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Government
encourages new model for old estates
By Nizla Naizer
The Strategic Enterprises Management Agency (SEMA)
unveiled the government’s new model to revitalise ailing
and unprofitable state owned estates through private sector
collaboration.
At the Plantation Development Forum held recently, SEMA outlined
the new strategies and plans the government proposes to the
private sector, in order to develop these estates without
privatisation or leasing the land, which have turned out to
be unprofitable in the past.
Keeping with the guidelines of the President’s ‘Mahinda
Chinthanaya,’ where no state owned estate can be sold
outright to the private sector, SEMA presented opportunities
where there is scope for development within the seven estate
holding corporations under its purview. Out of the 267,000
hectares of land available as plantations in the island, 52,000
hectares belong to the seven state plantations which include
the Janatha Estates Development Board, Elkaduwa Plantations
Ltd, Sri Lanka State Plantation Corporation, Kurunegala Plantations
Ltd, Chilaw Plantations Ltd, National Livestock Development
Board and the Sri Lanka Cashew Corporation.
SEMA Chairman and CEO Willie Gamage explained that it costs
the government Rs. 278 million to control this small portion
of the entire estate chunk and said that a lot of the estates
have been converted into profit making enterprises, since
it came under SEMA’s control in April 2006.
According to Gamage, the government has identified that there
is further potential in these lands and is offering opportunities
such as livestock and intercropping projects, hydro power
and thermal projects, tree planting and timber projects, organic
foods, eco-tourism and mineral extraction projects. “We
are looking at these estates with an ‘asset’ management
approach as opposed to the traditional ‘plantation’
management approach.”
He went on to explain the objectives of the Forum, “We
want these estates to be financially sound and not be a burden
to the treasury. In 2008, we haven’t taken a rupee to
finance the management of these estates. There are more benefits
to be gained. So we want to have a mutually beneficial partnership
with the private sector.”
Gamage pointed out that SEMA has already established profitable
partnerships with the private sector where land has been provided
for intercropping coconut plantations with pineapple and other
projects where tea factories have been provided to private
parties who then successfully run them. “The larger conglomerate
private companies have already benefited from the opportunities
we offer,” he said, “We are now focusing on attracting
the small and medium scale investors who may need 50-100 acres
of land to conduct their business activities.”
A
Public Estate success story
The
Chilaw Plantations Limited (CPL) comprising of 4,678 hectares
with six estates in the surrounding areas of Puttalam, Chilaw
and Nikeveratiya was managed by the private sector for 15
years. During these years, the estates which had high potential
only showed a profit of Rs.328 million for the entire period.
The contract was due to go on till 2012, but since it came
under SEMA’s purview in 2006, Chairman and CEO Willie
Gamage took the decision to compensate the private managers
with Rs.128 million and take over the management as it was
clear to him that the estates were under-performing.
CPL now churns out a gross profit of Rs.31 million a month,
making it one of the more profitable estates under SEMA and
generating much needed revenue for the country.
The
Government’s take on Estate Management Policy
Central Bank Governor, Ajith Nivad Cabral speaking at the
Plantation Development Forum on Friday, outlined the government’s
stand on Estate Development and Management through an interesting
foray through history.
“In the past, all the land belonged to the King. The
British then took over and sold them at a nominal price of
five shillings an acre to those who wished to buy and cultivate.
These lands were then controlled by Sterling Companies which
took care and cultivated the land creating railroads out of
the cess charge of the plantations collected from the owners,”
he explained. “From spices to coffee to tea, Sri Lanka
went through phases and now we’ve reached the one billion
dollar mark in the tea industry.”
The Land Reform Act brought in 1972, changed the land owning
class by limiting the individual’s land to 50 acres and
taking over the rest. 23 plantation companies were formed
by the government to handle these lands and they were leased
out for 50 years or so to private developers. “Some of
these private companies have let the land deteriorate,”
he stated, “and so, the order issued by the President
was to see that the land owned by the government was to be
efficient and organised and not sold to the private sector.”
“We now see a new dimension to the management of plantations,
where we have identified that there are competent and capable
individuals in the private sector, whose help and knowledge
will be beneficial to taking these estates and the country
forward,” he said, adding that even though privatisation
is not in the policy, within the policy the state estates
can work with the private sector.
