At a time when improving the profitability of state-owned enterprises is urgently needed to boost Sri Lanka’s national economy, the revival and recovery of the Gal Oya Plantations (formerly known as the Hingurana Sugar Factory) by LOLC is an embodiment of how the nation’s assets can be enhanced by the professionalism and expertise of the private sector. Underperforming state enterprises are draining state coffers, as has been seen only once too often, according to a press release from the LOLC.
The statement adds: “However, a for-profit state enterprise can be a dynamic source of income, employment and a key pillar of food security. Public-private partnerships (PPPs) of this nature demonstrate how having private sector professionals transform profitable public companies can generate valuable government revenue while allowing the government to retain majority ownership. While Sri Lanka’s first PPP was launched to revive non-operational government entities in 2007, today’s revolution at Gal Oya plantations is empowering local sugarcane farmers, bringing prosperity in their lives and leads to social uplift, while generating massive profits. for state coffers.
“The Hingurana Sugar Factory was the first to be established in Sri Lanka in 1959 as a wholly owned subsidiary of the Sri Lankan government until 1991 when it was fully privatised. However, in 1994 the project was abandoned and the government closed the factory in 1997. Lack of funding and technical expertise required in the sugar industry led to the unfortunate closure of a fully functional factory. Even though the factory had been abandoned for more than a decade, the Browns Group expressed interest in reviving the project. Thus, Gal Oya Plantations was established 15 years ago in 2007 as a joint venture between the government and a consortium of private sector investors including Brown and Company PLC and LOLC Holdings PLC. Even today, 51 percent of the property belongs to the government and 49 percent of the shares are held by the consortium that was formed to revive the sugar factory.
‘Reviving a disused factory that sat idle for 15 years and reviving a degraded plantation was no small feat, but LOLC was perfectly prepared. Apart from refurbishing the factory, supporting infrastructure was urgently needed, including the conversion of irrigation, roads, drainage and the restarting of the sugarcane plantations. The company needed to gain the trust of local farmers who had been abandoned the last time the government closed the factory, forcing them to turn to rice farming and odd jobs for a living. Today, the thriving sugarcane plantation employs around 1,300 direct workers on 8,500 ha of farmland. About 8,000 farmers are engaged in the cultivation of sugar cane and more than 20,000 people get indirect employment through this project. Gal Oya Plantations not only revived the plantation and created jobs for thousands of people, but also turned it into a profitable entity.
“It was only LOLC’s passion for reviving a national asset that kept them engaged in this mammoth task. Since the factory is over 60 years old, its equipment needed to be upgraded to increase efficiency and productivity and to extend the life of the factory. Moreover, skilled labor was a scarce commodity and had to come from all over the country. By overcoming all these seemingly insurmountable obstacles, Gal Oya has earned a reputation as a giant in the country’s sugar production and a model of a successful PPP and professionally managed entity.
“Securing the funding for the project itself was an epic undertaking as the government did not channel any investment into the plant revival project except for its equity asset of $516 million. LKR, which could not be pledged as collateral.Therefore, funds could not be borrowed against it.Despite this roadblock, LOLC invested in private equity an amount of LKR 495 million in the project, as well as commercial loans.
“Productivity has skyrocketed thanks to improved machinery and farming practices. Some 374,000 metric tons of sugarcane were used for production last year and the amount of sugar produced was 24,000 metric tons. The target for 2022/23 was to produce 30,000 metric tons. Besides sugar, the Gal Oya plant also produces 6.7 million liters of ENA (Extra Neutral Alcohol) from molasses, a by-product of sugar production. This is the highest in Hingurana’s history since 1960. Hingurana’s distillery complex is designed to produce 21,500 liters of ENA/day.
“Committed to making this project a model for PPPs in Sri Lanka, Gal Oya has embedded sustainable systems and processes. The plant is currently in the process of expanding its power generation capacity by up to 10 MW by investing in a modernized power plant with upgrades to the existing sugar mill. Additionally, the organic fertilizer needed to grow sugarcane is made using 100% of the company’s factory waste. Reaching an annual output of 7500 tons of organic fertilizer, the company is now engaged in the production of liquid organic fertilizer and bio fertilizer.
“The importance of a high-yield project managed by professionals such as Gal Oya stimulates the base and ignites the engine of the economy. Indeed, in the next five-year plan of Gal Oya, the development of an area of 10,500 Ha is planned for the cultivation of sugar cane, which should result in a supply of 1 Mn MT of cane Further investment in the expansion of the plant to 4000TCD is planned with an investment of 25 to 30 million US dollars.
“It is pertinent to note that the economic benefits that emanate from the profit status of Gal Oya. The production of 75,000 tons of sugar results in import substitution of US$35 million per year and contributes 12-15% of the country’s needs ONLY from Gal Oya. This foreign exchange saving in turn contributes to strengthening the country’s foreign exchange reserves during the current economic crisis. In addition, the production of 14 million liters of ENA results in import substitution of US$14 million per year and further contributes to ENA’s self-sufficiency.
“The benefits of Gal Oya for community members are undeniable and it is imperative that the sugar factory continues to operate smoothly to improve food security while providing direct and indirect employment to maintain household fires. At a time when the government is being asked to reverse years of losses suffered by state-owned enterprises to meet global funding eligibility requirements, a profitable project like Gal Oya should be a shining example for more PPPs of this type – bringing the best of Sri Lanka together to serve the nation.