Business Times

Sevanagala and Pelwatte sugar turn bitter

On the ground
By Quintus Perera and Bandula Sirimanna

SEVANAGALA – These sugar plantations in the Monaragala district were tense on Tuesday, November 8th -- the day the controversial bill titled ‘The revival of Underperforming Enterprises and Underutilized Assets’ was tabled in parliament and its constitutionality upheld by the Supreme Court -- but somewhat subdued.

Senior management

The authorities including the police were ready to quell any unrest with contingents of officers present at some points in the area and also inside the Sevanagala sugar factory. There had been been sit-in protests at the entrance of the factory the day before a team from the Business Times arrived at Sevanagala on Tuesday to report on the ground situation. The Sevanagala sugar project, along with Pelwatte Sugar, has grabbed the attention of the entire country after its planned acquisition – along with other companies - and fears that this would extend to other companies, ‘considered’ underperforming or underutilized by the government.

Inside the factory, we saw a group of workers loading bags of sugar onto a convoy of trucks. “These stocks had been purchased by our wholesale dealers, we cannot stop our day-to-day operations,” said Anoma Gamage, Director of the company and who is also a UNP parliamentarian.

She looked tired because she had to handle the factory in the absence of her husband, Daya Gamage, Chairman of the Sevanagala Sugar Industries Co Ltd which is an associate company in the Daya Group. The group is now locked in a legal battle in Colombo against the government over the takeover of an enterprise transformed by him to a profitable and productive venture after resurrecting it from nothing in 2002.

On or about 20th June 2002, Daya Apparel Exports (Private) Limited having been the successful bidder, entered into a share sale and purchase agreement with the government and Sevanagala Sugar Industries Ltd with the company investing Rs.550 million to purchase 90% of the issued shares in the sugar firm. The balance 10% of the shares is held by the employees of the company.

At the factory Pix by Athula Devapriya

She told the Business Times that direct and indirect livelihoods of around 50,000 people would be affected due to the government plan to take over properties of the factory through the new law, which was passed by parliament on Wednesday. She revealed that the entire manufacturing process had been halted with a stock of sugar worth Rs. 300 million stored inside the factory. When the property was acquired by her husband in 2002, it had included an extent of 459 hectares obtained on lease from the Mahaweli Authority for an annual payment of Rs 8 million. That was for a period of eight years. A change of government in 2004 led to a call for a re-valuation of the property.

The annual lease rent was raised to Rs 50 million, she said, adding that they were given the revised lease agreement just a few months back by the Treasury Secretary. Even at that time they were not informed about the government move, she added. She revealed that she has already written to Commonwealth Parliamentary Association (CPA) General Secretary Dr. William F. Shija of the government's alleged move to intimidate opposition legislators through new regulations to acquire ‘underperforming’ businesses which she calls as an attempt by the Sri Lankan government to suppress and oppress opposition legislators. Vehemently rejecting the allegation of manufacturing ethanol (Molasses) she said that ethanol is a byproduct of sugar and the company cannot just throw it away and therefore is selling it.

Sevanagala Sugar Industries General Manager J.C.A. Abeyratne noted that the country’s sugar production would decline because of the prevailing situation. He said distribution of sugar cane seedlings to the farmers had also come to a standstill though the cultivating season had begun. Increased cane production has also seen prices paid to farmers rising from Rs 1,400 to Rs 4,000 per ton. In addition, the establishment of 20 MW power plant, a bio gas project, a security scheme to protect the complex by drawing villagers for employment, two garment factories for farmers’ children, a dehydrated food processing plant, an ‘out growers’ cultivation project for papaya and pineapples with the help of USAID were among new ventures, he added.

Inside the factory there was a concentration of workers who were supporting the management of the Sevanagala company but the management had declared paid holidays as they were unable to predict what would happen next. Dayananda Malliyawaduge, a supervisor and Vice President of the United Workers Union attached to the Sevanagala Sugar firm said that he had first joined the Hingurana Sugar Factory and in 1983 had joined Sevanagala when the factory was owned by the government. He said that during President Chandrika Bandaranaike’s time the factory was unable to sell the molasses it produced and were thrown to the drains. He said that out of the 500 permanent staff about 300 are their members.

He said that under Daya Gamage the workers and the sugarcane farmers were offered many facilities. All the expenses of major surgical operations of the workers were paid by the company. R.K.K. Thilakaratne, a sugarcane farmer told the newspaper that he cultivates four hectares and reaps around 200 to 220 tons and a ton is calculated at Rs 3,400. They have to nurture the plants for 11 months spending around Rs 250,000. Thus the crop would be sold for Rs 680,000. He has been working on sugarcane cultivation for the last eight years. Their parents have started cultivating since 1986, he said adding that all the farmers wanted Sevanagala Sugar to be privatized when it was under the control of the government. He said that they liked the factory to be under private sector control as the government would not look into their problems.

