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RPCs restored and revived government-subsidized plantation industry

2018-01-17 12:28:00
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We refer to the article that appeared in Mirror Business under ‘Performance of RPCs: Facts or Fiction’ by Lalin I. De Silva.


In 2017, Sri Lanka officially celebrated ‘150 years of Ceylon Tea’ and this also coincided with 25 years of the privatization of estates since 1992. In the din, the noise and fury of all the activities and celebrations, many forgot the compelling reasons as to why the estates were privatized, to begin with. Instead of commendations on the role and achievements of the regional plantation companies (RPCs), we see condemnation by a few.


Over the last year, we have been treated to many lopsided commentaries on the media regarding the RPCs by a few people who have failed to differentiate the good from the bad. Reading through these, we see a state of ignorance and anomie that has gripped such commentators who write so blithely about the issues that confront the plantation industry. 


It is also apparent that sometimes there are obvious undercurrents of envy and caprice along with illogical sentiment or uninformed prejudice. Some facts are selectively picked up for judgement and ignoring the related details, a single fact is exaggerated and distorted till it becomes unrecognizable. From it, a thousand wild and intemperate conclusions are drawn and circulated as the holy writ.
A ‘butcher and bolt’ policy has become the norm in these commentaries and we cannot regularly respond to such arcane and effusively condescending conclusions. When a man with a hammer tells you that everything looks like a nail, one should seriously doubt his objectivity.


The article by L.I. De Silva has called for a commission to look into the “RPC contributions”. The article talks of a proposal to generate US $ 10 billion within a “short period of time” and says he has disclosed a plan to do this. The current annual revenue from the plantations is around US $ 1.5 billion. Our question is as to why they did not generate this revenue themselves when they had all the opportunity and the authority to do so, at the time they were 
managing plantations. 


They should take over one plantation and demonstrate how this can be achieved in that place. A better option will be to take over the state-managed plantations and deliver what they preach, as a demonstration model for everyone else to follow. So, our challenge is for him to practice before preaching, action before advice, doing before talking and example before criticism and above all, achievement before condemnation. 


Churchill famously said, “Any fool can make plans for winning a war, as long as he has no responsibility for executing those plans or carrying them out.” It was the respected economist, John Kenneth Galbraith, who wisely said, “Farmers rightly sense in the counsel of any man who does not have to live by the results and the consequences of 
such counsel.”  


We were indeed pleased that the government in 2017 had assessed the RPCs with the aid of the leading audit firms in the country. It should be a wholly welcome opportunity for the 400 RPC estates to be compared and benchmarked with the 36 non-RPC-managed estates, as both sets of estates operate in our country under similar conditions, from the cultivation of crops to the sale of its produce at the same auction.


The RPCs need to be compared to such similar estates in the same industry to assess the effectiveness; like apples to apples. Irrefutable evidence shows that RPCs have managed the estates well, given the prevailing situation and circumstances. Some of the few who regularly run down RPCs for reasons well known to everyone in the industry are surely afflicted with the infatuation of being unduly deflected by the facts on the ground as they consistently assess the situation in terms of their own preconceived notions while blissfully ignoring or rejecting any contrary signs and facts. 


Any layman can decide whether the Sri Lanka government and the people of Sri Lanka benefited from the privatization of estates under RPC management when the performance of the pre and post-privatization results is compared. Already many commissions have gone into plantations performance before and after privatization and a brief summary of their content is 
given below.

 


Reasons for privatization
According to the Plantation Industries State Ministry, “In the late 1980s, the two corporations continued to make heavy losses and except for a few profitable years, the management under JEDB and SLSPC put a burden on the government in the face of mounting losses and constraints faced by the government continuing to fund such losses through the national budget.” 


The 10-member Neville Piyadigama Committee appointed by the cabinet in 2008 also confirms, “The two corporations performed poorly throughout most of their existence and relied heavily on government assistance to off-set mounting operational losses, which had increased to about Rs.1.5 billion per annum for both corporations by 1992.” (Equal to Rs.13 billion in 
today’s terms)


The Treasury had to subsidize Rs.400 million every month for the government plantations for their operational activities. A further Rs.5 billion subsidy was granted annually by the Treasury and a Rs.4 billion in debt was converted to equity by 1992 but a final debt of Rs.3.3 billion was accrued by the time the estates managed by the Janatha Estates Development Board (JEDB) and Sri Lanka State Plantations Corporation (SLSPC) were converted into 23 RPCs under the Companies Act No. 17, of 1992.


“From 1980 to 1990, under state management, the cost of production (COP) exceeded the sale average (NSA) seven out of the 11 years,” according to the Report of the Presidential Commission on the Tea Industry headed by Dr. J.B. Kelegama. 


