Kantale Sugar Factory to get new lease of life with US$ 300mn investment

• MG Sugars Lanka, a 51% govt. owned firm to make US$ 300mn investment
• Eyes production in July 2023, subject to signing of lease agreements this week

By Nishel Fernando
Backed by a US$ 300 million investment, sugar production at Kantale Sugar Factory is set to resume from 2023, after a 30-year hiatus, as the government is expected to hand over key assets, including the land belonging to factory on lease basis, to MG Sugars Lanka Private Limited shortly. 

“The final leases for the Kanthale Sugar Factory are to be signed and handed over to MG Sugar,” a MG Sugars Lanka official told Mirror Business.

The government owns 51 percent stake in MG Sugars Lanka Private Limited through the General Treasury while the remaining 49 percent stake is owned by SLI Development Pte. Ltd., represented by UK-based investors Moussy Salem and Mendel Gluck. Although, MG Sugars Lanka Private Limited was formed in 2015, the company officials pointed out that they faced continuous obstacles in reviving the sugar plant during the previous administration. 

However, they noted that the newly elected administration of President Gotabaya Rajapsksa has shown keen interest in the project and is committed to commission the plant by July 2023.

However, it was noted that the lease agreements are required to be concluded before Christmas to commission the project on time, which would otherwise face delays while incurring additional costs. 

“To achieve this, the leases must be handed over before Christmas; this will enable the team to mobilise and initiate land preparation and planting as early as January 2021. This is crucial in order to achieve the set target date. Delays in handing over the leases beyond Christmas will delay the project to 2024, which will increase the project costs drastically,” a MG Sugars Lanka official stressed. 

Out of the US$ 300 million committed investment, MG Sugars has planned to invest US$ 100 million next year.
The company plans to produce and supply 80,000 tonnes of sugar to the local market for direct consumption per annum, saving an estimated US$ 50 million in imported sugar per annum.

When the Kantale Sugar Factory was closed in 1993, it had an annual production capacity of 16,320 tonnes of sugar, 9,000 tonnes of molasses and 3.9 million liters of rectified spirits.

MG Sugars Lanka has also laid plans for ethanol production to meet the requirements of the domestic alcohol industry and in line with government policy to reduce foreign exchange outflows through ethanol imports.
Further, a 27.5 MW biomass plant is also on the cards, which is set to add 10 MW to the national grid on a net basis.

In order to meet these targets, MG Sugars Lanka said it has assembled a globally renowned team.

“The team comprises of Booker Tate, whose notable contribution to the sugar industry is well documented. Grupo TSK will act as the industrial EPC (engineering, procurement and construction) and O&M (operations and maintenance), alongside Netafim, which is a world leader in irrigation technology and equipment, for the agricultural EPC and O&M,” the official said.

Leading law firm, Hogan Lovell together with financial adviser Fieldstone have been working in developing all the contracts and financial models for this project. 

MG Sugars Lanka said the proposed state-of-the-art manufacturing plant would be equipped with cutting-edge European equipment while Israeli technology would be utilised for agriculture and irrigation, particularly with the introduction of a state-of-the-art drip irrigation system to Sri Lanka, which can be potentially replicated elsewhere in the country.  

It also pledged support to Mahaweli Water Authority to develop the ‘Janaranjana Pumping Project,’ which is expected to supply water to 30,000 hectares of new agricultural land in Medirigiriya and Kaudulla.

Overall, the project is expected to generate 3,500 direct employment for the people in Trincomalee district as well as to 3,000 farmer families. Further, the company estimates 10,000-15,000 indirect employment to be created nationwide.

Kantale Sugar Factory was commissioned in 1960 with a grant received from former Czechoslovakia and remained as a profitable State-owned entity until 1986.