This is where SEMA will identify and implement opportunities,
Cabral explained while pointing out that transparency is the
key.
Cabral shared an excerpt from the Mahinda Chinthanaya, a statement
made to King Devanam Piyatissa, “The earth and the vegetation
are yours, but you should protect the land for the future.
As ruler you are temporary trustee, and not the owner of your
children’s heritage.”
Sri Lanka has been recognised for having a high sustainability
index when it comes to development and the government policy
focuses on maintaining that with the management of estates.
The
Ministry’s opinion
Public Estate Management and Development (PEMD) Junior Minister,
S. Najimudeen explained at the Forum that privatisation of
estates had proved to be unprofitable in the past and the
policy was not people friendly. The new policy, in tune with
the Mahinda Chinthanaya, will ensure a proper partnership
with the private sector where the resources the Ministry lacks
for proper utilisation of its land will be made up by the
private sector contributions.
“There is a huge amount of funds with the private sector
which need to be pumped into the economy and that could only
be achieved through this Public Private Partnerships,”
he stated, adding that the Ministry must also look into attracting
foreign investors to the land.
Minister in charge of PEMD, Milroy Fernando reiterated the
government’s stand on the opportunities available. “We
will not sell you our land but we are prepared to provide
it with all the facilities for development. We want the private
sector to earn profits as the public sector earns profits,”
he explained, “the unprofitability of the public estates
in the past have been due to the revenue being eaten up by
redundant and unnecessary wages and costs, we need to streamline
and make it more efficient.”
He stated that the government was open to new ideas and new
ventures like restaurants and cafes on the main stretches
of road that cut across the state estates. “We started
a restaurant called ‘Nil Aramba’ on the Elkaduwa
Plantation on the side of the Matale-Dambulla road and it
has become quite a success. We want more ventures like that.”
Guidelines for development
SEMA Plantations Director, Dr. Sunil Jayasekara explained
the guidelines which he claimed were not ‘hard and fast
rules’ available to the private sector. Out of the 52,000
hectares available in SEMA, the Directors of each corporation
had to identify the land on the following basis.
“Firstly, the lands identified as high productivity lands
with crops such as coconut and tea will be continued to be
scientifically managed and developed,” he stated. “Secondly,
lands identified with low productivity will be diversified
with livestock, commercial timber and intercropping opportunities
etc.”
“Thirdly, lands that have been identified as isolated,
unproductive and unprofitable due to management inefficiencies
and other reasons will be allowed to have a complete turnaround
where private investors can plant their crops. So far, we
have implemented three mini hydro dam projects in these lands,
and we’ve identified potential opportunities for 14 others,”
he stated. “Lastly, urban land belonging to SEMA of high
value will be utilised for new business development projects.
We already have 14 acres of prime property in Colombo itself.
We intend to develop it through joint ventures and private
partnerships.”
The business opportunities available include, intercropping
of pineapple, banana etc, short term land for animal husbandry
and livestock, timber plantation where the land will be provided
for 30-40 years, eco-tourism projects, mineral industries
such as dolomite, quartz, silica, granite etc, water bottling
and marketing opportunities such as hoardings, billboards
etc and urban infrastructure projects, to name a few.
“We are thinking out of the box,” Jayasekara explained,
“and we want a win-win situation.”
Public-Private Partnership Policy
SEMA has been testing these policies since its inception in
2006. The private investor has to pay a facility fee for the
utilisation of underdeveloped lands. It may range from Rs.5,000-10,000
per acre per year, depending on the crop involved. Leasing
is considered the last option in these partnerships. The new
policy is to obtain advance key money of 4% of the market
value of the asset.
The private sector also has the option of ‘Income Sharing’
through Joint Venture partnerships along with a ‘Profit
Sharing’ option focused mainly on financially resourceful
entrepreneurs. “With profit sharing, we hope that the
bigger players will bail out the bleeding estates by pumping
resources.”
“We have created these guidelines to make the path smoother,”
Jayasekara said, “But in the end, all interested parties
would be treated individually and negotiations can be conducted
to decide on the rates. We are looking for an ethical private
entity to work with us.” SEMA has also established a
Ministry Land Committee to spearhead these processes without
delay so that the partnerships would be carried out smoothly
and without delay.
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