Govt. brews Rs. 12 b in loans to boost tea

• Talks with two Japanese banks on obtaining low-interest loans to modernise tea factories, uplift tea smallholders
• Rs. 12 billion in first stage, possibility of increasing to Rs. 22.5 billion  
• Tea factories to set up solar panels, contribute 20% to national grid
• Appoints committee to assess credit worthiness of 250 factories that have expressed interest
• State banks to disburse loan, beneficiaries to repay, aims to be rolled out in 1H 2018  

By Charumini de Silva

The Government is in discussions with two Japanese banks to obtain as much as $ 150 million or Rs. 22.5 billion in a low-interest loan facility to modernise about 150 tea factories, which could be done in two tranches, to develop tea smallholders, the Plantations Minister said yesterday. 

Plantations Industry Minister Navin Dissanayake, Ministry Secretary J.A. Ranjith and officials from the Tea Small Holdings Development Authority held discussions to finalise the loan with representatives of the Japan Bank for International Cooperation (JBIC) and Mitsubishi UFJ Financial Group (MUFG) last Thursday in Colombo.

“We are still negotiating with the two Japanese banks. They have agreed in principle to provide $ 80 million to automate tea factories, which also includes an energy component,” Dissanayake told the Daily FT. 



If the first round is successful the Government could consider expanding the facility to $ 150 million but the onus of repayment would not be on the Government, he explained, but the State would provide a treasury guarantee. Interest rates are expected to be about 3.5% and the scheme is likely to be rolled out in the first half of next year.    

Factories obtaining the facility will also set up solar panels, where they will have to contribute 20% of the power generated to the national grid.

Over 700 factories are estimated to rely on outdated machinery, dragging down the quality of Ceylon Tea. Industry experts contend that tea production has to be upgraded to continue growing exports. The Minister went on to say that about 250 factories had already expressed interest to obtain the loan, which would have to be repaid by the individual beneficiaries.

The facility would be extended to beneficiaries through two state banks, People’s Bank and Bank of Ceylon. The borrowers would then have to repay the loan over a specified period of time. However, the State will act as the guarantor for the loan scheme. 

 “A committee will be appointed to assess the credit worthiness of these applicants and shortlist around 100 to 150 factories to obtain the low-interest loan facility,” Dissanayake added.

According to him, this will also enable tea smallholders to obtain a better tea price for their tea leaves. Tea smallholders produce about 60% of Sri Lanka’s total tea production. 

It was pointed out that the Japanese funding agencies offered to support this initiative, which was welcomed by the Minister.

Dissanayake said once the Japanese banks grant the loan facility, the Ministry would then have to seek approval from the External Resources Department (ERD), Cabinet Committee on Economic Management (CCEM) and the Cabinet.

The authorities expect Sri Lanka to achieve 305-310 million kilograms by the end of the year, compared to last year’s 292.4 million kilograms. The industry has targeted revenue of $ 1.5 billion this year compared to $ 1.2 billion in 2016 as tea exporters venture into new markets such as China and the US.