Govt. agencies grind $100 m Kantale sugar venture bitter

By Chathuri Dissanayake 

The $ 100 million Kantale Sugar joint venture has become a sticky deal for the new investors as bureaucratic red tape and a tug of war between Government agencies continues to add to an almost two-year-long holdup of the project despite a directive by the Cabinet Committee on Economic Management (CCEM) to hand over the premises.

“There is an unnecessary delay in handing over the lands to the company. The investors are aware of it and they are not happy. If this drags on they will have to evaluate options,” SLI Development Managing Director based in Sri Lanka, K.P. Nagarajah, told Daily FT yesterday.  

SLI Development is the SPV formed with Singaporean, Indian and UK-based investors to channel investments to the country. 

Seven months after finalising the Shareholder Agreement (SA), the Land Ministry has failed to hand over 20,000 acres of land allocated to M.G. Sugar Lanka Ltd, the joint venture formed with 51% of Government share ownership. SLI Development signed the investment agreement with the Board of Investment in July 2015. 

The 20,000 hectares of land is to be given to farmers in the area under a tripartite agreement between M.G Sugar, the Government and the farmers for sugarcane cultivation. The land also holds a few buildings and warehouses along with the machinery belonging to the now defunct Kantale sugar factory.

The Singaporean party signed the agreement to invest $ 100 million in the venture but has drawn up business plans to up the investment to $ 260 million, Nagarajah claimed.

“We never expected the delay, if we are to ensure the venture is profit-making then we need to have a factory producing 5,000 tonnes of cane per day (TCD). So the initial business plan is to ensure this capacity, with plans later to increase it to 10,000 TCD,” he explained, adding that they had already retained a leading consultant for sugar plantations, Bosch Projects South Africa, to develop the plantation. The company has already incurred $ 10 million including training of manpower and vendors. SLI Development also says it is unable to release $ 10 million held in a bank bond kept for the purpose of the investment.

However, the holdup in handing over the lands to the company is delaying the entire process. The Attorney General (AG) giving an opinion after both the Land Ministry and Finance Ministry sought clarification on the process to be followed to hand over the land and buildings including machinery states that the “most prudent course of action to avoid any impediment to the implementation of the project is to modify clause 7.9 of the shareholders agreement  suitably or to obtain a written undertaking from the investor…to ensure that the proceeds of the sale of any of the machinery or building should be retained in the Joint Venture Company and not appropriated by the investor.”

Following the opinion given by the AG, the CCEM on 10 February informed the Land Ministry that the “BOI was instructed to complete the handing over of lands and report to the CCEM in two weeks.”  However, the BOI is unable to proceed without the ministry releasing the land, BOI Chairman Upul Jayasuriya told Daily FT.

 Despite SLI Development giving an undertaking in writing as outlined by the AG, stating that any “proceeds of sale/disposal or any building or machinery will stand retained/credited to the company”, waiving any claim for the money, a tussle between the two ministries and the BOI has resulted in a stalemate.

Land Ministry Secretary Dr. I.H.K. Mahanama insisted that further clarification was needed before the assets were handed over to the company.

“The AG gives several options. One option is for the joint venture to sell the machinery and retain the money. However, as 49% of the shares are owned by the investors the Government will only get 51% of the sale returns,” Dr. Mahanama claimed.

The Lands Ministry Secretary has written to the Finance Ministry a second time seeking clarification on the matter. Dr. Mahanama also claimed that the CCEM was to take up the issue during this week’s meeting, but that point was disputed by other stakeholders.

The BOI also accused ministry officials of attempts to avoid the issue, claiming they have refused to participate in a meeting with the agency to discuss the matter.