Price is $20 million for Amfac Sugar shutdown

It will cost more than $20 million to shut down Amfac Sugar Kaua’i in two

weeks.

That’s money the company doesn’t have, according to the president of

Amfac Sugar Kaua’i’s parent company.

“We currently don’t have the funds to

cover it,” said Gary Grottke, president of Amfac/JMB Hawai’i. “We are

cash-strapped, and that’s no secret.”

Most of the $20 million in shutdown

costs will be in the forms of severance, pension, benefits and related expenses

for the 400 employees who have lost or will soon lose their jobs.

Grottke

confirmed yesterday that a final contract for workers has been hammered out and

reportedly ratified by workers at Amfac Sugar’s east and west

operations.

Severance amounts will be based on wages the workers earned

before taking deep pay cuts (including one of 10 percent three years ago) and

benefits concessions to keep the company in sugar on the island, Grottke

said.

The general principles of the understanding have been ratified by the

membership of the International Longshore and Warehouse Union, which represents

386 unionized employees, he said.

“We’re still working out some final

wording details, but I expect a final agreement to be signed within the next

week or so,” Grottke said.

He said he made a personal commitment that

severance amounts would be based on compensation workers earned before they

took wage cuts.

Grottke, confident that Amfac’s 17,000 acres from

Hanama’ulu Beach to Kilohana Crater will sell, possibly before the end of this

year, said proceeds from that sale will be fund most if not all the shutdown

costs.

“In the absence of a sale of that parcel, we don’t have the cash to

meet the shutdown obligations, let alone fund operating losses at the plant,”

Grottke said, referring to the Lihu’e Plantation mill power plant. By

contractual agreement with Kaua’i Electric, Amfac must continue to operate and

provide the island with 13 percent of its electricity needs.

“I firmly

believe that we will sell the 17,000 acres, and that we will sell it for enough

money to cover pretty much all of the shutdown obligations,” Grottke stressed.

“At the same time, I do not believe that we will sell it for an amount that

will generate excess cash that will allow us to operate the plant at a

loss.

“So the only way we’re going to be able to keep the plant open is if

we can get a contract that allows us to break even (by) burning oil. And the

current contract does not provide for that.”

The contract must be amended

and then approved by the state Public Utilities Commission, said Grottke, who

will meet with Kaua’i Electric manager Denny Polosky the same week most of the

remaining Amfac workers on the island lose their jobs.

For Amfac Sugar

Kaua’i, the bottom fell out this year with projections of losses between $8

million and $10 million, due about equally to low sugar prices and low yields,

said Grottke.

Yields for the first eight months of this year were 5.13

tons of sugar per acre, which is not good, especially compared to the 15 tons

per acre Gay & Robinson fields yielded during the same period.

In 1999,

Amfac Sugar lost $500,000, and in 1998 it made $500,000, Grottke said in a

telephone interview from his Chicago, Ill. office.

“So we were plodding

along okay until this year,” he said.

But it wasn’t necessarily this

year’s dismal performance that led to the mid-September announcement that Amfac

Sugar would later this month be Amfac’s third sugar plantation to close in the

last 10 years in Hawai’i. It was projections estimating similar or greater

losses over the next three years, based on price (low), condition of fields

(lousy), and quality and quantity of crop in the ground (also not good), he

said.

Most of the company’s 400 workers on Kaua’i will be let go Nov.

17. Between 40 and 60 will be retained, primarily to operate the power plant,

Grottke said.

The company will also need to keep some additional workers to

maintain water, irrigation, roadway and other systems on land currently for

sale with many interested potential buyers.

“We still own approximately

17,000 acres on the island of Kaua’i, and there are certain tasks that go with

maintaining and controlling those properties. Additionally, we have water

systems on the east side that are on lands that we own, and some that we lease,

that we’re interested in maintaining,” Grottke said. “Other than that, there’s

still some ongoing tasks associated with the closure that could extend for even

six months beyond the closure date, whether it be accounting or HR (human

resources) or cleanup of the mill sites.

“We’ve got equipment and mill

auctions. So there’s still a lot of activities that are going on that require

people.”

After the 17,000 acres are sold, Amfac will still own the Lihu’e

and Kekaha mill sites, plus about 500 acres planned for residential development

in the Lihu’e and Hanama’ulu areas, Grottke said.

He said he takes

personally the failure of Amfac Sugar Kaua’i and feels terribly for workers who

have lost or are about to lose their jobs.

He also responded to criticism

that Amfac has not been a good neighbor or good steward of its land on the

island.

“We are very disappointed that we’ve been unable to find a way to

make these plantations successful. Shutting down is effectively losing, and

like anybody, we don’t like losing. And I personally don’t like losing. So

we’re very disappointed, but life goes on, and we will move on,” he

said.

“We have an obligation to our owners and our lenders and our

employees at our other operations to do the best we can with the businesses

that we still have, which include golf, and land development, and coffee, and

diversified ag, and that’s what we’re going to do. So, we are going to do the

best we can to settle up these obligations on Kaua’i and move on, and then do

the best we can in managing these other businesses.”

The businesses are

primarily located on Maui, with the exception of the Waikele golf course, which

is on O’ahu.

“For the people who have worked hard, who have sacrificed a

lot for the company, who have put in years and years of hard work, I feel

sorry,” Grottke said. “I feel like we’ve all failed, and that the management

group has failed them in not being able to come up with a way to make things

work. But, as I said, I feel like we fought the good fight, and I feel like I

can look any one of them in the eyes and say that to them.

“And, again, I’m

not saying that they have agreed with a lot of the things we’ve tried. In fact,

I think a lot of our workers feel like some of the things we’ve tried may have

precipitated some of our problems.

“And you know what? They may be right.

But the reality is, we couldn’t stand pat where we were 10 years ago, when we

purchased Amfac, or we would have closed a long time ago.”

Grottke said

“you keep trying new things, you try some ideas even if they’re risky, because

you’ve got to find answers. You’ve got to find solutions. If you just stay

where you are, you know what the result is.”

“So, I feel bad” for the

employees, he said. “I hope that the severance helps. And I wish them

luck.”

Staff writer Paul C. Curtis can be reached at 245-3681 (ext.

224) and pcurtis@pulitzer.net