUCO, so that the Government, under a memorandum of understanding signed on October 1, 1990, engaged Booker/Tate to handle the day-to-day operations of the sugar industry. 15. The company benefitted, to some extent, from the above measures taken by the Government, and started to realize profit in 1986, reducing accumulated losses from G$ 485.0 million (US$114.1 million) in 1985 to G$ 374.3 million (US$9.6 million) in 1990 (Table 9). The shortage of foreign exchange, however, continued to hamper the operations of GUYSUCO, generating a negative cash flow of G$ 205.0 million (US$14.8 million) between 1987 and 1990 (Table 9). 16. Financial Structure. The progressive devaluation of the Guyana dollar against the US dollar accounted for the considerable rise in GUYSUCO's total assets in Guyana dollars from G$ 369 million in 1985 to G$ 8,547 million in 1991 (Table 9). Inventories and fixed assets dominated the balance sheet, accounting for 46% and 29% of total assets, respectively, in 1991. Liabilities rose from G$ 510 in 1985 to G$ 7,030 million in 1991. Current liabilities included an amount due to the Government for sugar levies, which increased from G$ 202 million in 1988 to G$ 3,100 million in 1991, representing 44% of total liabilities at year-end 1991. Long-term debt included a two percent Government debenture, amounting to G$ 144 million, as well as a US$6.0 million loan from the Inter-American Development Bank (IDB) for fixed assets to rehabilitate the sugar factories and another US$1.1 million for working capital. Long-term loans, however, needed to be adjusted for loans from two British commercial banks, totalling US$2.6 million equivalent (Tenant Guarantee Limited and Lloyds Bank Limited), full payment of which had previously been made by GUYSUCO. Equity, which had been negative in 1985, benefitted from the 1986 fresh capital injection, and amounted to G$ 1,517 in 1991, with debt to equity ratio and current ratio (current assets/current liabilities), amounting to 4.6:1 and 1.0:1, respectively, in 1991, a substantial improvement from the 1985 situation. - 66 - ANNEX 2 C. FINANCIAL PROJECTIONS AND JUSTIFICATION FOR GUYSUCO Recent Performance 17. The overall performance of GUYSUCO improved considerably during the last two years (1991 and 1992), as shown in the key financial indicators in Table 10. Sugar production increased by 23% in 1991 over 1990 (from 130,000 tons to 160,000 tons) and by 52% in 1992 over 1991 to 243,000 tons (the highest since 1986). The high level of sales to the EEC and the US, combined with favorable climatic conditions improved management, resulted in an operating profit (before levy and tax) of about G$ 5.0 billion in 1992 versus G$ 1.0 billion in 1990 and G$ 4.8 billion in 1991. On the basis of an agreed formula, the 1992 levy was estimated at G$ 8.1 billion versus G$ 1.7 billion in 1990 and G$ 6.3 billion in 1991. GUYSUCO received rebate of G$ 1.0 billion in 1990 and G$ 2.1 billion in 1991, representing about 59% and 33% respectively, of the total sugar levy due, and expects a G$ 5.1 billion rebate on the levy due in 1992. 18. Given the above extraordinary performance of GUYSUCO in 1992, return on assets (after levy and tax) increased from 1.5% and 0.5% in 1990 and 1991 to 18.5% in 1992, while return on equity amounted to 39% in 1992 versus 13% in 1990 and 3% in 1991. Projected Performance under the Project (1993-1994) 19. To help maintain the current level of its operating efficiency and improve its financial liability, GUYSUCO would need to address, in the short-term, critical spare and replacement requirements and pursue a long- term strategy. Given that limited resources are available for GUYSUCO to address these critical needs and carry out a modernization program, the project would support a two-year investment program (involving US$40.0 million for 1993 and 1994) while developing a restructuring and privatization strategy for the sugar industry. 20. Under the proposed project, GUYSUCO's operating profit before levy and tax is expected to amount to G$ 3.6 billion (US$28.9 million) and G$ 2.4 billion (US$18.8 million in 1993 and 1994, respectively (Tables 11 and 12). Based on the above sugar levy formula and on previous years' rebates, the sugar levy is estimated at G$ 6.6 billion (US$26.5 million) in 1993 and G$ 6.3 billion (US$25 million) in 1994, with rebates - 67 - ANNEX 2 projected at G$ 3.3 billion and G$ 3.1 billion in 1993 and 1994, respectively (Table 13). The projections show a net income (after levy and tax) of G$ 87.7 million (US$0.7 million) in 1993 and a net loss of G$ 975 million (US$7.8 million) in 1994. GUYSUCO's financial liquidity is expected to be very tight, with current ration amounting to 0.4:1 and 0.1:1 in 1993 and 1994, respectively. To improve this situation, the Government would need to allow GUYSUCO to retain sufficient internally generated funds during the project implementation. GUYSUCO beyond 1994 21. Once the proposed IDAS project is completed, i.e., beyond 1994, there are two possible scenarios, depending on whether GUYSUCO as a private firm or a public firm (if the privatization efforts fail) would have the resources to undertake the investment program required for its modernization. An analysis of GUYSUCO's financial performance with the proposed project under two scenarios, i.e., with and without modernization is provided below. 22. The two scenarios have a number of common features: (a) operating and capital costs were based on GUYSUCO's 1992 and 1993 cost estimates; (b) the price of sugar in constant terms has been discontinued by 2.5% per year (calculated cumulatively) for a four-year period through 1997; (c) the favorable sugar quotas are satisfied before the local and regional markets and no allowance is made for possible increase of GUYANA's EEC quota in 1994 to cover the Portuguese market; (d) the sugar levy would be 10% of EEC sugar exports; (e) the company would retain all its foreign exchange sales proceeds; and (f) GUYSUCO's contribution towards project's financing would come from cash generation. 23. With Project/Without Modernization. Under the "With project/without modernization" scenario (Table 11), the 1992 production level of 240,000 tons would be maintained in 1993 and 1994. However, starting in 1995, with negative cumulative cash generation allowing no further expansion and modernization, GUYSUCO would operate under increasingly difficult situation, which would affect agricultural yields, areas under cane, and overall sugar recovery at the factories. The impact of these factors on production is difficult to quantify but deterioration would tend to accelerate because strategic and critical spares and replacements would fail to materialize, decreasing production, which would lead directly to a reduction in foreign exchange earnings. GUYSUCO would operate at a lower level of - 68 - ANNEX 2 200,000 tons starting in 1995, and would accumulate losses, resulting in the erosion of its equity base starting in 1997. 24. With Project and Modernization. Under this scenario (Table 12), GUYSUCO would initiate a modernization program in 1995, that would include a reduction in the number of factories from eight to five. To help carry out this program, private investors would be identified by 1995. It was assumed that they would provide a total of US$20.0 million in share capital and US$15.0 million in loans. It was assumed that the private sector would account for over 83% of GUYSUCO's paid-in share capital by 1998 from about 56% in 1995. 25. GUYSUCO would operate at 250,000 tons of sugar by 1995 versus 240,000 tons in 1994. Operating costs would decline by about 31% over the 1994 level of US$93.0 million to US$71.1 million as a result of the reduction in the number of sugar mills. With high production and sales, the company's profitability would be satisfactory, with net income of over 10% of sales of average equity. Cash generation is forecast to be positive by 1998. The debt/equity ration would remain well below 1:0:1, and financial liquidity would improve considerably, with current ration increasing from 0.8:1 in 1995 to 2.2:1 in 1999. Debt-service coverage would be very satisfactory at 8:6:1 and 3.6:1 during the same period. The incremental financial rate of return on the investment under the modernization program is calculated at 39%. The IRR to equity investors at a 20% payout ratio is estimated at 17%. - 69 - ANNEX 2 Appendix 1 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Markets, Quotas and Prices 1. This annex provides further details on the markets for the sugar industry in Guyana (see also para. 12 of Annex 2). It reviews Guyana's recent performance in the various markets, and the potential markets for the sugar industry. 