Renegotiating Plantation Company Leases Mid-Tenure Could Impact FDI: Advocata Institute

Plans to prematurely renegotiate the lease agreements of Regional Plantation Companies (RPCs) set a dangerous precedent against security of tenure and risk discouraging foreign direct investment (FDI) into state-owned lands, the Advocata Institute warned.

This follows a statement made by President Anura Kumara Dissanayake, who announced that the government is reviewing existing RPC lease agreements, which are not due to expire until 2045, with plans to replace them with new agreements incorporating unspecified provisions on estate worker rights.

Advocata stressed that arbitrary or ad-hoc renegotiations undermine security of tenure and private sector confidence, dampening investment, both domestic and foreign, into Sri Lanka’s state-owned assets.

The institute noted that high-performing RPCs require, at minimum, a credible guarantee that their leases will be renewed beyond 2045. At present, many RPCs are withholding crucial capital investments, such as replanting and infilling, because they cannot break even on replanted land before current leases expire. As detailed in Advocata’s 2023 report, Market Competitiveness of the Tea Industry of Sri Lanka, authored by Dr Sudaraka Ariyaratne, this lack of tenure security gravely hinders the productivity of state-owned plantation lands, which represent a vital national asset.

To address this crisis, Advocata recommended three potential mechanisms. First, the government could provide a credible assurance on lease extensions for high-performing companies. Second, and more preferably, the state could establish a framework allowing the private sector to purchase state-owned plantation lands outright at the end of current lease terms. Third, if the government considers lease extension commitments premature, it could amend existing leases to include provisions compensating leaseholders for unutilised capital investments at the end of the tenure.

Furthermore, Advocata outlined two key policy reforms if the government intends to meaningfully improve the rights and welfare of estate workers.

First, the state should eliminate the attendance-based minimum wage model. This model creates a lose-lose dynamic by inflating production costs for RPCs while capping worker earnings and subjecting them to an abusive supervision structure. Instead, the sector should transition to a revenue-share model where workers receive a portion of auction earnings based on their yield. Operating in a dignified environment akin to smallholders, this model has been shown to increase total worker earnings while reducing unit production costs for RPCs.

Second, the government must accelerate the granting of freehold land titles to estate workers for their current residential housing, which remains state-owned. While initial freehold titles were issued under the previous administration’s Urumaya programme, Advocata urged the current government to expedite these transfers through its Himikama initiative, enabling one of Sri Lanka’s most economically vulnerable communities to begin building generational wealth.

Advocata Institute is an independent think tank dedicated to promoting economic freedom to create prosperity for all Sri Lankans.