Opinion: A response to article “Pulling back the curtain on privatization of plantation sector”

By Devaka Wickramasuriya

I have read with much interest the recent article where Dr. Romesh Bandaranaike has shared his “unique perspective” of Sri Lanka’s plantations.

At the outset, I totally disagree with Dr. Bandaranaike’s contention that privatization was necessary as the plantations were the biggest source of political patronage in the country. While some political interference did exist, this was not of any magnitude whereby the administration and or management of the plantations were seriously affected or virtually paralyzed as insinuated!

Dr. Bandaranaike appears to have conveniently forgotten that during the period His Excellency J. R. Jayawardena was President of Sri Lanka, the Sri Lanka State Plantations Corporation (SLSPC) and the Janatha Estates Development Board (JEDB) were directly under his purview and thereafter, under the purview of gentlemen of the caliber of Mr. Gamini Dissanayake and General Ranjan Wijeratne who were the Ministers of Plantation Industries. It would be obvious to all that none of these gentlemen would have permitted undue political influence, which would have affected the administration and or management of the plantations, to have been prevalent.

Dr. Bandaranaike appears to be ignorant of the situation that affected the industry as well as the country at that time. Up to around 1986, the two organizations fared well but since 1986 were affected by a severe decline in world market prices.  To add to these woes, plantations were probably the worst affected with the insurrection in the country following the signing of the Indo-Sri Lanka Peace Accord in 1987.  Numerous factories were burnt, many planters, estate staff, and workers were brutally murdered for no other reason other than refusing to accede to the demands of the insurgents; yet they steadfastly continued to perform their duties amidst all odds and safeguarded the assets of estates which were in their custody.  The armed insurrection also resulted in the stoppage of work on estates for extended periods of time – on occasions, even up to 3 months, with workers returning for work only after they were provided the necessary protection to do so.

The problems detailed in the preceding paragraph naturally resulted in a serious drop in revenue to both the SLSPC and JEDB.  However, both the SLSPC & JEDB rose magnificently to the occasion and, despite their revenues dropping drastically, continued to pay the staff and workers, even though at times no work was performed by them, purely to ensure their existence as well as continued to supply them with basic foodstuffs which were in very short supply in the plantation districts.  The situation that existed was so serious that there was an instance that cash for workers’ wages for estates in the Badulla District had to be airlifted to Badulla as all Banks in the Uva District were not functioning. It must be re-iterated that hardly any planters, estate staff or workers abandoned post but continued to perform their duties to the best of their ability, despite their lives being continually in danger due to the volatile situation that prevailed.  It was this dedication displayed by the planters, estate staff and workers that ensured an industry was yet in existence at the end of the insurrection.  Many of those who resided in the comparative safety of cities, such as Dr. Bandaranaike, may not have been aware or probably were not interested in what the planters, estate staff, and workers were harrowingly subjected to during this period.

This volatile situation continued till early 1990 after which began a time of rebuilding the morale of the planters, staff and workers, reconstruction of the buildings destroyed and the resumption of the agricultural practices/development which had been severely disrupted. It would be necessary to emphasize that all of this could not be done overnight and took around 12 months to complete.

Around this time rumors of privatization were in the air, and I quote below an extract of the speech made by the then Minister of Plantation Industries, Mr. Ranjan Wijeratne, as Chief Guest at the 54th Annual General Meeting of the Ceylon Planters Society in September 1990, where he refuted the rumors of privatization;

We don’t have management skills in Colombo to manage the plantations anymore. They have to be built up from grassroots.  I am not prepared to hand over the plantations to Whittalls, George Steuarts, Carsons and so forth.  They are all dead ducks now. So we have to create new ducks and I have given the opportunity to a set of Regional Board Directors to prove their mettle.  After three years we will make an assessment of their work and if it is possible for us to rely on them as private sector managers, then management will be privatized and given to you all and not outsiders.  We don’t require foreigners, expatriates to come and manage our plantations. It is a disgrace. It is we who went to Indonesia and resurrected the Indonesian plantations. There is no need to bring foreigners here.  I was told that foreign elements were waiting to barge into the plantations to manage them.  Never will I allow them to come this way. We have the skills here and we shall throw up the real leaders to be the private sector managers of the plantations.”

