Early Decisions?

More than any previous government, this one has the clout, the reasons, the political latitude and the opportunity to rewrite some contour lines in the historically-charged (cane sugar) industry for the broader benefit of the country as a whole

“Beyond the greenlight for CT-Power, government has also initiated a renegotiation of the Betamax contract for long-term transport of our petroleum needs under secure conditions. A high-profile show of resolve although the technical and financial issues of costs and pricing will have to be thrashed out jointly. Another domain where renegotiation requires equally firm resolve are the leonine IPP contracts which govern the usage of bagasse in the generation and sale of electricity to the CEB and the consumer…”

After the euphoria of December’s poll results, the new government has moved swiftly in the traditional political change of guards, placing its key political appointees in a number of strategic posts. Reorganisation at Casernes Centrales, prompt dismissal of the Director General and top echelons of ICAC, nominations at Bank of Mauritius and Bank of Mauritius Chief of staff and Cabinet Secretary, senior advisers at PMO and various ministries have started ushering the new class of political appointees.

Some thirty-odd nominees have already found their berths, but many more are in the offing, for the incoming government has considerably enlarged the definition of “political appointees” to include not only advisors, PR agents and ambassadors, but every single DG, Chairman and, in some cases, top echelons of all parastatals. When one adds some ten Board members for each and everyone of the two hundred or more parastatals the country nurtures, it implies vacating and replacing, at short notice, more than a thousand middle and top-level cadres.

Central government has also acted promptly for promotions, demotions and reshufflings at Casernes Centrales and within the Civil Service, affecting nearly a hundred or so middle to top-level cadres, many of them no doubt justifiably, although it is not clear if this has been carried out by the PSC or by executive privilege of the PM with Minister Alain Wong’s blessings. Politically, in the triangular alliance, the lion share of the spoils have gone the MSM way.

While government gets on with the pithy job of political appointments, the country’s development issues remain in abeyance. Budgetary appropriations and directions will have to await March. Numerous problems in the health, education, water, drains, environment sectors, and ‘marchands ambulants’, to mention but a few, deserve attention. Some thorny questions which have remained stuck in the pipeline require planned but early decision-making. This government has the mandate to act and to act decisively on key issues that had bogged down previous regimes.

CT Power

One case in point concerns the coal-fired CT-Power project, which, having signed its Power Purchase Agreement (PPA) with CEB years ago, finally received its Environmental Impact Assessment (EIA), with 31 stringent conditions attached, almost a year back. One of those key conditions was the submission to the satisfaction of local authorities of financial clout and guarantees for the magnitude of the project. The sought-for guarantees seem to have been furnished shortly before last elections, although clearances from Finance and Attorney-General have been withheld until elections were over. It is entirely appropriate, one must say, for a project of this scope and that has attracted such controversy, that it be considered and green-lighted only after due diligence by the newly elected government.

Government has at its disposal the detailed technical works and documents of the CEB (Energy Planning 2013-2022), the Public Utilities Long-Term Energy Strategy (2009-2025), the ‘Maurice Ile Durable’ Energy Planning synthesis and the report of the Manraj Commission. Of the fossil fuels, coal is far cheaper, offers less price volatility, is more abundant, particularly with nearby low-sulphur SA reserves, and more than 600,000 tons are imported, transported, used and burned by the sugar-factory Independent Power Producers (IPPs) in seven coal-bagasse cogenerators, including one full coal-generator at Compagnie Thermique du Sud (CTDS), without the stringent conditions imposed on the CT-Power project.

The proposed siting of the latter at Pointe aux Caves follows geo-climatic recommendations and prevailing wind directions. It will access its coal by sea-jetty, and use the most modern pulverised technologies available with adequate filtering and ash treatment processes. To cap it all, the CEB will have significant shareholding (26%) in the joint venture, something it was disbarred from in all other IPP projects.

Vice-PM and Minister of Public Utilities Ivan Collendavelloo has, on air, last week, made his personal position and the new government’s stance clear. CT-Power is to go ahead at the earliest. Whether we agree or not, the government is true to its image of firm decision-making. It is said that a new government, however strong, ultimately has some twelve to eighteen months to usher in major legislation and take the tough but necessary decisions the situation may dictate.

Beyond the greenlight for CT-Power, government has also initiated a renegotiation of the Betamax contract for long-term transport of our petroleum needs under secure conditions. A high-profile show of resolve although the technical and financial issues of costs and pricing will have to be thrashed out jointly. Another domain where renegotiation requires equally firm resolve are the leonine IPP contracts which govern the usage of bagasse in the generation and sale of electricity to the CEB and the consumer.

IPPs and bagasse usage

International agencies in the late eighties began to flog an electricity privatisation agenda around the Third World through the now-infamous IPPs and PPAs with terms and conditions heavily loaded for private profit. It was meant to raise private funds for large projects and provide “private sector management input” to cash-strapped or mismanaged, inefficient state providers. None of these conditions prevailed here when the first IPP was signed with CTBV, nor when several more, despite awareness of the unfair contract terms, were signed between 2000 and 2005 by the MMM-MSM regime.

