18 Jan 2023
At a time when enhancing profitability of public enterprises is an urgent need to boost the national economy of Sri Lanka, the revival and turnaround of Gal Oya Plantations (formerly known as Hingurana Sugar factory) by LOLC is an embodiment of how the nation’s assets can be enhanced through professionalism and expertise by the private sector. Underperforming state enterprises are a drain on state coffers as has been seen only once too often. However a profit making state enterprise on the other hand can be a vibrant source of revenue, employment and a critical pillar of food security. Public-Private Partnerships (PPPs) of this nature demonstrate how having professionals from the private sector turning state enterprises profitable, can generate valuable income for the government while allowing the government to retain its majority stake. As Sri Lanka’s first PPP initiated to revive non-operational government entities in 2007, the revolution brought about by the Gal Oya plantations today is empowering the local sugarcane farmers and bringing prosperity to their lives and leading to social upliftment, all the while generating massive profits for state coffers.
The Hingurana Sugar Factory was Sri Lanka’s first set up in 1959 as a fully-owned subsidiary under the Sri Lankan Government till 1991, when it was fully privatized. However, by 1994 the project was abandoned and the government closed down the factory in 1997. The lack of required funding and technical expertise in the sugar industry led to the unfortunate shutdown of a fully functional plant. Even though the factory had been abandoned for over a decade, the Browns Group evinced an interest in reviving the project. Thus, Gal Oya Plantations was formed 15 years ago in 2007 as a joint venture between the Government and a consortium of private sector investors comprising Brown and Company PLC and LOLC Holdings PLC. Even today, 51 per cent of the ownership is with the Government and 49 per cent of the shares are owned by the consortium that was formed to revive the sugar factory.
Resuscitating an abandoned factory that has lain idle for 15 years and reviving a degraded plantation was no mean task, but LOLC was fully prepared. In addition to refurbishing the plant, supporting infrastructure was urgently required, including converting irrigation, roads, drainage and restarting sugarcane plantations. The company had to earn the trust of the local farmers who had been left high and dry the last time around when the government closed down the factory, forcing them to turn to paddy cultivation and odd jobs to make a living. Today, the thriving sugar plantation employs about 1,300 direct employees across 8,500 Ha of agri lands. About 8000 farmers are engaged in sugarcane cultivation and over 20,000 people gain indirect employment from this project. Gal Oya Plantations not only revived the plantation and generated employment for thousands but it also made it a profitable entity.
It was only LOLC’s passion to revive a national asset that kept them committed to this mammoth task. Since the factory is over 60 years old, its equipment needed improvement to drive higher efficiency and productivity and for extending the life of the plant. Moreover, skilled labour was a scarce commodity and had to be sourced from across the country. Overcoming all these seemingly insurmountable obstacles, Gal Oya has gained the reputation of being a giant in sugar production in the country, and a role-model of a successful PPP and professionally managed entity.
Sourcing the funding for the project itself was an epic undertaking as the government did not channel any investment in the factory revival project, except for its equity asset of LKR 516 million, which could not be given as security. Hence, funds could not be borrowed against it. Notwithstanding this road block, LOLC invested Private Equity amounting to LKR 495 million into the project, along with taking commercial loans.
Productivity has skyrocketed as a result of improved machinery and agricultural practices. Some 374,000 metric tons of sugarcane was used for production last year and the quantity 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 factory also produces 6.7 million litres of ENA (Extra Neutral Alcohol) from molasses, a byproduct of sugar production. This is the highest in the history of Hingurana since 1960. The distillery complex at Hingurana is designed to produce 21,500 litres of ENA/day.
Committed to making this project a role-model for PPPs in Sri Lanka, Gal Oya embedded sustainable systems and processes. The factory is currently in the process of expanding its power generation capacity up to 10 MW by investing in a modernized power plant with improvements to the existing sugar factory. Moreover, the required organic fertilizer for sugar cane cultivation is manufactured by utilizing 100% of factory waste of the Company. Achieving an annual production of 7500 MT organic fertilizer, the company is now engaged in producing liquid organic fertilizer and bio fertilizer.
The significance of a professionally managed, high returns project such as Gal Oya is boosting the grassroots and firing up the engine of the economy. In fact, in the next five-year plan for Gal Oya, the development of an area of 10,500 Ha is earmarked for sugarcane cultivation, which should result in a 1 Mn MT worth of cane supply. A further investment in factory expansion to 4000TCD is scheduled with an investment of US$25 to US$30 million.
It is pertinent to note that the economic benefits that emanate from the profit making status of Gal Oya. Producing 75,000 MT of sugar results in import substitution of US$ 35 million per annum and contributes 12% -15% of country’s requirement ONLY from Gal Oya. This foreign exchange saving in turn helps to enhance foreign exchange reserves in the country during the current economic crisis. In addition, production of 14 million liters of ENA results in import substitution of US$ 14 million per annum and further assists self-sufficiency in ENA.
The benefits flowing to the people in the community from Gal Oya are undeniable and it is imperative that the sugar factory continue smooth operations to enhance food security whilst also providing direct and indirect employment to keep home fires burning. At a time when the government is being asked to reverse the years of losses made by state enterprises in order to meet the requirements to be eligible for global funding, a profitable project like Gal Oya should be a shining example for more such PPPs - bringing the best of Sri Lanka together to serve the nation.