Therefore, based on Mr. Wijeratne’s views, which he expressed as the Minister of Plantation Industries, it is evident that he was not in agreement with plantations being privatized!

It would also be necessary to state that the Chairman and Directors of the SLSPC and JEDB Central and Regional Boards were planters who had worked on private sector managed plantations prior to nationalization in 1975 and were appointed to these posts purely on their ability and dedication as planters. Therefore, it would be evident that the Ministers in charge of the SLSPC and JEDB as well the Chairmen & Directors of the Central & Regional Boards of the organizations were highly respected and dedicated personalities who successfully resisted all attempts of excessive political interference.  If Dr. Bandaranaike disagrees with my contention, I hope he will name those who, in his opinion, was not suitable to hold the posts they held.

Unfortunately, Mr. Ranjan Wijeratne was assassinated on 02nd March 1991 and once again the rumors of privatization of plantations became rampant, with privatization eventually becoming a reality in June 1992.

The main reason for privatization of plantations, as stated by the government of the day, was to relieve themselves of the burden of managing the massive industry (they were the single largest plantation owner and manager in the world) as well as to re-introduce “private sector management styles and dynamism”, which were prevalent and were extremely successful in the pre-nationalization era, back to the plantation industry. Therefore, Dr. Bandaranaike’s contention that the Management was not allowed to operate freely and were often forced to hire political appointees, transfers, and disciplinary actions were also frequently interrupted resulting in that even when people were caught being crooked, they were still retained and also that numerous individuals with influence were attempting to profit off these plantations, and encroachments on these lands were becoming the norm,” are baseless, distorted  and in any event furthest from the truth!  Further, with the Government, consisting of the very same politicians whom Dr. Bandaranaike refers to as those who were subjecting the plantations to much political interference and were attempting to profit off these plantations, I doubt these politicians would have agreed to the privatization of plantations, if there was even the slightest iota of truth in what Dr. Bandaranaike has stated!  In fact, what Dr. Bandaranaike has stated is indeed an insult to all those – Ministers, Chairmen, Directors, Planters, Estate Staff, and Workers – who served the industry at that time, which they did with dedication and much personal sacrifice to life and limb.

I can state with conviction that plantations in the country were in excellent condition with much-needed development such as replanting, infilling of vacancies, factory modernization being done. Therefore, the plantations that were subjected to privatization were in excellent condition and probably needed only minor “fine-tuning” necessary to make them extremely profitable ventures.

Despite this being the case, bureaucracy prevailed and the privatization of plantations proceeded as planned. The Plantations Restructuring Unit (PRU) was established, to handle all matters on the privatization of plantations, with Dr. Bandaranaike as its Chief Executive Officer and “public face” in the whole exercise.

The PRU initially created 22 Regional Plantation Companies (RPCs) consisting of estates of the SLSPC and JEDB.  Some estates, of the SLSPC in the Kandy / Matale District and the JEDB in the Kandy District, were excluded as these estates, which had previously been managed by the Usawasama and other Co-operative Societies, were not considered suitable for privatization and remained with the SLSPC and JEDB.

Interested Companies were requested to forward their expressions of interest to manage these RPCs, initially for a period of five (05) years, and in June 1992, the PRU selected 22 Companies, from amongst those who had responded, to which the RPCs were handed over.

John Keells Limited, a leading corporate conglomerate in Sri Lanka too had expressed their interest to manage RPCs.  In fact, the interest John Keells had in the management of plantations was so great, that one year prior to the actual privatization taking place, they recruited a very senior, respected, efficient and dedicated planter, who was Chairman of a Regional Board of the JEDB, to set up their plantations division.  Despite all this, John Keells was rejected – for no conceivable reason.  I hope Dr. Romesh Dias Bandaranaike, who headed the PRU at that time, can enlighten us on how this catastrophe occurred and whether it was politically motivated.

