Sri Lanka : Pelwatte, Sevanagala sugar factories in a crisis due to mismanagement
Sevanagala and Pelwatte sugar factories face severe operational and financial crises due to mismanagement, technical failures, and poor sales. Farmers can’t sell harvested sugarcane, and unpaid dues, overstaffing, and failed projects have worsened the situation. A new competitor offering cheaper sugar has hurt sales. Authorities claim repairs are underway and operations resumed, but long-term stability remains uncertain.
Sevanagala and Pelwatte sugar factories, owned by Lanka Sugar Company Ltd, were established in 1986 with the aim of meeting 100 percent of the country’s sugar requirement through local production. Lanka Sugar Company Ltd Sevanagala, which cultivates approximately 25,000 acres of sugarcane, recorded its highest profits last year. It even distributed bonuses to sugarcane farmers as part of its profit-sharing scheme. However, a recent technical fault caused the factory’s sugarcane grinding machines to stop production. This incident brought to light internal issues within the Sevanagala factory that had previously remained hidden.
According to employees of Lanka Sugar Company Ltd, this situation has arisen due to irregularities associated with the management of the factory. Sevanagala factory with a 25,000-acre sugarcane plantation recorded its highest profit during the tenure of the previous government. Over the past few months, the factory has experienced a significant decline, according to its employees. Just last week, a malfunctioning in one of its machines forced the suspension of sugarcane procurement. As a result, farmers are facing a serious crisis and unable to sell their harvested sugarcane. The factory’s management reportedly informed the farmers that, due to financial losses, they are unable to purchase the harvest.
The Farmers’ associations maintained that the machinery of the factory and equipment have been out of order since the final week of last month, resulting in continuous losses for the company. Representatives of these associations stated that factory officials have informed them that they are currently unable to purchase the harvest of sugarcane farmers. According to the farmers’ associations, approximately 200,000 tons of sugarcane harvested during the second quarter has now accumulated. However, it hasn’t been possible to process this harvest due to the malfunctioning machinery and equipment. Farmers are also unable to prepare the land or plant the necessary crops for the upcoming sugarcane season, as the equipment needed for land preparation is also in disrepair. Representatives further said that the expected yield from Sevanagala area is unlikely to be achieved in the next season.
When this newspaper visited Sevanagala on last month to observe the situation firsthand, it could be observed that a large number of tractor trailers loaded with harvested sugarcane were parked near the factory. Many of these trailers had remained stationary for several days. Under normal circumstances, if the machinery were operating, these trailers would not be parked in various locations, but would enter the factory in sequence and begin unloading sugarcane for the grinding process. However, no such activity was taking place at Sevanagala factory, at the time this newspaper made the visit there. At Pelwatte Sugar Industries, large lorries and tractors carrying sugarcane were parked in an orderly line. There, this scribe could witness vehicles entering the factory in succession. The factory was the place where the grinding process of sugarcane was actively underway.
Operating at a loss
Sevanagala and Pelwatte sugar factories were once profitable institutions under the previous government, even providing bonuses to both employees and sugarcane farmers. However, for the past seven months, both factories have been operating at a loss. Critics believe it’s worth investigating whether these losses are the result of recent mismanagement or a consequence of decision making by previous administrations. Internal information gathered from Pelwatte Sugar Industries indicates that past instances of excessive spending and unpaid dues have significantly contributed to the current crisis. Investigations carried out by this newspaper revealed that the problems faced by both Sevanagala and Pelwatte are closely related. However, this newspaper also found inconsistencies in the statements made by certain officials and employees of Lanka Sugar Company Ltd Sevanagala, raising further questions.
The Sevanagala sugar factory, which relies on the cultivation of around 25,000 acres of sugarcane, recorded peak profits last year. It was even able to share its financial success with farmers by awarding them bonuses. Yet, a recent technical malfunction halted the operation of its sugarcane grinding machines. This incident exposed a range of internal issues that had been simmering beneath the surface—suddenly flaring up, as one employee put it, “like sparks from under the ashes.”
Employees of the Sevanagala sugar factory confirmed with this newspaper that the current crisis has arisen due to irregular and inefficient management. They pointed out that although the Sevanagala sugar factory had achieved peak profits under the previous government by cultivating 25,000 acres of sugarcane, the company is now operating at a loss. According to the employees of this factory, this once-profitable institute has suffered a significant decline in recent months. Last week, a malfunction in the sugarcane grinding machine led to the suspension of sugarcane procurement from farmers. As a result, farmers are now facing a serious issue—they are unable to sell their harvested sugarcane. In response, factory management informed representatives of the farmers’ associations that due to ongoing financial losses, they are unable to purchase their harvest.
As per the data this newspaper found, the Pelwatte sugar factory processes around 3,000 metric tons of sugarcane daily, yielding an expected amount of about 250 metric tons of sugar. The government in power during 2023 claimed that the company was operating in a profitable manner and distributed bonuses to employees and farmers. However, Pelwatte Sugar Industries has neither paid the dividends owed to the government nor the taxes due. These amounts have continued to accumulate as debt. The total tax liability owed by Pelwatte Sugar Industries to the government in 2023 amounted to Rs. 166 million. Instead of settling this debt, the company focused on issuing bonuses. Employees pointed out that although the company generated substantial income, it diverted funds—meant for tax payments—towards unproductive uses.
For instance, employees reported that nearly 800 million rupees were spent on a project claimed to be the construction of a bio-fertilizer factory. However, no benefit has resulted from this investment. What can be seen instead are rusting compost fertilizer machines which are lying unused. The fertilizer factory now functions as a sugar storage facility. What the Pelwatte sugar factory was left with after spending nearly 800 million rupees was not a fertilizer plant, but a sugar warehouse.
