August 28 2009

Claxton Bay, Trinidad:

The TCL Group wishes to respond to the views expressed in the BG View Column by the Acting Editor-in-Chief, Mr. Anthony Wilson, in the Business Guardian of Thursday, August 27, 2009 9see below). We thank him for his support. The Group recognizes and acknowledges many of the concerns expressed in the article, since the Common External Tariff (CET) is indeed a fundamental pillar in the establishment of the Caribbean Single Market and Economy, (CSME). Its primary purpose is to encourage and promote the production of goods within CARICOM.

It is for this reason that the Group approached the Caribbean Court of Justice (CCJ), seeking its adjudication on specific CET waivers granted to facilitate the importation of cement into the region. The Group was gratified that the Court’s judgment in both cases (against the Caribbean Community and against the Government of Guyana), provided greater clarity in relation to the necessary conditions and procedures to be followed in the application and granting of a CET waiver. These procedures provide for greater scrutiny, transparency and predictability in the regional trading regime.

The Group has noted, with some concern, the position taken by the Government of Jamaica in seeking a further extension of the CET to accommodate the importation of 170,000 tonnes of cement, despite our ability to supply 100% of Jamaica’s requirements. We expect that Jamaica’s application would be subject to more rigorous scrutiny in line with the recent CCJ rulings.

Notwithstanding the outcome of these deliberations, the TCL Group is confident that with its significant investment in capacity expansion and modernization resulting in increased productivity and greater efficiency, along with our strategies to capture new markets, we can successfully face the challenges of the current business environment. Moreover, we feel comfortable in our ability to meet our obligations to our various stakeholders.

BG VIEW
Will the region abandon TCL...again?
Anthony Wilson
Published: 27 Aug 2009
Anthony Wilson
http://guardian.co.tt/business/business-guardian/2009/08/27/will-region-abandon-tclagain

The decision by Jamaica's Ministry of Industry, Investment and Commerce to apply for a further extension of the suspension of the Common External Tariff (CET) in relation to the importation of cement into Jamaica is a slap in the face of local manufacturing powerhouse, TCL, and is also an indication that bad economic policy can have disastrous consequences. On Tuesday, Minister Karl Samuda announced that Jamaica would apply to the Caricom Secretariat in Guyana to suspend the CET of 15 per cent on imports of 170,000 metric tonnes of cement for one year starting from September 9, 2009.

Jamaica’s decision to apply for the extension of the CET this week follows on from the country’s request for the suspension of the tariff on the importation of cement from September 10, 2008 to September 9, 2009. The application last year was for the suspension of the CET on 240,000 metric tonnes of cement, which was estimated at 25 per cent of Jamaica’s cement market of 960,000 metric tonnes. This week’s application is for the suspension of the CET on 170,000 metric tonnes of cement which envisages that 20 per cent of Jamaica’s total market for cement, estimated at 850,000 tonnes in the period, would come from imports.

It is estimated, therefore, that Jamaica’s cement market will decline by about 11 per cent in the next 12 months. The decision by the Jamaican government—which is headed by Prime Minister Bruce Golding who desperately wants to get his hands on T&T’s LNG at a subsidised price—was taken in the context of the fact that Caribbean Cement Company (CCC), which is TCL’s majority-owned subsidiary in the north Caribbean country, is in the commissioning phase of a major upgrade to its Jamaican facilities. That upgrade, which is estimated to cost US$160 million, includes the implementation of a new kiln line (Kiln 5), a new cement line (Mill 5) and other improvements. At the end of the upgrade, CCC expects to have the production capacity of 1.3 million tonnes per annum of clinker and up to 2 million tonnes per annum of cement.

TCL’s dilemma arises from the fact that the total Jamaican market for cement is estimated at 850,000 metric tonnes for the period September 9, 2009 to September 8, 2010 and that the Jamaican government, by its suspension of the CET on 170,000 metric tonnes of cement imports, has just indicated to the CCC that it can only guarantee it a market of 680,000 metric tonnes for the next year. CCC could very well find itself in a situation, therefore, where 60 per cent of its installed cement capacity remains idle, which is likely to have disastrous consequences for the company and its cost-per-tonne ratio.