He said that when the factory was under the government, it was running at a loss. He said that since this year a ton of sugarcane was purchased at Rs 4,000. He said that they are offered fertilizer by the factory at subsidized rates. When loans are obtained the installments are spread over a long period like around five years. He said that after the factory came under private sector ownership, their living conditions also improved and almost all the farmers have some sort of a vehicle, like a three wheeler or hand tractor. He said that most of the farmers built their houses after the factory came under the private hands. Earlier transport for school children was limited to the children of the workers. But after private sector ownership of the factory, their children too enjoy this facility.

Another farmer, G M Jinadasa, of Sevanagala North, said they have started cultivating sugarcane since 1987. He said before the factory came to existence, people in the area were cultivating crops like green gram and cowpea. Now they cultivate sugarcane, grow paddy and other crops. Now the area has turned into miniature towns with schools, hospitals, a good road network and playgrounds all because of the sugar factory. He said that now there are around 4,000 farmers.

Rohana Anura, a farmer from Samanalagama, Sevanagala, said that he started cultivating sugarcane when he was 19 years old and he is now 47 years old. He cultivates 16 acres with sugarcane. He said that he owns a town ace van, lorry, a small tractor and a motorcycle.

He said that Mr Gamage, in addition to maintaining the sugar cane factory, is running two garment factories and a fruit processing plant with many girls from the area being employed there. He said that if not for Mr Gamage these girls would have to seek employment in the Katunayake Free Trade Zone.
The Business Times team met more than 10 farmers and all of them said that they wished the factory would remain in the hands of Mr Gamage and his company as they have found that the latter is not only concerned about profits but also looks into the needs of the workers. They said they fear new owners could reduce the facilities currently provided.

A section of the workers was also in favour of the government taking over and running the facility as they could work less for the same wage and enjoy the facilities. The sugar cane industry in Sri Lanka has been eternally involved in politics to the detriment of the sugar industry in the country and the economy of the country.

The Business Times in a report in the then FT – Financial Times in its December 11, 2005 edition, under the headline ‘First Industrial dispute for new President. Workers lock out Sevanagala Sugar owners, losses rise” reported that a confrontation has broken out between employees and Sevanagala sugar factory managers with angry workers taking over the premises and even defying a court order to vacate, in the first major industrial unrest facing President Mahinda Rajapakse and his new government.
Workers claim some of their colleagues were assaulted. A spokesman for the management said the workers were making unreasonable salary demands.

Some of the sugar factories are closed and those working on and off have various conflicts mostly due to political intrusions. In 1978 a World Bank funded study was undertaken to identify areas in Sri Lanka that are suitable for sugar cane cultivation to reduce the country’s dependency of imported sugar. Based on the findings, Booker Tate PLC, UK carried out a feasibility of introducing cane cultivation under rain-fed conditions and setting up a sugar factory at Pelwatte in the Monaragala district.

In 1981 the Pelwatte Sugar Company Ltd was incorporated as a state owned company and functioned under the management of Booker Tate PLC. In 2002 the government sold its stake in the company in the Colombo Stock Exchange. A Sri Lankan company named Master Divers (Pvt) Ltd purchased 53.5% for Rs 300 million BT (then FT).

In its issue of December 12, 2004 featured Pelwatte Sugar under the heading “Pelwatte: handling challenges of a sugar producer”, company chairman Mahendra Amarasooriya pointed out that there should be proportionate balancing of the prices of imported sugar to increase the local production. In that he has indicated that if Hingurana and Kantale factories are also revived, all the four factories could met 50% of the local requirements by 2008 compared to 15 % in 2004. If sugar cultivation is expanded to areas like Hambantota and Matara districts there is a possibility of Sri Lanka becoming self-sufficient in sugar by 2012, he had said.

India commenced sugar cane cultivation and production long after Sri Lanka began, and until that point was importing all its requirements. While Sri Lanka is now struggling to increase its production beyond something like 11% production, India is now self sufficient in sugar and even exporting. India is now using bagasse, a by-product of sugarcane, to manufacture top quality paper.

In a report prepared under the auspicious of the then Ministry of Cooperatives in 2003, it was noted that the then sugar imports were 500,000 million tons valued at Rs 12 billion and the projected figure for 2012 was one million tons at a cost of Rs 20 billion. At that point of time the local production was 9% and 40% of alcohol production.

