Issues of Risk Prompt LA Gov. to Push for Slow Down on Sugar Mill Project

Sat February 19, 2005 - West Edition

BATON ROUGE, LA (AP) A state money panel again delayed a vote on the financing for an $85-million sugar mill proposed by Agriculture Commissioner Bob Odom, after questions were raised about the risks involved and the governor pushed to slow down the project for further studying.

The State Bond Commission, instead of approving bond sales to fund the construction of the central Louisiana sugar syrup mill, unanimously appointed a subcommittee to select a firm to do a complete feasibility study of the project.

It’s unclear how long that would delay the mill, if the Bond Commission ultimately chooses to approve it, but Odom will move forward with environmental studies and the permitting process immediately as suggested by the commission.

Senate President Don Hines, who earlier pushed for a quick start to the Bunkie mill that would be in his district, offered the suggestion for a complete feasibility study, siding with the governor, who backed him a year ago for the Senate presidency.

Odom said he was satisfied with the Bond Commission’s decision and had no problem with a complete financial study of his proposal.

“It’s pie on our face if projects like this don’t work,” he said.

An independent consulting firm hired by the Bond Commission said the Bunkie sugar mill was riskier than agriculture officials suggested, with financial assumptions that may not hold in an industry “clouded by uncertainty.”

Informa Economics Inc., a Memphis firm that looks at business trends in agriculture and analyzes the agricultural commodity market, recommended a further, full study of the central Louisiana mill’s feasibility to the state Bond Commission –– which was scheduled to vote Feb. 1 on the mill financing.

“We need to slow down and do a full-fledged feasibility study and have a full-fledged debate. I’m not saying this is a bad project. I’m just saying I don’t know,” said state Treasurer John Kennedy, head of the Bond Commission, after reviewing Informa’s report.

The Bond Commission delayed approval of the state-backed financing for the Bunkie mill, amid questions and criticism about the funding details, though several members of the panel agreed the politically powerful Odom had the needed votes for approval. Gov. Kathleen Blanco expressed hesitation about the project, saying it seemed unusual after two sugar mills shut down recently in Iberia Parish.

Odom said the mill –– along with another $45-million sugar mill already under construction in Lacassine in southwest Louisiana –– will help farmers, create jobs, reduce fuel costs associated with moving the heavy cane stalks and cut down on the heavy trucking traffic on south Louisiana highways.

The two mills will make sugar syrup, which will be sent by rail to other mills for further processing. Critics have said the sugar mills rely on optimistic scenarios and don’t take into account the potential problems the sugar industry may be grappling with in upcoming years.

Informa, examining the assumptions in Odom’s proposal, said the price of sugar used in the proposal may not be sustainable, as consumption of sugar shrinks and federal trade agreements threaten to flood the market with cheaper sugar imports. The report also cites questions about whether the 2012 renewal of the federal Farm Bill will continue current price supports for sugar.

“What the state of Louisiana is doing here is betting that for the next 25 years, the sugar industry is going to be the same or get better. I don’t have enough information to say that’s a safe assumption for the taxpayers of the state of Louisiana,” Kennedy said.

Additionally, Informa said the mill’s co-generation plant would have to sell power at substantially higher prices than the current average electricity price to meet expectations.

The firm’s report also said plans to lure private investors to use the syrup to make ethanol, a clean-burning gasoline additive, face technical hurdles and “serious questions” about whether a sugar-based facility would be economically competitive with other ethanol plants that use cheaper substances like corn.

The governor’s spokeswoman said Blanco was reviewing the report thoroughly and wouldn’t comment.

Randal Johnson, a top aide to Odom, said the department doesn’t have its own financial study on the mill project but has determined the Bunkie facility would be successful based on discussions with farmers, researchers, agriculture policy experts, federal officials and engineers.

“We didn’t pay anybody $50,000 to go out and tell us what we wanted to hear. We studied this,” Johnson said.

“We believe that feasibility has been determined,” he said.

Odom said he needs the quick approval of the Bond Commission to get the Bunkie mill operational by September 2006, when farmers start shipping cane, or he’ll have to wait through another sugar season.

The Lacassine mill –– and the Bunkie mill, if approved –– will use state taxes from slot machines at horse racetracks that were once dedicated to fighting boll weevils, $12 million a year that will back the bonds.

Odom said a cooperative of sugar cane farmers will buy the mills from the state with the money generated by the mill.

Republican state legislators sent a letter to Blanco, a Democrat, objecting to the sugar mill project, saying it was “poorly conceived, has no independent supporting material, is a gross waste of taxpayers’ money and is needlessly risky.”

Sen. Tom Schedler, R-Mandeville, chairman of the Senate Republican delegation, said it was ridiculous to build another sugar mill until the mill in Lacassine was up and running with signs of profitability.

“Why in the world [are] we going to build a second one for more money when we haven’t even completed the first one and don’t know what the heck it’s going to do?” he said. “Why are the mills closing and ours is going to be successful? Why are we competing with private industry? And if it’s so good, why hasn’t anyone else come forward with this idea?”