For Ethanol, Take It All

• An attempt to monopolize the liquor industry using the nationalization movement 

By Ashwin Hemmathagama

Although it is intended to look like political victimization, the controversial Bill – Revival of Underperforming Enterprises and Underutilised Assets, which will be presented to Parliament this week will pave the way for some relatives of the Rajapaksa family and their stooges to create a monopoly in the local liquor industry.

Once enacted, this Bill will provide for vesting in the state, identified underperforming enterprises or underutilised assets; to appoint in respect of each one or more of such underperforming enterprises or underutilised assets a competent authority; to provide for their thorough alternative initialisation and the payment of compensation in respect thereof; and to provide for matters connected therewith and incidental thereto. The Bill lists 38 ventures already identified by the Government as underutilised assets and underperforming enterprises. Although it is included in this list, Sevanagala Sugar Industries Ltd. and Pelwatte Sugar Industries PLC are two private enterprises in full swing making considerable amounts of operational profits while providing direct and indirect employment opportunities for well over 100,000 Sri Lankan families.
Proving the profitability of his business, which is listed as a failure in this Bill, Daya Group Chairman, Daya Gamage, the investor in Sevanagala Sugar Industries Ltd. told The Sunday Leader that a turnover of Rs.1.1 billion was reported during the FY 2010/11 and the net profits for the last three years exceeded Rs. 630 million. “This Bill was brought in within a short period of time with ulterior intensions. It did not allow us or the trade chambers to prove that my business at Sevanagala is not underperforming or with underutilized assets. I bought Sevanagala Sugar Industries Ltd. in 2002 for Rs. 550 million and have invested heavily to make it work. I do not want to look at this as political victimisation,” he said.
Pelwatte Sugar Industries PLC, which is also in this list, reported a turnover of Rs. 2.36 billion during the FY 2010/11 marking some 13 percent increase over last year. According to its management, these improvements were the outcome of the acquisition that took place in March this year where 47 percent of Pelwatte Sugar Industries PLC was bought by the Distilleries Company of Sri Lanka (DCSL) for a consideration of Rs. 884 million. Pelwatte Sugar Industries PLC is situated in the Moneragala District where it operates the country’s most technologically advanced sugar factory by cultivating sugar cane under rain-fed conditions, and produces sugar and other by-products from raw sugar cane.
Despite the fact that Sri Lanka’s natural resources make it an ideal sugar producing nation, 95 percent of the country’s sugar demand is fulfilled by imports. The country’s annual requirement of sugar stands at 590,000 MT of which 559,000 MT is imported. The local sugar production was reported at 31,000 MT in 2010, which is a marginal decline of 3 per cent from 2009, according to industry sources. In addition to sugar production, both Sevanagala Sugar Industries Ltd. and Pelwatte Sugar Industries PLC produce ethanol and molasses. Ethanol, one of the most important by-products of Pelwatte Sugar is used in the production of spirits, the core business of the DCSL, the majority stakeholder of Pelwatte Sugar Industries PLC. As a result of this strategic investment, DCSL buys back Pelwatte Sugar Industries’ entire production of ethanol, thereby saving precious foreign exchange, whilst achieving local capacity building in the industry. Currently DCSL holds 70 percent of the local liquor market selling approximately 600 million bottles of liquor per annum.
According to a reliable industry source the rulers have drawn plans to put investor Don Harold Stassen Jayawardena (Harry) out of business by crippling his DCSL operations, which is the lifeline for the entire group. It was also learnt that their intention is to give “another Golden Key to Harry” following the recent example that destroyed the Ceylinco Group. “Lakshman Perera, a person close to the Rajapaksa family holds a bottling license. He produces a liquor bin in Hingurana. With the Revival of Underperforming Enterprises and Underutilized Assets Bill the country’s only ethanol manufacturers Sevanagala Sugar Industries Ltd. and Pelwatte Sugar Industries PLC will be taken over by the Government forcing DCSL and many other producers to rely on ethanol imports, which is subjected to heavy tax. Ethanol produced by these two ventures can be easily used to support Lakshman Perera’s bottling business. Currently an ethanol liter bought for Rs. 55 in the international market is imposed with a tax of Rs. 275 upon reaching Sri Lanka. Ultimately DCSL and many other local brands will lose ground to this government supported brand, which will scratch each other’s backs,” the source added.
The Revival of Underperforming Enterprises and Underutilized Assets Bill creates the necessary background to nationalize private enterprises and in most cases the assets that belong to those who are not in the good books of the ruling party.
The companies in this list are:
1.    Hotel Developers (Lanka) PLC
