By John Helmer in Moscow
Never let it be doubted that sunshine comes out of the EBRD’s arse after all – along with $50 million.
According to a June 23 announcement from European Bank for Reconstruction and Development (EBRD) headquarters in London, the bank is proposing to lend the Joint Fruit Company (JFC), Russia’s dominant banana producer, shipper and distributor, $50 million. Pre-approval of the loan was given this week, and board approval is scheduled for July 20.
The money is to be spent by JFC on building ten ripening storages and warehouses for bananas which JFC’s fleet of banana boats brings into St. Petersburg port from its plantations in Ecuador and Costa Rica. The EBRD says the new facilities will “extend [JFC’s] geographical reach and provide regional clients with fresher product of consistent quality. Also, the Bank’s long term investment will help to restructure the Company’s balance sheet which is mainly short term at the moment.”
The second sentence is a reference to at least $300 million in debts which JFC’s owner, Vladimir Kekhman, ran up before the 2008 crash. Since JFC is a closed, privately held company, it doesn’t provide public financial reports, and it isn’t possible to calculate how much money Kekhman lost in the banana business, and how much was lost from using JFC cashflow and assets as security for loan funds he spent elsewhere. The shock of the crash was so great, JFC’s website appears to have stopped functioning with the impact. According to the rubric “JFC Today” on the company website, “JFC Group was founded 14 years ago and is one of the largest vertically integrated holdings working in the fruit production and sales sector.” Since JFC was established in 1994, that claim is already two years out of date.
JFC is registered in the Caribbean, but not for the banana-growing weather. The company website claims that in 2007, it had turnover of $500 million. The website also claims that it paid tax in Russia for that year of Rb279 million ($11.4 million), and just $650,000 in tax to Ecuador. The tax total appears to have been just 2.4% of revenue. Few major Russian companies with offshore trading chains report tax rates as low as that.
Published estimates suggest that in the peak year of 2008, JFC’s revenues were $700 million.
Industry sources say that loan money invested by JFC’s Russian rivals Sorus and Sunway in speculative real estate and other ventures, leveraged against their fruit business, has led to bankruptcy; and to Kekhman’s emergence this year with almost half the Russian banana market.
When ratings agency Standard & Poors analyzed JFC in September 2009, it assigned a negative rating, and reported: “the rating on Russian fruit distributor JFC Group Co. Ltd. (CJSC) (CCC+/Negative/–; JFC) is constrained by: JFC’s weak liquidity, “aggressive” financial policy, underdeveloped corporate governance and risk management, limited transparency…” There is no acknowledgement in EBRD’s public reports on the JFC loan of how the bank has finessed the negative S&P rating.
EBRD does say that “to date due diligence has included a site visit by a member of the Bank’s Environment and Sustainability Department to a ripening and warehouse facility in St Petersburg and interviews with senior management. Going forward an independent third party environmental and social audit of a selection of the Company’s and supplier’s plantations will be conducted and will asses the Company’s capacity to manage environmental and social issues in its global supply chain.”
In the banana business, ripening can be socially and environmentally hazardous. That’s because the sun has nothing to do with it. Indeed, what the EBRD is proposing to give Kekhman $50 million for is a series of gas chambers, ethylene gas chambers to be precise. The reason is biochemistry. Plants use ethylene as a hormone. It is a simple molecule that exists as a gas at biological temperatures.
|Thus, when a plant releases this hormone it diffuses quickly in the air. Different kinds of plants use ethylene differently. Among its applications are fruit development and ripening, release of buds from dormancy in springtime, stimulation of leaf and fruit abscission (dropping), causing some plants to become female, stimulation of leaf senescence, and stimulation of flowering. Ethylene is also used as a fumigant and disinfectant in hospitals.|
Kekhman’s bananas use ethylene to stimulate ripening. A bunch of bananas will stay green for a long time until the ethylene concentration in the air around them becomes high enough. When that happens, they begin ripening and release more ethylene, which makes them ripen faster and release even more ethylene. If between them EBRD’s cash and JFC’s chambers can produce simultaneous ripening of big cargoes of bananas, the delivery for sale can be timed to optimize selling price, and profit.
There is, of course, a small catch. Exposure of banana handlers to high concentrations of the gas isn’t healthy. Ethylene glycol (in anti-freeze) is very bad, but ethylene gas (in bananas) isn’t the same thing. According to the World Health Organization (WHO) report of 1988, concentrated exposure to ethylene oxide can cause “headache, nausea, vomiting, dyspnoea, and respiratory tract irritation, which may result in lung oedema. Sensorimotor neuropathies and eye cataracts may follow repeated exposure to a concentration of ethylene oxide recognizable by its odour. Odour recognition does not offer adequate warning of a health hazard. Ethylene oxide solutions in water are irritating to the skin and eyes. The pure liquid can cause a freeze burn. Absorption through the skin, even from dilute solutions, may cause systemic effects. On repeated exposure of the skin, ethylene oxide solutions may cause allergic contact dermatitis.Taking into account all the available data, ethylene oxide should be considered as a mutagen and a probable human carcinogen. It may pose a reproductive hazard. Its levels in the environment should be kept as low as possible.”
EBRD says it is prepared to undertake a study to measure just how unhealthy JFC’s ethylene applications may be for workers in Ecuador and St. Petersburg. The bank also claims it “will monitor the Company’s environmental and social performance for the lifetime of the loan through annual environmental and social reporting and via periodic site visits. The Company will be required to immediately notify the Bank of any incidents or accidents which are likely to have an effect on the environment or worker and public safety.” That’s potentially a lot of headaches and bouts of nausea.
According to the EBRD, JFC is the only banana project the bank has at the moment. How it will tally for profitability can be gauged if you sing along .