Company News

Free Trade Agreement shows results

"The Free Trade Agreement has created a better relationship. between India and Sri Lanka,"said Mr. Kingsley T. Wickremaratne, Advisor on International Trade to the President at the opening ceremony of INTEX-2001, the Indian Trade Exhibition organized by the Sri Lanka Exhibition and Convention Centre (SLECC) in association with the Times of India Group, recently.

The former minister addressing the gathering said that both parties initially had their apprehensions over the agreement but now it has created a better relationship. Many of the local chambers had approached him and expressed their concerns on various occasions.

Mr. Wickremaratne added that both countries should not regard each other as competitors in the global market. "When it comes to tea, the competition is not India, the competition is coffee. India and Sri Lanka should get together to snatch a percentage of the coffee market," he added.

Indian High Commissioner Gopalkrishna Gandhi in his address observed that there has been a 70% increase in exports to India in the first three-quarters of 2000. He also praised the formation of the agreement by both countries and said that trade promotions of this nature are beneficial to both countries.

Over 20 Indian companies put up stalls at the four day exhibition. The participants represented diverse businesses such as coffee, pharmaceuticals, office equipment, roofing, electrical and mechanical industries.

The trade exhibition was also supported by the India-ASEAN Chamber of Commerce and Industry and the Federation of Chambers of Commerce and Industry in Sri Lanka (FCCISL).

SriLankan goes on line with Affno

SriLankan Airlines has announced the appointment of Affno as their e-business integrator, following a very detailed selection process involving 41 companies from around the world.

Nigel O'Shea, SriLankan Airlines Head of IT said that his airline was looking for a company who had the wide range of expertise on engineering, technology, communication and branding; to become their long term e-business partner. "Many of the companies Affno competed with had e-business experience with major international airlines and it was a tough selection process", he added.

The appointment of Affno marks a step-change in SriLankan's approach to its Internet business. Affno will work with SriLankan Airlines closely on a long-term e-business strategy that will enable the Airline to integrate future content and efficiently design, build and implement future requirements.

Commenting on the breadth and depth of expertise needed to construct and maintain the e-business infrastructure for an international airline; O'Shea says that they saw in Affno cutting edge Internet software engineering and business integration capabilities.

SriLankan Airlines has phased out the development of their e-business infrastructure. In the first phase Affno will re-vamp their existing web presence concentrating on a new, modern look and feel. In subsequent phases Affno will build various functionalities from on-line reservations, on-line payments and on-line freight tracking to a host of other features. SriLankan Airlines is widely regarded as the best international airline in South Asia. It has one of the most modern and youngest fleet of aircraft in the whole of Asia today.

The Company is moving vigorously to attain world-class standards in every aspect of their business said Victor Abeysekera - SriLankan's Manager Corporate Communications. "The Internet will be a major area of our focus in the coming years", he added.

Suren Kannangara who relinquished his lucrative career as a senior software engineer at AT&T Bell Labs in USA, last January to return to Sri Lanka and set up Affno, said that within a few months Affno attained world standards. Commenting on the SriLankan Airlines win, Suren said that it is a confidence index for Affno's world-class Internet engineering solutions. "We're excited by the challenge of taking SriLankan Airlines' digital business to its next level and to help it become an airline of the future," he added.

USAID solution for water purification

Technical managers from more than forty public and private companies in Sri Lanka were recently introduced to an innovative new electronic technology for industrial water treatment. The presentation on the ZetaProbe technology by Hal Falls, Director of the State of Arizona's Trade Promotion Office, was sponsored by the US Asia Environmental Partnership (US-AEP), a US Agency for International Development Programme.

The ZetaProbe technology permits industrial and other users to purify the water needed for food processing and other industrial processes with less effort and lower cost. Currently, water purification and treatment require large doses of costly imported chemicals as part of long and cumbersome processes.

The patented technology, ZetaRod by Zeta Corporation (www.zetacorp.com) of Arizona is currently used in beverage and food processing, glass container manufacturing, machine tooling, industrial cooling systems, and in many chemical processes that necessitate the use of unadulterated water. The ZetaRod technology, according to its manufacturers, improves process performance, extends the life of equipment, reduces chemical use and conserves water and energy.

Two British military suppliers in UK team to Sri Lanka

A Sri Lankan-born British politician is leading a delegation of the London Chamber of Commerce to Sri Lanka between February 26 and March 2 in which two companies trading in military hardware are included, the British High Commission said.

