LIHU'E, Kaua'i — Gay & Robinson Inc. will harvest its last sugar cane in 2010 and leave the future of a proposed ethanol plant on Kaua'i to Pacific West Energy LLC, the companies announced yesterday.

The Vancouver, Wash.-based company has been working with Gay & Robinson for more than three years on a joint venture to convert the Kaumakani sugar plant into an ethanol plant.

Pacific West now will take the lead in seeking investors to finance the $120 million retrofit of Gay & Robinson's Kaumakani sugar mill into a facility to produce 15 million gallons a year of ethanol from sugar, and 20 to 30 megawatts of power by burning bagasse, the waste material from sugar cane.

The closure of Gay & Robinson will leave Alexander & Baldwin — which operates Hawaiian Commercial & Sugar Co. on Maui — as the only sugar producer in the state, unless the ethanol company continues to produce sugar as a product.

Pacific West Energy intends to hire many of Gay & Robinson's 227 workers who become available, and will need about 100 more employees, Pacific West President William Maloney said by telephone from the airport as he was leaving Kaua'i.

The proposed quantity of ethanol would supply about 35 percent of Hawai'i's current use, said Maria Tome, with the state Department of Business, Economic Development and Tourism.

The company is keeping its options open about producing some sugar for consumption, in addition to ethanol, Maloney said.

Maloney wouldn't disclose the potential investor he is meeting with today on the Mainland, but said it is a publicly traded company that may absorb Pacific West as part of an agreement.

"I think that came as somewhat of a buffer to the news" that Gay & Robinson is quitting sugar, said Alan Kennett, Gay & Robinson president and general manager.

"PacWest is still intent on doing an energy plant and Mr. Maloney met with union leaders right after we made the announcement" to employees yesterday morning, Kennett said. The International Longshore and Warehouse Union Local 142 represents 192 of Gay & Robinson's employees, he said.

"It's been a tough decision for the Robinson family," which owns the 119-year-old kama'aina company, Kennett said as their spokesman. "I hope and pray Mr. Maloney can put his business plan together and execute it for the good of the island of Kaua'i for the good of the workers of Gay & Robinson."

DEEPENING LOSSES

In 2006, the company estimated losses of $8 million to $12 million, The Advertiser reported. Kennett declined to update the figure yesterday, but said it is more. "We were bleeding and we can't continue," he said.

Ethanol imported to Hawai'i cost $2.65 a gallon yesterday, Kennett said. "If we'd have seen ethanol prices of around $3.50 a gallon we'd never have made this decision," he said.

"Mr. Maloney and his partners who are an energy company and believe that ethanol prices have to increase and I hope they are right. We wish Mr. Maloney all the luck in the world moving forward with ethanol and sugar and power facility at the Kaumakani."

About 100 Gay & Robinson workers and 200 retirees who live in company houses on Kaua'i's west side can stay in their homes, Kennett said.

Gay & Robinson intends to build and operate a new 5- to 10-megawatt hydropower plant on the Olokele and Makaweli rivers, and sell the power to Kaua'i Island Utility Co-op, it announced yesterday.

How many of its current employees it will retain after the last sugar crop is harvested in 2010 is uncertain, Kennett said.

"While sugar has been an integral part of the heritage and way of life for generations of Kaua'i residents, we are encouraged that Gay & Robinson will continue to be an important part of the island's economic future," Gov. Linda Lingle said in a written statement.

"The company's transition from sugar to renewable energy signals a new chapter for Kaua'i and will help position the island for a more secure, clean energy future that is less dependent on imported oil. The state will work closely with Gay & Robinson and Pacific West Energy LLC to assist during the transition, including expediting the permits and approvals necessary to transform this kama'aina company."

Pacific West's Maloney said his company hopes to conclude a revised agreement with Gay & Robinson within 30 days and its investor transaction by the end of the year. That would enable his firm to begin hiring Gay & Robinson workers and planting sugar cane in the first half of 2009.

FEWER CANE FIELDS

Gay & Robinson stopped planting sugar cane yesterday, Kennett said. Existing plantings will provide harvests for 2009 and 2010.

Planting workers with seniority may be assigned to other jobs with the company, he said.

Gay & Robinson's decision to pull back from the ethanol project reduces the amount of available Kaua'i cane fields available to Pacific West to about 13,000 acres from the 15,000 acres it had projected with Gay & Robinson's help, Maloney said.

Gay & Robinson will be leasing some of its 7,000 acres of cane fields to other agricultural interests, but Kennett wouldn't disclose them yesterday. Water formerly used to irrigate those fields will be used for the hydropower project, he said.

"Gay & Robinson made a decision they felt they needed to make, to focus on hydropower," Maloney said. "It does impact our project negatively, but we believe we can mitigate."

Kennett wouldn't say how much Gay & Robinson's hydropower project will cost, but estimated it can be built in about three years.

Pacific West retains "good rapport" with the Kaua'i company and still intends to lease its sugar mill and make renovations to it, Maloney said.

"I'm sympathetic with the Robinson family, all their efforts to remain in sugar. It's been tough," said KIUC President Randy Hee. "We look forward to working with them on their hydro project as well as the ethanol project with PacWest."

Kaua'i Mayor Bill "Kaipo" Asing said in a prepared statement: "We are optimistic that, while we are seeing the end of one era in agriculture on Kaua'i, we are on the horizon of a new era of agriculture that will ensure Gay & Robinson will be around for many more decades, and that Kaua'i will be more sustainable with this new and locally grown source of renewable energy."

In a move to encourage local ethanol production, Hawai'i since 2006 has required that gasoline sold in the state include 10 percent ethanol. But financing and permitting hurdles have moved back the proposed start date for the Gay & Robinson plant several times.