2. The market for Guyana's sugar production falls into two tranches; the first is the established market of the EEC and US quotas, and the domestic market; the second is the provisional tranche, i.e., the Caricom Community Trade Area, where prices, grades and market share still need to be tested; and the world market. Established Markets 3. Exports. The major factor in ensuring financial stability for the industry has been the award of fixed price quota tonnages to Guyana under the Commonwealth Sugar Agreement and later through the Lome Agreement Sugar Protocol with the EEC. Guyana has also had quotas of smaller volume from the US. Export performance, however, has declined rapidly since 1985. With the fall in production, exports have dropped from more than 300,000 tons annually in the 1960s to a net figure of 102,000 tons (130,000 tons less 28,000 tons of imports) in 1990, failing to meet its commitments to the EC (164,000 tons) and to realize any opportunities under its US quota (16,000 tons), or the free world market. For the same reason, the proportion of GUYSUCO's exports that has been sold on the free world market has fallen from 50% of the total exports in the early 1970s to nil by 1987. - 70 - ANNEX 2 Appendix 1 Average Volume of Sales metric tons ' 1961-1970 301,490 25,200 1971-1980 288,000 33,800 1981-1990 202,400 36,500 ' 1 metric ton = 0.9839 long ton; 1 long ton = 1.0163 metric tons 4. The exceptionally low world market prices in the mid 1980s caused the Guyana industry to make a policy decision not to pursue the world market, and only use it as a residual market if production exceeded the volume required by the quota and preference markets. In 1985, therefore, the industry's production target was set at 250,000 tons per annum and the assets to be used to produce this amount of sugar (particularly the land area under cane) were trimmed accordingly. Despite this attempt to concentrate resources on meeting the established profitable markets, the downward trend in production levels was not reversed and has continued until 1990. 5. It is assumed that the quota will be maintained at its present level under the project, although there is the distinct possibility that Guyana may be allocated a higher EEC quota in 1994 to cover the Portuguese market. As result of pressures on the community to reduce subsidies, the intervention price for EEC-produced sugar seems likely to fall and with it the price for sugar entering the EC under the Lom6 Protocol. Under project, therefore, the price in constant terms to be paid for sugar exported to the EC has been budgeted to fall by 2.5% per year for the four years to 1997 (Table 1). The US quota has been changed to a tariff rate basis. The quotas of all countries have decreased as sweeteners from US- produced maize have displaced sales from the domestic cane and beet producers. 6. Domestic Market. Consumption per output has been running at almost 50 kg/year, which appears relatively high. There is, however, a possibility that unrecorded exports are occurring with neighboring territories when price opportunities occur. Any change of true consumption in the future will arise solely on account of population numbers. As far as local prices are concemed, it has been Govemment policy to allow a price which reflects the average costs of production in GUYSUCO's factories. - 71 - ANNEX 2 Appendix 1 Provisional Markets 7. Caribbean Community Free Trade Area. Legislation is now in place to introduce a common external tariff for the countries of the region in the hope that internal trade between the members will flourish and that, e.g., production of sugar for the region by members will be more advantageous than importing from outside the area. With most of the non- sugar producing countries being in the East of the region, Guyana should be well placed, geographically and economically to produce and deliver a large proportion of the sugar required. The market, however, need to be tested in terms of price, volume and grade of sugar (white or raw) before investing in permanent facilities, especially since the imposition of the tariff will lead to higher prices for consumers in these countries. 8. Canada is the only other market with which Guyana has a preferential arrangement. The market is essentially tied to the free world market with the duty of C$ 1.0 per ton of imports being waived. This duty originates in a 1925 treaty. The saving is shared with the refiners who receive 25 % of the total. As long as the prices received are linked to the free world market, it is unrealistic to think of Canada being anything but a residual market for the occasional surplus in production. 9. World Market. The exceptionally low price on the free world market for raw sugar in the mid 1980s (about US$0.05/lb) caused the Board of GUYSUCO to retrench the acreage of land under cane and plan to limit production to 250,000 tons per year. This volume would have provided some 15-20,000 tons over the export quota and domestic market volumes as a contingency against adverse weather or to meet occasional opportunities when world prices were favorable. 10. The world price has averaged about US$0.15/lb (US$330 per ton) in constant terms over the last 40 years. The World Bank commodity forecast of February 1992 predicts prices to increase from US$220 per ton (US$0. 10tlb) in 1993 to US$315 per ton (US$0.14/lb) by the end of the decade (all at constant 1991 prices). (See Annex 2, Table 8). - 72 - ANNEX 2 Table 1 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT GUYSUCO's Staffing No. in Employ 1. MANAGEMENT (a) Head Office (i) Executives 87 (ii) Junior Management 100 (b) Estate (i) Senior Staff 311 2. JIIUOR STAFF (a) Head Office 239 (b) Estate (i) Supervisors 228 (ii) Foremen (Field & Factory) 350 (iii) Sugar Boilers 75 (iv) Chargehands 352 (v) Other Clerical Grades 1,482 3. NON-MANAGERIAL (a) Head Office 165 (b) Estate (i) Factory including Skilled, Semi-skilled and Unskilled 1,828 (ii) FIELD a. Field workshop-Tradesmen/ Semi-skilled workers 939 b. Cane harvesters 9,757 c. Other Field workers including watchmen, drivers and unskilled labourers 11,196 (iii) Other Labourers - GUYSUCO Training Ctr. 18 - Central Workshop 191 4. SECURITY GUARDS 249 27,588 SW=-. OUYSUCO - 73 - ANNEX 2 Table 2 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Booker Tate Management Team NAMES DESIGNATION G. N. Hilary Chief Executive N.G. Broomhead Director of Finance S.A. Hayes Technical Director - Factories D. Eastwood Technical Director - Agriculture N. White Regional Director (Berbice) J. Haywood Regional Agric. Mgr. (Dem.) N. Dyde Regional Agric. Mgr. (B'ce) * G. McIntyre Regional Agric. Eng. (B'ce) D. Brett Regional Technologist (B'ce) B. Elflett Regional Engineer (B'ce) D. Leitch Regional Engineer (Dem.) * A. Smith Snr. Management Accountant B. Michelin Regional Agronomist * P. Burns Chief Pilot * A. Allan Stores Controller I. Mackail Project Engineer * P. Lloyd Regional Agronomist (B'ce) T. Lodge Management Accountant K. Brito Finance Controller * J. McCarthy Head Office Project Manager * M. Scott Agric. Engineer (Dem.) I. Christie Materials Manager J. Ragnauth Manager, Factory Ops. H. Lung Kit Regional Technologist (Dem.) D. Bridgland Systems Manager Total: 25 1992-12-03 Administration * Scheduled to depart during 1993 ANNEX 2 Table 3 - 74 - SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT WuU$O - Nietort&el VeIgted Average T1.ldm Taw *_Ia.re Tm saa./Tem_ ear Tme mar/scre 190169 1370179 19,0169 1W60/69 1170171 1160/89 1160/il 1970/79 116I/U9 Obeid" I.S 34.92 34.95 10.26 11.46 13.44 3.60 3.04 2.6 At_m 33.60 32.04 30.16 10.63 11.32 11.39 3.26 2.63 2.5 ft" Reu 33.43 31.96 26.06 11.04 11.84 13.21 3.11 2.69 2.2 DUItromt 36.21 33.93 32.31 11.21 12.67 13.$9 3.23 2.68 2.34 an.re 33.76 30.93 29.03 10.69 12.32 15.19 3.10 2.51 1.91 13t 32.93 30.04 27.21 11.06 12.41 14.95 2.97 2.42 1.62 3t.... 33.41 30. 6 26.48 11.03 12.19 13.03 3.21 2.53 1.76 Vale. 34.69 30.01 27.89 10.90 10.91 13.41 3.20 2.75 1.61 L*guea 34.11 38.13 26.37 10.94 12.74 14.23 3.31 2.21 1.63 vinblgt 32.01 29.97 27.73 11.31 14.34 14.44 2.76 2.09 1.92 krege 34.93 31.26 29.22 10.97 12.23 14.22 3.19 2.56 2.07 tmemid Deta 1900 to 1961 may Lemra Deat 1980 to 1984 ly ANNEX 2 -75 - Table 4 GuA SUGAR INDUSTRY QESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corporarion (GUYSUCO) Cans Quality (1960-1992) Pal Z Tons Cans/ Year Cane Ton. Sugar 1960 10.99 10.91 1961 11.20 10.74 1962 11.47 10.34 1963 11.31 10.54 1964 11.00 11.40 1965 11.19 10.77 1966 11.88 11.26 1967 10.98 10.73 1968 10.91 10.82 1969 10.73 11.05 1970 10.21 11.68 1971 10.53 11.27 1972 10.67 11.19 1973 10.17 12.11 1974 10.17 11.95 1975 10.39 11.52 1976 10.12 11.99 1977 9.78 12.67 1978 9.71 12.84 1979 9.59 12.88 1980 9.50 13.15 1981 9.28 13.49 1982 9.52 13.18 1983 9.31 13.85 1984 9.22 14.13 1985 9.74 13.05 1986 9.53 13.34 1987 9.28 13.92 1988 9.11 14.66 1989 8.80 15.37 1990 8.81 15.49 1991 9.34 14.29 1992 9.90 12.62 --- --- --- -- --- --- --- -- --- -- -_--- --- - - -- --- --- -- ANNEX 2 - 76 - Table 5 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corporation (GUYSUCO) Factory Performance (1989-1993) Actual --------------------------- -Etimate Budget 1989 1990 1991 1992 1993 -------------------------------------------------------------------__------ First Crop __________ Tons cane ('000) 958 872 676 1,197 1,264 Pol 2 cane 8.72 8.83 9.09 10.20 9.89 Fiber S cane 18.33 19.93 19.25 19.42 18.51 Imbibition S Fiber 210.19 197.99 204.94 206.88 212.30 Mill extraction 88.36 86.85 87.49 88.89 89.31 Boiling House Recovery 82.69 82.87 81.18 86.47 85.61 Overall Recovery 73.06 71.97 71.02 76.87 76.47 Purity first expressed juice 77.36 78.04 78.01 80.59 79.80 Purity mixed juice 75.89 76.59 76.55 79.10 78.30 Purity final mole 33.00 33.57 33.54 32.51 31.75 Boiling House Efficiency 97.07 97.07 95.08 98.25 97.47 Pol S sugar 98.05 98.13 98.09 98.30 98.25 Tons pol recovered ('000) 61 55 44 94 96 Tons sugar ('000) 62 56 45 95 97 TC/TS 15.39 15.44 15.19 12.53 12.99 Tons molasses ('000) 39 30 26 41 44 Second Crop .