Dr Harry Canagasabey, mayor of Southwark is the first Asian mayor of this historic London borough and was born in Sri Lanka.

His delegation has representatives from 24 companies who are interested in doing business with Sri Lankan businessmen and investors. The UK companies are active in a range of businesses like clothing and textiles, tiles and bathroom fittings, military goods, power services, agriculture, school equipment, travel and leisure, and heavy-duty vehicles.

UK interests revived at George Steuarts

British interests in Sri Lanka's oldest business establishment, located at "STEUART HOUSE" in Janadhipathi Mawatha, were revived when a UK Based investor acquired a 37% stake in GEORGE STEUART & CO. LTD. (founded 1835) on 12th February 2001.

Mr. Dubsy P. Kanagaratnam, representing the DPK Group, situated at "DPK House" in London bought over the holding of the Merchant Bank of Sri Lanka in the company, following a decision by that bank, to divest all of its non banking investments.

The DPK Group is a widely diversified financial institution offering management advisory, and financial services to companies and corporate clients both in the UK and overseas. The Group arranges finance for investments in residential and commercial properties and in business enterprises.

As Chairman of the DPK Group, Mr. Kanagaratnam, said that his company was delighted to make this investment in such a long standing and highly reputed organization, as his Board saw the long term portential, for considerable growth in an already diversified, and stable portfolio. "There are additional overseas investments that we intend to bring into Sri Lanka and see GEORGE STEUARTS as an excellent name to group these with and to help build the company into a conglomerate to be on par with the "Blue Chips" in Sri Lanka."

The two nominees of the investor who will serve on the Board or GEORGE STEUART & CO. LTD. are Mr. Gamani Abeysuriya, the current Marketing Director of Singer Sri Lanka who will shortly relinquish that position to take up his appointment as an Executive Director with George Steuarts, with effect from 1st March 2001, and Mr. Roy Dacosta a well known property developer in west London.

The Chairman of the George Steuarts Group, Mr. S. Skandakumar said that his Board was very pleased to welcome the new investor and observed that it also provided an opportunity to re-establish relationships with British Interests, one which dominated the company's history in its first 140 years. "It took us time to overcome the consequences of the nationalization of plantations in 1975, since their management was the company's only line of business at that time. The group has since, successfully diversified into new areas of businesses."

The Group's current activities comprise, Airline Ticketing, Inbound and Outbound Travel, Import & Distribution of Pharmaceuticals, Export and Local Marketing of Tea, Manufacture of Telephones and support services for installations, Import and Distribution of Motor Spares, Freight Forwarding, Airline representation, Overseas Employment, Insurance and Education. Separate Subsidiary companies are responsible for each of these activities and are administered by their respective Executive Boards.

Mobitel signs up with East-West

An agreement was signed between East West and Mobitel as their main distributor islandwide for "More Mobitel" cards.

East West Marketing (EWM) is a distributor for FMCG (fast moving consumers group) products throughout the country with a reach of approximately 70 percent, Mobitel said in a press release.

The Mobitel prepaid card is a simple, easy and a risk-free way to be connected with free incoming minutes and features that add value to the customer.

Coca Cola signs new pact with union

A new Collective Bargaining Agreement (CBA) was signed between Coca-Cola Beverages Sri Lanka Ltd. and the Ceylon Mercantile Union (CMU). The agreement (for both staff and workers), which runs through till June 2002, has created a new work environment for the company.

The agreement has established a productivity based reward system and new work practices all of which leads to achieve greater harmony and better industrial relations. This will enable the Management, staff and workers at the plant to work cohesively towards achieving the productivity and quality goals that have been set.

Strong year-end results for Eagle

Sri Lanka's Eagle Insurance, a member of the Zurich Financial Services Group, continued to maintain its strong position within the financial sector at the completion of its 12th year of operation, with a growth of year end revenues to Rs. 2,400 million - an increase of 29% over the previous year.

Operating profit before re-structure charges and intangibles grew to 196 million - a 29% increase over the previous year.

The company declared a dividend of Rs. 4.50 per share to its shareholders for the year ended 2000. This will be paid through the issue of two year redeemable debentures carrying an interest rate of 23% per annum payable half yearly.

