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Golden Grove fights for logical prices

BY CAMILO THAME Business co-ordinator

Wednesday, July 18, 2012

GOLDEN Grove Sugar Company aims to increase cane production by two-thirds by 2015.

But making a profit at the St Thomas-based operations may hinge on the company's ability to eliminate 'illogical pricing'.

The Government's energy policy allows a premium for oil-based energy production over renewables, according to its parent's Chairman Paul "PB" Scott.

Moreover, the price paid for its molasses by rum distillers is 30 per cent cheaper than the imported raw material — a remnant of days when the sugar factories were state-run.

"Providing logic prevails with the Government's energy policy", Golden Grove would expand its power-generating capacity using bagasse, a by-product of crushed sugar cane, to sell excess power to the grid, as cane production increases, Scott said.

The price it would get for its electricity would be based on the cost that Jamaica Public Service Company (JPS) would avoid by not building the additional capacity itself, plus a 15 per cent premium for renewable technology.

"While (11.55 US cents per kilowatt-hour (kWh) for renewable energy) sounds like a good price, anyone who actually pays an energy bill can see that this is actually a very low price compared to the 30 to 50 US cents which most consumers pay," he said in Seprod's Annual Report.

"Those who authored such an absurd policy will perhaps defend it on the basis that generation for sugar is only during crop period. This is nonsense."

He argued that the power plants can be kept running using other resources to burn to produce steam for the generator turbines.

The Energy Ministry told the Jamaica Observer that it has already conducted a review of the proposed tariff through World Bank funding.

The Government decided that the current regime did not make renewables attractive, and could derail the 2030 target of replacing 20 per cent of the country's energy with renewable technology.

Energy Minister Phillip Paulwell is to reveal details of the study next Tuesday during his sectoral debate presentation in Parliament.

Scott also said that the US$119, which the sugar factory gets for each ton of molasses it sells domesitcally, is far less than the US$180 a ton paid for imported raw material, which represents 50 per cent of the supply to the local rum industry.

"Yet again, this pricing is illogical and really is a by-product of the state-run factories unintentionally selling subsidised molassses to private rum distilleries," he said. "As a pivate seller, it is our objective to obtain the highest possible price. Either we receive the best price (that is equal to that of the landed cost of the imported molasses) or we will seek alternative uses or buyers fror our molasses prodcution."

Golden Grove already secured "attractive pricing" for its sugar through an agreement that runs until 2015.

Economies of scale is also expected to improved the profitability of the company, which aims to increase cane production from 180,000 tonnes a year to 300,000 tonnes in three years, through a combination of increased acreage and improved cane yields.

Last year, Golden Grove purchased Bowden Estate lands and Seprod, the sugar company's parent, purchased Coley Estates, which, combined added a further 820 hectare to its farm lands.