Sri Lanka Tea Board Chairman Dr. Rohan Pethiyagoda recently publicly stated, “The government tried to run all the land and we had JEDB and SPC and they ran the plantations to the ground. For 20 years this attrition went on until you, the RPCs came along, finding the plantations in billions of rupees in debt. 


The government transferred that into equity and you have since then recovered this industry into a state where it is once more making profits. You deserve a very hearty pat on the back and that is why I admire what the RPCs have done. The RPCs have however become a whipping boy for our politicians. You rarely hear a kind word said about you. 


My job doesn’t get me a bonus, so the members of the planting community; all I have for you is admiration. I don’t often say this and you know I’m a straight talker but you have my congratulations and my thanks. So, despite all these handicaps, despite being hobbled at every stage of your 20-year history as RPCs, you’ve done a fantastic job to bring the industry to where it is today and for that you deserve the nation’s gratitude and my thanks, which 
you have.”


Furthermore, in recent articles, amongst many, Major Malcolm Peiris, Vernon Tissera and Jayantissa Ratwatte, all of whom are much-respected veteran planters and are household names in the plantation industry, have expressed similar sentiments and have stated, “Over the recent past, it has greatly saddened us to see uninformed, misleading and often illogical criticisms that are being levelled at the industry, particularly at the growers level.”


With malice to all and charity to none, this writer’s previous pieces of vindictive and jealousy laden plagiarized writing, where he has called all the CEOs of RPCs as “incompetent, revengeful, anti Sri Lankan, senseless, mentally insane, mediocre, rogues, having dangerous hidden agendas, little understanding, ulterior motives, idle, unfit, systematically killing the plantations and guilty of poor-quality decision-making” is totally uncalled for and perhaps a description of his associates. 


The writer’s past articles, where he has called all RPC CEOs insulting and derogatory names, is on the whole a perfidy unparalleled in the conduct of planters to slander people in public where they have little time or opportunity to defend themselves. We really do not know by what stretch of overblown imagination of his own competence and expertise that this writer can use such derogatory terms.
When his own track record of performance is examined, it does not manifest even a mite of what he loudly proclaims. Furthermore, what is most galling and utterly hilarious is the height of hypocrisy for the writer to lambast and continuously lecture the RPC CEOs when the writer himself was compelled to flit from one estate to another, in serving five different estates in five different RPCs in 13 years, after privatization, which is not at all indicative of any worthwhile performance.


The Planters’ Association and RPC CEOs maintained their silence against such arcane, vicious and malicious jealousy ridden attacks in the past. We can still hold our peace, ignoring the writing of this frustrated and confused writer, if we now did not  think that by holding our peace and by keeping silent in such a manner, whether some would think that we did submit to such vile and foul action. At this rate and the manner he writes with slander and outrageous accusations, no man’s reputation or life’s work is safe from such 
a snitch.   


Pride and honour, now demand that we expose the oft repeated, deliberate lies that this writer regularly regurgitates. It will be a gross dereliction of our duty to allow this to go unchallenged and it does irrevocable harm, injustice and nullifies to nothing the valiant effort and toil of   many committed and hardworking planters, staff and workers on 
the estates. 


We have repeatedly and publicly challenged this writer to state his views in person in our presence but he has always dodged such opportunities. For reasons well known to everyone in the industry, he has completely ignored the bumbling elephant in the room and not written one word about state-managed plantations, which operate the same business model, grow the same tea and sell at the same auction to the same buyers as the RPCs. Can he explain as to why he has not written a single line or article related to the condition and performance of the current 
state-managed estates?


We address the many false statements and canards the writer has repeated in newspapers so that the intelligent and discerning public can judge for themselves the veracity of the vile untruths the writer has promoted regularly. Although he claims the RPC CEOs are killing the industry, on the contrary, it was the RPCs that actually restored the industry from 1992. 


Winston Churchill said, “Facts are incontrovertible, panic may resent it, ignorance may deride it, malice may destroy it; but there it is. You cannot take sides against arithmetic.”

 


Privatization and RPCs: The facts
Before the privatization of estates in 1992, the operational losses alone of the state-managed plantations were Rs.1.5 billion per annum (Rs.13 billion in today’s terms) and the treasury had to subsidize the plantations with an additional Rs.5 billion per annum. Since privatization in 1992, instead of draining money from the Sri Lankan government, the RPCs have managed their industry without being a burden to the state and had relieved them of a huge financial burden.


The RPCs in addition, paid out Rs.7 billion as dividends to the Sri Lankan shareholding public and Rs.7 billion as government lease rental payments and a further Rs.1.5 billion as income tax payment, since privatization, which were non-existent before and are all net gains to the state. 
The RPCs also have invested Rs.55 billion in the plantations so far. Instead of being a troublesome industry to the Sri Lankan economy and its people, the RPCs have managed their industry very well without being a burden to the government, quite unlike the state-managed estates.

