Opinion by Professor Wadan Narsey .
The Fiji Times. Saturday, May 21, 2016
The Fiji Times of May 6, 2016 has an astonishing report by journalist Matilda Simmons that “State plans to acquire 100pc shares in FSC”, that ought to be raising eyebrows all over the country, not the least among accountants and auditors.
The reports stated that the: “Government intends to acquire 100 per cent shareholding in Fiji Sugar Corporation (FSC) and inherit the latter’s $293million debt if the proposed Reform of Sugar Cane Industry Bill (Bill No. 19 of 2016) is passed. Presenting his submissions before the Standing Committee on Economic Affairs on Wednesday, the permanent secretary for the Ministry of Sugar, Jitendra Singh, said under the Clause 84 of the proposed Bill, there were currently 44,399,998 shares with 2060 shareholders. Of these, Government had 30,239,160 (68.1 per cent) shares, while statutory bodies, local public companies and individuals held the rest of the shares. The intent is for Government to acquire 31.9 per cent of the shares.”
Obvious questions asked
Mr Singh revealed Government had already given loans of around $173 million (not guaranteed) and $120m (guaranteed) from Exim Bank in India and Tate and Lyle.
Standing Committee member Professor Biman Prasad then pointed out that this also meant Government would end up inheriting the $293m loan.
Prof Biman then asked whether it was constitutionally right for Government to take over the rest of the shares in FSC and that the interest of the other shareholders were not considered.
He asked whether the shareholders could constitutionally challenge the decision by Government to nationalise the sugar industry.
Aruna Shantha de Silva of the Solicitor-General’s Office then apparently stated that the move was for the betterment of the industry, which was not performing at all over the years.
More questions to be asked
All Fiji can see that, despite the forever optimistic claims by the CEO of FSC for the past eight years, the sugar industry has been run into the ground under the total control of the Bainimarama Government, with the private shareholders having no input whatsoever.
Normally, when a public enterprise is doing disastrously under government ownership, control or management, the typical economic policy prescription (supported even by IMF and World Bank) is for Government to privatise it and let the more efficient private shareholders run the company.
But the new Bill proposes the opposite: to give 100 per cent ownership to the Fiji Government (ie complete nationalisation), which will make absolutely no difference to the management of the industry.
So why on earth therefore would the Solicitor — General’s Office, not particularly brimming with sound economic expertise, be claiming that it was for the betterment of the sugar industry?
Given that the company has been technically insolvent for several years now and had massive debts which are unlikely to be ever paid back, what on earth will be the price put on the privately held shares?
Such questions should of course come with great energy, from Fiji’s renowned accountants and auditors who unfortunately have shown no inclination whatsoever, theses past nine years, to ask any questions in their professional area of expertise, in the public interest.
Perhaps they are busy making money. Let the public look after themselves.
Is there another game plan?
The current private shareholders and taxpayers might want to ask some other questions.
Is there some other “game plan” that those wielding authority may have in mind?
FSC may be technically insolvent as a “going concern making sugar” hence its assets (and shares) may technically be worth nothing or even have a negative value, given the massive debt.
But, what about the other assets held by FSC, such as land associated with the sugar mills and freehold or State land or long-term native lease lands on which sugar cane can be planted?
Note that most sugar mill lands are in urban or peri-urban areas and therefore worth minor fortunes.
It is pretty clear already that Fiji’s traditional canefarmers not particularly interested in “working the land” and hence outside labour has to be hired, which totally eats up all the surplus in canefarming. There is absolutely little likelihood of the traditional canefarmers reviving the sugarcane industry, whatever may be the rosy picture perpetually painted by Abdul Khan, who coincidentally refuses to reveal to taxpayers, what salary he is drawing as an executive chairman.
Apparently, no one in Fiji cares to tell him that taxpayers have a right to know given that they are footing the bill, in more ways than one.
But the FSC cane lands might be quite valuable for new entrants into the sugarcane planting industry, such as Chinese agribusinesses, who are venturing out into the world, as part of China’s long-term plans for food security.
What would the sugar mills be worth to new Chinese investors if Government was kind enough to them to not include the current massive debts guaranteed by Government?
What would be the cane lands be worth to new Chinese agribusinesses?
Private shareholders interests?
If Government intends to sell off FSC assets for large positive values (without including the debts), would private shareholders normally demand a share of the proceeds?
Would getting rid of private shareholders at this point in time (for a cheap price) make it a "cleaner" operation for Government and allow it to enjoy the bulk of the proceeds from asset sales?
Note however, that the long-term burden of any debt taken on board (“written off”) by the Government would of course fall on taxpayers.
So what exactly would all these “nationalisations” mean for taxpayers’ welfare?
Hmmm.
There is far more to all this than meets the eye than “reform of the sugarcane industry.”
* Professor Wadan Narsey is former Fiji economist. The views expressed here are his and not of this newspaper.