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Stephen: Competition in energy sector may be too much for transformed sugar industry

By Jenique Belgrave

An economist is urging caution by the cooperative movement in Barbados which has announced a plan to take over management of the sugar industry and invest millions to transform it into an energy industry.

While Jeremy Stephen said he is in favour of credit unions participating in alternative investments, he believes the Barbados Sustainable Energy Co-operative Society Limited (Co-op Energy) runs a high risk in owning the operation.

Last Thursday, the co-op’s president Retired Lieutenant Colonel Trevor Browne revealed to Barbados TODAY that by the end of this year, it will be taking over the Barbados Agricultural Management Company which oversees the management, production and sale of sugar. The plan is to invest more than $100 million to transform the sector in collaboration with credit union partners.

However, in an interview with Barbados TODAY, Stephen expressed some concerns about the move.

“I think, in essence, without knowing the numbers, I celebrate the need to expand the portfolio of investments that the movement looks at. I, however. do not think that number one, they should be owning it outright; and number two, I think they would need to focus on having more of a partnership model in acquiring the asset, or they will meet a lot of issues from a regulatory point of view and also from other competitors in the market. They would find a way to make that investment a lot more challenging for the credit union movement that they may be foreseeing at this point,” he said. 

Stephen said that while he had no issue with the credit union expanding beyond its traditional investments, as this would allow them to challenge banks as a movement more efficiently, $100 million is a “very big gamble”.

He argued that, unlike commercial banks that have funded such projects with experts managing the actual enterprise and repaying the loan to the financial institutions, as an owner, the co-op would face a substantial level of exposure.

“They are looking at direct exposure in being an owner, and this is where my problem begins, because of the lack of expertise that it does have,” the economist said.

Stephen did acknowledge, though, that “to be fair to them, I have no idea if, as part of this commitment to invest $100 million, they are going to spend a significant portion of it finding the right management resources for such a project, given that there is no track record of it happening large scale on the island”.

The former president of the Barbados Economics Society also raised concerns about the level of competition the new energy business would face against the existing traditional players.

Barbados Sustainable Energy Co-operative Society Limited (Co-op Energy) President Retired Lieutenant Colonel Trevor Browne.

“Another major consideration – and I haven’t heard much of a mention of it previously – was the idea that, again, the credit union movement would become a competitor, in theory, to the likes of those already in the energy sector, getting fuel and oil and gas products from Rubis and Parkland, for example, and then major users of energy, outside the aviation sector, like Emera which also uses energy and emits energy. 

“I think a lot more consideration has to be given – and I stand to be corrected here – with how that $100 million investment exists in a space with all those competitors and others that have technical expertise that may or may not wish to do projects of large scale nature in the future,” Stephen said.

Browne had not disclosed the details of the BAMC divestment which he said would result in ownership being placed in the hands of workers and people of African descent, with the co-op owning 55 per cent and past and present sugar workers, including field labourers, owning the other 45 per cent.

Although admitting that the investment would be a “substantial cost”, the co-op president said, “When we do the projections compared to the returns, that is really nothing.” 

“So we project that we will be investing even more than that to further upgrade the efficiency and the capability of the plant to produce more energy. The co-operative movement in Barbados is very liquid. Credit unions alone have excess of $3 billion in assets and credit unions have been looking for a way to invest this on behalf of their 200 000-plus members, and energy is a way to do that,” Browne said.

“There is a three- to four-year plan in terms of where we want to be…. We estimate that in the next year or so, we could do about 20 megawatts, which is about 15 per cent of the local demand. But the projection is that we can move to about 25 to 30 per cent in four years with the appropriate injection of capital and by improving the plant at Portvale.”

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