Hingurana sugar factory revival begins to bear fruit

The revival of the Hingurana Sugar factory under Sri Lanka‘s first private partnership initiated during President Mahinda Rajapaksa’s regime in 2007 ending a 15 year closure has now been turned around to a profitable joint venture with efficient management.

Sugarcane farming has become the economic mainstay of villagers at present after a long time reawakening Galoya valley in Ampara with unprecedented development activities that has transformed the entire area into a commercial town with infrastructure development.

Gal-Oya Plantations was formed 11 years ago in 2009 as a joint venture between the Government and a consortium of private sector investors comprising Brown and Company PLC and Lanka ORIX Leasing Company PLC (LOLC).

51% of the ownership is with the Government and 49% of the shares are owned by the consortium formed to revive the former defunct Hingurana Sugar factory

It started commercial production in 2012 overcoming obstacles, a senior public official who is associated with the project from its inception, said.

As at 30th September 2014, Gal Oya Plantations (Pvt) Ltd has invested LKR 3.2 billion to resuscitate the sugar factory. The year’s turnover has risen to LKR 1.8 billion from the previous LKR 938 million in 2013/14.

However, according to a statement by the State Minister of Development of Minor Crops Janaka Wakkumbura, the factory coming under his purview, has massive debts amounting to LKR 11 billion.

But the actual position was that the joint venture has an accumulated debt of LKR 10 billion since inception and all development and new projects were funded fully with those borrowings as the government has not infused money or diluted its share, official documents showed.

Since funding was not enough and the project needed to move forward, the company was funded from loan facilities to manage working capital/capex requirements by the private shareholders at a commercial rate.

Earnings before interest, taxes, and amortisation (EBITA) of the joint venture has increased to LKR 2227.38 billion last year amidst obstacles faced due to the COVID-19 crisis from LKR 898.78 million in 2019, financial statement showed.

The net profit has also increased to LKR 510.52 million in 2020 from a net loss of LKR 1430.14 million in 2019.

But State Minister Janaka Wakkumbura has alleged that the company was making losses continuously during the past 13 years without considering the reasons and circumstances for such pitfalls.

The joint venture launched commercial production eight years ago and no one can expect any venture to make profits in the sugarcane industry when it was in the early stages of establishing the company, a financial analyst said.

316,000 metric tons of sugarcane was used for production last year, official data showed. The quantity of sugar produced from it was 20,000 metric tons. The target for this year is to produce 28,000 metric tons.

The factory also produces 6.5 million litres of ENA (Extra Neutral Alcohol) from molasses, a byproduct of sugar production. The distillery complex at Hingurana is designed to produce 21,500 litres of ENA/day.

The factory is currently in the process of expanding the power generation capacity up to 10 MW by investing in a modernised power plan with an investment of LKR 5 billion.

The project is expected to be completed by mid-2022 and it will be financed through a credit line from Power China and will be 100% covered by a corporate guarantee of LOLC.