__________ Tons cane ('000) 1,582 1,133 1,621 1,730 1,919 Pol 2 cane 8.85 8.79 9.39 9.59 9.77 Fiber S cane 19.02 19.65 19.32 18.66 18.53 Imbibition S Fiber 208.64 212.37 184.88 211.91 211.68 Mill extraction 87.72 87.30 87.65 88.54 89.29 Boiling House Recovery 82.26 82.34 84.77 85.15 85.25 Overall Recovery 72.16 71.88 74.30 75.39 76.12 Purity first expressed juice 77.33 76.94 79.03 78.78 79.34 Purity mixed juice 75.89 75.44 77.57 77.28 77.82 Purity final mols 33.27 32.77 32.96 31.69 31.75 Boiling House Efficiency 96.79 96.96 97.93 97.79 97.47 Pol S sugar 98.10 98.13 98.22 98.25 98.25 Tons pol recovered 101 72 113 125 143 Tons sugar 103 73 115 127 145 TC/TS 15.36 15.53 14.08 13.59 13.21 Tons molassoe 64 45 61 78 68 Total for the Year __________________ Tons cane 2,541 2,005 2,298 2,927 3,183 Tons sugar 165 129 160 223 243 TC/TS 15.37 15.49 14.39 13.14 13.12 Tons molasses 103 75 87 119 112 ---------------------------------------------------------------------__ ---- - 77 - ANNEX 2 Table 6 GUYANA SUGAR INDUSTRY RESTRUCTURING PROJECT Cane Area and Sugar Production by Estate 1991 Area Cane Sugar Gross Area Harvested Production Production Estt (Acres) (Acres) (Tons! (Tons) Berbice Skeldon 11,867 9,438 221,471 15,501 Albion 19,907 17,922 506,216 37,907 Rose Hall 15,731 14,438 238,888 23,948 Blairmont 13.488 10,964 318.575 23,565 Sub-total 60,993 52,672 1,385,150 100,921 Demerara Enmore 12,992 8,068 179,223 10,403 LBI/Diamond 23,013 10,831 234,693 14,198 Wales 8,830 6,048 126,161 7,898 Uitvlugt 16,171 8.779 198.659 15,234 Sub-total 61,006 33,726 738,736 47,733 Estate Total 121.999 86.398 ,2123.88 148.654 Farmers Contribution 11.036 Industry Total 159.69 - 78 - ANNEX 2 Table 6 Cane Area and Sugar Production by Estate 1992 Area Cane Sugar Gross Area Harvested Production Production Estt (Acres) (Acres) (Tns! (Tns) Berbice Skeldon 11,867 10,341 343,319 27,783 Albion 19,911 18,682 591,006 48,428 Rose Hall 15,731 14,894 432,456 35,839 Blairmont 13,488 11,826 425,439 36,905 Sub-total 60,997 55,743 1,792,220 148,955 Demerara Enmore 10,532 8,774 271,788 17,257 LBI/Diamond 23,013 11,665 358,332 24,266 Wales 8,000 6,814 192,986 14,664 Uitvlugt 16,171 9,207 248,038 21,765 Sub-total 57,716 36,460 1,071,144 77,952 Estate Total 118.713 92.203 2.863.364 226.907 Farmers Contribution 16,103 Industry Total 243.010 ANNEX 2 Table 7 a - 79 - GIIYANA SUJGAR CORPORATTON L TD 1992 Actual SuBar Sales and Ex_ected 1993 Sales 1992 ACTUAL SALES _________________ Revenue Price Exch Revenue Price Market Tons X G$M G$/ton rate US$ M US$ FFC 193,995 80.0% 15,279 78,759 127.50 119.8 617.72 OiSA 28,217 11.6% 1,537 54,471 124.91 12.3 436.10 World market 7,824 3.2% 189 24,204 125.92 1.5 192.22 Caricom 1,747 0.7% 66 37,835 123.90 0.5 305.37 InC.Al 10,592 4.4% 520 49,078 127.50 4.1 384.93 Total sales 242,375 100.0% 17,591 72,578 127.24 138.3 570.41 nldduct: Openina stock 14,200 1,123 79,057 127.50 8.8 620.05 Addhack: Stock losses 27.30 Add: Closing stock 14,808 352 23,750 125.00 2.8 190.00 Value of produc.tion 243,010 16,820 69,216 127.17 132.3 544.27 1993 BlJDGET SALES _________________ Revenue Price Exch Revenue Price Tons G$M G$/ton rate US$ M US$ FFC 160,000 64.5% 11,817 73,856 125.00 94.5 590.85 IISA 13,000 5.2% 731 56,231 125.00 5.8 449.85 World market 35,000 14.1% S31 23,743 125.00 6.6 189.94 Caricom 16,000 6.5% 503 31,438 125.00 4.0 251.50 Local 24,000 9.7% 1,176 49,000 125.00 9.4 392.00 Total sales 248,000 100.0% 15,058 60,718 125.00 120.5 485.74 Deduct: Opening stock 14,808 352 23,750 125.00 2.8 190.00 Add: Closing stock 9,701 230 23,750 125.00 1.8 190.00 Value of production 242,893 14,937 61,495 125.00 119.5 491.96 GUYANA SUGAR INDUSTRY RECONSTRUCTION AND PRIVATIZATION PROJECT Guyana sugar Corporation Limited (GUYSUCO) Sugar Prices (Pro-ected 1-92-20-2- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Price UIP/T?. 349.51 340.00 331.50 323.00 314.50 306.00 306.00 306.00 306.00 304.00 306.00 Exchange Late MP to US$ 1.80 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 xchlange late G$ to UIP 221 00 221.00 221 00 221 00 221.00 221.00 221 00 221.00 221.00 221.00 221.00 xchane blate OS to US$ 123.00 123.00 123.00 123.00 123.00 123.00 123.00 123.00 123.00 123.00 123.00 Price 0?$/S 77,242 75,140 73,262 71.363 69.505 67,626 67.626 67.626 67.626 67.626 67.626 Price US$1?/T. 628 611 596 580 565 550 330 550 550 550 550 Price S /$1b 0.29 0.28 0.27 0.26 0.26 0.25 0.25 0.25 0.23 0.25 0.25 Quatity Shipped Outtux. UIht ( 000 ToM) 163 163 163 163 163 163 164 164 164 164 164 Outturn valum (CKP OOO) 56,970 55,420 54,035 52,649 51.264 49,878 50.184 50,1$4 50,194 50,154 50,184 Polorisatio Priuem at 2.81 (UP'000) 1,595 1,552 1,513 1,474 1.435 1,397 1.405 1.405 1.405 1,405 1.405 GROSS S 538.565 56,972 55.547 54,123 52.699 51.275 51,589 31,359 51,559 51.539 51,589 Treight *t UP 25/to 3,165 4,075 4.075 4.075 4.075 4.075 4.100 4,100 4,100 4,100 4.100 Marine Inurance at 0.222 129 125 122- 119 116 113 113 113 113 113 113 OS8S PRCE DVO 35,271 52,771 51.350 49,929 48,508 47,087 47,376 47,376 47.376 47,376 47.376 Pre -hipuet c cnee Demurrag despatch) at loading port st 0.242 (67) 127 123 120 116 113 114 114 114 114 114 1 Inr ace at .1IX 61 56 56 55 53 52 52 52 52 52 52 Weilau ad Su ervisiom at UIP 0.25/tom 37 41 41 41 41 41 41 41 41 41 41 G Brere at .5 290 264 257 250 243 235 237 237 237 237 237 Conniae*oa at .75Z 415 54,556 52,282 50,573 49,464 48,055 46,646 46,932 46,932 46,932 46.932 46,932 Discount charg at 0.501 246 264 257 250 243 235 237 237 237 237 237 Cost of rmittance 0 0 0 0 0 0 0 0 0 0 0 IIT P50D 6S 54,310 52,016 50,616 49,214 47,812 46,410 46,695 46,695 466895 466,93 46,695 Not Proc eed, UP/T. 333 319 311 302 293 285 285 255 285 265 285 met Proceeds 5/Toe 73,635 70,526 656,27 66,726 64,525 62,924 62,924 62,924 62.924 62,924 62,924 Not Proceeo d S$/To. 599 573 556 542 527 512 512 512 512 512 512 not Proceeds USil 0.27 0.26 0.25 0.25 0.24 0.23 0.23 0.23 0.23 0.23 0.23 _____________________________ ------------------------------------------------------------------------------------------------------------------------ World Merhet - lank ProjectiLa -___________ 1985 Cmetast Dollars/aM 133 131 131 139 161 167 187 167 187 167 199 1991 Costant DollareItW 211 208 206 220 255 296 296 296 296 296 315 US$Jlb 0.10 0.09 0.09 0.10 0.12 0.13 0.13 0.13 0.13 0.13 0.14 PM cr ANNEX 2 Table 9 -81- GUYANA SUGAR INDITSTRY RESTRUCTURING -ND PRIVATIZATION PROJECT Guyana Sugar Corporation Limited (CUYSUCO) Audited Financial Statments (1965-1991) G$ million) DALANCE SHEET AS OF DECEMBER 31 1985 1986 1987 1988 1989 1990 1991 …------------------------------------------------------------------__--------__-----------------------___----- ASSETS Current Assets Cash and Deposits 0.8 0.5 166.0 1.6 510.4 193.0 1,050.0 External Paymnt Deposits A/ 9.7 12.0 12.0 12.0 12.0 12.0 12.0 Receivables/Prepaymnts 21.5 86.3 146.5 73.1 174.1 229.4 1,091.1 Inventories Materials and Supplies 143.5 144.3 241.1 258.0 465.0 900.9 2,640.3 Livestock 0.0 0.0 0.0 0.5 1.0 2.9 12.2 Unsold Produce 32.7 32.3 108.1 72.1 285.9 155.0 1,292.2 Total Current Assets 208.2 275.4 673.7 417.3 1,448.4 1,493.2 6,097.8 Investments 2.8 2.9 3.2 2.5 2.5 2.5 2.5 Fixed Assets (Net) 152.8 159.6 274.1 449.3 658.9 845.0 2,445.6 Deferred Assets 5.4 4.4 5.5 5.1 6.1 3.7 0.8 TOTAL ASSETS 369.2 442.3 956.5 874.2 2,115.9 2,344.4 8,546.7 LIABILITIES AND EQUITY Current Liabilities Overdraft 212.0 43.9 9.0 17.6 230.4 11.5 281.2 Long-term Loans (Current portion) 25.7 24.8 46.4 70.8 229.5 276.5 703.8 Payables/Accruals 113.1 114.2 211.0 208.8 468.1 605.4 2,065.0 Export Sales Levy 0.0 0.0 406.5 201.5 729.6 962.1 3,100.0 Taxes Payable 0.7 4.7 0.8 2.6 3.4 5.3 15.2 Total Current Liabilitles 351.5 187.6 673.7 501.3 1,661.0 1,860.8 6,165.2 Long-term Loans Tennant Guaranty Limited 9.9 10.5 23.9 23.9 78.8 107.5 293.1 Lloyds Bank Limited 12.3 13.3 15.7 15.6 15.6 15.6 15.6 Inter-American Development Bank 0.0 0.0 0.0 0.0 62.7 205.7 853.2 Guyana Agr. and Ind. Development Bank 0.0 0.0 0.0 0.0 21.0 0.0 21.0 Supplier's Credit 0.0 0.0 0.0 12.0 14.5 0.0 227.4 Other Long-term Loans 3.5 1.0 6.8 34.4 98.7 2.1 0.0 Long-term Loans 25.7 24.8 46.4 85.9 291.3 330.9 1,410.3 Less: Current Portion 25.7 24.8 46.4 70.8 229.5 276.5 703.8 Total Long-term Loans 0.0 0.0 0.0 15.1 61.8 54.4 706.5 Government Debenture 143.6 143.6 143.6 146.6 145.6 144.6 143.6 Other Liabilities 14.9 14.9 14.9 14.9 14.9 14.9 14.9 …_____ ------ ------ ------ ------- ------- ------- TOTAL LIABILITIES 510.0 346.1 832.2 677.9 1,883.3 2,074.7 7,030.2 …_____ ------ ------ ------ ------- ------- ------- EQUITY Share Capital 273.5 498.5 498.5 498.5 498.5 498.5 498.5 Reserves 70.7 73.0 80.4 142.1 144.1 145.5 1,348.0 Retained Earnings (Losses) (485.0) (475.3) (454.6) (444.2) (410.0) (374.3) (330.0) …_____ ------ ------ ------ ------ ------ ------ TOTAL EQUITY (140.8) 96.2 124.3 196.4 232.6 269.7 1,516.5 …_____ ------ ------ ------ ------ ------ ------ TOTAL LIABILITIES AND ZQUITY 369.2 442.3 956.5 874.3 2,115.9 2,344.4 8,546.7 ...... ._ . ....... . . …---------------------------------------------------------,----__------------__------------------------------- -82- ANNEX:2 Table 9 GUYAN A SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corporation Limited (wSUCO) Audited Financial Statements (1985-1991) G$ million) .