Katkudah Distillery: Opening a can of worms

Opening a can of worms


Following the ill-famed Treasury bond debacle which incurred approximately Rs 200 billion loss to the country, Arjun Aloysius is all set to take on a new venture, a liquor factory in Kalkudah. It is a well-known fact that Arjun Aloysius and his father-in-law Arjuna Mahendran are the chief suspects of the Treasury bond scam. It is reported that massive tax concessions are to be granted to Arjun Aloysius’ liquor company.

In a situation where Arjun Aloysius is accused of a fiscal crime, it is absolutely inadmissible for the Ministry of Finance to grant ‘100 per cent capital allowance’ to his distillery, the W.M. Mendis and Company.

There are several requisites to be met in order to be qualified for the 2017 coveted budget grants to be received by a business venture. The venture should be a fixed asset, the fixed investment should be worth not less than Rs 4.5 billion, the business should be located within the boundaries of Uva and Eastern Provinces and the business should generate 250 employment opportunities in the least. However, the Chairman of W.M. Mendis and Company, Arjun Aloysius was shrewd enough to include his venture in the 2017 budget grants list by making his company fulfil the requisites.

The W.M. Mendis and Company tactically located its distillery in Kumburumulla in Kalkudah in the Eastern Province. Thus, Aloysius managed to fulfil the requirement that the business should be located within the boundaries of Uva and Eastern Province by having his business in the Eastern Province. Secondly, he furnished the Ministry of Finance with an estimation report of his business to be a fixed investment worth of Rs 4.5 billion. The other requirement of generating employment opportunities is to be assessed once the company is established and the Chairman of W.M. Mendis and Company has declared that his business is capable of creating 250 employment opportunities to the people of the area.

Liquor venture

Thus, Aloysius’ liquor venture was shortlisted for the 2017 budget grant and became qualified for tax concessions. It is a wonder why the government grants such a huge tax concession to a highly lucrative liquor company. The liquor industry is exceptionally lucrative if the taxes are waived off. There are 24 licensed distillery companies in Sri Lanka and W.M. Mendis and Company is one of them. W.M Mendis Company has produced over 131,853,692 litres (1.3 billion) liquor in 2015 and paid a duty of over Rs 32,935,755,749 (Rs 32 billion) to the Excise Department. If the concessions are allowed for the W.M. Mendis Company, the government will lose a colossal amount of annual tax income and that will adversely affect the country’s economy.

W.M. Mendis and Company came into the possession of Perpetual Capital Ltd. in 2011 of which Arjun Joseph Aloysius was the Chairman and Chief Executive Officer. At that time, business tycoon Harry Jayawardene’s Distilleries Company of Sri Lanka (DCSL) was the market leader and two other companies namely International Distilleries and Rockland were among the four major liquor producers in the country besides W.M. Mendis and Company. However, the liquor business was not alien to Aloysius as his grandfather Kattar Aloysius headed Free Lanka Trading Company which imported liquor to Sri Lanka.

The Excise Department is said to have granted permission to W.M. Mendis and Company to set up a distillery in the Eastern Province within a few days of submitting the documents for approval. It is clear that the Ministry of Finance has played a substantial role in assisting Aloysius to obtain a licence to set up a new distillery. Subsequently, W.M. Mendis and Co. commenced the construction work of their distillery site in the early part of September 2016. Prior to commencing the construction, the company had obtained the approval of Central Environmental Authority as well.


Once the Mendis and Co. received the approval of Excise and the Fiscal Policy Departments that are under the authority of Ministry of Finance, the company commenced the construction of the distillery in Kalkudah. The next procedure was to obtain the approval from the respective Local Government authorities for the construction. The Chairman of W.M. Mendis and Co. Arjun Aloysius who received unconditional backing from the top brass of the Yahapalana government was held up when the Koralai Pattru Pradeshiya Sabha refused to approve the construction of the distillery. However, Aloysius was not ready to accept the defeat and wanted to go ahead with the construction work as he is well aware that the liquor business in Sri Lanka is a ready- cash generator.

Speaking to Ceylon Today the Secretary of the Koralai Pattu Pradeshiya Sabha Sihabdeen Saly Mohommed said W.M. Mendis and Company has forwarded a Letter of Demand stating that the company is ready to take legal action against the Koralai Pattu Pradeshiya Sabha if it fails to approve the construction site. He further mentioned that the Eastern Provincial Council and the other higher level government authorities in the area vented their opposition regarding the construction of the distillery.

Sihabdeen also stated that the order given by the Koralai Pattu Pradeshiya Sabha to halt the construction of the distillery is permanent. He further added that this type of a firm will do more harm than good to the area environmentally and socially.

Hence, the Pradeshiya Sabha cannot permit such a construction to come up. Moreover, the Minister of Provincial Council and Local Government Faiszer Musthapha is was also on a firm ground that the construction of the distillery will not continue.

Palmyrah liquor producers

If the distillery company is permitted to be opened in Kalkudah that will definitely be a huge blow to the self-employed licensed Palmyrah liquor producers of the area. The legal distilling of Palmyrah liquor is permitted to be carried out only in manufacturing sites located in Kaluvanchikudi, Eravur and Vakarai in the Batticaloa District.