Life business (Gross written premium) increased by 29% to Rs. 1,474 million due to intensified sales activity, continuous training of field staff and retention strategies adopted, as well as the successful launch of the single premium "Eagle Investment Plan" which earned a premium income of Rs. 127 million. The Life Fund grew by 32% to Rs. 3,652 million over the previous year, further reinforcing security to policy holders. Annualised new business for 2000 also increased by 13% over the previous year.

A 10.5% tax free dividend was credited to life policy holders, which a Company spokesman says demonstrates the Company's commitment to deliver returns in excess of what was promised.

Eagle NDB Fund Management a subsidiary of Eagle Insurance recorded a favourable reversal in results with a profit of Rs. 1.7 million against a loss for the previous year. The subsidiary which is the market leader in its sector had growth of 13.3% bringing total funds under management to Rs. 8,575 million as at end 2000.

Eagle Insurance is strengthened by the backing of its, two major shareholders globally by the gigantic resources of the Zurich Financial Services Group, a leader in the financial services industry, providing its customers with products and solutions in the areas of financial protection and asset accumulation and locally by the stability of the Premier Development Bank in the country the National Development Bank.

The Company has been restructured for greater efficiency and customer value addition, by setting up two strategic business units focusing on Personal and Corporate customers. These two units will be supported by strategic service units. This restructure will align the business operations towards serving these customer segments and provide them with integrated financial solutions in the areas of Life & Non Life insurance and Asset management.

"With this new focused structure in place, supported by the emphasis on capability and information technology development we look optimistically towards the realisation of our goals", says Managing Director Chandra Jayaratne.

JKH net profits fall 15% in 9-mth to Dec 2000

John Keells Holdings, Sri Lanka's biggest conglomerate, said last week that net profits fell 15.3 percent to 450 million rupees in the nine months to December, 2000 compared to the corresponding months in 1999 partly due to negative growth in the tourism sector.

JKH, said in a statement, that it however expected fourth quarter (January-March 2001) performance to be strong with a substantial contribution coming from tourism, but noted " it is (still) unlikely the group would achieve the same level of profitability as in the last year."

Tourist arrivals fell by 8.3 percent in the nine-month period to December 31, 2000 from the previous corresponding period due to an escalation in the war situation and high costs.

The group has extensive interests in hotels and the leisure sector, plantations, financial services, food and beverages and information technology.

It said the company invested heavily in the IT sector in computer hardware and software and in training, the results of which were expected to bear fruit in the near future. The financial services sector saw high volatility with losses due to negative market conditions while plantations and transportation performed well.

3Com networking for consumer markets through Metropolitan

3Com, a pioneer in networking in the IT industry announced its presence in the Sri Lankan consumer, small and medium enterprise markets with the appointment of Metropolitan Computers (Pvt) Ltd. as its distributor.

The inventor of the widely used communication rules, the Ethernet network protocol, previously had been represented only in the larger enterprises by its systems integrator DMS Electronics.

With Metropolitan Computers as its distributors 3Com hopes to penetrate the consumer, small and medium enterprise markets through a comprehensive reseller network. As part of the launch it also conducted a training programme to certify its business partners to provide support and introduced three new products to the market.

"3Com believes that there is a strong market potential for their low-cost networking solutions with the growing Internet connectivity and inter-organizational connectivity in Sri Lanka",

With 378 patents to its credit, the networking company introduced its latest products AirConnect, Switch 4900 and Office Connect Server for the small and medium enterprise markets. AirConnect is a wireless LAN (Local Area Network) that allows user to connect to the internet and other network computers without any wired connections providing mobility to a user within a given area. "Through AirConnect home users will be able to connect to the internet whether they are in the garden or in the living room without having to draw a phone cable", he said,

The Switch 4900 is an upgrade for existing and new networks to increase network bandwidth to gigabit speeds, which incidentally is a first by 3Com. Its latest product in the OfficieConnect series, the Internet Server is a pre-configured unit that enables sharing of resources by 25 devices.

The unit with its own 20GB hard-drive storage enables small companies to share resources such as printers, data and a single internet connection without large investments in servers and being bound by a specific operating system.

Senior Manager - Network Sales & Support for Metropolitan, Mr. Anura Karunasena said that with this appointment they propose to stock all 3Com products and provide 1 to 1 backup and the lifetime warranty on its products to all 3Com customers irrespective of the retailer the products were purchased from. Questioned on their competitive strategy against retail imports he added that they hope to be competitive by operating on low margins.