______________________________________________________________________-------__---__________________________- INCOME STATENT FOR TER YEAR ENDZD DZCXERZ 31 1985 1986 1987 1988 1989 1990 1991 Factories 10 10 8 8 8 8 8 Acreage Harvcstod 107,526 112,875 106,039 85,823 86,303 91,372 93,307 Tons Cans Killed ('000) 3,218 3,348 3,100 2,480 2,548 2,019 2,293 Yield: Tons Cane/Acre 29.93 29.66 29.23 28.90 29.56 22.10 24.57 Tons Cane/Tons Sugar 13.24 13.64 14.03 14.80 15.41 15.54 14.36 Tons Sugar/Acre 2.26 2.17 2.08 1.95 1.91 1.42 1.71 Tons Sugar 243,000 245,440 220,995 167,550 164,800 129,920 159,690 PRODUCTION ALLOCATION (Tons) U.K. 178,522 158,359 144,833 133,433 154,022 129,767 159,430 U.S. 15,525 4,700 9,550 0 6,957 0 0 World 20,017 46,426 20,504 0 0 0 0 Caricom 479 4,124 1,575 1,395 0 0 0 Local 28,457 31,831 44,533 32,722 3,821 153 260 Imported Sugar (Tone) 0 0 0 3,445 25,623 28,411 23,615 Nolasees ( 000 Callon&) 19,506 21,614 19,962 16,741 15,375 11,474 13,363 =-. .... _._ __ __ .............................................................. ..... .......... _-_..........- SALES Sugar 327.0 407.0 1,039.7 768.5 2,482.7 3,671.8 13,023.2 Molasses 5.2 20.6 34.9 23.4 42.8 70.2 293.1 Othor 1.3 1.9 4.3 7.2 20.2 52.2 103.7 TOTAL SALES 1/ 333.5 429.5 1,078.9 799.1 2,545.7 3,794.2 13,420.0 lxport Sales Lavy Amount Due 162.0 232.1 477.5 334.1 1,201.5 1,736.0 6,330.3 Amount Remitted by Goverunent (162.0) (232.1) (71.0) (249.1) (448.1) (1,024.9) (2,066.4) 0.0 0.0 406.5 85.0 753.4 711.1 4,263.9 NET SALES 333.5 429.5 672.4 714.1 1,792.3 3,083.1 9,156.1 EXPENDITURE Fmploymnt Costs Wages and Salaries 158.8 171.7 236.6 256.5 377.5 618.0 1,828.4 Incentive Payment 4.8 14.4 21.3 7.8 57.3 80.4 457.7 Other Employee Benefits 20.7 21.5 36.3 38.6 80.3 282.1 417.6 Materials and Other Charges 171.3 186.5 295.0 305.1 984.1 1,780.7 5,892.4 355.6 394.1 589.2 608.0 1,499.2 2,761.2 8,596.1 OPERATING RESULTS BEFO y LOCAL SUBSIDY (22.1) 35.4 83.2 106.1 293.1 321.9 560.0 AND INTEREST Local Subeidy 0.0 0.0 53.1 89.9 241.6 282.2 178.9 Interact Kxpenses 55.7 21.6 9.6 4.8 16.6 1.2 322.8 PROFIT BEFORE TAX (77.8) 13.8 20.5 11.4 34.9 38.5 58.3 Provision for Taxea 0.0 4.3 0.0 1.1 0.8 2.9 13.9 NET PROFIT (LOSS) (77.8) 9.5 20.5 10.3 34.1 35.6 44.4 Extraordinary It m 0.2 0.1 0.2 0.0 0.1 0.1 0.0 NET PROFIT (LOSS) (77.6) 9.6 20.7 10.3 34.2 35.7 44.4 1/ Not of sugar inductry specLal funds contributions, chipping and selling expenses. -83 - ANINEX 2 Table 9 SUGAR INDUSCTRY RESTR5?RINR N PRIVATIZATION PROJECT Guyana Sugar orporat on R PROJECT Audited Funde Statements (1985-1991) ,G$ million) -------------------------------------------------------------------------__--__------------------__-____----_- PUNDS STATEMZNT FOR THE YEAR ENDED DECZMJZR 31 1985 1986 1987 1988 1989 1990 1991 -------------------------------------------------------------------__--------__------------------------------- SOURCES OF FUNDS Net Income (Lose) before Taxation (77.8) 13.8 20.5 10.3 34.9 38.5 58.2 Adjustments for items not involving the movement of fund.: Depreciation 14.1 15.3 14.7 30.3 42.5 57.4 81.5 Provision for ex-gratia pensions 5.6 6.8 8.5 8.8 11.7 18.3 44.5 Unrealized los on exchange on loan 1.9 1.7 15.7 0.8 73.4 67.1 471.4 Loss on diapocal of fixed assets 0.0 0.0 0.0 0.0 0.7 3.9 100.6 Total Funds Generated from Operations (56.2) 37.6 59.4 50.2 163.2 185.2 756.2 Funds from Other Sources Share Capital 0.0 225.0 0.0 0.0 0.0 0.0 0.0 Receipts from the Sugar Industry Rehabilitation Fund 2.8 2.3 2.4 1.3 2.2 1.5 1,202.5 Refund of Ex-gratia Pensions 0.6 0.5 0.5 0.4 3.6 0.3 0.0 Loan. Received 4.8 4.3 16.2 54.9 169.1 146.2 884.3 Disposal of Asset 0.7 0.3 0.3 1.5 0.0 0.0 0.0 Deferred Cultivation Costs 0.0 0.8 0.0 0.4 0.0 2.4 3.1 Sugar Quota Compensation Receipt 0.0 0.0 5.3 10.5 0.0 0.0 0.0 Sale of Investmnts 0.0 0.0 0.0 0.7 0.0 0.0 0.0 Rehabilitation and Development Fund 0.0 0.0 0.0 50.0 0.0 0.0 0.0 TOTAL SOURCES OF FUNDS (47.3) 270.8 84 .1 169.9 338.1 335.6 2,846.1 APPLICATION OF UND S Taxes Paid 0.0 0.0 4.0 0.0 0.0 1.0 3.9 Loan Repayments 3.5 6.8 10.3 13.2 38.2 174.7 277.2 Purchase of Fixed Assets 33.5 22.5 129.6 207.0 252.8 247.3 1,782.7 Ex-gratil Penasons 6.4 7.1 9.0 9.2 12.1 18.7 44.8 Deferred Cultivation Coats 1.2 0.0 1.2 0.0 4.2 0.0 0:0 Purchase of Investments 0.3 0.2 0.2 0.0 0.0 0.0 0.0 Deferred Liabilities 0.3 0.0 0.0 0.0 0.0 0.0 0.0 Deferred Receivable. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL APPLICATION OF FUNDS 45.2 36.6 154.3 229.4 307.3 441.7 2,106.6 NET CASH INCREASE (DECREASE) (92.5) 234.2 (70.2) (59.5) 30.8 (106.1) 737.5 - -- - -- ---- - --- -- _______ ______ ______ _______ ______ ______ _______ ______ ______ _______ ______ ______ _______ ______ ______ -84 - ANNEX 2 Tablq 10 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corporation Limited (GUYSUCO) Key Financiat Indicators (1985-1993) (GS million) Income Statement and Balance Sheet Data Est. Sud. As of December 31 1985 1986 1987 1988 1989 1990 1991 1992 1993 Revenue 333.5 429.5 1078.9 799.1 2545.7 3794.2 13420.2 16572.0 15662.5 Depreciation 14.1 15.3 14.7 30.3 42.5 57.4 81.5 300.0 425.0 Interest 55.7 21.6 9.6 4.8 16.6 1.2 322.8 228.0 162.5 Operating Income before Levy and Tax -22.1 35.4 489.7 191.1 1046.5 1032.1 4823.9 5016.0 3612.5 Net Income -77.6 9.6 20.7 10.34 34.2 35.7 44.42 1164.0 87.5 Current Assets 208.2 275.4 673.7 417.3 1448.4 1493.2 6097.8 3180.0 850.0 Fixed Assets 152.8 159.6 274.1 449.3 658.9 845 2445.6 3096.0 6075.0 Total Assets 369.2 442.3 956.5 874.2 2115.9 2344.4 8546.7 6276.0 6925.0 Current Liabilites 351.5 187.6 673.7 501.3 1661 1860.8 6165.2 1896.0 2237.5 Long-term Debt 0 0 0 15.1 61.8 54.4 706.5 1416.0 1525.0 Total Debt 510.0 346.1 832.2 677.9 1883.3 2074.7 7030.2 3312.0 3762.5 Networth -140.8 96.2 124.3 196.4 232.6 269.7 1516.5 2964.0 3175.0 RATIOS Liquidity: Current Ratio 0.6 1.5 1.0 0.8 0.9 0.8 . 1.0 1.7 0.4 Debt to Total Assets Debt to Networth -3.6 3.6 6.7 3.5 8.1 7.7 4.6 1.1 1.2 L.T. to Equity * Long-term Debt/Networth 0.0 0.0 0.0 0.1 0.3 0.2 0.5 0.5 0.5 Operating: Fixed Assets Turnover 2.18 2.69 3.94 1.78 3.86 4.49 5.49 5.4 2.6 Total Assets Turnover 0.90 0.97 1.13 0.91 1.20 1.62 1.57 2.6 2.3 Profitability: Profit Margin on Sales -23.3% 2.2% 1.9% 1.3% 1.3% 0.9% 0.3% 7.0% 0.6% Return on Total Assets -21.0% 2.2% 2.2% 1.2% 1.6X 1.5% 0.5% 18.5% 1.3% Return on Networth 55.1% 10.0% 16.7% 5.3% 14.7% 13.2% 2.9% 39.3% 2.8% Current Ratio * Current Assets/Current Liabilities Debt to Total Assets = Total Debt/TotaL Assets Long-term Debt to Equity a Long-term Debt/Networth Fixed Assets Turnover - Sales/Fixed Assets Total Assets Turnover * SaLes/TotaL Assets Profit Margin on SaLes a Net Income/SaLes Return on Total Assets a Net Income/Total Assets Return on Equity X Net Income/Netwoth - 85 - ANNEX 2 Table 11 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corporation Limited (GUYSUCO) Projacted Cash Flow Statement (1993-1999) (With Project/Without Hodernization) (USS million) Project Without Modernization Est. -------------- ---------___________________________ 1992 1993 1994 1995 1996 1997 1998 1999 Sugar Production ('000 Tons) 243 240 240 200 200 200 200 200 Molasses Production ('000 Tons) 100 100 80 80 80 80 80 Sales Allocation ('000 Tons) Lome 188 163 163 163 163 163 163 163 US 28 13 13 13 13 13 13 13 Caricom Trade 2 16 16 16 16 16 16 16 Domestic 11 24 24 8 8 8 8 8 World Market 8 24 24 0 0 0 0 0 Sugar Prices (USS/Ton) Lome 618 591 558 542 527 512 512 512 US 436 450 460 460 460 460 460 460 Caricom Trade 305 252 290 290 290 290 290 290 Domestic 384 392 393 393 393 393 393 393 World Market 192 190 208 220 255 296 296 296 Molasses Prices 30 30 30 30 30 30 30 30 Sugar Sales Lome 116.2 96.3 90.9 88.4 85.9 83.4 83.4 83.4 Us 12.2 5.9 5.9 6.0 6.0 6.0 6.0 6.0 Caricom Trada 0.6 4.0 4.0 4.6 4.6 4.6 4.6 4.6 Domestic 4.2 9.4 9.4 3.1 3.1 3.1 3.1 3.1 World Markat 1.5 4.6 4.6 0.0 0.0 0.0 0.0 0.0 Total Sugar Sales 134.8 120.2 114.8 102.2 99.7 97.2 97.2 97.2 Molasses Sales 3.3 3.0 3.0 2.4 2.4 2.4 2.4 2.4 Other Income 2.1 TOTAL INFLOW 138.1 125.3 117.8 104.6 102.1 99.6 99.6 99.6 Operating Costs Agriculture 51.9 53.3 53.3 53.3 53.3 53.3 53.3 53.3 Factory 15.7 15.6 15.6 15.6 15.6 15.6 15.6 15.6 Administration 26.2 24.1 24.1 24.1 24.1 24.1 24.1 24.1 Total Operating Costs 93.8 93.0 93.0 93.0 93.0 93.0 93.0 93.0 Capital and Replacement Costa Agriculture 9.1 8.2 8.2 8.2 8.2 8.2 8.2 Factory 13.7 5.6 0.0 0.0 0.0 0.0 0.0 Administration 3.4 8.7 26.2 13.8 8.2 8.2 8.2 8.2 8.2 Contingency Capital Costs at 52 0.0 0.0 0.0 0.4 0.4 0.4 0.4 0.4 Total Capital Coats 8.7 26.2 13.8 8.6 8.6 8.6 8.6 8.6 Working Capital 1.9 0.4 0.3 0.7 0.1 0.1 0.0 TOTAL OUTFLOW 102.5 121.1 107.2 101.9 102.3 101.7 101.7 101.6 NET CASS FLOW BEFORE FIENANCING 35.6 4.2 10.6 2.7 (0.2) (2.2) (2.2) (2.1) ANNEX 2 -86 - Table 11 CUYANA SUGAR INDUSTRY RESTRUCTURING 6ND PRIVATIZATION PROJECT Guyana Sugar Corporation LTmited (CUTSUCO) Projected Financial Statementa (1993-1999) (With Project/Without Modernization) (USS millions) --------------------------------------------------------------__-------------__--------------------------_----------.. Project Without Modernization BALANCE SHEET lst. -------------- ------------------------------------------ AS OF DECEMBER 31 1992 1993 1994 1995 1996 1997 1998 1999 ASSETS Current Assets Cash Surplus (Deficit) (17.2) (38.8) (44.2) (53.6) (66.5) (81.8) (96.8) (111.4) Receivables 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Inventories 33.7 35.6 36.0 36.3 37.0 37.1 37.2 37.2 Total Current Assets 26.5 6.8 1.8 (7.3) (19.5) (34.7) (49.6) (64.2) Fixed Assets at Beginning of Year 20.5 29.2 55.4 69.2 77.8 86.4 95.0 103.6 Add: Additions and Replacements 8.7 26.2 13.8 8.6 8.6 8.6 8.6 8.6 Less: Accumulated Depreciation 3.4 6.8 12.8 20.1 28.4 37.5 47.4 58.2 Net Fixed Assets 25.8 48.6 56.4 57.7 58.1 57.6 56.2 54.0 TOTAL ASSETS 52.3 55.4 58.3 50.4 38.6 22.9 6.6 (10.1) LIABILITIES AND EQUITY Current Liabilities Taxes Payable 5.2 0.4 0.0 0.0 0.0 0.0 0.0 0.0 Dividends Payable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other Payables 10.6 17.5 17.5 17.5 17.5 17.5 17.5 17.5 Total Current Liabilities 15.8 