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Cuba seeks direct foreign investment in sugar mills

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  • Michael Karadjis
    Cuba seeks direct foreign investment in sugar millsReuters.com http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nN13268484
    Message 1 of 1 , May 1, 2006
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      Cuba seeks direct foreign investment in sugar millsReuters.com
      http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nN13268484
      Thursday 13 April 2006, By Marc Frank HAVANA, April 13 (Reuters) - Cuba
      is seeking direct foreign investment insugar milling and cultivation for
      the first time since nationalizing theindustry soon after the 1959
      revolution, Cuban and foreign sources said thisweek. At least three
      companies, all with long-term business experience in Cuba,have made
      proposals to invest in and administer mills and adjoining
      caneplantations, though the companies wish to remain anonymous as
      negotiationsproceed. "They told us they were given the green light at
      the highest level todiscuss milling and cultivation," a potential
      investor said. The sources cautioned that hard bargaining lies ahead
      before the firstmilling venture could be signed. "There are many issues
      still to be resolved. Investors want to administerthe mills, higher
      percentages of shares and pay sugar farmers and workersmore," a Cuban
      sugar expert said. Theoretically, the state-run sugar industry has been
      open to directinvestment for a decade, but in practice there has been no
      interest up tonow on the government's part except in a few derivatives
      and mechanicalventures, the sources said. The Sugar Ministry recently
      formed Zerus, a company empowered to sign jointventures. Zerus Director
      Jose Rivera Ortiz recently told the official business weeklyOpciones
      that Cuba was interested in forming ventures to produce sugar,syrup,
      ethanol, alcohol, energy and other derivatives, and that"negotiations
      obviously include the resources necessary for the developmentof cane." A
      big obstacle is the U.S. Helms-Burton law, which penalizes investment
      inU.S. expropriated properties and contains a yet to be implemented
      chapterallowing Cuban-Americans to sue investors who "traffic" in
      theirexpropriated properties. The Cuban sugar industry, once the world's
      biggest exporter with raw sugaroutput reaching 8 million tonnes in 1990,
      has been in decline since theformer Soviet Union collapsed, depriving it
      of a preferential market.For centuries a monoculture economy, today
      sugar exports account for lessthan 5 percent of Cuba's foreign exchange
      earnings. Cuba shut down and dismantled 71 of 156 mills in 2003 when raw
      sugar priceswere around $.05 per lb, and relegated 60 percent of
      plantations to otheruses. Last year's disastrous 1.3 million tonne
      harvest, the lowest in a century,led to more closings, with just 42
      mills opened this year, though shutteredmills were conserved. All but
      eight of 85 Cuban mills were built before the revolution andtherefore
      nationalized, and most plantations are on expropriated lands.But sugar
      prices have more than tripled since 2003 as high oil prices haveled to
      increased interest in sugar-based ethanol as an alternative fuel
      formotorized vehicles. "Prices are very high and are expected to remain
      so in the foreseeablefuture so both the government and investors have a
      big incentive," a Cubaneconomist said. Cuba plans to boost output
      beginning in 2006 by increasing acreage and useof fertilizer and
      herbicides, purchasing new equipment and reopening some
      30mills.President Fidel Castro, alarmed by the industry's decline and
      soaringprices, held an emergency meeting of the industry in
      mid-February.Castro ordered daily reports from the 42 mills in
      operation, a crashplanting plan, more supplies and said essential spare
      parts for agriculturalequipment should be flown in from Europe,
      according to a summary of themeeting seen by Reuters. The Caribbean
      island consumes a minimum 700,000 tonnes of sugar per year and 400,000
      tonnes are destined for a toll agreement with China.
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