A member of the Metropolitan Group, Metropolitan Computers is also a distributor for Novell Network Operating Systems.

LOLC recovers after 98 losses, profits up last year

Lanka ORIX Leasing Co Ltd (LOLC), Sri Lanka's pioneer leasing company, made a rapid turnaround in the nine months to December 2000 after steadily declining profits from 1997/98 onwards.

The company said in a statement that its profits for the period under review (nine months to 31 December 2000) grew by 53 percent against the corresponding period in 1999.

LOLC's Managing Director, Raj de Silva said that is company recorded a net profit of Rs. 137.5 mn for the first nine months of the current financial year. The market capitalization of LOLC has grown by 78%, from Rs. 267 mn to Rs. 475 mn during the same period. This is specially noteworthy as almost all banks in this sector have experienced significant erosions in their market capitalization over the same period, mainly due to declining share indices.

LOLC is a member of the Orix Group, which is headed by the Orix Corporation of Japan, the world's largest independent leasing company. The LOLC group of companies is engaged in leasing factoring, insurance broking and other types of financing including consumer financing.

The Directors of the company are Deshamanya C.P de Silva (Chairman) Raj de Silva (Managing Director) L.S. Jayawardena, S.S. Jayawickrama, M.T.L. Fernando, N. Ratnasabapathy, N.D.C. Austin, Ravi Fernando, Dirk Flamer Caldera, Yoshihiko Miyauchi, and Takeshi Sato.

Oops!!

They feed chickens, not cows

With reference to the story headlined "Nutrena to feed Lankan cows" appearing in the Sunday Times of February 18, the headline should have read ..."Nutrena to feed Lankan chickens."

Indian vegetarian fast food hits Sri Lanka

John Keells who introduced Pizza Hut to Sri Lanka in 1993, launched yet another gastronomical experience to the Sri Lanka public when they opened Komala's the first ever Indian vegetarian fast food chain in the world.

Keells Restaurants are the franchise holders for Komala's Restaurants in Sri Lanka. The initial investment made by JKH amounts to Rs. 25 million, while the restaurant opens with a highly experienced team from India and Singapore who are here to ensure the smooth operations of Komala's

Located next to the ever popular Pizza Hut on Union Place, with a seating capacity of 160 persons, Komala's is ample proof of the fact that you can indeed have the best of both worlds - in short a western concept and ambience, serving up the exotic flavours of the Indian sun continent. It's both great food as well as a great experience," said Managing Director Keells Resturants, Sumithra Gunasekara, speaking at the opening of Komala's.

Present on the occasion were Chairman JKH Mr. Vivendra Lintotawela, Mr. R.T.E. Sekar proprietor of Komala's, as the John Keells Holdings' Boards and several other invitees

Since opening its first outlet in Upper Dickson Road, Singapore in early 1995, Komala's has caught the attention and taste buds of food lovers from around the world.

Today there are Komala's restaurants operating in Singapore, Oman, India and Malaysia, and of course now in Sri Lanka.

DHL picks Sri Lanka to launch "Fashion 1st"

An international air express service has picked Sri Lanka among several countries in South Asia and Indochina to launch its new service aimed at the regional garments' industry.

"We picked Sri Lanka as the first country in the region to launch this new service as you have one of the most sophisticated markets in this industry today," noted Malcolm Rees, area director of South Asia & Indochina of DHL Worldwide Express.

He told reporters last week that "DHL Fashion 1st" was a business solution targeted at enhancing the competitiveness and efficiency of the textiles and apparel industry in Sri Lanka "Textile and apparel exporters are looking for an air express and logistics partner who truly understands their needs to minimize their inventory overheads and streamline business processes. The textiles and apparel industry will find DHL Fashion 1st fast, simple and reliable to use, in particular during the sampling period where on-times delivery of textiles and apparel samples to overseas buying houses are most crucial. DHL is pleased to be able to facilitate trade and help customers remain competitive in the marketplace," he said. What sets DHL Fashion 1st apart from DHL's other proven services are two additional innovative features that directly address the industry's need for speed and reliability: the clearance-in-air facility and them m-Track system.

DHL's customs expertise includes free customs brokerage service from DHL staff who have received intensive training to handle the tedious customs regulation process. Local staff were trained by specialized sales and services staff from the DHL Singapore regional office before the launch.