 


State-managed estates: The facts
The 36 state-managed estates could not even honour their statutory and legal obligations of the Employees’ Provident Fund (EPF), Employees’ Trust Fund (ETF) and Gratuity to their workers and the arrears were over Rs.3 billion by 2016. Even the Planters’ Provident Fund Contributions (CPPS) have not been paid up and the organisations have been reported to the Labour Department.  
However, the state-managed estates, which get the best of government largesse and brains, are not burdened with government taxes, levies and lease rentals as the RPCs are compelled to pay. Instead of maliciously condemning the RPCs, surely the writer should take up such important and critical matters that affect the lives of planters in those organisations. During the crisis brought about by low prices last year, the RPCs managed their affairs on their own without getting any government handouts or largesse.


In contrast, the government had to step in and pay an assured green leaf price of Rs.80 per kilo only to the much-vaunted tea smallholders, in addition to giving them fertilizer and other generous subsidies, in order  to keep them from going under completely.

 


Performance
It was reported that the yield per hectare (YPH) in the JEDB has come down to 358 kilogrammes YPH in 2016, from the 1093 kilogrammes in 2000. Compared to 1992, the crops for the JEDB and SLSPC have dropped to 68 percent by 2013, whereas the RPCs have increased theirs to 130 percent. The profit per kilogramme for RPCs was Rs.7.20, while the JEDB made a loss of Rs.96.92, the SLSPC Rs.59.76 loss and Elkaduwa Rs.126.87 loss per kilogramme, according to the Plantations Ministry Statistical Book. 


In 2013, the JEDB made a loss of Rs.104/44 per kilogramme, the SLSPC Rs.124.42 per kilogramme, while the RPCs loss was only Rs.7/33. However, from 1992 onwards, the state-managed estates got the benefit of the best and brightest of government brains, all government and state support, political clout and the necessary dispensation that accompanied it. It is reported that the government has provided subsidies close to Rs.1.5 billion per year to the estates of the JEDB, SLSPC and Elkaduwa plantations.


In comparing the RPCs with the 36 non-RPC-managed estates for 2014, the RPCs bearing extent of tea from 1992 reduced to 82 percent by 2014 (from 84,778 ha to 69,737), workers reduced to 50 percent (327,123 workers to 163,068) but the total made tea production increased to 109 percent, (80.2 million kilogrammes in 1990 to 87.3) and the YPH increased by 32 percent (946 kilogrammes to 1248). 


Meanwhile, in non-privatized estates, tea crops declined to 75 percent. Their COP was Rs.479.34 against RPCs Rs.441.38. The NSA shown was Rs.295.99, against the RPC NSA of Rs.421.91. RPCs made Rs.19.74 loss per kilo in 2014, while non-privatized estates made a loss of Rs.183.35 per kilogramme, almost 10 times, according to the Plantation Industries Ministry Statistical Booklet 2014.  
The two non-privatized institutions show a to date loss of Rs.3.9 billion for 27 tea estates, whereas the total to date loss for over 400 RPC estates is only Rs.1.8 billion. Strangely, the writer, who has called himself a “watch dog” sometime back, has not even made a whimper but rails against the RPCs, which are totally bereft of any government benevolence 
and largesse.


Since privatization in 1992, the Treasury has not subsidized the RPCs but the state was compelled to pump in funds to state-managed estates to the tune of Rs.1.5 billion annually, just to keep them in operation.

 


Labour wages vs. GSA
During state management from 1980 to 1990, the daily wage of the workers increased only from Rs.11.63 to Rs.48.32, a fourfold increase. Under RPCs from 1992 to 2016, it increased to Rs.730, a 15-fold increase. Before the privatization of the estates, the daily labour wage was Rs.52 and this was only 71 percent of the value of a kilogramme of high grown tea. 


From 1980 to 1991, over the period, the average of this ratio was only 66 percent but after privatization for the period 1993 to 2016, it accelerated to 119 percent, almost double. Even at a low 66 percent ratio, the estates were making huge losses during state management. 


At end-2016, the RPCs paid a daily wage of Rs.730, which is 160 percent of the value of a kilogramme of high grown tea. One could imagine the scary scenario if this was the ratio during state management. If the writer’s vintage planters couldn’t manage at 66 percent of the ratio, what would have been the result at the 160 percent ratio?


Before privatization in 1992, the NSA was 164 percent of the value of daily labour wage but after privatization the NSA to labour wage ratio was only 88 percent on average, as a result of high wage increases given to workers. If extrapolated, the 2016 NSA should be over Rs.1020 but the actual high grown GSA was only Rs.450. Even when the GSA was as high as the 164 percent ratio, relative to the labour wages, state management made losses that led to privatization.


 (Roshan Rajadurai is Managing Director of Hayleys Plantations Sector (Kelani Valley Plantations PLC/Talawakelle Tea Estates PLC/Horana Plantations PLC) and also a former Chairman of Planters’ Association of Ceylon) 


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