Sri Lanka’s state-run Pelwatte Sugar Factory is facing a critical operational and financial crisis, with nearly 17,000 metric tonnes of unsold brown sugar piling up in its warehouses and the next sugarcane harvest looming.
Lanka Sugar Company COO Nuwan Dharmaratne warns that without clearing the current sugar stock, the factory cannot process the upcoming harvest. “We’re struggling with an overdraft of Rs. 11.2 million and unpaid statutory dues of Rs. 30 million,” he said. The company’s cash flow has also been hit hard by falling ethanol prices and unsold molasses.
At the heart of the crisis is a discriminatory tax policy. Locally produced brown sugar is subject to an 18% VAT, making it up to Rs. 150 more expensive per kilogram than imported white sugar, which is tax-exempt. “We sell at Rs. 250, but it retails over Rs. 400, while imported white sugar is under Rs. 300,” Dharmaratne explained. “Consumers go by price, not health benefits.”
In a desperate move to pay May salaries and settle dues to farmers, management reportedly sold 500 metric tonnes of sugar at Rs. 199 per kilogram—well below the Rs. 283 production cost—resulting in a Rs. 42 million loss. Workers allege the sale was a financial misstep, though company Chairperson Sandamali Chandrasekara denies it was made at a loss.
The company had requested a Rs. 5 billion bailout loan from the Treasury, which was rejected. With monthly operational costs close to Rs. 1 billion—including wages for 3,900 employees—the company’s future hangs in the balance.
Sri Lanka imports over 600,000 metric tonnes of sugar annually, with local producers like Pelwatte accounting for just 40,000 metric tonnes. However, these producers face an uneven playing field and lack state protection, making competition with cheap imports unsustainable.
Government efforts to support local sugar through retail networks like Sathosa have shown little impact. Further complicating matters, the government is now considering converting around 15,000 hectares of land owned by Pelwatte and Sevanagala factories into tourism zones under a Public-Private Partnership model.
Industry Minister Sunil Handunnetti claims the PPP move will cut brown sugar production costs and attract investment, promising no layoffs.
But Dharmaratne insists that without urgent policy changes—especially scrapping the VAT on brown sugar and controlling sugar imports—the factory may not survive. “We’ve appealed to the government multiple times, but there’s been no action,” he said.
With the crushing season fast approaching, industry experts warn that Sri Lanka’s domestic sugar production may face collapse unless immediate reforms are made. The future of one of the country’s few local sugar producers now hangs by a thread.
