Sri Lanka to revive Kantalai state sugar firm with foreign investment as prices collapse

ECONOMYNEXT – Sri Lanka is planning to revive a state sugar factory in Kantalai with a foreign investor expected to pump in 100 million US dollars, which will create thousands of jobs in a remote rural area, officials said as global prices collapsed to a new low.

A joint venture firm MG Sugars Lanka (Pvt) Ltd, in which the private investors will have a 49 percent stake  and the state 51 percent is planning to build a new factory.

The firm signed an agreement with Sri Lanka’s Board of Investment on July 27.

Mendel Gluck, a UK based investor, is leading investor. The project is also backed by Prabu Sugars of India and K P Nagaraja, another Indian national, officials said.

An investment agreement with Sri Lanka’s Board of Investment was singed on July 27.

BOI Chief Upul Jayasuriya said the new investors are planning to bring in 100 million dollars and build a new factory modern equipment.

Kantalai Sugar had been inactive for 25 years.

Jayasuriya said there will be no borrowings from domestic banks and the full investments of 13.5 billion rupees had to come from abroad.

Jayasuriya said the government will not invest any tax money of the people in the Kanthale factory.

Sri Lanka’s Ministry of Land will choose villages in the area to cultivate the land, he said. Many villagers are poor and without sufficient income, and about 30,000 people could benefit from the factory Jayasuriya said.

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Lands minister M K D S Gunewardene, who is from the areas said the Kantale sugar enterprise controlled about 21,000 acres and there were 18 small lakes which could store and supply water. He said about 6,000 people will get jobs if the factory was revived.

He said he asked for the factory to be given to his ministry in January when the new administration was formed so that he could revive the factory and give jobs to people.

The project is promoted at when global prices sugar prices are crashing along with gold, fuel and other food commodities as the US Federal Reserve ends excessive money printing and prepares to raise interest rates.

Sugar prices for October 2015 delivery fell below 12 US cents a pound in July (about 34 rupees a kilogram), and Sri Lanka’s sugar prices area already kept up with taxes. Indian millers are selling sugar below production costs to pay workers and cultivators.

But Gluck said it will take three years of more for the factory to be built and he expects sugar prices to be revived by that time.

Kantale Sugar which was privatized after losses was but was inactive and expropriated in 2011 by the ousted Rajapaksa regime along with two other functioning factories which were profitably run by private investors.

Officials said the Kantale factory was started in 1957 as a grant from the government of Czechoslovakia, but went into difficulties in 1986.

Analysts say in the 1980s commodity prices fell after tight monetary policy in the US and UK, and there was low inflation throughout the world a period that later came to be known as the ‘Great Moderation’.

The world is now again entering a similar period with falling gold, oil, and food prices as the US Fed ends expansionary policy.

Pelwatte Sugar, started in 1982 as state backed sugar firm with Booker Tate, an international consultancy ate up billions of rupees in price support subsidies when global sugar prices fell. Sri Lanka’s sugar production costs are high mostly due to low yields.

Pelwatte Sugar was privatized in the 1990s ending the burden on the people, but it was expropriated by the last regime along with another firm which was not a burden on the people.

The two firms had eaten up at least 5.0 billion rupees of people’s money since the expropriation.

Some critics and environmentalists have slammed state backed sugar factories in Sri Lanka and un-mechanized cane farming as a spectacular failure in state intervention that has generated misery, poverty and environmental degradation unlike in mechanized farming.

Monlar, an activist organization that successfully resisted a public-private plan to start a sugar plantation in Bibile area destroying forests, has claimed (Bitter Sugar) that the draining of land for the cane mono culture has damaged the environment in cane cropping areas, making the land unsuitable for other crops, and disturbing water tables in surrounding areas.

Sugar cultivators – particularly out growers who have been given state land to cultivate with no freehold rights and are confined to grow only one crop and prohibited from using the land to grow other crops – have become poor and indebted critics say.

While other analysts agree that utter poverty is needed to successfully sustain un-mechanized sugar cane farming (Bitter Sugar – Kenya) , when there are no other ideas or freehold land for people to engage in multi-cropping, even cane may be better than alternatives.

Even in South America sugar cane growing has been associated with absolute poverty and near slave labour conditions, they say. Cane farmers and cutters who work in the hot sun in South America also suffer from kidney disease. (Colombo/

 

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