By 2024, Pelwatte Sugar Industries was expected to pay the government 1 billion rupees in taxes. These were due on molasses, ethanol and sugar production. It has also come to light that contributions to the Employees Provident Fund (EPF) had not been made since March 2024. However, the current government has stepped in to cover EPF payments from March to October. In addition, the company still owes another 285 million rupees in EPF contributions for the period from October to the present.
The company’s (Pelwatte Sugar Industries) general and employee insurance expired on May 14, 2024, and hasn’t been renewed since, according to its employees. They added that their lives are at risk because their work involves machinery. Although the current government has taken over the administration of Pelwatte Sugar Industries, amidst all these challenges, it is clear that turning the company around would be a difficult task. Despite previously claiming to be highly profitable, Pelwatte Sugar Industries has obtained a 500 million rupee loan from a state-owned bank.
It was understood that when the current administration took over Pelwatte Sugar Industries, there had been no finances. The bank overdraft had increased up to 872 million. Pelwatte Sugar Industries is now facing extreme financial instability and is currently unable to pay the salaries of its employees. In the recent past, the administration was even compelled to obtain a loan of 1 billion rupees to meet salary obligations. The primary reason behind the institution’s collapse is its inability to sell the sugar and spirits it has produced. Five major traders regularly purchased sugar in bulk from the factory, but they have since halted their purchases. This is a result of a chain of events that followed the removal of a former chairman, after a government audit confirmed a fraud involving 700 million rupee worth of black oil.
The administrators appointed following this incident continued to operate the factory using bank loans rather than generating revenue after increasing production. As a result, the institution’s administrative structure has deteriorated significantly, employees reported. At one point, Pelwatte Sugar Industries employed approximately 4,100 workers. That number now stands at around 3,985. Nearly 1,000 individuals were recruited in the past due to political influence, and all of them were granted permanent positions in 2023. This has placed an additional financial burden of approximately 10 million rupees on the company. The monthly wage bill which once stood at about 200 million rupees has now risen to over 250 million rupees.
Challenge posed by New ‘player’ in the market
Currently, Pelwatte Sugar Industries is holding a surplus of roughly 17,000 metric tons of sugar. The inability to sell this stock stems from the withdrawal of the factory’s five (5) main buyers. Although efforts were made to attract new buyers, these attempts proved unsuccessful. The main reason for this failure was the entry of a private sugar manufacturing company into the market, offering sugar at a lower price than what Pelwatte offers. As a result, demand for Pelwatte sugar has steadily declined, leaving the factory unable to sell its sugar.’
Pelwatte Sugar is currently released to the market at a wholesale price of Rs. 220 per kilogram, whereas the said private company offers sugar at a price of Rs. 215 per kilogram. Although Pelwatte Sugar Industries has set varying prices for its sugar, it is now facing severe challenges due to its inability to sell at a competitive price.
Pelwatte Sugar Industries has effectively lost its share of the sugar market by failing to adopt competitive pricing strategies. Despite producing sugar for over 40 years, its inability to maintain a market is proving to be a significant issue. Employees claimed that although sales managers are officially appointed, the sales operations are practically inactive. If the current sugar stocks were sold, the company could generate an income of around 3.5 billion rupees. The stock of ethanol held by the company has now been stored. Ethanol, which was priced at Rs. 1200 per litre, is now being sold at Rs. 550. The companies that purchased ethanol are no longer buying it. This is due to two ethanol-producing companies selling it at around Rs. 480 per litre. Pelwatte Sugar Industries produces approximately 25,000 liters of ethanol daily, but most of it remains in storage due to absence of sales, according to the employees.
To clarify these matters further, we reached out to Chairperson of Lanka Sugar Company Ltd Sevanagala, Sadamali Chandraskara. She made the following statement: “Please understand that, under the current procedures, I am not authorised to make any statements to the media regarding this matter. If you require any clarification, please direct your inquiries to the Minister.”
This newspaper also made several attempts to contact Minister of Industries and Entrepreneurship, Sunil Handunneththi, to obtain his perspective on the issue, but our efforts were unsuccessful. Nevertheless, in a recent statement, the Minister assured that the sugar factories owned by Lanka Sugar Company Ltd Sevanagala will not be allowed to shut down. He emphasised that there is no risk of these factories being closed down.
“Steps being taken to replace damaged machinery”- Chairman Inter-Company Employees’ Union, Pelwatte Sugar Industries
Commenting on the situation, Sunil Ratnayake, Chairman of the Inter-Company Employees’ Union of Pelwatte Sugar Industries, confirmed the accuracy of these concerns. He said that the present government is now burdened with the blunders of the previous administrations. He also noted that Lanka Sugar Company Ltd Sevanagala is experiencing similar issues. However, steps are being taken to replace the damaged machinery there and resume operations soon, he added.
“Grinding operations have resumed”- Chairman of the Inter-Company Employees’ Union of Lanka Sugar Company Ltd Sevanagala
Chairman of the Inter-Company Employees’ Union of Lanka Sugar Company Ltd Sevanagala, H. B. A. Jayasundara, made the following statement: “Recently, one of the sugarcane grinding machines at the Sevanagala sugar factory was damaged. We carried out the necessary maintenance. As an alternative solution, a motor was brought in from Pelwatte Sugar Factory, and grinding operations have resumed. There are no further issues. Our ETF and EPF contributions, along with salary payments, are all in order. Sugar stocks are currently being stored, and we plan to sell them soon, which will generate an income for the factory.”
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Source : Daily Mirror Online
