The Hon. Sunil Handunnetti

¶ 01 Locally produced sugar was exempt from VAT until 1 January 2024. However, with effect from 1 January 2024, in order to increase tax revenue and improve VAT efficiency while maintaining more essential exemptions for low-income households, education, health, transport, etc., your Government’s earlier VAT exemptions were rationalized—from 137 principal items down to 95. When VAT exemptions were revised, from 1 January 2024, locally produced sugar became liable to VAT.

¶ 02 It is true VAT increases our production cost. But there is no sugar in the market at Rs. 175 per kg as you stated. When we assumed office, brown sugar was Rs. 360 per kg and white sugar was Rs. 220 per kg. Today white sugar remains Rs. 220, while we reduced brown sugar to Rs. 260 without reducing any farmer benefits. There were rumors of reducing the cane price by Rs. 10,000 per metric ton. We did not reduce a single rupee to farmers.

¶ 03 Regarding employees: during your Government and under Mr. Daya Gamage there were attempts to privatize. Employees were recruited under that period. There are 5,400 employees at Pelwatte and Sevanagala combined—contract, allowance-based, daily-paid and trainees. We have not removed anyone nor reduced any benefits. Recently we reduced the market price of brown sugar to Rs. 260. VAT removal alone will not solve the problem. Ethanol tax removal alone will not solve it either. There are many factors.

¶ 04 To protect local producers, we have formulated several measures and prepared an officials’ report to be submitted to the President. There is high international demand for our brown sugar as organic because we use very low fertilizer inputs and low ammonium content. We can earn substantial export revenue from brown sugar; discussions are underway with China, Iran and several African countries, and we have an export plan. Also, white sugar is being blended and brought as brown sugar; we have engaged a research institute and Customs to standardize and curb this practice.

¶ 05 Regarding ethanol: because more molasses feedstock shifted to grain-based ethanol production, molasses availability fell. Last year a litre of ethanol cost Rs. 1,500–1,700 to produce; now the market offers around Rs. 475. Distillers can use either molasses-based or grain-based ethanol; grain ethanol costs about Rs. 230 per litre, making spirits profitable for them. Therefore, we convened officials from Ethimale, Pelwatte and Sevanagala and decided that the three State-sector producers will supply ethanol to distilleries at a fixed price of Rs. 800 per litre. Otherwise we would be forced to cut farmer benefits or staff costs, which we will not do. You paid Rs. 5,000 per ton for cane in 2020, Rs. 5,550 in 2021, Rs. 7,850 in 2023; in 2024, Minister Janaka Wakkumbura increased it to Rs. 10,000. We cannot reduce that, nor our costs, nor remove employees. Hence, we fixed ethanol at Rs. 800 per litre.

¶ 06 Second, we must set a floor price for sugar. We have decided to sell brown sugar at Rs. 200 plus VAT (i.e., Rs. 236 minimum). Then sellers at Rs. 260–270 in the market face no issue. A trade mafia leaks internal information; the former COO Nuwan Dharmaratne leaked price committee data and posted on social media claiming Sevanagala had 17,200 MT unsold, which was untrue and disrupts the market. That quantity was the current production batch, not unsold stock; the 17,000 MT were at Pelwatte, not Sevanagala. We removed him and will recruit new officials.

¶ 07 We will not sell these factories. This concerns the livelihoods of 250,000. We accept they now operate at a loss, but we have a plan to make them profitable: exporting cane as sugar, and leveraging tourism potential at Gal Oya, Pelwatte and Sevanagala—located within reach of Ella and bordering Yala and Kataragama—with natural reservoirs, a helipad and a golf ground. There are also land title issues from past private operators which we are addressing.

¶ 08 Our aim is not to reduce a rupee from farmers, resolve employee issues, and provide sugar to consumers at a fair price.

¶ 09 We also provide significant community benefits: at Pelwatte there are 3,907 direct employees, 5,500 contributing families, 3,500 indirect workers—about 7,100 on site. We allocate Rs. 14.9 million for schools and preschools, Rs. 42 million annually for medical centres, Rs. 6.5 million for preschools, and Rs. 483 million annually to maintain 207 km of elephant fences—none of which sugar importers do. For Sevanagala, there are 1,332 direct and 1,680 indirect workers—3,922 families supported—with spending on children’s welfare, preschools, medical facilities and elephant fence protection.

¶ 10 Rest of the Answer tabled: 4. Yes. An officials’ committee has been appointed to examine the current problematic situation of the domestic sugar industry and submit observations and recommendations to be placed before Cabinet for further action after the report is received.

¶ 11 5. Alcohol made from grains like maize has a lower production cost than ethanol made as a by-product of sugar, reducing demand for molasses-based ethanol. An officials’ committee is examining issues and will report to Cabinet for further action.

¶ 12 6. Yes. An officials’ committee is examining the current problematic situation and will report to Cabinet for further action.