By Nizla Naizer
Dispelling myths that the Government cannot profitably run an institution, the Strategic Enterprise Management Agency (SEMA) recently explained the success of Chilaw Plantations Ltd (CPL) that is projected to have a profit of over Rs. 200 million this year, whereas, it had an accumulated profit of Rs 400 million in 16 years of private management.

“There is a claim that State-run institutions are inefficient and unprofitable,” Minister for Public Estate Management & Development, Milroy Fernando, said at a press conference last week. “None of the five institutions under my purview fall under this category,” he informed. The five institutions monitored and managed by SEMA include CPL, Kurunegala Plantations Ltd (KPL), Janatha Estates Development Board (JEDB), Elkaduwa Plantations Ltd (EPL) and Sri Lanka State Plantations Corporation (SLSPC).

CPL follows in the wake of a successful year concluded by the KPL, which was also a privatised Plantation taken over by the State in 2005. “KPL declared profits of Rs 96 million in 2007, and we expect Rs 110 million in profits for 2008,” Ministry Secretary, Dr. Parakrama Ekanayake Bandara informed.

The CPL story
CPL, which, along with the KPL, owns some of the most productive and valuable land in the Chilaw, Kurunegala, Colombo and Gampaha Districts, was privatised in 1992, under State Policy promoting privatisation. The management of CPL was handed over to Wayamba Plantations Ltd, while KPL was handed over to Lake House Plantations Ltd.

However, in 1994, the Government decided that, in the interest of the public, these two Coconut estates should be with the Government. They identified the strategic importance of Coconut as a food crop, the lands in highly populated districts and lands which can be used for public infrastructure purposes, which prompted the long acquisition process. The legal clauses within the agreement, which allowed the private firm to manage the estates, did not facilitate the Government takeover.

“These estates were always profitable prior to privatisation,” Bandara informed, “But, with the intention of squeezing out as much as they can, in the short term, these two Coconut Plantations were falling apart, with no long term strategy or development in place.”

In CPL, it was evidenced that the employees were treated harshly, with many fired for no justifiable reason, appalling living conditions and a mean pay for the hard work. “Also, they had mismanaged the lands with Cashew cultivated in high Coconut productive lands. The plants weren’t fertilised or maintained properly, there were some areas ideal for cultivation, but left as forests. All these aspects crippled these Plantations, which had so much potential.”

Even though the private management employed long drawn out legal proceedings to delay arbitration and the takeover by the State, KPL was acquired on June 1, 2005 and has been a profitable institution since. However, CPL required more effort and negotiation on the part of the Government. The private management agreement which was to continue till 2012, was terminated through a Memorandum of Settlement, which was provided by the reserves accumulated by CPL. “We did not use any public funding to settle CPL’s compensation,” Bandara assured. On January 27, 2007, Cabinet approved a Rs 124 million compensation package, which was estimated to be the management fee till 2012, the year the contract was to originally conclude. CPL was taken over by a newly established Board on March 31, 2008, and Bandara informs that the Plantation has already made Rs. 153 million in profits. “We have a surplus, even after you account for the compensation we paid the private agent that managed the Plantation,” Bandara explained, “We are very proud of this fact, and that, CPL is a competitive player in the Coconut markets. We estimate a profit of over Rs 200 million in 2009.”

CPL’s high profits come after profits as low as Rs. 49.48 mn in 2004, Rs. 47 in 2005, Rs. 40.50 in 2006 and Rs. 104.52 in 2007. “There has been evident mismanagement,” Bandara stated, “But, once the State took over, we have changed all that. And we have also refuted the myth that privatised institutions are profitable and efficient, while State corporations are not. It’s all a matter of management, with the right strategies in place.”

Changes in place
CPL, which has a land extent of 4,678 hectares (11,555 acres), with over 392,889 palms, currently has close to 950 employees. This was not the case before SEMA took over, however. “We reinstated most of the employees who were unfairly dismissed,” CPL Chairman Panduka Jayasinghe said. “Their living conditions have improved with proper roofing and decent shelters in place. Prior to the State taking over, their conditions were appalling.”

Another significant change was made to the system of providing bonuses. “Previously, the top management was provided with bonuses of over Rs. 150,000, with lower level employees without anything. We have established a policy of giving the labourer a minimum of Rs. 5,000 and top management a maximum of Rs. 40,000. Every employee now receives a bonus,” Jayasinghe informed. This has led to a motivated workforce and minimal internal conflicts between the workers and the management.

The CPL Board has established a proper HR plan and proper Administration with a long term view in mind. “The private firms try to bleed these Plantations dry, with no view of the future. We have resurrected them and created a proper strategy to keep operations at these profitable levels. Despite the financial recession in the world, we can continue our activities with no issue.”

Public- Private Partnership
With SEMA’s new initiative, to bring in the Private Sector, to better utilise the resources in the estates handled by them, CPL has also seen some private ventures. “We have already provided 50 acres of CPL land to a poultry farm by a private investor, five more acres have been allocated to a tractor and trailer manufacturer,” SEMA Plantations Director, Dr. Sunil Jayasekara informed. “We are also looking at Pineapple, Banana cultivations in land that is ideal for this additional crop. The Kalpitiya Tourism Project initiated by the Tourist Board, will also be utilised by the Plantation, where we intend to have restaurants along the route which leads through CPL lands.”

The CPL has a model cultivation with over 15 crops ideal for the productive soil in the area and the Yoghurt industry, along with Cashew are additionally carried out. “Traditionally, it is the Excise Department that generates income for the Government, we want our estates to be income generators for the Government. These estates are an example of good governance and we have plans in place to keep the efficiency and productivity of these lands at maximum levels.”

Deputy Minister- Public Estates Management & Development, S. Nijamudeen, stated that, previously, ‘privatisation’ was a divine word. “Our estates, and the successful way we have managed them, have proven to the country that, the State can take any organisation and run it properly, with the right management in place.”