Sri Lanka’s state-owned sugar companies are facing a significant challenge with unsold ethanol, as demand for legal alcohol has plummeted following the country’s economic crisis and recent tax increases, according to State Minister for Investment Promotion Dilum Amunugama.
State-run Lanka Sugar, which operates the Sevenagala and Pelwatte companies, is now burdened with 1.3 million litres of unsold ethanol. The ethanol, a by-product of sugar production from molasses, has seen a dramatic drop in demand, with some legal alcohol companies reporting sales declines of up to 70%.
In addition to Lanka Sugar, two other sugar firms, Ethimale and Gal-Oya, are also involved in ethanol production. Minister Amunugama mentioned that discussions with the Department of Excise have led to a verbal agreement to issue ethanol purchase licenses, aimed at distributing demand equally among the four companies to manage the excess stock.
Sri Lanka’s sugar and ethanol industries are protected by import taxes, making domestic production price competitive but challenging for export due to high production costs. Minister Amunugama indicated that exploring bio-diesel is a potential solution, though the high cost of ethanol compared to diesel presents a hurdle.
The rise in illegal alcohol sales has been attributed to high taxes, prompting a request to the Treasury for tax reductions. The Minister noted that while Sri Lanka’s alcohol demand typically rebounds within two years after a currency crisis, the current situation is complicated by the significant depreciation of the rupee.