By: Staff Writer
August 30, Colombo (LNW): The Government’s Rs. 1 billion rescue package for Sri Lanka’s state-owned sugar sector may prevent an immediate financial breakdown, but the Sevanagala crisis raises a much larger question: how did a strategically important agricultural enterprise accumulate debts across farmers, workers, suppliers, tax authorities and banks while production remained vulnerable?
That question has become unavoidable following the complete shutdown of Sevanagala Sugar Factory on August 29.
A substantial section of its workforce began striking on August 25, refusing to participate in production. The dispute was fuelled by delayed sugarcane purchases, accumulated unharvested crops, alleged management failures and unpaid employee welfare obligations.
The consequences extend far beyond the factory gates.
Sugarcane cultivators are reportedly waiting for Rs. 205 million in payments. Workers face Rs. 150 million in EPF arrears, while suppliers are owed another Rs. 100 million. The state is itself owed Rs. 400 million in VAT, and the Bank of Ceylon is waiting for Rs. 200 million in overdue loan instalments.
These figures reveal an enterprise caught between declining liquidity and rising obligations.
The parent Lanka Sugar Company has recorded an audited annual loss of Rs. 3.193 billion, a dramatic deterioration from periods when the state sugar industry was comparatively profitable, including 2021–2022.
The Government has therefore adopted two parallel strategies: stabilize the immediate crisis and fundamentally change how underutilized state assets are used.
The first involves the Cabinet-approved Rs. 1 billion emergency operational package, released in monthly Rs. 100 million instalments. The Treasury has directed that these funds prioritize payments to out-growers and EPF arrears.
But this creates a difficult policy test. Emergency funding can restart production, yet it cannot by itself guarantee that the enterprise will remain financially viable after the rescue money is exhausted.
The second strategy is considerably more consequential.
The Government plans to invite private investment into selected unused portions of the Sevanagala property under a PPP framework. Private operators may receive leases of up to 30 years, but ownership of state land, factory infrastructure and core assets is to remain with the Government.
Four locations inside the factory perimeter have been identified for projects combining sugar production with tourism. Private developments will be restricted to eco-tourism, agrotourism, wellness tourism and conservation-related activities.
The Government has also sought to prevent the PPP programme from becoming a disguised privatization exercise. Investor selection must follow International Competitive Bidding procedures, while a Cabinet Appointed Negotiating Committee will oversee negotiations. Developers must provide a 5% performance guarantee based on estimated project costs.
Labour protections are equally important. Parliament has been told that PPP agreements will preserve workers’ statutory rights, wages and pension arrangements.
Meanwhile, cooperation with Brazil is intended to improve sugarcane yields, extract greater value from distillery by-products and strengthen domestic production against cheap imported sugar.
The real test, however, is governance.
If Sevanagala’s crisis resulted partly from procurement delays, weak financial management and accumulated arrears, converting unused land into tourism projects will not automatically solve the underlying problem.
The Government now has an opportunity to demonstrate that the bailout is the beginning of restructuring not simply another taxpayer-funded rescue of a failing state enterprise.
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