17.9 17.5 17.5 17.5 17.5 17.5 17.5 Long-term Liabilities Government Loan 1.1 1.2 1.2 1.2 1.2 1.2 1.2 1.2 Foreign Borrovings 10.7 11.0 22.0 21.0 19.0 16.0 13.0 10.0 Local Borrowngs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Long-ctrm Liabilities 11.8 12.2 23.2 22.2 20.2 17.2 14.2 11.2 TOTAL LIABILITIES 27.6 30.1 40.7 39.7 37.7 34.7 31.7 28.7 EQUITY Paid-in Capital Govermnmnt 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 Other Investors 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Retained Earnings 10.9 20.6 21.3 13.5 6.6 (3.2) (15.9) (29.2) Current Year Profit 9.7 0.7 (7.8) (6.9) (9.8) (12.7) (13.2) (13.8) TOTAL EQUITY 24.7 25.4 17.6 10.7 0.9 (11.8) (25.1) (38.8) TOTAL LIABILITIES AND EQUITY 52.3 55.4 58.3 50.4 38.6 22.9 6.6 (10.1) fla ... .. .. .... .. ..... . ..... ...... ...... Debt/Equity Racio 1.1 1.2 2.3 3.7 44.3 -2.9 -1.3 -0.7 Current Ratio 1.7 0.4 0.1 -0.4 -1.1 -2.0 -2.8 -3.7 Debt Ratio (Total Liabilities/Total Assets) 53S 542 702 792 982 152X 4782 -2832 --------------------------------------------------_---------------___--------__--------------------------------------- - 87 - ANNEX 2 Table 11 GUYANA SUGAR JNDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT CuyanA 5ugr Corporation Limited (GUYSUCO) Projected Financial Statemento (1993-1999) (With Project/Without Modernization) (US$ millions) _______ ____-_------- -----_____________-_--------------_---------_-______--______-- - -- - ___-- - - -- -- - - -- - -- - - -- - -.-- -- - Project Without Modernization INCOME STATEMENT Est. -------------- ----------------------_______________ FOR THE YEAR ENDED DECEMBER 31 1992 1993 1994 1995 1996 1997 1998 1999 SALES Sugar 134.8 120.2 114.8 102.2 99.7 97.2 97.2 97.2 Molasaes 3.3 3.0 3.0 2.4 2.4 2.4 2.4 2.4 Other Income 2.1 TOTAL SALES 138.1 125.3 117.8 104.6 102.1 99.6 99.6 99.6 Sugar Lovy 25.0 26.5 25.0 8.8 8.6 8.3 8.3 8.3 NET SALES 113.1 98.8 92.8 95.7 93.5 91.2 91.2 91.2 OPERATING/ADMINISTRATIVE COSTS Agriculture 51.9 53.3 53.3 53.3 53.3 53.3 53.3 53.3 Factory 15.7 15.6 15.6 15.6 15.6 15.6 15.6 15.6 Administration 26.2 24.1 24.1 24.1 24.1 24.1 24.1 24.1 93.8 93.0 93.0 93 93 93 93 93 Depreciation 2.5 3.4 6.0 7.4 8.2 9.1 10.0 10.8 OPERATING EXPENSES 96.3 96.,4 99.0 100.4 101.2 102.1 103.0 103.8 OPERATING INCOME BEFORE INTEREST AND TAX 16.8 2.4 (6.2) (4.6) (7.8) (10.9) (11.7) (12.6) Interost on Loans 1.9 1.3 1.6 2.2 2.1 1.8 1.5 1.2 Corporate Tax (352) 5.2 0.4 0.0 0.0 0.0 0.0 0.0 0.0 NET INCOME (LOSS) 9.7 0.7 (7.8) (6.9) (9.8) (12.7) (13.2) (13.8) .... ..... ......... .. -.........-...... ...... .......... ...... .......... ...... ......... ...... Ratios: Operating Income/Saleo 12.1% 1.9% -5.2% -4.41 -7.6X -10.92 -11.8% -12.72 Oporating Income/Average Total Assets 63.3% 4.51 -10.9% -8.5% -17.4S -35.41 -79.62 716.12 Net Income/Sales 7.0% 0.6% -6.6% -6.6% -9.6% -12.7% -13.3% -13.8S Net Income/Average Equity 39.2% 4.5% -37.6% -31.3% -77.9% -292.02 229.52 73.5t -----_ -----------_ --------------------- ------------------------__ -----------_ --------------__---------------_---__- -88 - ANNEX 2' Table 11 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corporation Limited (CUYSUCO) Projected Funds Statement (1993-1999) (With Project/Without Modernization) (US$ million) Project Without Modernization FUNDS STATEMENT Est. -------------- ------------------------------------------ FOR THE YEAR ENDED DECEMBER 31 1992 1993 1994 1995 1996 1997 1998 1999 SOURCES OF FUNDS Internal Sources Net Income (Loss) bef. Int./Tax after Levy 16.8 2.4 (6.2) (4.6) (7.8) (10.9) (11.7) (12.6) Add: Depreciation 2.5 3.4 6.0 7.4 8.2 9.1 10 0 10.8 Total Funds Generated from Operations 21.3 5.8 (0.2) 2.7 0.5 (1.8) (1.8) (1.8) Share Contribution Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Sub-Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Borrowings Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Foreign 0.0 8.0 12.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Sub-Total 0.0 8.0 12.0 0.0 0.0 0.0 0.0 0.0 TOTAL SOURCES OF FUNDS 21.3 13.8 11.8 2.7 0.5 (1.8) (1.8) (1.8) APPLICATION OF FUNDS Purchase of Assets 8.7 26.2 13.8 8.6 8.6 8.6 8.6 8.6 Increase in Working Capital (4.2) (0.2) 0.8 0.3 0.7 0.1 0.1 0.0 Interest 1.9 1.3 1.6 2.2 2.1 1.8 1.5 1.2 Loan Repayments 0.6 0.7 1.0 1.0 2.0 3.0 3.0 3.0 Corporate Tax 0.0 0.4 0.0 0.0 0.0 0.0 0.0 0.0 Other Payable. (incl. Sugar Levy) 28.8 6.9 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL APPLICATION OF FUNDS 35.8 35.4 17.2 12.1 13.4 13.5 13.2 12.8 NET CASH INCREASE (DECREASE) (14.5) (21.6) (5.4) (9.4) (12.9) (15.3) (15.0) (14.6) Closing Cash Balance (17.2) (38.8) (44.2) (53.6) (66.5) (81.8) (96.8) (111.4) Debt-Service Coverage Ratio 5.6 2.6 (0.1) 0.8 0.1 (0.4) (0.4) (0.4) ---------------------------------------------------------- ------_ _------- _- ____--__-------------------------------- - 89 - ANNEX 2 Table 12 GUYNA SU,GAR INDUSTRY RESTRCTUR N AND. PRIVATIZATION PROJECT yana Sugar Corporation imted ( SUCO) Projected Cash Flow Statea¢nt (1993-1999) (With Project and Modernization) (USS million) Project With Modernization Est. ------------- ---------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 Sugar Production ('000 Tons) 243 240 240 250 250 250 250 250 Molasses Production ('000 Tons) 100 100 100 100 100 100 100 100 Sales Allocation ('000 Tone) Lome 188 163 163 163 163 163 163 163 US 28 13 13 13 13 13 13 13 Caricom Trada 2 16 16 20 20 20 20 20 Domestic 11 24 24 24 24 24 24 24 World Market 8 24 24 30 30 30 30 30 Sugar Prices (USS/Ton) LOme 618 591 558 542 527 512 512 512 US 436 450 460 460 460 460 460 460 Caricom Trade 305 252 290 290 290 290 290 290 Domestic 384 392 393 393 393 393 393 393 World Market 192 190 208 220 255 296 296 296 Molasses Prices (USS/Ton) 30 30 30 30 30 30 30 30 Sugar Sales Lome 116.2 96.3 90.9 88.4 85.9 83.4 83.4 83.4 US 12.2 5.9 5.9 6.0 6.0 6.0 6.0 6.0 Caricom Trade 0.6 4.0 4.0 5.8 5.8 5.8 5.8 5.8 Domestic 4.2 9.4 9.4 9.4 9.4 9.4 9.4 9.4 World Market 1.5 4.6 4.6 6.2 6.6 7.7 8.9 8.9 Total Sugar Sales 134.8 120.2 114.8 115.9 113.7 112.3 113.5 113.5 Molasses Sales 3.3 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Other Income 2.1 TOTAL INFLOW 138.1 125.3 117.8 118.9 116.7 115.3 116.5 116.5 Operating Costs Agriculture and Field Infrastructure 51.9 53.3 53.3 30.1 28.6 28.6 28.6 28.6 Factory 15.7 15.6 15.6 20.6 18.4 18.4 18.4 18.4 Administration 26.2 24.1 24.1 20.0 20.0 24.1 24.1 24.1 Total Operating Costs 93.8 93.0 93.0 70.7 67.0 71.1 71.1 71.1 Capital and Replacament Costs Agriculture and Field Infrastructure 9.1 8.2 8.2 7.9 7.7 7.8 8.0 Factory 13.7 5.6 16.0 15.7 15.0 5.3 5.3 Administration 3.4 8.7 26.2 13.8 24.2 23.6 22.7 13.1 13.3 Contingency Capital Costa at 5I 0.0 0.0 0.0 1.2 1.2 1.1 0.7 0.7 Total Capital Costs 8.7 26.2 13.8 25.4 24.8 23.8 13.8 14.0 Working Capital 1.9 0.4 0.3 0.7 0.1 0.1 0.0 TOTAL OUTFLOW 102.5 121.1 107.2 96.4 92.5 95.0 85.0 85.1 NET CASH FLOW BEFORE FINANCING 35.6 4.2 10.6 22.5 24.2 20.2 31.5 31.4 ----------------------- ----------------------- -------------------__- -----___---- -_-------- ---------------------- -90- ANNEX 2 GUYANA Table 12 SUGAR INDUSTRY RESTR Q RN RIVATIZATION PROJECT Guyana Sugar Corporation to 0 Projected Financial Statements (1993-1999) (With Project and Modernizacion) (USS million) Project With Modernization BALANCE SHET Eat. ------------- ---------------------------------------- AS OF DECEkMBR 31 1992 1993 1994 1995 1996 1997 1998 1999 ASSETS Current Assets Cash Surplus (Deficit) (17.2) (38.8) (44.2) (22.9) (12.3) (10.0) 5.0 10.3 Receivabloe 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Inventories 33.7 35.6 36.0 36.3 37.0 37.1 37.2 37.2 Total Current Assots 26.5 6.8 1.8 23.4 34.7 37.1 52.2 57.5 Fixed Assets at Beginnin of Tear 20.5 29.2 55.4 69.2 94.6 119.4 143.2 157.0 Add: Addition. and Replacments 8.7 26.2 13.8 25.4 24.8 23.8 13.8 14.0 Lass: Accumulated Depreciation 3.4 6.8 12.8 20.1 30.0 42.4 57.2 73.4 Not Fixed Assets 25.8 48.6 56.4 74.5 89.3 100.8 99.8 97.6 TOTAL ASSETS 52.3 55.4 58.3 97.8 124.0 137.9 152.0 155.1 ............. ......... ......... ........ ...... ......... ...... ......... ...... ......... ...... LIAEILITIES AND EQUITY Current Liabilities Taxes Payable 5.2 0.4 0.0 10.4 10.0 7.2 6.8 6.4 Dividends Payable 0.0 0.0 0.0 0.0 3.7 2.7 2.5 2.4 Other Payables 10.6 17.5 17.5 17.5 17.5 17.5 17.5 17.5 Total Current Liabilities 15.8 17.9 17.5 27.9 31.2 27.4 26.8 26.2 Long-team Liabilities Goverrment Loan 1.1 1.2 1.2 1.2 1.2 1.2 1.2 1.2 Foreign Borrowings 10.7 11.0 22.0 27.0 30.0 32.0 31.6 25.8 Local Borrowings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Long-term Liabilities 11.8 12.2 23.2 28.2 31.2 33.2 32.8 27.0 TOTAL LIABILITIES 27.6 30.1 40.7 56.1 62.4 60.6 59.6 53.2 EQUITY Paid-in Capital Govornment ) 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 Other Investors ) 0.0 0.0 0.0 5.0 10.0 15.0 20.0 20.0 Retained Earnings 10.9 20.6 21.3 13.5 32.7 47.5 58.2 68.3 Current Year Profit 9.7 0.7 (7.8) 19.2 14.8 10.7 10.1 9.5 TOTAL EQUITY 24.7 25.4 17.6 41.8 61.6 77.3 92.4 101.8 TOTAL LIABILITIES AND EQUITY 52.3 55.4 58.3 97.8 124.0 137.9 152.0 155.1 ............. ......... ....... ._...... ...... ......... ...... ......... ...... ......... ...... Debt/Equity Ratio 1.1 1.2 2.3 1.3 1.0 0.8 0.6 0.5 Current Ratio 1.7 0.4 0.1 0.8 1.1 1.4 1.9 2.2 Debt Ratio (Total Liabilities/Total Assets) 532 542 70S 57Z 502 442 392 342 -----_--------------------------------_------_-------------------_--- __------.. -----------------------------__ -------- 91Qi - ANNEX 2 Table 1i2 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corpuration TLiited (GUYSUCO) Projected Financial Stataemnts (1993-1999) (With Project and Modernization) (USM million) --------_____------------------------------------------------------.........................