Take-over of Sterling Company Estates

by Leelananda de Silva

From the time of independence, there has been agitation against sterling company estates. There were complaints that they were a colonial imposition, and that they were not well managed. The plantation owners themselves had begun to lose interest in some of their properties, as the profits could not be sent abroad, due to exchange control restrictions.

The estates were being managed by agency houses, and Dr. Colvin R. de Silva, the Minister of Plantation Industry, had set up a Commission on Agency Houses and Brokering Firms. This Commission had reported, but had not recommended the takeover of sterling company estates. It had recommended the control of agency houses.

Prior to that, in 1971, the Seers mission which looked into land reform issues, had proposed land reforms, but had exempted the sterling companies, as they felt that they were too important for Sri Lankan exports, to be disrupted in any way. In the meantime, there had been land reforms, to take over private land holdings of Sri Lankans, allowing only 50 acres per family.

This was the background to a sudden decision taken by the Cabinet to take over sterling companies in 1974. One Wednesday, H.A.de.S (Gunasekera) was summoned to the cabinet meeting by the Prime Minister, and he phoned me from the cabinet office and asked me what I think are the implications of a takeover of sterling companies. I had a discussion with him on the phone. He asked me to prepare a short note to be given to the Prime Minister.

Anyway, the Cabinet went ahead and made the decision to take over sterling company estates. There was no cabinet paper on this subject. It was a totally political decision. A week or two later, the Cabinet decided to take over the rupee companies, which had been left alone by the earlier decision.

The Prime Minister decided that the whole matter of the takeover of sterling companies and rupee companies should be dealt with by the Planning Ministry at this stage.

The Cabinet was not in a hurry to settle the issue of compensation relating to rupee companies. But they were eager to settle issues of compensation for the sterling companies. They were aware of the implications of this subject for Sri Lanka- British relations. From now on I was fully involved in handling this issue, along with H.A.de.S.

The Cabinet decided to appoint a committee to negotiate with the British on the matter of compensation, and H.A.de.S was appointed its chairman, and I was a member and secretary of the committee. Others in the committee included the exchange controller, a representative of the attorney general’s department (Elanga Wikramanayake), the chief valuer and one or two others.

There were many actions prior to the final settlement of compensation for sterling company estates. The British government had to be informed. The Prime Minister was visiting the UK and was meeting the British Prime Minister, Harold Wilson. He told her that the British government was neutral on the question of the takeover of estates, but that if estates were taken over, fair, equitable and prompt compensation should be paid to these companies.

The Prime minister appreciated this and promised early compensation. British aid to Sri Lanka at the time was about four million pounds annually, and this was an important consideration. At this time, there was a suggestion that Sri Lanka should obtain a credit line from the British government so that compensation could be paid promptly.

We had informed the local sterling company interests and the British High Cmmission to this effect. At this time, Hector Kobbekaduwa, the Minister of Agriculture, was visiting the UK to attend a meeting of the Commonwealth Ministers of Food Production, in London. Mahinda Silva, Secretary to the Ministry of Agriculture and I accompanied the Minister to London. Judith Hart was the Minister for Overseas Development and she was responsible for British aid. She was also chairing the Meeting of Commonwealth Ministers and we saw her daily.

We sought a separate meeting with her at her ministry to discuss the subject of compensation for sterling companies. We went to her office to meet her and was greeted by her private secretary, Tony Banks (later a Member of Parliament and Minister of State). Tony Banks was a left wing radical with a great facility for words, for which he became famous in the House of Commons later. He told us that rather than ask for credit lines, we could consider delaying compensation payments, or not paying at all. It was clear that his views were not that of the government, as Judith Hart told us more or less the same thing that Harold Wilson had told the Prime Minister.

We had to decide on the modalities of compensation payment negotiations. H.A.de.S and I informed the Prime Minister and the Cabinet that the best way to proceed was to negotiate with the British owners as one group, instead of negotiating with individual companies. There were some objections to this approach, as it was felt that we could get a better deal by negotiating with estate companies individually.