The understandable guiding concern for Mauritius was to tap into a renewable residue, bagasse, which was a by-product (33% of sugarcane biomass) of negative value, for which no industrial process of transformation was known or feasible. To quote from the MSPA website: “The bagasse which for years was just wasted and considered as a source of “pollution” is now sent to the power plants to be converted into electricity.”

A very juicy conversion as it turned out, since in most IPP contracts the polluter-bagasse overnight acquired the status of coal and its value became indexed to international dollars of fossil fuels! It is beside the point that the IPPs sell their electricity at less than CEB’s own alternative procurement from coal : had bagasse not been rated and pegged to fossil fuel dollars, the CEB could have secured its bought-in electricity at one-third or less of the price it is obliged to pay IPPs, much to the benefit of all consumers, residential, commercial or industrial.

Other unpalatable aspects of the leonine coal-bagasse IPP-PPA contracts handed out to the powerful sugar lobbies turned what should have been a matter of national consensus into a fractious bone of contention. Long contract durations (20 years or more), take-or-pay clauses, all risks passed on to CEB, government and the consumer, iron-clad guarantees against political risks, devaluations and forex risks, “change in law” risks, indexation and guaranteed return on equity, in fact, every aspect was designed to grant the miller, the estate land owner and the international investor (who only put up some 25% of the capital investment anyway) a risk-free ride to the bank.

These would probably have been analysed in the Hunton & Williams Report commissioned jointly by Government and the MSPA in 2009. In addition to planters and sugar employees, a wide platform comprising CSG-Solidarité, Muvman Premye Mai, Rezistans ek Alternativ, namely Ashok Subron, Jack Bizlall, Dev Ramano et Clency Bibi of the Central Electricity Board Staff Association (CEBSA) had deponed and denounced the IPP contracts before the international consultants. The IPP contracts remained confidential until the Manraj Commission on Energy released them in 2013. Meantime, the MSPA had walked away from the Hunton & Williams Report recommendations, which again have remained confidential.

Faced with such “contrats en béton armé”, the Alliance Sociale government of 2005 was powerless to tackle the IPPs head-on, though by 2009 it had renegotiated and moved the goal-posts on some peripheral issues. But, lacking resolve or parliamentary strength or social support, neither the 2000 acres of sugar land nor even the 35% shareholding in cane by-products and residues took shape. That can be corrected now.

Proceed sharing

What has been dispiriting for thousands of small planters who have progressively abandoned or converted their cane fields after the EU sugar-price reductions, is the gross inequity in sharing the proceeds from the bagasse-driven electricity generation that has returned massive profits for the millers and their affiliated IPPs. Small and medium planters with less than 10ha, globally still produce at least 40% of the bagasse to be burned in the improved boilers and equipment required by IPPs to generate electricity. Once fair deductions are made for the additional investments required for electricity generation by miller-IPPs, amortised over twenty years, do the small planters really get anywhere near the 40% share of the bagasse they produce?

They pay a miller processing fee (apportionment ratio) to secure processing of their raw materials into sugar and by-products. The investments in the IPPs now provide the factories with better efficiencies, free year-round electricity and steam, yet the processing fee fork-out to sugar factories remains high compared to any other agro-processing industry. Small planters and sugar-sector employees have seen little of the vast sums injected by the EU to accompany sector restructuring.

The consensus of the National Alliance of Small Planters or even of a seasoned politician like Mr Guimbeau, is that small planters get “peanuts” out of bagasse electricity generation while the sugar barons get their bread buttered several times over. First as large land-owners providing cane for bagasse, many, then, as sugar-millers selling the bagasse at coal or dollar-pegged levels to the IPPs and finally as co-investors in the IPPs selling their electricity at artificially inflated prices to the CEB and the consumer. A bonanza that has fattened private bank accounts but handicapped social and economic progress in a historically sensitive sector.

Plan the new contours

Most of these leonine IPP-PPA bagasse co-generation contracts come up for review or renewal in the coming years of this government’s mandate. The initial IPP private investments have probably been recouped several times over by now for the earlier contracts and the debt repayment period has long gone by. The time is appropriate therefore to look dispassionately at the issues and, if necessary, commission specialists to prepare a fundamental rewrite of all the terms and conditions of IPP-PPA contracts in the interests of the national economy.

Mr Mahen Seeruttun, the new Minister of Agro-industry a planter himself and a long-time cadre of the MSIRI, understands the issues at stake more than anybody else. With the other senior political postings at Public Utilities, Finance and at Attorney-General, there is considerable fire-power and brains to lead the necessary review to satisfactory conclusions. As Minister of Finance Vishnu Lutchmeenaraidoo is wont to stress, conglomerates “have to learn to share”, though central government energies, appropriately enough, have now to be focused.

While correcting past injustices, this would pave the way for a new social and national consensus era in the cane sugar sector with an equitable participation of stakeholders in all proceeds of the cane industry at a time when it faces more challenges on the horizon. More than any previous government, this one has the clout, the reasons, the political latitude and the opportunity to rewrite some contour lines in the historically-charged industry for the broader benefit of the country as a whole.

* Published in print edition on 23 January  2015