-------......---....-..-.......------------------.........----.__ --_--__-______ I Project With Modernization INCOME STATEMENT Eat. ------------- --------------------------------------__ FOR THE YEAR ENDED DECEMBER 31 1992 1993 1994 1995 1996 1997 1998 1999 -------------------------------_-----------------------------------__-----_--___---___-----------_------------_____-_- SALES Sugar 134.8 120.2 114.8 115.9 113.7 112.3 113.5 113.5 Molasses 3.3 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Other Income 2.1 ______ ------ ------ ------ ------ ------ -- -- ..__.. .. .__ TOTAL SALES 138.1 125.3 117.8 115.9 116.7 115.3 116.5 116.5 Sugar Levy 25.0 26.5 25.0 5.8 a.6 8.3 8.3 8.3 ______ ------ ------ _ ____. . . -- -- -- -- ------ .. ..___.... ____ NET SALES 113.1 98.8 92.8 110.0 108.1 106.9 108.1 106.1 OPERATING/ADMINISTRATIVE COSTS Agriculture 51.9 53.3 53.3 30.1 28.6 28.6 28.6 28.6 Factory 15.7 15.6 15.6 20.6 18.4 18.4 18.4 18.4 Administration 26.2 24.1 24.1 20.0 20.0 24.1 24.1 24.1 93.8 93.0 93 70.7 67 71.1 71.1 71.1 Depreciation 2.5 3.4 6.0 7.4 9.9 12.4 14.8 16.1 OPERATING EXPENSES 96.3 96 .4 99.0 76.1 76.9 83.5 85.9 87.2 OPERATING INCOME BEFORE INTEREST AND TAX 16.8 2.4 (6.2) 32.0 31.2 23.4 22.3 20.9 Interest on Loans 1.9 1.3 1.6 2.4 2.7 2.9 2.9 2.7 Corporate Tax (352) 5.2 0.4 0.0 10.4 10.0 7.2 6.8 6.4 NET INCOME (LOSS) 9.7 0.7 (7.6) 19.2 1i.5 13.4 12.6 11.8 ...... ....... .... museum. . ...... .....==.. ...... memo... .... ........ .................. ... Appropriation: Dividends 0.0 0.0 0.0 3.7 2.7 2.5 2.4 Retained Earnings 9.7 0.7 (7.8) 19.2 14.8 10.7 10.1 9.5 Racios: Operating Income/Sales 12.1! 1.92 -5.2S 26.9S 26.86 20.32 19.12 17.92 Operating Income/Average Total Assets 63.32 4.52 -10.92 40.92 26.22 17.92 15.42 13.62 Net Income/Sales 7.02 0.62 -6.62 16.22 15.92 11.62 10.82 10.22 Nec Income/Average Equity 39.22 4.52 -37.61 51.32 57.12 24.52 17.02 13.62 …-------------------------------_------------------------------.....-----.-.-...--.--.-----------------_______________ -92- ANNEX 2 Table 12 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corporation TLiited (GUYSUCO) Projected Funds Statements (1993-1999) (With Project and Modernization) (USS million) I Project With Modernization FUNDS STATEMENT Est. ---__---- ___________________________________-_ FOR THE YEAR ENDED DECEMBER 31 1992 1993 1994 1995 1996 1997 1998 1999 SOURCES OF FUNDS Internal Sources Net Income (Loss) bef. Int./Tax after Levy 16.8 2.4 (6.2) 32.0 31.2 23.4 22.3 20.9 Add: Depreciation 2.5 3.4 6.0 7.4 9.9 12.4 14.8 16.1 Total Funds Generated from Operations 21.3 5.8 (0.2) 39.3 41.1 35.8 37.0 37.0 Share Contribution Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 5.0 5.0 5.0 5.0 0.0 Sub-Total 0.0 0.0 0.0 5.0 5.0 5.0 5.0 0.0 Borrowings Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Foreign 0.0 8.0 12.0 6.0 5.0 5.0 4.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Sub-Total 0.0 8,0 12.0 6.0 5.0 5.0 4.0 0.0 TOTAL SOURCES OF FUNDS 21.3 13.8 11.8 50.3 51.1 45.8 46.0 37.0 APPLICATION OF FUNDS Purchase of Assets 8.7 26.2 13.8 25.4 24.8 23.8 13.8 14.0 Increase in Working Capital (4.2) (0.2) 0.8 (10.1) (2.6) 3.9 0.7 0.5 Interest 1.9 1.3 1.6 2.4 2.7 2.9 2.9 2.7 Loan Repayments 0.6 0.7 1.0 1.0 2.0 3.0 4.4 5.8 Corporate Tax 0.0 0.4 0.0 10.4 10.0 7.2 6.8 6.4 Other (incl. Sugar Levy) 28.8 6.9 0.0 0.0 0.0 0.0 0.0 0.0 Dividends 0.0 0.0 0.0 3.7 2.7 2.5 2.4 TOTAL APPLICATION OF FUNDS 35.8 35.4 17.2 29.1 40.5 43.5 31.1 31.7 * NET CASH INCREASE (DECREASE) (14.5) (21.6) (5.4) 21.2 10.6 2.3 15.0 5.3 ...fl. .=.... Mn.- ..7.. ... .7.....- Closing Cash Balance (17.2) (38.8) (44.2) (22.9) (12.3) (10.0) 5.0 10.3 Debt-Servica Coverage Ratio 5.6 2.6 (0.1) 8.6 6.6 4.9 4.1 3.6 ------------------- ------------------- ------------------ ----------__------_ ------------------- ------------------ GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Guyana Sugar Corporation Limited (GUYSUCO) Sugar Levy (1990-1995) (GS million) Actual Estimate 1/ Proj. 1990 1991 1992 1993 1994 1995 EEC Sales Number of Tons ('000) 130 160 188 163 163 163 Price (G$'000/Ton) 25.2 72.5 78.8 73.9 69.8 67.8 Total EEC Sales 3,276 11,600 14,814 12,046 11,377 11,051 Sugar Levy Due 1,736 6,330 8,148 6,625 6,258 1,105 as % of Total EEC Sales 53% 55% 55% 55% 55% 10% Rebate from Government 1,025 2,066 5,148 3,313 3,129 as % of Sugar Levy Due 59% 33% 63% 50% 50% Sugar Levy Payable 711 4,264 3,000 3,313 3,129 1,105 ---------------------------------------------------------------------__------__--- 1/ Based on GUYSUCO'S 1990/1991 actual data and 1992 estimates. 2/ Assuming an agreed 10% sugar levy at time of modernization. CD4 - 94 - ANNEX 3 GUYANA: RESTRUCTURING AND PRIVATIZATION OF THE SUGAR INDUSTRY TERMS OF REFERENCE As part of its ongoing program to liberalize and restructure economic activity, the Government of Guyana intends to restructure and privatize the sugar industry. The Government wishes to engage the services of qualified consultants to assist it to define the specific elements of an appropriate strategy for such a purpose and to help carry out such restructuring and privatization. 1. BACKGROUND 1.1 The sugar industry is the most important component of the agricultural sector in Guyana. It has historically accounted for up to 50% of the total value of agricultural production; it occupies almost two-thirds of cultivated land, provides more than half the wage employment in the sector and earns more than 75% of the foreign exchange from agricultural exports. A number of factors contributed to a serious decline in this sector in the 1980's, however, and production in 1990 was less than half the average level of the first half of the decade. The decline in sugar alone accounted for 60% of the decline in GDP over the period. 1.2 The Government of Guyana began a major recovery program in the sugar industry in 1990. Through an aggressive replanting program, the replacement of worn agricultural and factory equipment, and improved management of operations, the programs led to significant increases in sugar production. Output in 1991 rose 23 % over 1990 to about 160,000 tons; 1992 production reached 240,000 tons, a further increase of 47%. This level is expected to be maintained in 1993. 1.3 With the exception of a small share of cane land cultivated by outgrowers, all resources committed to the sugar industry are owned or leased by the Guyana Sugar Corporation (GUYSUCO). The company's eight factories currently process about 2.5 million tons of cane harvested from about 95,000 acres of irrigated land. It employs 28,000 people, and is currently managed under contract by Booker Tate, Ltd. 1.4 To sustain, in the long run, sugar output in the range provided by present and expected markets, and to generate the maximum net benefit from this industry for the economy, the Government recognizes that a large financial investment program must be carried out. To ensure the required supply of capital, technology and committed management to the industry, the Government seeks to privatize and restructure GUYSUCO. To that end, the - 95 - ANNEX 3 Government wishes to engage the services of qualified consultants who can develop the strategic elements to achieve such objectives and assist in its implementation. These services, for which proposals are hereby invited, will be financed from the proceeds of a credit from the International Development Association (IDA) which will also provide funds for emergency investments in the industry while the restructuring and privatization takes place. 2. SCOPE OF WORK 2.1 The major tasks of the consultancy are to develop a strategy for the restructuring and privatization of GUYSUCO, and implement such strategy. To carry out these tasks, the scope of work will be divided into two phases. The first phase will involve the: (a) definition of a regulatory environment framework for the sugar industry; (b) benchmark valuation of GUYSUCO; (c) design of an Employee Stock Ownership (ESOP) for the industry; and (d) development of a strategy for the restructuring and privatization of GUYSUCO. The second phase will consist of a series of tasks to facilitate the implementation of the strategy adopted by the Government for the industry, including: (a) mobilization of private financing; (b) negotiation with interested investors; and (c) implementation of ESOP. Phase I 2.2 The strategy to be prepared in this phase will have as its main objective the restructuring and privatization of the sugar industry. It will draw on the technical and valuation analyses of the industry conducted by GUYSUCO and internationally funded specialists in the last two years; and, the policy objectives and priorities and financial requirements of the Government which would be agreed at the early stages of the work of the consultants. 