GUIDELINES AND BENCHMARKS FOR RAW SUGAR ALLOCATION

NEW GUIDELINES AND BENCHMARKS FOR RAW SUGAR ALLOCATION TO BIP OPERATORS

1.0   INTRODUCTION

The implementation of the Sugar Backward Integration Programme (BIP) began with the official take-off of the Nigeria Sugar Master Plan (NSMP), in January 2013. Three (3) Refineries were approved as BIP Operators and made to sign formal commitments, detailing a number of indicators by which their performance will be measured. Raw sugar quotas at the concessionary tariff of 5% Duty and 5% Levy was to be allocated to Operators on the basis of PERFORMANCE OF THEIR BIP PROJECTS and as incentive to encourage Operators to plough back profits to their BIP projects. The concessionary tariff was to last for 3 years in the first instance.  Operators’ performance was to be assessed by two Committees set up by the NSMP; SURMIC (Sugar Road Map Implementation Committee) and SIMOG (Sugar Industry Monitoring Group).

2.0   PERFORMANCE

At the end of the First Phase of the NSMP (2013-2016), while it can be said that the operator’s performance varied, the general performance was below average at about 40% of projected performance. Overall performance was rated as follows: DSR – 46%, BUA – 17% and GSC – 58%.  And even though each operator is claiming to have committed ‘huge’ sums of money on their BIP projects from the amounts that accrued from Tariff concessions received since 2013 (DSR – N101.9billion out of N170.7billion, BUA – N9.3billion out of N66.5billion, and  GSC – N46.1billion out of N87.4billion), apart from GSC which commissioned a 50,000 tons/annum sugar factory at Sunti, Niger State in 2016, progress by DSR was barely fair while BUA’s performance was poor, after 4 years of BIP implementation. This state of affairs is unacceptable. It has, as can be expected, resulted in some opposition by relevant government agencies, particularly Ministry of Finance and CBN, to the continued implementation of the NSMP, particularly the concessionary tariff and the sugar quota allocation regime, as presently implemented, because it is believed the country is not getting enough value for the tariff concession to Operators and the restriction of importation to few qualifying participants. The bane of the current strategy is that past quota allocation has NOT BEEN STRICTLY BASED ON BIP PERFORMANCE and the incentive has NOT BEEN UTILISED EFFECTIVELY IN GETTING OPERATORS TO IMPROVE PERFORMANCE IN THEIR BIP IMPLEMENTATION. A radical review of the entire BIP strategy as well as the entire reward and sanction regime of the NSMP is IMPERATIVE.

3.0 NSMP MID-TERM REVIEW

Originally, the Mid-Term Review (MTR) was scheduled to hold in November, 2017. In view of perceived below average performance it was brought forward and was held on 1st June, 2017. Before then, BIP operators had been asked to submit revised BIP commitments to cover the second phase – 2018 – 2023 and this had been done. When aggregated, the following are key deliverables of the second phase BIP implementation:

Number of project sites –   8 (DSR – 3; BUA – 2; GSC – 3).
Total land area for all projects  –   187, 000ha.
Total hectares under cane (Estate cane fields) – 137, 070ha.
Total hectares under cane (Outgrower farms)  –   25, 850ha.
Total tonnes sugar to be produced – 1, 550, 524MT.
Jobs creation – Total: (Seasonal, Farm & Factory) – 65, 805
In order to ensure effective implementation of the BIP 2nd phase and achieve the above goals and to assure opposing agencies of the commitment and seriousness of the operators, the implementation will be guided by the following guidelines

4.0   NEW GUIDELINES

4.1   Operators will be required to submit their requests for quota sugar allocation for the following year in December of the preceding year;

4.2   Year 2017 Allocation shall be the last in which SUGAR ALLOCATION SHALL BE BASED ON THE OLD CRITERIA INCLUDING MARKET SHARE/REFINERY CAPACITY. AS FROM 2018 AND HENCEFORTH, ALLOCATION SHALL BE STRICLY BASED ON QUANTITATIVELY VERIFIED IMPROVEMENT IN PERFORMANCE in BIP Implementation. Criteria for scoring performance shall be made available to SIMOG, to engender self-assessment.

4.3   The 2 Monitoring Committees – SURMIC & SIMOG – are expected to conduct quarterly monitoring of all BIP projects. Outcome of each monitoring exercise will be forwarded to all Operators with copies sent to the NSDC and the office of the Honourable Minister (FMITI).

4.4    Key Performance Indicators (KPIs), for assessing and scoring BIP performance shall be as follows;

Key Performance Indicators                                                           Weights

Total Land Developed/Target for the year (Ha)                                    1
Total Land Under Cane/Target for the year (Ha)                                  2
Mill Development and Factory Operation:
– Sugar Produced (Tons) for the year/Target                                      3

– Jobs Created for the year (Nos)/Target                                           2

Additional Development at BIP Site                                                   1
Actual Overall Contribution to Self-sufficiency Goal                             1
Since the goal of the BIP is LOCAL SUGAR PRODUCTION, weights shall be awarded to the KPIs as indicated above, with Local Sugar Produced and Jobs Created having the heaviest weights. This is to emphasise the urgent need for Operators to conclude and expand BIP projects and start producing sugar locally to earn more quota allocation.

