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By Ravi Ladduwahetty

Some management companies of the Regional Plantation Companies (RPCs) are charging exhorbitant management fees on an irrational basis which in most cases are being utilised by the management companies to fund the acquisition cost of these RPCs, the Executive Summary of an Asian Development Bank funded study on Plantations Development in its December 2001 report said.

This further exacerbates the precarious financial position that these companies are already in, the report said.

The report also recommends the setting up of a Plantation Fund, which it said, would roll over its functions into an existing Fund or Company.

The report which has been compiled by Agricultural Development Services (Pte) Ltd and Associated Management Services (Pte) Ltd, said that the primary objective of the compilation of the report has been to evaluate the debt bearing capacity of the 23 Regional Plantation Companies and to review the existing lending mechanism to ensure that the funds approved under the Plantation Development Project, reach the qualified RPCs. The report has also analysed the feasibility of setting up a Plantation Fund and how it fits the overall structure.

The report said that the funding provided by the Asian Development Bank played a catalytic role in not only providing long term funding of the sector but also generated the incremental credit appetite for the Participating Financial Institutions.

The volatility in world market prices for the main products and the heavy debt burdens have called into question the long term financial viability of several of these RPCs. This precarious financial situation is reflected in the weak financial indicators such as the Earnings Per Share (EPS), Return On Capital Employed (ROCE) and interest cover.

The volatility in the earnings which is a part of the commodity based structure, makes long term modelling difficult. However, as in the norm of Sri Lanka, Participatory Financial Institutions (PFIs) also seek collateral, provided there is some form of primary, secondary and tertiary mortgages over the RPCs lease rights. Though much reliance is put on this intangible asset, it is a comforting factor for the Participatory Financial Institutions (PFIs). It is in this background that we propose the setting up of a Plantations Fund, the report said.

The Private Sector Infrastructure Development Company Ltd. (PSIDC) has been in operation since 1995 and provides long term subordinated debt for private sector infrastructure projects. PSIDC obtains funding from the World Bank and KFW of Germany for its projects and it has the inhouse expertise for project evaluation monitoring. It seems to be the preferred choice for the Plantation Fund, the report said.

The Capital Investment requirements of the Regional Plantation Companies for the next six years for replanting and factory modernisation of tea and rubber has been estimated at Rs. 15,881 million.

This comprises Agalawatte Plantations - Rs. 1060 million, Balangoda - Rs. 710 million, Bogawanthalawa - Rs. 1023 million, Hapugastenne - Rs. 380 million, Horana - Rs. 371 million, Kahawatte - Rs. 1005 million, Kegalle - Rs. 482 million, Kelani Valley - Rs. 2299 million, Kotagala - Rs. 1288 million, Madulsima - Rs. 428 million, Malwatte Valley - Rs. 183 million, Maskeliya - Rs. 932 million, Namunukula - Rs. 979 million, Talawakelle - Rs. 661 million, Udapussellawa - Rs. 191 million, Watawala - Rs. 1303 million, Elpitiya - Rs. 536 million, Agarapatana - Rs. 745 million, Mathurata - Rs. 522 million and Pussellawa - Rs. 783 million.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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