2.3 In the preparation of the draft strategy, the consultants will undertake the following tasks: (a) prepare a restructuring and privatization plan for the sugar industry, in full or by breaking it up in several packages, through private placement and/or public offering and on the basis of market soundings and (b) to (d) below. The consultants will provide alternatives for the restructuring and privatization of the sugar industry, and analyze the financial, economic and social impact of the proposed plan relative to each alternative in a manner that would enable the Government to select an alternative. The consultants will develop a list of potential participants in the restructuring and privatization of the industry. In developing such list, the - 96 - ANNEX 3 consultants will review the potential major providers of funds, local and offshore, in both equity and debt markets; the local capital market in terms of structure, taxation issues, the constraints to issuance of securities and Guyanese underwriting capabilities; etc. (b) carry out a benchmark valuation of GUYSUCO. To arrive at a benchmark valuation of GUYSUCO, the consultants will review and update basic projections, taking into account capital investment needs. (c) propose a mechanism whereby employees of GUYSUCO can acquire equity in the company. The Employee Stock Ownership Plan (ESOP) or similar, will include a means of determining eligibility and allotment of rights, suggestions for interim funding of the sale of shares, proposed amendments in GUYSUCO's bylaws, as required, to permit multiple owners to participate efficiently in the operations of the company, and forms of management that will be most effective. The plan will also address the issue of the proportion of shares to be included in an employee plan, and present the rationale for the share recommended. (d) develop a regulatory framework for the industry. The consultants will undertake a review of the existing legislation and regulations which govern the activities of the sugar industry; identify those issues which impinge on the efficient operation of the sugar industry; and develop a regulatory framework for the sugar industry which will take into account the eventual majority private sector ownership of GUYSUCO and the Government's economic and social concerns. These issues would include, in= aia, access to preferential sugar markets; access to foreign exchange; an appropriate sugar levy formula; ownership, lease and use of land and water; corporate taxes; labor relations; cane payment formula; and sugar importation policy and local sugar prices. Phase H 2.4 The specific tasks to be undertaken in this phase will include the following: (a) prepare all necessary materials for the implementation of the restructuring and privatization strategy adopted for the - 97 - ANNEX 3 industry, including: (i) placement memoranda/prospectus, request of proposals, etc.; (ii) a promotional campaign program in the case of a public offering in Guyana; (iii) disclosure information; (iv) review of the Environmental Assessment of GUYSUCO to determine possible contingent liabilities due to environmental issues; (v) a draft contract for the bidding process by private investors; and (vi) a detailed implementation program, identifying key actions/stages in the process, quantitative measures of their completion, and a proposed timetable. If the strategy calls for the breaking up of GUYSUCO into several packages, the consultants will prepare a briefing package for each of the major asset groups that comprise the industry. In most cases, these groups will be a factory and its associated estates. If the strategy revolves around GUYSUCO as a single entity, the consultants will produce a consolidated briefing package, consisting of physical and financial information on the firm as a whole. The form and content of these documents will be agreed with Government, but the purpose will be to attract the interest of serious prospective bidders with the knowledge and experience to be valuable long-term participants in the sugar sector. To that end, the process should provide comprehensive information to interested parties, perhaps in successive stages, and provide for site inspection and consultation with officials, managers and key operating personnel. The process should also provide for the preliminary demonstration of earnest on the part of prospects by requiring them to incur cost, perhaps in terms of time and travel, to benefit from the briefings to be provided. (b) develop a criteria evaluation system for the assessment of proposals from private placement offerings. The Consultants will develop a set of evaluation criteria for consideration by the Government, taking into account the long- term objectives for the industry, the social and economic importance of the industry, and the anticipated concerns of prospective investors. Upon adoption of criteria by Government, the Consultants will prepare necessary procedures and documentation for the evaluation process. (c) prepare a promotional strategy and campaign and disclosure information and assist Government in implementing public offerings. - 98 - ANNEX 3 The strategy will include draft solicitation announcements and will provide guidelines for the development of background material and conduct of visits required by prospective investors and financiers. It will also entail direct approach to potential investors by the Consultants for solicitation and evaluation. (d) assist the Government during negotiations with prospective investors until agreement is reached and the investment is completed. The Consultants will brief government negotiators on issues likely to arise during negotiations, conduct background analysis and inquiries to assist in reaching satisfactory conclusions, assist in the negotiation process, and draft documentation which may be required to confirm the outcome of negotiations and pursue actions that may be precedent and necessary for the completion of investment, including transfer of title and deed and payment and other financial arrangements. (e) implement the ESOP designed in Phase I. The consultants will assist in the initial implementation of the adopted ESOP, and ensure that the plan is operational. 3. ORGANIZATION, STAFFING AND OUTPUT Organization 3.1 The consultants to be appointed following this solicitation will work in close collaboration with the Government, through a Privatization Board and a Privatization Unit. The Unit would work with the consultants, facilitate consultations with interested parties, and recommend a final strategy for submission to the Board and to Cabinet. While they will be expected to participate in joint work programming and review exercises, the Consultants will be solely responsible to carry out the actual work described in these terms of reference. 3.2 As executing agency for the Japanese Grant Facility, under which Phase I of the assignment will be financed, the World Bank will supervise the work of the consultants in Phase 1. The Government will supervise Phase II of the assignment, in close consultation with the World Bank. - 99 - ANNEX 3 Expertise Required 3.3 Key expertise required for the assignment includes, inter alia, investment banking, sugar specialist, financial analyst, ESOP specialist and legal assistance. Deliverables and Timetable 3.4 The consultants should be ready to begin work within one month of the signature of the contract. The following is the required output (reports), which the consultants may use in preparing a detailed work plan that responds fully to the requirements of the assignment, for submission with their proposal. The consultants are required to submit 20 copies of each report. The consultants are expected to provide in their proposals tentative descriptions of the contents and coverage of each report. Rorts Timing Phase 1: No later than 6 months after 1) Draft Regulatory Framework and initiating work Final version of Regulatory Framework 2) Valuation Report 3) Draft ESOP and Final version of ESOP 4) Restructuring/Privatization Options for the Industry and 5) Selected Restructuring/Privatization Strategy, (including determination of the capital share of GUYSUCO to be offered for sale) Phase 1I: No later than 5 months after Implementation Materials completion of (Placement memoranda/prospectus, request for Phase I proposal, promotional campaign program, evaluation criteria for assessing proposals, implementation plan) If appropriate: Final documentation for the completion of privatization. - 100- ANNEX 3 Other 3.5 The Government of Guyana reserves the right to reject any or all offers from prospective buyers if this is thought to be in their best interest without being subject to any kind of compensation or complaint from the part of the Consultants. - 101 - ANNEX 3 DATA. SERVICES AND FACILTIES TO BE PROVIDED BY THE CLIENT AND THE WORLD BANK The client (Ministry of Finance) will facilitate access to all available data relevant to the assignment including GUYSUCO and their operations. The client will also make available, free of charge, appropriate office space for the team while in Georgetown. This will include utilities, local telephone and fax services, and reasonable secretarial and photocopying support. The client will assist the consultants with arrangements to visit Guyana, and will facilitate field visits within Guyana by the consultants' personnel, however, all travel and accomodation expenses are responsibility of the consultants. The World Bank will make available appropriate documents to the consultants. - 102 - SUGGESTED FORMAT OF CURRICULUM VITAE FOR MEMBERS OF CONSULTANT'S TEAM Name Profession Years with Firm Nationality Proposed position on Team K&y Qualificafigns: Under this heading, give outline of staff member's experience and training most pertinent to assigned work on proposed team. Describe degree of responsibility held by staff member on relevant previous assignments and give dates and locations. Use up to half-a-page.) Education: (Under this heading, summarize