In July 1993, the PRU created a 23rd RPC.  This RPC comprised of 09 estates of the SLSPC in the Matale Region which had been found unsuitable for privatization just one year earlier in June 1992.  Two divisions of Kallebokke Estate, an estate not included in the 23rd RPC, consisting of mature Eucalyptus timber valued at over Rs 10 billion, were divested from Kallebokke Estate and included in this 23rd RPC!  The management of this RPC was handed over to a subsidiary of the Metropolitan Group for a period of five (05) years, without following the procedure adopted previously in selecting Managing Agents.  It is hoped that Dr. Romesh Dias Bandaranayke will enlighten all on the necessity to create this 23rd RPC especially when its estates were considered not suitable to be included in any RPC one year earlier, why the very valuable eucalyptus extents were divested from Kallebokke Estate and included with this RPC and why a Managing Agent was chosen without adhering to the procedure followed earlier in the selection of Managing Agents.

The land on the RPCs continued to be owned by the SLSPC and JEDB which would be evident in that the Indentures of Lease signed with the RPCs were signed on behalf of the SLSPC and JEDB by Directors of the respective organizations.

It would also be interesting to know, whether the Boards of the SLSPC and JEDB had in fact resolved that their Directors sign such Indentures of Lease on the conditions stipulated in such Indentures of Lease as the concessionary conditions provided to RPCs in the Indentures of Lease were not available to the SLSPC and JEDB (the owners of the estates) prior to or even after privatization!  In fact, if such concessions were available to the SLSPC and JEDB prior to privatization, there would have been no necessity for the organizations to obtain any financial support from the Treasury, which was another reason given by Dr. Bandaranaike as to why privatization was necessary!

In 1995, three years after the management of plantations had been privatized, Managing Agents who had run the RPCs assigned to them profitably were given the option of purchasing a 51 % stake – amounting to 10,200,000 shares – at the par value of Rs 10/-.  No investigation whatsoever was done by the PRU – headed by Dr. Romesh Dias Bandaranaike – as to whether the profit declared by these RPCs had been derived through the reduction of inputs, stripping of assets or any other extraordinary circumstances that resulted in such profits.

Be that as it may, if my memory is correct, seven (07) RPCs were identified as “profit makers” and 51 % of the shares of these RPCs, amounting to 10,200,000 shares, were offered to the Managing Agents at the par value of Rs 10/- per share.  The income the GOSL derived on this sale was Rs 714 million.

The first two “profit-making” RPCs in which a controlling interest was sold to the Managing Agents were Bogowantalawa Plantations Limited whose Managing Agents was a subsidiary of the Metropolitan Group and Kotagala Plantations Limited whose Managing Agents were a subsidiary of George Steuart’s.

George Steuart’s having purchased the controlling interest of Kotagala Plantations for a mere Rs 102 million, sold, virtually overnight, its entire shareholding in Kotagala Plantations to a Malaysian investor, at a profit reported being around Rs. 90 million.   Dr. Bandaranaike would be aware of the exact amount for which Kotagala Plantations was sold the Malaysian investor.

It is also surprising, or should I say shocking, that the share and debenture certificates on the sale of the controlling stake of Kotagala Plantations, which should have been handed over to George Steuart’s, were handed over personally by Dr. Romesh Dias Bandaranaike to a Ms. Mary Ong, supposedly the wife of the Malaysian investor, apparently on the request of representatives of George Steuarts who had been present at the “ceremony”.  It is also a matter for much concern that Dr. Bandaranaike, with the intelligence that he possesses, did not realize that things did not seem to be right when he was requested to hand over the certificates by the representatives of George Steuarts to an unknown entity such as Ms. Ong when in fact he should have handed them over to George Steuart’s who had made the required payments!!  The “ceremony” had been photographed and a photograph of Dr. Bandaranaike handing over the certificates to Ms. Mary Ong even appeared in the press!

It is also pertinent to state that Mr. Scott Direckze when interviewed on George Steuart’s re-sale of Kotagala Plantations, his response had been:

We had long-standing liabilities which we were able to settle with these funds. When the government nationalized plantations we lost 90 percent of our business and we had a very difficult time after this. We received no compensation at the time. Recently we also suffered due to the Central Bank bomb. We were not insured against terrorist acts. We were also not covered against consequential loss.”

Therefore, while it would be obvious that Kotagala Plantations was sold at a price much lesser than it was worth, with Mr. Scott Direckze’s response above, indicating the poor financial state of George Steuart’s, leaves one to wonder whether George Steuart’s should have even been considered suitable to be awarded a management contract to manage an RPC!