There were about 125 companies, owning over 150,000 acres, who were willing to be represented as a group. There were few others who were not part of this group. The Prime Minister felt that we must show a degree of goodwill towards the British and allow them to negotiate as a group. We informed Alec Ward, the acting British High Commissioner in Colombo and Trevor Moy who was Chairman of George Steuarts, who was negotiating for the British companies of this decision and they were pleased.

Alec Ward and Trevor Moy were my counterparts in all the discussions I had, many of them in private during this period. H.A.de.S allowed me to handle these details. In all these discussions between the government and the British, we worked through the British High Commission in Colombo and I cannot remember ever contacting our High Commissioner in London for any assistance.

There was one other important decision made by the Cabinet during this period, and that is regarding the level of compensation. Prior to that decision, we had to do a lot of home work in the Ministry of Planning. Fortunately for us, at that time, there was Derek Robinson, a Fellow of Magdalen College, Oxford, and an expert on statistics (Derek was later to be chairman of the Social Science Research Council of the UK) assisting the ministry through a UN project on the question of labour wages on the estates.

We requested Derek to suspend his work and do some research into the share prices of sterling company estates on the London Stock Exchange. He was to come up with a figure of about £20 sterling per acre. This was a very low figure, as prices of estates were being kept artificially low, due to exchange controls in Sri Lanka.

There were also two other instances of recent estate transaction on the London Stock Market. Pelmadulla Holdings, with about 15.000 acres, had been sold to Middle East investors at about £20 per acre. Grand Central Estates, with about 20,000 acres in Sri Lanka had been bought by a Sri Lankan entrepreneur (Upali Wiyawardane) for about the same price on the London stock exchange.

There were also a few transactions by the State Plantations Corporation, which was under the Ministry of Plantation Industry of which the Minister was Dr. Colvin R. de Silva. Four or five estates had been bought at about £60 per acre. Based on all this information, the Cabinet decided that the British should be offered £45 per acre as compensation. This was the price which was recommended by the Planning Ministry.

Compensation was to be paid over a period of time which would be negotiated. This figure of £45 was known, outside the Cabinet, only to H.A.de.S and to me. The other members of the committee were not told of this figure or that there was a decision of the Cabinet on the level of compensation. Those days, this kind of secrecy did work.

Alec Ward and Trevor Moy informed H.A.de.S and me that they would like their delegation for compensation talks to be led by Sir Michael Walker, former British High Commissioner to Sri Lanka who was now living in retirement in England. We agreed to this and their delegation consisted of Sir Michael Walker, Alec Ward, Trevor Moy and two or three others. We met a few times at the Planning Ministry in H.A.de. S’s room on the eighth floor of the Central Bank building, over three days. It was very amicable. H.A.de. S was a superb negotiator and he did it with a great sense of humour and respect for the other side.

At this point, let me record an engaging story. Eric Lubbock, former British parliamentarian and Liberal M P for Orpington now reincarnated as Lord Avebury, a member of the British House of Lords was in Colombo, on holiday. I had met him briefly through a friend and I got to know his views about the sterling companies. I then alerted a Lake House journalist, through Mervin de Silva, the Ministry Director of Information, on this matter.

Lord Avebury’s view, very colourfully expressed, was that the estate owners should not be given any compensation whatever. One or two days before the British delegation met us for compensation talks, there was a news item in the local newspapers that Lord Avebury had suggested that the British had exploited the Sri Lankans for long enough and that they should not pay any compensation for the estates.

After the preliminary greetings, the compensation talks started with an opening statement by Sir Michael Walker. He said that he was at his London club a few days before, where he met Sir Percival Griffiths, authority and historian of Indian tea and he had asked for his views regarding the value of tea estates. Sir Percival had suggested £300 per acre.