college/university and other specialized education of staff member, giving name of schools, date attended and degrees obtained. Use up to a quarter page.) Experience Records: (Under this heading, list all positions held by staff member since graduation, giving dates, names of employing organization, title of positions held and location of assignments. For experience in last ten ye, also give types of activities performed and client references, where appropriate. Use up to three-quarters of a page.) Date Signature of Staff Member WORK PROGRAM AND THE SCHEDULE FOR KEY PERSONNEL MONTHS Man-Months No. of Name Position 1 2 3 4 5 6 7 8 9 10 11 12 Field Home Round Trips Total o Reports Due/Activities and Duration 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Field Full Time / Part TIme Home Office Full lime / Part Time Reports Due * Activities Duration - 104- ANNEX 4 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT POLICY STATEMENT BY THE GOVERNMENT OF GUYANA ON A STRATEGY FOR THE RESTRUCTURING AND PRIVATIZATION OF ITS SUGAR INDUSTRY 1. The sugar industry, Guyana Sugar Corporation (GUYSUCO), constitutes Guyana's main agricultural and industrial activity contributing about 15% of GDP. It is the country's leading export, accounting for over 40% of foreign exchange earnings and the main source of fiscal revenue. With about 27,500 employees, it also accounts for 10% of total employment in the country, not counting the many independent farmers who produce sugarcane for GUYSUCO. Background 2. The two sugar companies operations accounting for total sugar production were nationalized with compensation in the mid-1970s and consolidated into a wholly Government-owned parastatal, operating eight sugar factories producing, at the time, 350,000 tons of sugar annually. Production declined to about 250,000 tons by the early 1980s following a fall in world sugar prices. 3. Production continued to decline steadily throughout the eighties as a result of a variety of factors, including a generally unfavorable macroeconomic policy environment and inappropriate industry policies which drained financial resources and foreign exchange from the company. Financial problems were compounded by ensuing serious difficulties on the production side. Agricultural, field infrastructure and processing plant and equipment deteriorated, the supply of spare parts and agricultural inputs was inadequate, and industrial relation conflicts developed in the wake of deteriorating compensation which also dramatically eroded managerial and technical manpower capabilities and lowered labor participation. By 1990, sugar production had declined to 130,000 tons. This output level was well below Guyana's combined preferential quotas of 164,000 tons to the EEC and 16,000 tons to the USA. The likely partial loss of the EEC quota due to non-performance posed a serious threat to the existence of the sugar industry in the country. Recent Developments 4. Since the late 1980s, Guyana embarked on an Economic Recovery program, aimed at restoring and accelerating economic growth and at eliminating the serious internal and external imbalances that have affected - 105 - ANNEX 4 the Guyanese economy as a result of inconsistent macroeconomic policies and mismanagement. 5. In pursuing the recovery of its sugar industry, the Government will tackle the issues of poor managerial and technical capacity, lack of access to technology improvements and as a way of mobilizing the extemal financing required to carry out the investments necessary to bring about the industry's rehabilitation, rationalization and modernization so as to ensure its long-term sustainability. As a first transitional step, the Government selected and contracted in 1990 an experienced and qualified sugar management firm to: (i) take over all day-to-day operations of GUYSUCO; (ii) prepare a feasibility study for the rehabilitation, rationalization and modernization of the industry; and (iii) identify private and official financing sources for the investment program to be proposed under the feasibility study. Under private management, improved compensation to workers and favorable climatic conditions GUYSUCO has staged a remarkable recovery, with output increasing to about 240,000 tons in 1992. The target for 1993 is 248,000 tons and performance to date indicates that this target is likely to be achievcd. However, for GUYSUCO to efficiently reach its optimal production or even maintain, over the medium- to long-term, present production levels (and continue to meet its existing and possibly higher quota levels), the industry would require a level of financial investment well beyond the Government's existing and future capacity. During the near term, while Government seeks private investment for the financing of the industry's needs, the Government has requested the International Development Association (IDA) to assist in the financing during the next 24 months of urgently required factory and field infrastructure plant and equipment in the nature of an interim minimum approach to sustain present production levels, as well as of a team of experienced and qualified financial advisors to assist Guyana in privatizing GUYSUCO. Privatizatlon and Rehabilitation Phase 6. The Government is committed to a restructuring and privatization of GUYSUCO, in a fair and transparent way with the assistance of financial advisors to be selected by December 1993, to attract the necessary infusion of private equity capital, and to assure efficient management of the company in a policy and regulatory framework designed to ensure meaningful participation by the workers and the private sector within an efficient and competitive environment, while safeguarding government revenues under an appropriate fiscal regime. The advisors will be requested to submit their complete set of recommendations by July 1994. The Government and IDA then will agree on an action plan to restructure and privatize GUYSUCO. It is the Government's intention in selecting private financial participation in GUYSUCO, to actively seek investors that would have the qualifications and experience to deal with the managerial, technological, marketing and financial requirements of the industry. It is also seeking in the process to attract investors that would be willing to have a - 106 - ANNEX 4 meaningful equity stake in GUYSUCO. Toward this end, a Request for Proposals would be agreed with IDA by October 1994. The Government will endeavor to complete the process by March 1995. 7. The privatization process, as set out in the Privatization Policy Framework Paper passed by Parliament on July 16, 1993, would include: (i) flexibility in privatizing the industry to take into account prevailing market conditions; (ii) setting up of an appropriate and transparent regulatory framework (to be established with the assistance of the financial advisors and IDA) to secure adequate Government revenues and foreign exchange while providing clear rules for private investors and operators; (iii) providing an opportunity for ownership participation by GUYSUCO's workers through an Employee Stock Ownership Plan (ESOP); and (iv) preparation of a comprehensive financing plan, including the investor's willingness to mobilize resources to finance at least its share of the rehabilitation stage without resort to Government subsidies. 8. While implementing steps towards the restructuring and privatization of GUYSUCO, it is the Government's intention to: (i) maintain the present status of GUYSUCO, i.e., operated as a commercial concern, and as a self-sufficient and independent business entity; (ii) ensure that qualified and experienced management is maintained in the key corporate positions and that appropriate compensation is provided linked to their performance; and (iii) retain the present sugar levy, based on the agreed formula and the existing foreign exchange retention policy. These parameters would be reviewed as part of establishing the new regulatory framework. 9. In concluding, the Govemment has embarked on a comprehensive and consistent program for the recovery of its sugar industry. The program is a key part of its Economic Recovery Program aimed at restoring and accelerating economic growth through increasing the role of the private sector in the economy and at eliminating the serious intemal and extemal imbalances that have affected the Guyanese economy in recent years. The Govemment hopes that the World Bank Group will join this effort and help the country implement this program. Very truly yours, Asgar Ally Minister of Finance - 107 - ANNEX 5 GUYANA SUGAR INDUSTRY RESTRUCTURING AND PRIVATIZATION PROJECT Selected Documents and Data Available in the Project File 1. Guyana Sugar Corporation Limited - Investment Plan - Stage I Report, Booker/Tate, August 1991 Volume I - Executive Summary & Main Report Volume II, Annex 1 - Financial and Economic Analysis Volume III, Annex 2 - Option Selection Volume IV, Annex 3 - Agriculture and Field Infrastructure Volume V, Annex 4 - Factories Volume VI, Annex 5 - Market Survey Volume VI, Annex 6 - Organization, Training and Industrial Relations 2. Supplemental Report on Review of Booker/Tate revised Guyana's Investment Plan and Privatization Project Study together with a Capital Cost Project Budget and Cash Flows, F.C. Schaffer and Associates, Inc., April 3, 1992 3. GUYSUCO's Capital Budget 1993 4. Privatization Policy Framework Paper (June 1993) MAP SECTION 6 8 >'' f GUYANA . 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