Confirmation of all that stated above is available in the article headed “Kotagala Capers” published in the Sunday Times of 16th June 1996 available on the link given below, commencing with the article “Ong issue: a simple explanation had I been asked – Romesh hits out” and the further information available by “clicking” on “Continue to the News/Comments Page 2” which appears at the bottom left corner of the first page – http://www.sundaytimes.lk/960616/newsm.html.

The shares of Kotagala Plantations purchased by the Malaysian investor were subsequently resold to Lankem Ceylon, again at a profit of some Rs. 100 million.  Based on these sales, it would be evident that the correct value of Kotagala Plantations was around Rs 292,000,000, which was the price paid by the eventual purchaser, Lankem.

The “non-profit making” RPCs were not offered to the Managing Agents on concessionary terms as in the case of the “profit-making” RPCs and their shares were offered for sale on the Colombo Stock Exchange realizing an average of around Rs 35/- per share.

All this will indicate that the PRU, headed by Dr. Romesh Dias Bandaranaike, having sold the seven (07) “profit-making” RPCs for a total price of Rs 714 million (based on Rs 10/- per share) caused a massive loss to the Government of Sri Lanka (GOSL), as based on the price for which Kotagala Plantations was eventually sold to Lankem and the average price per share realized for the “non profit-making” RPCs with their sale on the Colombo Stock Exchange, the shares in the “profit-making RPCs” would also have attracted at least Rs 35/- per share.  Based on this, the resultant loss to the GOSL would amount to approximately Rs 1.8 billion!

The RPCs were handed over to the Lessee’s “debt free” and the Indentures of Lease signed between the SLSPC / JEDB and the Lessee’s/RPCs, gave concessions to them, never heard of in any privatization venture, two of which are;

  1. The Lessee was entitled to sub-lease, ceding, assigning or mortgaging in part or in whole its rights of the estate/s and using the “demised premises” as a freehold owner would be entitled to use provided that all reasonable precautions were taken by the Lessee to protect the rights and interests of the Lessor.
  2. The ability of the Lessee to create any charge, mortgage including pledge, lien, hypothecation over the Lessee’s rights for the purpose of obtaining financial accommodation from any financial institution.

Based on the concessions above, it is surprising that the PRU, headed by Dr. Bandaranaike, who was instrumental in drafting and finalizing the Indentures of Lease, appears to have completely overlooked the fact that all the assets of an RPC yet continued to be owned by the SLSPC or JEDB as well as that the concessions given to the RPCs were not available to the SLSPC and JEDB prior to or even after privatization! 

I also wish to refer to that stated by Dr. Romesh Dias Bandaranayake – “After some years of private management on a profit share basis without direct investment it became clear that the private sector needed to invest its own funds into the estates to get the best out of them.”

I am indeed surprised that Dr. Bandaranaike appears to be completely unaware of or chooses to be unaware that the private sector has NOT invested its own funds into the plantations.  In fact, all funds used in the management of estates were obtained by using the concessions available to the private managers in the Indentures of Lease and as per details in their last Annual Reports, are a staggering Rs 16.4 billion!

It would also be necessary to point out that some Lessees have borrowed funds pledging the assets of the RPC as security and invested these funds in ventures, at times even overseas, when the RPC itself was struggling for existence.  Most of these ventures have failed resulting in these “investments” being “written off” thereby resulting in the RPC having to bear the loss of these failed investments!

The Indentures of Lease between RPC and the SLSPC or JEDB, besides the unbelievable concessions given to the Lessee’s, also had no clear “standard” specified in them on how the RPC should be managed/maintained. This has resulted in vast extents of cultivated land being abandoned, replanting of tea having virtually come to a halt, no infilling of vacancies being done, soil conservation practices such as draining forgotten and other basic necessary agricultural practices such as forking and application of fertilizer not being done in some RPCs.  Further, the maintenance of assets such as factories, bungalows, other buildings, and vehicles are deplorable, here again in some RPCs.

I would also refer to the views of Mr. Nihal Sri Amarasekera contained in Pages 31 to 37 of his memorandum “Privatization of previously nationalized plantations” available on the link – https://books.google.lk/books?id=K_sirHKigdEC&pg=PA32&lpg=PA32. Mr. Amarasekera has not only confirmed that stated by me on the “profit-making” RPCs being given preferential treatment and the Kotagala deal but also stated numerous other irregularities that prevailed in the privatization of the plantations.