4.5    In October of each year, SURMIC and SIMOG shall hold a joint review meeting to harmonise their rating of the BIP performance of all Operators. Copies of the harmonised performance report shall be forwarded to both NSDC and the HMITI and shall form the basis of the next round of sugar quota allocation.

4.6   Request of the following year’s sugar quota allocation shall be prepared and forwarded for Presidential approval in early December.

4.7   Given the one year (2017) grace to all Operators to improve performance based on the erstwhile quota allocation format, any Operator that subsequently fails to get the quantity of raw sugar it needs, will only blame itself; as such failure is directly related to its adjudged objectively assessed performance.

4.8   Any Operator that gets more than the quota it needs reserves the right to dispense with the excess sugar in the way it deems fit e.g. sale to anyone who needs raw sugar or expansion of its capacity utilization using the extra allocation etc.

4.9   Concessionary tariff for the 2nd Phase of the NSMP (2017-2020) shall be 10% Duty and 5% Levy, subject to review by relevant authorities as required.

5.0     SANCTION FOR POOR BIP PERFORMANCE

Any Operator that fails to achieve the performance target for the year, based on its BIP commitments, as released by the Joint Harmonisation meeting, shall be penalised for poor performance with reduction in its quota commensurate with its performance scores. Scores by operators shall be in percentages and an operator shall be allocated the exact percentage of its score in the year’s projected allocation.

6.0     SANCTION FOR SUGAR QUOTA INFRINGEMENT

A particular Operator has serially violated the sugar quota allocation, importing more than was approved. This is unacceptable and must stop. Henceforth,

6.1.   Any Operator that abuses the allocated quota through excess importation shall pay for the EXCESS SUGAR IMPORTATION CALCULATED ON THE EXTANT TARIFF INDICATED IN THE NSMP, for that period or year and NOT at the concessionary tariff.

6.2    The erring operator must pay the duty penalty for excess importation BEFORE it can be allowed by NCS to discharge its raw sugar cargo.

6.3   NSDC reserves the right to recommend additional sanction if the above appears not effective in ensuring compliance

It is hoped that these measures, if adopted and strictly implemented shall bring some sanity to the implementation of the sugar BIP programme and enhance the performance of operators.

7.0     GUIDELINES FOR NEW ENTRANTS IN THE SECTOR

In view of the fact that the country aims to produce about 2million tons of sugar annually, new investors in the sugar industry are welcome and can also enjoy the sugar importation incentive by fulfilling the following conditions:

They will be required to submit a sugar development project plan with realistic timelines for a minimum capacity of 100,000 tons/annum factory.
They will be expected to diligently execute the plan to at least 40% in order to qualify for sugar importation quota.
The 40% performance must cover both field and factory development including evidence of confirmed order for factory machinery.
Other end users or logistics companies who may wish to import sugar without investing in the industry have to import approved quantity through existing operators enjoying the import quota incentive.
8.0 GOVERNMENT INTERVENTION REQUIRED TO CATALYSE NSMP IMPLEMENTATION.

In the face of the challenges faced by Sugar BIP operators in pursuing investment intentions in identified locations and given the present Administration’s call for diversification into non-oil sectors, governments at all levels need to resolve specific challenges that are within their purview and not leave the investors to deal with such challenges alone. To this end, and in view of reports that sugar projects in Adamawa, Taraba, Jigawa, Kebbi, Kwara and Niger States are currently being threatened, it is proposed that:

8.1   FMITI will present issues pertaining to release of land allocation to the National Economic Council to elicit the support of State Governors for sugar operators whose project land are being threatened.

8.2    FMITI/NSDC will initiate Interactions with relevant MDAs – Water Resources, Works, Power and Housing; Nigerian Electricity Regulatory Commission (NERC) to engender interventions against flooding.

8.3   Sensitization of Communities hosting sugar and other agricultural projects on the economic diversification agenda of government as well as the value and benefits of these projects and therefore to avoid all acts that may disrupt operations. Special consideration would be extended to sugar projects which have longer gestation periods. The National Orientation Agency (NOA) will be invited to assist in mounting a nation-wide campaign in this regard.

8.4 NSDC will encourage operators to do more in the area of Corporate Social Responsibility (CSR) and expansion of the sugarcane outgrower scheme as a way of engaging the communities and engendering an inclusive operational atmosphere in their project areas

8.5   There is need for sister agencies to see other agencies of government as partners-in-progress and working to achieve the same ends. In view of the One Government Initiative under the newly released Executive Order 01, Service Level Agreement will be signed between the NSDC and other relevant government agencies in order to engender effective collaboration  on the implementation of the NSMP provisions.

FMITI/NSDC

JUNE, 2017