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Getting to the bottom of the ‘plantation problem’

D.E.W. Gunasekera and
Dr. P.B. Jayasundera

The 20 RPCs under review

Agalawatte, Agrapathna, Balangoda, Bogawanthalawa, Elpitiya, Hapugastenna, Horana, Kahawatte, Kegalle, Kelani Valley, Kotagala, Madulsima, Malwatte Valley, Maskeliya, Maturata, Namunukula, Pussellawa, Talawakele, Udapussellawa and Watawala.


By Mandana Ismail Abeywickrema

The government and the Regional Plantation Companies (RPCs) are at loggerheads, trading allegations and counter allegations on the management and default of lease payments due to the state from 20 private plantation companies. 

The government has alleged that the 20 plantation companies had defaulted commercial banks to the tune of Rs.10.13 billion and Rs. 291 million to the government despite having obtained Rs. 10.059 billion as management fees during the period between 1996 – 2007, a claim the RPCs deny stating that the government had to still make payments to the companies for the lands acquired by the state after privatisation.

The report submitted by the four-member Cabinet Sub Committee headed by Constitutional Affairs Minister D.E.W. Gunasekera has said that plantation companies owed the government Rs.291 million in unpaid lease dues.

The report has further revealed that out of a total land extent of 408,487 hectares taken over by the Land Reforms Commission (LRC) under the Land Reforms Act of 1972, the 211,651 hectares handed over to 20 private plantation companies on a 99-year lease agreement remained unutilised and unproductive.

Unaccounted for

A total of 408,487 hectares of land was acquired by the LRC under the Land Reforms Act in the year 1972. Of this extent more than 50% was given over to 23 plantation companies for management.

However, out of the 23 plantation companies the Janatha Estate Development Board (JEDB) and the Sri Lanka State Plantations Corporation (SLSPC) held three while the remaining 20 companies were leased out to the private sector. Gunasekera had last week told the media that an extent of 21,006 hectares with a minimum estimated value of Rs. 710 billion vested with 23 regional plantation companies by the LRC are unaccounted for and untraceable. The plantation companies have been vested with between 5,000-20,000 hectares for management.

In its recommendations the cabinet sub-committee has proposed the appointment of a Presidential Task Force to look into the issue and streamline the process.

In a state of neglect

Gunasekera has also said, there must be a legal mechanism to collect the huge overdrafts from plantation companies and re-take valuable state lands which are in a state of neglect.

“These lands can be distributed among tea, rubber or coconut small holders who contribute immensely to the national economy, or they could be distributed among the landless,” Gunasekera has reportedly said.

Meanwhile, the President last year appointed a 10 member committee to inquire and submit yet another report on the RPCs. The committee headed by Neville Piyadigama while noting that the monies due to the government from the RPCs  remains unpaid, has highlighted the decline in production and land productivity in the 20 RPCs.

According to the report, the total tea production of the 20 RPCs has declined from 132 million kgs in 1996 to 125 million kgs in 2007. The average land productivity that stood at 1324 kg/ha in 1996 has seen a decline to 1279 kg/ha in 2006.

The report has further cited inadequate replanting, inconsistent fertiliser application, high wages, lack of worker and staff training and high cost of production and low profitability among others as causes for poor productivity and low production.

The committee has also submitted 40 recommendations for the government’s consideration to address the present issues pertaining to the RPCs.

The controversy surrounding the RPCs and their future has placed the country’s plantation sector in a quandary, as it is already suffering a beating due to the global recession.


“No truth in Minister’s claims” 

Chairman, Planters’ Association, Damitha Perera speaking of the controversy surrounding the RPCs denied claims made by Minister D.E.W. Gunasekera that the companies had defaulted commercial banks and not adhered to the lease agreement signed between the RPCs and the government.

Perera told The Sunday Leader that there was no truth in the statement made by the Minister that the RPCs had defaulted billions of rupees to the commercial banks. “If we are in default, then no commercial bank will be allowed to carry out business with us,” he said.

Perera noted that the committee had forgotten the reason for privatising these plantation companies. “The state could no longer carry the burden. The state was coughing out Rs. 400 million per month in 1992. The government then decided to privatise the management. After the management was privatised, from 1995 onwards stocks were sold through the stock exchange and lease agreements were signed between the government and the RPCs. The government then became the lessor and the RPCs became the lessee,” he explained.

Perera also said that the ‘mudslinging’ by the government appeared to be a pretext to acquire plantation land to be distributed. “The Minister has said that the RPC lands could be taken over and distributed among the landless.”

Speaking of the allegation of RPCs charging high management fees, Perera said the management agreement was done with the management fee agreed upon by the RPCs and the management agents. He said that 90% of the RPCs have revised the management fees and agreed with the state and brought down the earlier agreed terms sharply. So far 16 RPCs have revised the fees.