H.A.de.S, following on Sir Michael, brought to his notice, the remarks of Lord Avebury, and as H.A.de.S said, a noble lord in the British upper house. H.A.de.S asked whose views we should take seriously- Sir Percival’s who was a relative nonentity in Britain or Lord Avebury’s. This was the only time during the negotiations that I saw Sir Michael losing his temper, calling Avebury a maverick and a chap who is not taken seriously in his own country.

Anyway this set the tone for the negotiations on the price. A couple of hours later, Sir Michael had come down to f 100 an acre. After two days regarding prices, modes of payment, time periods and so on, the main issue came to a head. H.A.de.S offered a final £42 per acre. Sir Michael stuck to £45. At this point, Alec Ward came round to me and suggested that we offer 50 pence more, that is £42.50 and that we can finalize the deal.

I told H.A.de.S what Alec had told me and we decided to make that offer, which ended the negotiations regarding the price level. That 50 pence was worth £75 000 in total, but the price was well within what the Cabinet had decided to offer. Then there were the negotiations on the methods of payment. It was decided that payment will be made over a period of four years. The price offered was to remain fixed in terms of sterling, and not in rupees in the event of devaluation. Hector Kobbekaduwa, the Minister made a statement to Parliament, about the decisions of the compensation committee, which I drafted, with a schedule of sterling company estates.

The takeover of sterling company estates was taking place within the overall framework of land reform. Mrs. Bandaranaike was anxious that her coalition partner, the LSSP, was kept away from the management of these properties. Hence, when the rupee companies were taken over at about the same time, the legislation for that purpose was described as Land Reform Act No. 2 ((1 assisted Nalin Abeysekara, the assistant legal draftsman, in drafting this legislation).

The original Land Reform Act was the responsibility of the Ministry of Agriculture and sterling and rupee companies were also to be the responsibility of that Ministry at this stage. It is my impression that the LSSP was not in favour of the takeover of either rupee or sterling companies. If the LSSP had wanted these estates to be taken over, they could have easily made use of the opportunity of the Agency Houses Commission to make recommendations on those lines. That was not done.

Later on, I was involved in the distribution of the estates between the two corporations- the State Plantations Corporation (SPC) and the Janavasama (JEDB). The SPC was with the Ministry of Plantation industries and the Janawasama was with the Ministry of Agriculture. By the time the properties were to be assigned to the two corporations, the political coalition had broken down and the two ministers were both from the same party.

There was not much acrimony about the division of assets as a result. K.H.J Wijeyadasa from the Ministry of Agriculture was the other official engaged in the decisions to divide the assets. Wije was an old friend of mine from university days, and a public servant of great integrity. What happened then was political, but it turned out to be rational.

The Minister of Agriculture was from Kandy, and the up country plantations, went to the Janavasama. The Minister of Plantation Industries, Ratnasiri Wickramanayake, was from the low country and most of the low country estates went to the SPC. This meant that most of the tea estates were with Janavasama, and most of the rubber and coconut properties went to the SPC. This was a logical outcome in terms of efficient plantation management.

One other related matter that I wish to record was my membership of the Committee on Land Ceilings, which was appointed by the Cabinet. It was chaired by R.T. Ratnatunga, former Settlement Officer and its membership included the Chief Valuer, W.M. Tilakaratna, Deputy Governor of the Central Bank, R.K.W. (Raja) Goonesekara, Principal of the Law College and several others.

This committee was established prior to the legislation on land reform. We met three or four times and we had some papers prepared by the Ministry of Planning, examining the implications of alternative land ceiling limits. I discussed this subject of land ceilings with the Prime Minister and my impression was that while she might have favoured a higher limit, she had no clear directions to offer me. The two main alternatives being discussed at the time was 25 acres and 50 acres for a family. There were two or three on the committee who wanted the lower limit and I went along with the higher one, as I felt that would be more fair and more feasible to manage as a viable economic unit. The majority of the committee opted for the higher limit of 50 acres, which ultimately became the policy of the government.

(Excerpted from the author’s memoirs)