Dr. Romesh Dias Bandaranaike continued with the PRU and subsequently the Plantation Management Monitoring Division (PMMD) until 31st December 1995 when his contract expired and was not renewed by the then Minister of Plantation Industries, Mr. Ratnasiri Wickramanayake.

It is ironical that Dr. Romesh Dias Bandaranaike was thereafter employed by the Metropolitan Group, initially as Chief Executive Officer of their Hydro Power subsidiary – Eco Power (Pvt) Limited –  and also as a Director of Metropolitan Resource Holdings (the owning company of Bogowantalawa Plantations) as well as Bogowantalawa Plantations until April 2010.  Confirmation of Dr. Bandaranaike having served as a Director of Metropolitan Resource Holdings and Bogowantalawa Plantations is available on the link – http://www.island.lk/2010/05/02/business7.html.

From that stated previously it would be evident that the Metropolitan Group was afforded preferential treatment in being awarded the management contract of the 23rd RPC created in July 1993 to which the very valuable timber extents of Kallebokke Estate had been included as well as the RPC they were awarded the management of in June 1992 – Bogowantalawa Plantations – being among the first RPCs in which the controlling interest was sold on preferential terms.

Therefore, with such preferential treatment extended to the Metropolitan Group by the PRU, of which Dr. Romesh Dias Bandaranaike was Chief Executive Officer, one wonders whether Dr. Bandaranaike taking up employment with the Metropolitan Group was ethical!!  Further, this could also lead to insinuations in the light of the preferential treatment given by the PRU to the Metropolitan Group!!

Despite the many flaws that existed in the process of privatization of plantations, as detailed above and for which Dr. Romesh Dias Bandaranayake, as Chief Executive Officer of the PRU, would be responsible, he is today a member of the “Plantations Reforms Committee”, established by the present Government to identify the shortcomings prevalent in the management of RPCs!!!  Though this Committee had arranged for both an Agricultural Audit to be done on some estates of each RPC and a Financial Audit done on each RPC itself, the reports of these audits have yet to be publicized. While it is strange that these reports not being made public as yet, I will not be surprised if the delays are due to irregularities on the part of some RPCs being highlighted in these reports. It is hoped that at least Dr. Bandaranaike, who is bound to have copies of these reports, makes them public so that all would be aware of their contents.

With the exercise of privatization of plantations leaving much to be desired and even resulting in a loss of revenue to the state amounting to a staggering Rs 1.4 billion by the arbitrary sale of the “profit-making” RPCs, it is hoped that, at least at this very late stage, a Presidential Commission of Inquiry is appointed to go into every aspect of the privatization of plantations and those found guilty of irresponsibility, abuse of authority, unethical or dubious behavior and dishonesty are suitably dealt with according to the laws of the land.

I would also wish to emphatically state that my desire is not to see the plantations brought back under state control but to ensure this industry, which is so essential for Sri Lanka, is placed in the hands of efficient private sector managers who will effectively manage and develop the industry to attain and even surpass its obvious potential so that both they and the country would benefit. This has in fact been successfully achieved by some Lessees of RPCs so far.

In conclusion, I wish to state that I considered this response necessary as the procedure adopted in the privatization of plantations, even resulting in a colossal loss of revenue to the GOSL, should not be allowed to be “swept under the carpet” and forgotten, slanted or mischievously misconstrued.

(The writer was a Planter and a Superintendent with the SLSPC in 1992 at the time of the initial stage of privatization. He was also at that time Deputy President of the Ceylon Planters Society and was actively involved in the identification and resolution of issues planters, of both the SLSPC and JEDB, could have faced after privatization. He also served as General Manager – Plantations of Carsons Agro Services Limited, a company that was selected to manage plantations in the 1st stage of privatization. His last post in the plantation industry was as Chairman of Elkaduwa Plantations Limited, a State-owned and managed Regional Plantation Company. He could be contacted on devakaw@sltnet.lk.)

Related: Pulling back the curtain on privatization of Sri Lanka’s plantation sector

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