The report indicated that the two companies operating that is Pelwatte Sugar Industries Ltd and Sevanagala Sugar Industries Ltd were privatized towards the end of 2002. Although the shift from state- run business resulted in many teething problems, both the companies had by then (2003) committed themselves to a large expansion programmes which is projected to produce nearly 30% of the domestic requirement of sugar within the next five years and the total alcohol requirement of the country.
The report indicated that direct and indirect employment to those people in these areas will cover more than 30,000 families and if expansion worked properly this employment figure would cover up to 100,000 families. It indicated that increased currency circulation, due to retained earnings is adding to the well being of the areas by fuelling economic growth.

It showed that cane is grown in the most under-developed areas in the dry zone of the country providing economic renaissance, assured income, gainful employment to these people in the areas where there is no other economically viable matching or competing crop. The report cautioned that any further decline of this economic sub sector would have a major impact on the standard of living of the people in those areas as evidenced from the closure of Kantale and Hingurana sugar mills earlier where still large areas lie barren while people languish in abject poverty.

Company running at a profit – Daya Gamage
Daya Gamage, Chairman of Sevanagala Sugar Industries PLC told the Business Times that he has completely turned around the loss-making Sevanagala Sugar factory to a profitable venture within a short period. It had accumulated losses amounting to Rs. 149 million in 2002 when he was taking over the management and it now has made a profit of Rs. 224 million after tax in the current financial year. The turnover of the company was Rs.1.17 billion, he revealed. He added that the company has purchased the Maha season stock of sugarcane at a cost of Rs. 403 million, and the previous year they paid Rs. 296 million.

Sugarcane farmers face financial difficulties
President of the Joint Sugarcane Farmers Union Justin Jayasekera said that Sevanagala sugar cane farmers numbering around 4,0000 will have to face serious financial difficulties as they have already sold their Maha season harvest to the factory. They need money to buy seeds, fertilizer, and other requirements to prepare for the Yala season.

The company has purchased a stock of around 100,000 tons of sugar cane off the Maha Season at the rate of Rs.3250 per ton for crushing. The value of this stock is around Rs. 300 to 400 million. Farmers were planning to cultivate additional 450 hectares for the Yala season but are now in two minds due to uncertainty prevailing at the factory, he said. Under the present circumstances, their Yala harvest will be affected to a great extent. Farmers are planning to launch a protest demonstration demanding the government remedy this situation and to provide some financial assistance to continue their cultivations, as most of them had depended on the Sevanagala Sugar company. If the government fails to remedy the situation, then there will be a shortage of sugar in the country, he said .

Sugarcane takes 12-16 months to mature. When it is ready for harvesting it stands two to four metres tall. Farmers harvest their cane between June and December when rainfall is less frequent and the plant's sugar content is at its highest. The Maha Season falls during the North-east monsoon from September to March (the following year). Yala is from May to August.

“I don’t know why Pelwatte,” says Ariyaseela
Pelwatte Sugar Industries PLC has nearly doubled its factory capacity to 4,500 tonnes a day from 2,500 tonnes earlier and the value of assets including the property, plants and equipment has increased in the third quarter from Rs. 1.1 billion to Rs. 4 bilion, Ariyaseela Wikramanayake, Managing Director Pelwatte Sugar told the Business Times.

A highly dejected Wikramanayake noted that Pelwatte Sugar is not under performing and its property is not underutilized. Taking over Pelwatte means killing a local entrepreneur. He pointed out that it was heartbreaking that the government had to adopt a stance like that with Pelwatte Sugar when he was forced to buy the company’s shares at Rs. 8.25 per share at a time when there was no one to give leadership to the company after the government took over when the Booker Tate contract was terminated and when the market value of the share was a mere Rs. 5.

He said that the company pays Rs. 2.58 billion as value added tax and another Rs. 8 billion as excise duty. “We are swelling the government coffers and I don’t know why the government has included Pelwatte Sugar Industries in the list of underperforming enterprises,” he said.

He said the Pelwatte Milk powder factory – which is also being acquired - is functioning efficiently and it is producing 150,000 litres a day, which is 20% of the national milk requirement. He noted that he has done all these things on behalf of the country, but not to get any personnel benefits. He said that stopping milk imports will see the country save US$ 300 million spent every year, while the dairy farmers will earn this money and the county saves foreign exchange. He revealed that the company has built 20 irrigation tanks to enhance the cultivation areas, and increased the wages of the employees by Rs. 1500 per month, something that had not been done for the nine years, up to the time of his acquisition in 2002.

Majority control of Pelwatte Sugar was recently bought by Sri Lanka’s listed Distilleries (DCSL) group mainly owned by businessman Harry Jayewardene. The company also produces ethanol and molasses. Ethanol, one of the most important by-products of Pelwatte Sugar is used in the production of spirits, the core business of the DCSL.

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