Dipped Products throws in the towel

Editorial-December 28, 2013, 5:47 pm 

It is now ten days since Dipped Products PLC (DPL), the Hayley’s subsidiary which has over a period of more than 30 years built up a world class manufacturing business producing rubber gloves used for a multitude of hand protection purposes, announced that it was moving its factory at Rathupaswala, near Weliweriya, to the Biyagama Export Processing Zone. This is being done although the available evidence strongly suggests that the problem of polluted/substandard well water in the area has nothing to do with the factory. Over five months have elapsed since the closure of the factory, followed by military shooting to disperse protestors blocking the Kandy road that led to the death of three young people, and the halt in production has cost the country about Rs. 1.5 billion in foreign exchange. The factory owners even offered to truck in the water used in the production process until an industrial water connection is obtained and truck out effluent for safe disposal at Biyagama until the issue is resolved but the protestors would have none of it. The government too has done little to settle the problem and ensure that production resumes. Thus an industry that has been good for this country, earning one percent of its export income, has been forced to cut its losses and relocate. This is despite the loud professions of making Sri Lanka an export and manufacturing hub and hugely expensive promotional efforts to attract foreign direct investment into the country.

It is abundantly clear that the government’s impotence to act decisively to help an important industry to resume production is its eventual responsibility for the over-reaction of the military in shooting unarmed protestors. There has been talk of court martialing those responsible, but whether that will come to pass remains an open question. Complicating matters is the forthcoming Western Provincial Council election and the government will not risk losing votes by siding with the factory owners despite the biggest shareholder of Hayleys being a strong loyalist of the ruling establishment. The end result is that DPL appears to have thrown in the towel and decided to move to the Biyagama EPZ. That makes sense from the company’s point of view. When the well water problem at Rathupaswala will be resolved is anybody’s guess. There is every possibility of the arguments being lobbed back and forth with no decision either way. Meanwhile the company is losing Rs. 300 million a month in export revenue and customers painstakingly acquired over a period of over three decades by the day. It is obviously better to get ready to manufacture elsewhere rather than wait interminably for a hoped-for favourable outcome.

At a November press conference Hayleys Chairman/CEO Mohan Pandithage said that it would not be difficult for them to pull out of Rathupaswala altogether and relocate in Malaysia. That country, being among the world’s biggest natural rubber producers, is anxious to attract businesses such as DPL’s utilizing a domestic raw material. According to Pandithage, as the necessary buildings were already available in Malaysia, all they had to do was to dismantle their plant, load it into containers, reassemble at the new location and ``plug in.’’ But he was not willing to take that course, he said, ``because I am a nationalist.’’ Obviously other reasons including the need to consolidate the production of its various factories in Sri Lanka at a single location to serve customers dispersed in over 70 countries is very much a factor in the equation. Setting up a new factory overseas may be a negative in this context. But it is not unlikely that when further expansion is contemplated, there will be good reason to look at options outside Sri Lanka where too many things go wrong too often. DPL said in a Stock Exchange filing earlier this month that it hopes to resume commercial operations of its subsidiary, Vengros Ltd. based in Rathupaswala, by next April. Only time will tell whether this is an overly optimistic timeline. Getting the buildings ready, dismantling the existing plant and reassembling it at a new location can throw up unforeseen problems. It is not like buying a brand new plant off the shelf and setting it up and DPL’s managers would obviously be alive to these dangers. Yet, given the way the original issue was playing out and government pussyfooting over taking a firm stand had left them no option.

Although DPL has posted fairly satisfactory results for the first half of the current financial year ended September 30, 2013, the factory closed at the end of July and only two months of the closure is encompassed in these results. Nevertheless, hand protection which is the vital segment in DPL’s earning stream in normal circumstances, had contracted sharply and this impacted on the bottom line. Results up to end December this year which are yet to be published will, no doubt, better reflect the Rathupaswala closure. It is clear from the interim financials that the company has lost its growth momentum and this will be a continuing process. Even if the move to Biyagama is successfully accomplished, regaining lost custom will be protracted. It will also be hard for employees living in the vicinity of the factory to travel for work to Biyagama. In addition to the actual production, many local people were employed in the packing process and it may be necessary to move this activity too to Biyagama. In addition to the foreign exchange that Sri Lanka has already lost as a result of the factory closure, and this loss will continue to grow exponentially, the country’s competitiveness as an investment destination has been seriously undermined. Given what has happened to a local company which is a shining star in the export industrial firmament, will not other industries think twice about coming here?

DPL is on record saying that other countries in the region ``are benefiting at the expense of Sri Lanka’s incapability to solve a problem that not even has a proper basis.’’ It has asserted that it is not responsible for low pH or any other groundwater quality issue at Rathupaswala or anywhere. Having built up an excellent business using locally produced rubber latex to become the world’s biggest non-medical rubber glove producer with production and marketing facilities at home and abroad, who can fault the company for complaining that it has not been fairly heard with a sense of urgency? There is no escaping the fact that keeping the factory closed for these five long months is both a national tragedy and a crime. It is the responsibility of the government to ensure the necessary peaceful environment and enforce law and order to allow businesses like DPL that had engaged its stakeholders ethically and responsibly to function without hindrance. This, unfortunately, has not been done with the situation aggravated by the unnecessary shooting. Mobs blocking roads certainly cannot be countenanced. Neither can over-reaction by the military deployed for what was essentially a police matter. We can only hope that DPL will be able to restore its business to what it was as quickly as possible. But indecisive and lackadaisical governance has taken a heavy toll not only of a company in which the EPF is a major shareholder but also on the national economy.