DHL Fashion 1st has also responded to customers' special packaging needs by ensuring that there is a wide range of different-sized boxes for every shipment. DHL has designed three boxes exclusively fro textiles and apparel export, one of which is a new Garment-on-Hanger especially for high-value samples and samples required for photography.

All boxes are built with a high compression strength of 300kg to ensure that contents arrive crease-free and in original shape. The boxes are also designed to prevent pilferage. In addition, all textiles and apparel shipments that contain the visa form are shrink-wrapped for greater security. Similarly, customers can look forward t DHL's flexible pick-up and delivery schedules as DHL understands that different sampling periods require different schedules. This is made possible by DHL's close alliance with all major commercial carriers to give its customers unrivalled flexibility and superior service.

The power crisis: Is there a way out?

"Demand for power is growing at over 100 MW per year and new power plants are not being built at this rate"

There have been a number of recent press reports relating to the 25% surcharge on electricity rates imposed by the Ceylon Electricity Board (CEB) and the power crisis facing the country in the form of expected power cuts in the coming months and substantial shortfalls in the generation capacity of the country in the next few years.

The President of the CEB Engineers Union, Dr. T. Siyamabalapitiya, as a power sector expert and other authorities have all stated that lack of rainfall and stored energy in the CEB's hydro reservoirs is not the reason for the crisis.

They have argued that the crisis has arisen primarily because the CEB has not built the power plants it had identified in its own generation plans of more than five years ago as being necessary to be built if projected consumer load growth was to be met.

Reference has also been made to the very high price (around Rs. 12.50 per kWh) being paid by the CEB for purchasing 58 MW of temporary power from a company by the name of Aggreko compared with the average of approximately Rs. 5 per kWh charged by the CEB from its consumers.

The CEB has projected that the Aggreko plant will produce 342 million kWh during 2001 costing the CEB Rs. 4,275 million (at Rs. 12.50 per kWh), compared to a revenue from sale of the energy of only Rs. 1,710 million (at Rs. 5 per kWh). This revenue loss is a major contributory factor to the financial crisis faced by the CEB that has necessitated the 25% surcharge on consumer prices.

While we agree that the crisis could have been averted if the power plants identified in the CEB's generation plans had been built, the CEB has also not paid sufficient attention to another option available to it which could have substantially reduced or even eliminated the crisis and resulted in very large improvements in the CEB's finances, which in turn would have eliminated the need for the recent surcharge.

In particular, CEB's policies over the last five years have not actively encouraged renewable energy based small power producers, particularly small hydro power plants, which could have provided the entirety of the power purchased from Aggreko at a small fraction of the price paid to Aggreko.

At present 12 MW of small hydro-power plants are connected to the CEB grid and a further 18 MW are under construction. The total potential for small hydro power in the country is around 300 MW which is 30% of the capacity of all large hydro power plants (including all of the Mahaweli plants) existing in the country today. A typical 1 MW small hydro power plant produces around 5 million kWh and 68 MW of such plants could have produced the entire 342 million kWh produced by the Aggrico plant during 2001.

The reason that 68 MW of small hydro power plants are not developed and connected to the CEB grid today is because of the very low prices paid by the CEB for power produced by such plants. During the year 2000 the CEB only paid Rs. 2.75 per kWh for such power and it has just announced that it will pay Rs. 4 per kWh in 2001 for power produced by small hydro power plants. Even the latter amount is far below the Rs. 12.50 per kWh cost of power purchased from Aggreko and substantially below the Rs. 7-8 or higher that the CEB is paying to other large private power producers supplying electricity to the CEB grid.

Furthermore, the CEB has determined that just the fuel, operation and maintenance cost (excluding any cost of capital) of the CEB's Kelanitissa gas turbine plant (which uses diesel), from which it projects to generate 218 million kWh in 2001 will cost Rs. 10.24 per kWh and the corresponding cost for its New Kelanitissa gas turbine from which it projects to generate 725 million kWh will cost Rs. 8.29 per kWh.

A kWh produced by a small hydro power plant is identical in every way to a kWh produced by any other means and there is no justification for the much lower prices paid to energy supplied by small hydro power plants. The reasons that the CEB can pay such low rates to small hydro power producers is because such producers are required by law to only sell their power to the CEB and they therefore have no option but to accept whatever price is paid by the CEB.