In effect, the Jamaican decision to suspend the CET means at the point when TCL is just about to start production on its 2 million tonne per annum cement mill, which has more than enough capacity to supply the entire Jamaican market more than twice over, that country’s government has basically undermined TCL’s investment in Jamaica, jeopardising hundreds of jobs and millions of dollars in taxes. The decision to suspend the CET places at risk the financial future of CCC and therefore places at risk the future of TCL—which borrowed an estimated US$105 million to finance the plant upgrade in Jamaica. The US$105 million comprises: US$35 million in loans from the International Finance Corporation, as well as a US$20 million loan and a US$50 million bond issue which were undertaken by Republic Finance and Merchant Bank (Fincor), along with the equivalent of an estimated US$55 million in internally generated funds.

TCL would have had to make revenue and profit projections in order to raise the US$105 million. The Jamaican government has effectively torn up those financial projections and flung them back in the face of TCL along with its T&T bondholders and Republic Bank, the financier. As well, TCL is owned by thousands of individual shareholders in T&T and across the region along with credit unions, mutual funds, and pension plans in T&T and the region. CCC, while majority owned by TCL, has hundreds of individual and institutional investors in Jamaica. This decision, therefore, not only places T&T bondholders at risk, it also places thousands of equity investors in jeopardy at a time when confidence in the regional stock markets is not at its highest. It's clear that the posture of the Jamaican government has already hurt CCC. The company estimates that its operating profits for the March to June quarter were 54 per cent lower than the operating profit for the first quarter of 2009.

“The decline in performance is due largely to Kiln 5 being taken out of service for major overhaul and the drop in local cement sales in the current quarter compared to the first. The net profit result was again negatively impacted by interest expense and loss on currency exchange," CCC said in the directors’ statement in its second quarter financial report. CCC also revealed that it was forced to discount prices in July in order “to reduce its inventory of finished products. On several occasions the company has had to stop its mill due to full silos and warehouses.” It can be argued, therefore, that a more disgraceful anti-manufacturer and anti-investor decision is difficult to conceive and is probably unprecedented in the entire post-colonial history of the region.

If Jamaica’s decision does not send an instant chill up the spine of every foreign investor in Jamaica, every rating agency and every international financial institution, such as the IMF and the World Bank then, I’m afraid, those investors and those institutions are paralysed and are incapable of feeling any pain. But the question is what is the T&T government going to do about this decision which has the potential to do irreparable harm to a major local company, its hundreds of employees and thousands of investors and other stakeholders as well as investor confidence throughout the region? Will Port-of-Spain instruct our High Commissioner in Kingston, one of whose major tasks must be the promotion and protection of T&T investments there, to issue a strong note of protest to the Jamaican authorities?

Will Foreign Minister Paula Gopee-Scoon summon the Jamaican High Commissioner to a meeting at Knowsley and rake the envoy over the coals for this high-handed and damaging decision? Will the Competent Authority in Trinidad and Tobago, as described in the Caribbean Court of Justice judgment of August 10 in the case of TCL vs Caricom, issue a letter informing the Caricom Secretary General, Edwin Carrington that “Trinidad and Tobago has no objections to a request from Jamaica for the item for the period specified,” as was done by letter dated September 3, 2008 in relation to last year’s application by Jamaica for the suspension of the CET?

Will Tobago-born Carrington sign off on Jamaica’s current application for the suspension of the CET although there is irrefutable evidence of CCC’s ability to supply the entire Jamaican market....twice over? Or will Caricom itself become infected with the import bias, the anti-manufacturing bias, that seems to have decimated Jamaica’s intelligence and intelligensia to the point where that country’s Minister of Industry, Investment and Commerce, Karl Samuda, could say, in explaining his administration’s decision to apply for the continuation of the CET, “We feel that at this stage, there is not sufficient storage capacity to give us the kind of security that we need to ensure that the construction industry is never short of this vital product?”

As if CCC could not throw up a storage silo or three in a three-month period! And will Prime Minister Patrick Manning continue to believe that the supply of LNG to Jamaica is a matter of “national priority,” given this decision that damages a major Trinidadian company?

For the answers to these and other questions, stay close.