Pelwatte sugar factory faces imminent shutdown

May 31, 20251 Mins read27

The state-owned Pelwatte Sugar Factory is teetering on the edge of collapse, burdened by a stockpile of over 16,500 metric tonnes of unsold brown sugar and a policy environment that is crippling domestic production.

According to Lanka Sugar Company’s Chief Operating Officer (COO) Nuwan Dharmaratne, the factory’s operations have ground to a near standstill due to excessive sugar imports and a contentious Value Added Tax (VAT) structure that favours imported sugar over locally produced varieties.

“The factory cannot store the upcoming harvest if we don’t clear this stock,” Mr. Dharmaratne told reporters, adding that the company is already struggling under an overdraft of Rs. 11.2 million and unpaid statutory dues amounting to Rs. 30 million.

The factory has seen a steep decline in ethanol prices despite clearing its ethanol inventory leading to eroding profitability. Meanwhile, stocks of molasses remain unsold, further tightening cash flows.

A key pain point is the 18 per cent VAT imposed on locally produced brown sugar, a levy not applicable to imported white sugar. The result is a sharp price disparity that has made local brown sugar significantly more expensive at retail outlets.

“We sell at Rs. 250, but it retails for over Rs. 400, while white sugar is available for less than Rs. 300,” Mr. Dharmaratne explained. “Consumers choose by price, not health benefits.”

Efforts by the government to ease the burden, such as distributing local sugar through cooperative outlets like Sathosa, have had minimal impact on producers, he noted.

Adding to the uncertainty, the government has announced plans to convert nearly 15,000 hectares of land currently used by the Pelwatte and Sevanagala sugar factories into tourism and investment zones under a Public-Private Partnership (PPP) model.

Industry Minister Sunil Handunnetti defended the move, saying it would reduce production costs and attract foreign investment. “Sugar production will continue alongside tourism,” the minister said, assuring that no jobs would be lost in the transition.

However, industry insiders remain sceptical. Mr. Dharmaratne warned that without swift intervention, particularly the removal of VAT on local brown sugar and a halt to unchecked imports, the factory may not remain viable.

“We need urgent policy reform and government support. Otherwise, this cornerstone of our local sugar industry could collapse, taking with it thousands of livelihoods,” he added.

(With inputs from Sunday Times)