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President hangs tough over ban on Ethanol imports

FILE PHOTO – President Gotabaya Rajapaksa

ECONOMYNEXT – President Gotabaya Rajapaksa has put a lid on the controversial decision to ban the import of Ethanol to Sri Lanka.

In a press statement issued today May 15, the President is quoted as telling officials at a discussion that his decision to ban the import of Ethanol will stand and he “will not rescind the decision due to pressure from any businessman.”

The import of Ethanol has been a controversial issue for many years.

Ethanol is the best quality potable form of alcohol and is consumed in large quantities in Sri Lanka.

It is what constitutes the main ingredient of what is known as “Gal” arrack and several derivatives.

The term comes from Gal Oya, the sugar cane plantation and processing plant in the east of the country that even today produces Ethanol. This form of arrack is the most popular, and best-selling of the types in the country.

It is also a huge source of revenue for the government.

The “traditional” forms of arrack made out of the distilled sap of palm trees, either coconut or palmyrah, are more expensive to make and do not have a mass market.

The last government clamped down on the illegal import of Ethanol, legalized it and imposed a stiff tax.

When that happened excise duties from alcohol sales doubled going up by about 5 billion rupees a month, according to the then Minister of Finance Ravi Karunanayake.

Excise revenues which were 4.2 billion rupees in November 2014 under the previous Rajapaksa regime rose to 7,862 billion rupees in January, 7,652 billion in February and 9,490 billion rupees in March, Karunanayake told parliament.

With the return of the Rajapaksas to power, Prime Minister Mahinda Rajapaksa as Minister of Finance banned the import of Ethanol saying that there was “sufficient production of Ethanol in the country.”

That is where the controversy occurs.

Local liquor producers say that Sri Lanka’s production of Ethanol is insufficient for the market and an import ban will only encourage the smuggling of Ethanol which was a major issue before the 2015 legalisation.

These sources pointed out to EconomyNext that the local production does not meet even 40 percent of the country’s needs.

There are four major producers of Ethanol in the country. They are the Gal Oya plant at Hingurana, the Royal Casks at Hanwella, and the state-run Sevanagala and Pelwatte plants.

The collective average annual production of these plants are around 24 million litres while the industry requires around 40 million litres per year.

“It is a big shortfall and that is what we need to import,” these sources said.  (Colombo, May 15, 2020)