He added that several other RPCs have written to the state proposing a reduction in the managing agents fees, but have not yet had any acknowledgement from the government.

As for the Rs. 291 million in lease rentals due to the government from the RPCs, Perera said the then Treasury Secretary P.B. Jayasundera had agreed to offset any outstanding lease payments from the compensation due to the RPCs on the lands acquired by the state after privatisation.

However, at a subsequent meeting, Jayasundera had gone back on this. “The RPCs are yet to get compensation for land acquisition dues,” he said.

When asked about the replanting in the RPC owned plantation land, Perera said the necessity to replant was indigenous to each estate and that in areas with labour shortages and good yields the replanting policy was subject to changes.

Referring to the statement made by Gunasekera that the RPCs had employed about 83,000 people, Perera said he did not know how the Minister had received such erroneous information. “The RPCs have employed over 200,000 employees. If as the Minister says, the RPC lands are taken over, then what would become of this workforce?” Perera queried.

There were two committees appointed to look into the RPCs — Gunasekera’s committee and a 10-member committee headed by Neville Piyadigama including several professionals.

“The 10 member committee spoke to us and accepted our representations and provided us with a copy of its report. Gunasekera’s committee did not speak to us and we have not been given a copy of the report,” Perera said.


‘RPCs owe millions to the government’ - Minister

Head of the Cabinet Sub Committee appointed to look into the RPCs, Minister D.E.W. Gunasekera says that the mechanism put in place to monitor and collect the necessary dues has not functioned properly.

Gunasekera told The Sunday Leader that some of the RPCs owed Rs. 291 million to the government.

He added that the RPCs had gained profits and had even obtained bank loans, which they had also defaulted.

According to Gunasekera, the RPCs have violated one of the main clauses in the lease agreement between the LRC and plantation companies. The clause being on the necessity to re-plant.

“The plantation companies have only replanted 5,000 odd hectares of tea, rubber and coconut in 10 years, which is 0.3% of the total land extent when they should have had a replanting rate of 3%,” he said.

Speaking of the management fees drawn by some of the RPCs, Gunasekera said,the companies have drawn between 10-20% as management fees. He said that one RPC had drawn Rs. 700 million as management fees while not making any payments to the government for 10 years.

However, he said that once the sub committee commenced inquiries into the financial irregularities in the RPCs, the said company had reduced its management fees from 50% to 25%.

Gunasekera also said the Chief Government Valuer has estimated the value of an acre of land given to the RPCs at Rs. 1.5 million each. However, the estimate of the plantation companies is far less for an acre, he said.

According to Gunasekera, the plantation companies had not done the intended improvement of the plantations and re-planting. He added that some of the lands belonging to the RPCs have been used for gemming and cutting down trees.

He said that the sub committee has proposed the setting up of a presidential task force with competent people to look into the RPCs in the interest of the national economy.

Gunasekera further noted that with regard to tea production, small holders produced 76% and it would be better for the state to consider distributing land among them.

“If the RPCs have been productive and have made the necessary payments, there is no problem, but some companies have not,” Gunasekera said.


Brief history of the regional plantation companies 

Following is the history behind the formation of RPCs as appearing in the report presented by the presidential committee headed by Neville Piyadigama:

During the early 1970s, large extents of plantation lands were acquired by the government and vested under the Janatha Estates Development Board (JEDB) and the Sri Lanka State Plantations Corporation (SLSPC) under the Land Reform Act No. 1 of 1972 and, the State Agricultural Corporations Act No. 11 of 1975. As a result these two agricultural corporations controlled approximately 51% of tea, 35% of rubber and 2% of the nation’s coconut lands.

Prior to 1992, the JEDB and SLSPC consisted of 509 estates covering 272,902 Ha. and employed 389,549 workers. The two corporations performed poorly throughout most of their existence and relied heavily on government assistance to offset the mounting operational losses which had increased to about Rs. 1.5 billion per annum by 1992.

In the face of the mounting financial losses suffered by the JEDB and SLSPC, the government appointed a task force to recommend measures to resolve the problems relating to these two corporations. The task force recommended the handing over of management of the plantations to the private sector.

During 1992/1993, 461 estates managed by JEDB and SLSPC were converted into 23 RPCs under the Companies Act No. 17 of 1982, in terms of the provisions of the Conversion of Corporations and Government Owned Business Undertakings into Public Companies Act No. 23 of 1987. However, the Government retained 100% ownership in these companies.

Each RPC was initially assigned the leasehold rights of between 12-29 estates for a period of 99 years for a nominal lease rental. These leasehold rights formed the primary assets of the RPCs.

The management of the RPCs was handed over to private managing agents who were selected through a competitive process. As per the terms of the management contracts, the managing agents were appointed for a 5 1/2 year term, which was renewable upon the fulfillment of certain performance criteria. In exchange for their services, the managing agents were entitled to receive a proportion of the respective company’s profits.



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