The question could well be asked as to why small hydro plants of 12 MW have been built and a further 18 MW are being built with such low prices.

The reasons for this are two. First, the CEB rates paid to small hydro power producers has varied widely over the years and the price paid in 1998 and 1999 were substantially higher than that in 2000, and higher than what is to be paid in 2001 in real terms (when inflation is taken into account).

The earlier higher prices encouraged developers who expected prices to continue to increase with inflation. In practice the prices came down and a number of the developers are facing financial crises today. The second reason is even more important from the point of exploiting the full potential of small hydro power in the country.

In particular, the capital cost of building small hydro power plants vary widely from site to site, from $1-2 million per MW. Developers have naturally attempted to first develop the cheapest sites leaving the remaining sites to be developed only with substantial price increases. The 30 MW which have been built and are under construction are the lower cost sites and these will soon be exhausted with the present CEB approach to paying for small hydro power.

Another factor that has retarded the development of the small hydro sector is the volatility in power purchase rates under the present CEB rate mechanism. The very high capital cost of small hydro power plants means that developers must arrange for bank loans to cover a substantial portion of these capital costs. Banks, in turn, want to be assured of a stable revenue stream to pay back these loans.

Therefore, stable power purchase rates are assential if the potential of the small hydro sector is to be achieved. Small hydro developers have consistently argued that a stable rate of $0.06 (Rs. 5.20 at present exchange rates) per kWh would be sufficient for the full potential of the sector to be developed.

If the CEB had offered such a rate over the past 3-4 years there is no doubt that over 70 MW of small hydro power plants would be connected to the grid today, more than sufficient to offset the power purchased from Aggreko by the CEB in 2001, and saving the CEB and consumers Rs. 2,500 million for this year alone since it would have paid Rs. 5.20 per kWh instead of Rs. 12.50 per kWh for this power.

This benefit is available not just for 2001, but for the next 30 years, since small hydro power plants have very long lifetimes.

The policy of the CEB to pay the lowest possible rates to small hydro power producers in order to reduce the short run (immediate) costs of CEB power has stunted the growth of this sector and actually resulted in higher costs to the CEB in the longer run for purchases of higher cost power from larger thermal power producers and by high cost generation from its own thermal plants.

Demand for power is growing at over 100 MW per year and new power plants are not being built at this rate.

As Dr. Siyambalapitiya has observed in some of his recent articles in the press, power shortages are bound to increase in the future and the country will be facing a serious problem in the years to come.

The symptoms that resulted in the power crisis this year, which has prevented the CEB from building the power plants identified in its own generation plan, cannot be readily eliminated.

The Government and the CEB need to therefore take whatever steps are available to ensure that alternate sources of power supply, which are not affected by these symptoms are tapped to the fullest. The small hydro power sector is one such alternate source which has the potential to contribute significantly if the right pricing policy is put in place.

Private sector investors are waiting in the wings to make substantial investments in the sector provided the pricing policy is appropriate. We urge the Government and the CEB to take cognizance of this potential and introduce a flat $0.06 per kWh rate for power purchases from the sector.

-Grid Connected Small Power Developers Association

Markets

• First Capital – Money Market
• Tea Update

First Capital – Money Market

Call money market

During the short week ended February 22, despite the liquidity shortfall remaining at higher levels the inter bank money market rates held stable. Eased demand pressure in the money market helped the call money rate settle in between 23% and 24%. The liquidity shortfall depicted further aggravation as it reached Rs. 32Bn mark. The weekly call money average plummeted by approximately 40 basis points to 23.77% from 24.18% of the previous week. The term money market remained virtually unchanged and the one month term was continued to quote at 22%~23%.

The unchanged Central Bank open market operations rate held the overnight market repo rate at 23%.

Open market

Yet for a another week the Central Bank's Open Market Rates, repo and reverse repo rates remained persistent at 20% and 23% respectively. During the period the reverse repo window of the Central Bank released Rs. 125.4Bn, averaging Rs.31.35Bn a day. The Central Bank reverse repo window will continue to bridge the liquidity gap in the money market, while the Central Bank's reverse repo rate will continue to guide the interest rate structure.

Treasury bill auction

In the treasury bill auction held during the week Rs. 3343Mn worth of bills were offered to the market. Though the auction in general was well supported by investors, the 182 days category was under-subscribed. Given the unimproved investor sentiments, once again the bids were at higher yields.