The President of SLFP Youth Front, Shantha Bandara told Ceylon Today that the massive tax cuts granted by the government to W.M. Mendis and Company will help the company to sell their products at a comparatively lower rate than the products sold by the local self-employed licensed distillers. He further added that instead of generating employment opportunities, opening of the distillery will surely ruin the livelihood of poverty- stricken people of the area. The SLFP Youth Front President further stated that it is worth investigating why the government is lax in granting tax concessions to a distillery headed by infamous Arjun Aloysius and what type of a “deal” the government is engaged in. He also criticized the government that it acts in a manner that puts the lives of the public at risk for the gain of a handful of individuals.

It is reported that the Batticaloa District ranks the highest in liquor consumption in the country. Moreover, Batticaloa tops the list in accommodating the most impoverished people in the country. Although the recommended number of liquor shops to be operated in the district is two, it shockingly accommodates 68 shops. The social depredation caused by the proposed distillery cannot be forgotten at all and it will pave the way to socially unacceptable behaviour of the people of the area.

Liver failure

Most people may be aware about the liver failure, accidents caused by drunk drivers, brawls created by drunkards and assaults of wives and children by drunken husbands as the negative aspects of alcohol. Nevertheless, the damage caused by the distilleries to the environment cannot be ignored. Although, W.M. Mendis Company has obtained the approval of Central Environmental authority last August, the Ceylon Today learned that it has failed to furnish with the Effluent Disposal Report to the Koralai Pattu Pradeshiya Sabha up to now. It shows that the company has not prepared acceptable plans to dispose the effluents without causing environmental degradation. If the plant is set up, they are highly likely to discharge the effluent into the water bodies of the area causing disruption to aquatic systems in the area.

The Kalkudah plant is supposed to produce grain based Extra Neutral Alcohol (ENA) which is also known as rectified spirits, rectified alcohol or ethyl alcohol. ENA is highly concentrated ethanol which is purified by the process called rectification. Improper disposal of effluent that contain ethanol causes the death of fish due to exhaustion of oxygen in water as ethanol swiftly disperses in water causing oxygen depletion in water. The livelihood of a large portion of population in Batticaloa, especially in Kalkudah is fishing and the distillery will indirectly cause the downfall of the fishery industry of the area. The farmers may face a similar threat if ethanol gets in contact with their cultivation.

The possible air pollution too should not be ignored

Extra Neutral Alcohol (ENA) can lead to safety hazards at work. This is flammable and explosive. Storage and handling of alcohol can cause fire hazards. In case of even a minor seepage, invisible vapours disperse easily into the air and catch fire if a source of ignition is present. When ENA ethanol comes into contact with skin, irritation, peeling, and cracking can occur. Headache, nausea, heat, drowsiness and unconsciousness if exposed to a higher volume are also possible health risks. Breathing of ENA causes prolonged cough and shortness of breath. The hazards can be minimized by employing only well-trained and experienced personnel. So, problems arise in the distribution of the 250 employment opportunities as only trained workers can work under such a hazardous work environment. However, the 250 employees that W.M. Mendis and Co. is going to recruit are made to work in a hazardous work environment.

Only beneficial impact

Although the only beneficial impact of setting up of Kalkudah distillery is the generation of 250 employment opportunities in the area, it is reported that Kalkudah distillery will only engage in production of the liquor (Extra Neutral Alcohol) but mixing, bottling, labelling and other related tasks are performed in other branches of the company. W.M Mendis and Company is headquartered in Welisara in the outskirts of Colombo and it has several distilleries in various other places. It is unlikely that the Kalkudah factory will employ 250 persons from the area for the production alone.

However, the proposed plant (construction work of which has already begun) is highly likely to cause environmental, social, safety and health hazards. Instead of generating 250 employment opportunities it can clearly lead to the loss of livelihood of many.

Batticaloa is located in the arid zone which has a less annual rain fall. W.M. Mendis and Company’s annual production of liquor is 1.3 billion litres. Although, the same quantity may not be produced in the Kalkudah distillery, it can be assumed that the distillery may utilize water in huge quantities as three portions of water is required to prepare one portion of ethanol. People may face drinking water problems in dry seasons. That will be a blow to farmers, because innocent farmers may not receive adequate water for their cultivation. This may affect rice production and other food production in the area.

The Kalkudah plant is said to produce grain based ethanol and the management plans to use rice as the raw material in the production of ethanol. We cannot forget about the rice crisis occurred a couple of months ago. Rice is the staple food of Sri Lankans and how unwise it is to use rice for the production of ethanol. Rice is a basic requirement of ordinary people, but ethanol is a luxury. The distillery may lead to another rice crisis in the country in future.

Tax concessions

The government is scheduled to grant enormous tax concessions to Arjun Aloysius’ distillery in Kalkudah which is predicted to create such a vast gamut of problems.

The Excise Department boasts of providing Rs. 105, 297 million duty earnings to the government in 2015. Eradication of alcoholism in the country was one of the highly appreciated pledges of the good governance government but allowing tax concessions and extending support to set up distilleries is totally in contrast with the government’s good governance policies.
Government authorities, public and a large number of politicians are protesting against the setting up of the Kalkudah distillery.

Many are of the view that President Sirisena can make use of his executive powers to stop the setting up of Arjun Aloysius’ distillery. The President, who gets to know what’s going on in the country through newspapers should be aware by now of the fact that two journalists have been assaulted by the cohorts of Arjun Aloysius. It is said the President does not like to interfere with each and every activity of the government. At least problems of this magnitude should be interfered and resolved by the President, because people expect him to take bold actions to halt the distillery which can lead to tremendous complexities, people say.