ECONOMYNEXT – Sri Lanka’s state plantations became a key tool of political patronage, where procurement contracts, jobs and parcels of land were given to connected individuals, while eating billions of rupees of people’s money in losses, an official involved in their reform has said.
The state plantations were originally expropriated from private owner who built them. Some of the foreign investors who build then went to countries like Kenya, where they were given land and credit to build a big tea sector.
Plantations in Sri Lanka, once a key export driver and source of taxes, were eating up tax money by the time a decision was taken to privatize management by the 1990s.
"Going back to the time before privatization, the plantations in the late 1980s were the biggest source of political patronage in the country," Romesh Dias Bandaranaike was quoted as saying at a discussion at Planters Association, a grouping of managers of large plantations.
"Politicians were using the resource to give jobs, transport contracts and provide numerous other benefits to their supporters. Even small portions of land itself were hived off for private benefit."
Meanwhile managers were blocked and corrupt officials could not be sacked due to political interference.
“The plantations of that era were constantly subject to political interference," Bandaranaike had said.
"The Management was not allowed to operate freely and were often forced to hire political appointees. Transfers and disciplinary actions were also frequently interrupted.”
"This meant that even when people were caught being crooked, they were still retained,” he said.
"Meanwhile, numerous individuals with influence were attempting to profit off these plantations, and encroachments on these lands were becoming the norm."
He said except around 1987, when there was a commodity bubble around the world driving prices up, Sri Lanka State Plantations Corporation (SLSPC), and Janatha Estate Development Board (JEDB), which owned most of the expropriated plantations made losses.
In addition to paying subsidies for current spending, the state plantations were unable to repay a loan of 300 million dollars given from a World Bank credit via People’s Bank and Bank of Ceylon, to invest and boost production, forcing a bailout at tax payer expense.
"While these funds were intended for the improvement of the plantations industry, there were no significant improvements and the plantations did not have the ability to repay the debts, and the Government was eventually compelled to absorb this debt," Bandaranaike said.
Now concerns were being raised about private management at some estates.
“In the context of the entire privatisation exercise, it is vital that we all understand that while it is proper to debate methods through which plantations can be improved, we must all remember that no matter how bad the situation gets, there can be nothing worse than a reversion to state management,” Bandaranaike said.
Under private management plantations were paying lease rentals to the state and profits went up and down with commodity cycles.
Some of the best management and diversified plantations were riding out the bottom of the cycle.
The state is getting taxes when profits were being made, and losses were no longer a burden on the common man.
In the first four months of 2018, 240 million rupees of additional subsidies were allocated from people’s to pay salaries of the residual SLSPC and JEDB.
Meanwhile privatized plantations on which the Treasury only had small stake remaining paid 64.9 million rupees as dividends in the first four months of 2018 and 103 million rupees in 2017.
Showing benefits of privatization, the badly managed plantations which got into debt were being sold to new investors who injected their cash, instead of being a burden to the people, analysts say.
However restrictions on diversification and the so-called ‘Golden Share’ were hindering innovation, they say. (Colombo/Aug31/2018)
He noted that a further Rs. 8 billion, 5 times as much in today’s Rupees, was owed by the JEDB and SLSPC to the Bank of Ceylon and Peoples’ Bank as a result of a US$ 300 million lending facility which was extended to the state plantations by the World Bank. While these funds were intended for the improvement of the plantations industry, there were no significant improvements and the plantations did not have the ability to repay the debts, and the Government was eventually compelled to absorb this debt.
Given the magnitude of unethical political capital vested in the state plantations, and the inarguably worsening position of these estates as a result, he explained how it became clear to all stakeholders that some kind of radical reform would have to be implemented to save the industry and economy from collapse.
“From a numbers perspective alone, with the exception of a short period in 1987 when there was a huge boom in international markets, the Janatha Estates Development Board (JEDB) and the Sri Lanka State Plantations Corporation (SLSPC) made continuous losses and had to be heavily subsidised by the Government to the tune of Rs. 1 billion per year – which would be equivalent to Rs. 5 billion today,” Dr. Bandaranaike added.
He noted that a further Rs. 8 billion, 5 times as much in today’s Rupees, was owed by the JEDB and SLSPC to the Bank of Ceylon and Peoples’ Bank as a result of a US$ 300 million lending facility which was extended to the state plantations by the World Bank. While these funds were intended for the improvement of the plantations industry, there were no significant improvements and the plantations did not have the ability to repay the debts, and the Government was eventually compelled to absorb this debt.