2.    Property Situated in Pettah – Charmers Granaries
3.    Properties Situated in Badulla – Colombo Commercial Company
4.    Properties Situated in Pettah and Narahenpita – Lanka Tractors Ltd.
5.    Land Comprising Pelwatte Sugar Industries Ltd.
6.    Land Comprising Sevanagala Sugar Industries Ltd.
7.    Sinotex (Lanka) Ltd.
8.    Jaqalanka Ltd.
9.    Plymouth Industries (Pvt.) Ltd.
10.    Cosmos Macky Industries Ltd.
11.    Kabool Lace (Pvt.) Ltd.
12.    Former Cashew Corporation Land
13.    Intertrade Lanka (Pvt.) Ltd.
14.    Suchir Neb Projects (Pvt.) Ltd.
15.    Ceylinco Leisure Properties Ltd.
16.    Seetha’s Fashion (Pvt.) Ltd.
17.    D.C. Apparel (Pvt.) Ltd.
18.    Needle Crafts (Pvt.) Ltd.
19.    HY Fashion Garments (Pvt.) Ltd.
20.    Collins Garments (Pvt.) Ltd.
21.    Ruhunu Putha Apparels (Pvt.) Ltd.
22.    Sanjaya Garments (Pvt.) Ltd.
23.    Macfa Apparel (Pvt.) Ltd.
24.    Yobeedha Associates (Pvt.) Ltd.
25.    Dynamic Clothing (Pvt.) Ltd.
26.    609 Polymers Exports (Pvt.) Ltd.
27.    Cosco Polymers (Pvt.) Ltd.
28.    Great Wall Thread Manufacturing (Pvt.) Ltd.
29.    Adamjee Extractions (Pvt.) Ltd.
30.    Data Food (Pvt.) Ltd.
31.    Tendon Lanka (Pvt.) Ltd.
32.    Rican Lanka (Pvt.) Ltd.
33.    Composite Tower Solutions (Pvt.) Ltd.
34.    Health Food Products (Pvt.) Ltd.
35.    Sri Chirag (Pvt.) Ltd.
36.    Royale Exports (Pvt.) Ltd.
37.    Continental Vanaspati (Pvt.) Ltd.
According to Parliament sources, Speaker Chamal Rajapaksa is expected to announce the Supreme Court standing on Tuesday, November 8.  However, The Sunday Leader learns that the Supreme Court has held that the Revival of Underperforming Enterprises and Underutilized Assets Bill is consistent with the Constitution and could be enacted with a simple majority in Parliament.
Chief Opposition Whip in Parliament and Member of Parliament (UNP) John Amaratunga taking a different angle pointed out several adverse impacts of the Revival of Underperforming Enterprises and Underutilized Assets Bill. Speaking to The Sunday Leader he said, “This Bill violates the rights given in our Constitution. It could have been the case that the Government kept the Legal Draftsman out of the picture and got help from a third-party. The Bill also violates UN conventions. The Bill gives the wrong impression to both foreign and local investors. The purpose of the Bill as set out in Section 2 is to vest in the Secretary to the Treasury what are described as underperforming enterprises or underutilized assets which are deemed to have an adverse impact on the national economy,” he said.
“We strongly object to the manner in which the Government is seeking to rush through with this legislation.  It is in violation of the fundamental rights of a citizen to engage in a lawful occupation, profession, trade, business or enterprise. We also wish to point out that Pelwatte Sugar Industries Limited is by no means an Underutilized Asset.  It is an on-going fully operational and profitable enterprise and is a public quoted company. Sevanagala Sugar Industries Ltd. though a privately owned company is also a fully operational on-going, profitable venture.  So much so that President Mahinda Rajapaksa himself renewed the lease on this land just a few months ago. Ceylinco Leisure Properties Limited belongs to the Ceylinco Group of Companies.  The depositors in several of the troubled Ceylinco subsidiary companies are now in Court seeking the return of their investments and this property is bound to be included in any compensation scheme the courts will finally draw up,” Amaratunge said.
As per the Bill, Underutilized Assets are described as land, that was owned by the Government or a Government Agency and alienated within a period of twenty years prior to the date of the coming into operation of this Act, to any person by transferring freehold or leasehold rights or through a divestiture on the basis that the related operations proposed to be carried out on such land will result in generating employment, foreign exchange earnings or savings or economic activities, beneficial to the public, but where such benefits as aforesaid have not accrued, being prejudicial to the national economic and public interest; land owned by a person that had been granted within a period of twenty years prior to the date of the coming into operation of this Act, either, any tax incentives under any law relating to the imposition an recovery of any tax, incentives under the Board of Investment Law or regulations framed there under, or any Government Guarantee, on the basis that the related operations proposed to be carried out connected thereto will result in generating employment, foreign exchange earnings or savings or economic activities, beneficial to the public but where such benefits as aforesaid have not accrued, being prejudicial to the national economy and public interest.
Underperforming Enterprises are described as a company or other authority, institution or body established by or under any written law for the time being in force, in which the Government owns shares and where the Government has paid contingent liabilities of such enterprise and the Government is engaged in protracted litigation with regard to such enterprise which is prejudicial to the national economy and public interest.