For yet another week, the yields of all categories climbed up. The highest gain was recorded in the 364days category. Given the prevailing liquidity shortfall and the weakened fiscal out look the short-term interest rate is likely to remain under pressure.

Treasury bond auction

Rs. 2500Mn worth of 2-year bonds were offered at the auction held during the week. Given the prevailing interest rates, a flow of funds towards fixed income securities continued and bonds attracted most of them. Hence, the auction was well subscribed and the Central Bank accepted the full amount.

Though the auction was well subscribed, cautious investors expected higher yields. Given the prevailing economic fundamentals and the short-term interest rates, the investors continued to increase the expected yields for longer term maturities. Hence, the 2-year bond yield surged by 31 basis points to reach 22.03.

The investors are likely to bid for higher yields until they get strong evidence and confidence of an improvement in the economic fundamentals.

Foreign exchange

During the week the weakened demand for dollars helped rupee to be range at Rs. 86.10 to Rs. 86.20 against the US currency. The trading volumes remained thin and the spreads were narrow.

The market spot closed at Rs. 86.12 to Rs. 86.15, as against the Rs.87.10 to Rs. 87.28 of the previous week. The rupee depreciation as at end of the week stood at 4.%. The forward premiums edged slightly with the lowering of the term interest rates. Three months forward was quoted at Rs. 89.55 to Rs. 89.95, while six months forward was quoted at Rs.93.65 to Rs. 94.10.

Treasury bond

Maturity 23-Feb-03
Coupon 13.00
Amount
Offered Rs.Mn 2500
Amount
Accepted Rs.Mn 2000
Weighted
Average 22.03
Change 0.31

Treasury Bills

91 ` 182 ` 364

Last Week 19.79 19.97 21.00

This Week 20.20 20.60 21.64

Change 0.41% 0.63% 0.64%

Tea Update

The annual event has begun. Hints of plantation workers planning to go on strike are surfacing and in one reported incident, union leaders are said to be carrying out secluded prayer meetings in Hatton.

Asia Siyaka Commodity Brokers reported that attempts were made to launch protest despite the plantations obtaining a court injunction to block any strike. However, officials believe that plans for a strike would loose momentum in the weeks to come.

The increasing cost of living has provided yet another opportunity for workers to push plantation owners to pay a reasonable wage.

However, this scenario is not new-fangled, as at the beginning of each year. For many years now, plantation unions have attempted to increase wages to justify the increasing cost of living. While plantation owners keep making excuses to delay the process, they too feel the pinch. The process concludes with a partial agreement on both sides only to crop up again in the new year.

Both parties have reasonable arguments to justify their action and both parties are affected by the increase in cost of living, but they take too long to come to an amicable settlement. This results in a build up a backlog of teas, decrease in good quality teas and subsequently a plunge in prices, making the situation even worse than it already is.

Computing the dollar

Last month's devaluation of the rupee prompted the Ceylon Chamber of Commerce to revive a proposal mooted in the early 1990s to put tea under the hammer at dollar prices.

So far a committee has been appointed to resurrect the matter, but officials say that it might be shelved and introduced with the proposed online auction system.

A detailed report is expected shortly. However, it is understood that the online auction system might take some time to be implemented. In the meantime, the committee appointed to reopen the dollar auction system has run into one notable snag. They believe that local buyers might find it difficult to participate in the auctions. So far, proposals include auctioning teas to local buyers at the day's dollar rates.

Currently, dollar-based auctions are conducted in markets like Mombasa and according to reports other countries other than Sri Lanka are also considering the dollar-based auction system.Last year alone, around 300 million kilos of tea were sold but failed to realise any material dollar gains.

In general

The low grown market that took the limelight throughout last year and even in January this year is slowly loosing its shimmer. Brokers say that the low grown segment is witnessing a market correction. However, this trend has struck only the low end of the category so far though brokers say the high end would catch up. But they do not expect a significant drop in prices.

Meanwhile, the January tea price average is up, but this does not seem to have made a big impact as it has on previous occasions. Officials say that they would be more pleased if the dollar prices showed impressive gains. The average for January rose to Rs. 154.93 from the previous year's January average of Rs. 130.

The quantity sold also saw a significant increase in January as total quantities went up to 30 million kilos of tea from only 22 million approximately in the same month of the previous year.

Brokers say that the market would continue its rosy trend in the short term.

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