3rd February 2002

The Sunday Times on the Web















LAUGFS in amended deal with CPC

By Akhry Ameer

LAUGFS Lanka Gas has signed an amended MoU with the Ceylon Petroleum Corporation (CPC) - to purchase CPC's supply for commercial and industrial purposes at Rs. 20,000 per tonne, officials said.

The original agreement allowed LAUGFS to purchase CPC's supply only for domestic purposes at Rs. 15,000 per tonne. The latest agreement was finalised in mid-January.

LAUGFS chairman W.K.H. Wegapitiya said they sought this relief only as a temporary measure until their domestic LPG cylinder market demand stabilizes. The company, which started operations a few months ago, found that it was able to dispose only about 80 percent of CPC's supply in domestic cylinders. However, this figure is much higher and the company is expected to start importing LPG shortly to meet growing demand.

Meanwhile Gas Auto Lanka (Pvt) Ltd., a member of the LAUGFS group, had an injunction against it revoked, enabling the company to resume operations on Thursday.

Four independent auto gas dispensing companies last week sought an order in the Commercial High Court restraining Gas Auto Lanka from operating its filling stations on the grounds of unfair competition and that it was using an illegal supply of LPG.

The charge was that LAUGFS which supplies LPG to the 11 filling stations of Gas Auto Lanka was using LPG obtained from CPC that should have been used for domestic cylinders.

Last week Shell Gas said in a statement that it was prepared to buy half of CPC's LPG supply - sufficient for 60,000 cylinders per month - and sell it at a special price of Rs. 350 per cylinder to lower income segments. Shell's current market is around 400,000 cylinders.

Operation 100 days - too much hype

The government's much-touted 100-day programme appears to have failed to generate enthusiasm among investors and the public, with the 25-day progress report, released last week, passing virtually unnoticed.

"There are some good points there, but a lot of hype too," was how a senior executive in a big company quoted on the stock exchange summed up the issue.

"It's a little too early to make an assessment," he added. "The government is making the right noises. We must give them a little time. Obviously, people want things to happen faster but the reality is that things do not happen overnight." Many businessmen and stockbrokers were unaware of the finer points of the programme and confessed to have "not read in detail" the ads promoting the initiative.

"The economy needs an intense, short-term programme of this nature to get things moving because things had come to a standstill last year," said Dushyanth Wijayasingha, head of research at Asia Securities. Asked about market perceptions of the programme, he said there was probably a "communications gap" between the government and the private sector, with a need for a "more clear-cut action plan".

Radhika Jayasundera, assistant vice president of research at DFCC Stockbrokers, said most people were unaware of the specifics of the programme. The United National Party ran full page ads on November 18 last year on what it called "Operation 100-days", an action programme whose progress the public would be able to monitor every 25 days. Some of the programmes recently listed under the initiative are not new and were started under the previous regime, a good example being the Colombo Port projects to deepen the entrance channel and harbour basin.

Patrick Amarasinghe, a former head of the Federation of Chambers of Commerce and Industry, said expectations among businessmen and the public appeared to be running ahead of practical realities. "People are a bit impatient. They expect wonders to happen overnight," he said. "We're coming out of a long, bad spell. The business sector expected a quick pick-up in the economy. But the government can't do it overnight."

The senior executive of the quoted company said the peace initiative was "heading in the right direction, but we know these things take time." Ceylinco Group chairman, Lalith Kothalawela said the peace effort had "paid dividends" with the release of prisoners, an air of freedom and the opening up of the north and east.

Amarasinghe said companies still face cash flow problems. "Now, most people are waiting for the budget," he said. "Things have moved fast in the peace effort but the economy has not got going yet," he said. "The power cuts are a big problem, banks are still very tight and the cost of living has gone up since the government came to power." He said he believed the government will gain more confidence if it cuts down wasteful political expenditure such as the provincial councils and "rationalised" holidays.

Will the new COL track prices accurately?

By Dr. S. Colombage

An accurate indicator to measure the consumer price changes in the country has been a long-felt need. The official price indicator, the Colombo Consumer Price Index (CCPI) computed monthly by the Census and Statistics Department (CSD) is five decades old. A major drawback of this index is its outdated consumer basket. In addition to the CCPI, there are several other consumer price indices. The Greater Colombo Price Index (GCPI) computed by the CSD covers a wider geographical area and it is based on a more recent consumer basket. The Central Bank is also involved in compiling consumer price indices for the districts of Colombo, Matara, Anuradhapura and Matale. It has been pointed out in various forums that publication of a multitude of price indices by different agencies give inconsistent signals to the market and as a result, the users find it difficult to choose the most realistic inflation indicator for their purposes. In particular, it is emphasized that the Central Bank, which is given the prime task of maintaining the country's price stabilisation, should not get involved in price data compilation as it could leave room for manipulation.

The consumer price indices are used for tracking inflation and the cost of living. They are computed by using the prices of the "market basket" of necessities like food and beverages, clothing, housing, transportation, entertainment, and medical care. Consumer price indices are used for policy formulation in both private and public sectors. Wages are adjusted periodically using these indices.

The CSD announced last week that it has taken steps to launch a new inflation indicator called the 'Sri Lanka Consumer Price Index' (SLCPI) in coming weeks. This new index is to be compiled in parallel with other indices for a trial period of six months. Eventually the new index is expected to replace the CCPI and other price indices. It is reported that the new index will cover the entire island except the northern province. The rationale for this extensive coverage is that the present price indices are restricted to the Colombo district and therefore, they do not represent the price movements in the rest of the country. It is also claimed that the new index is more realistic as it is based on a consumer basket derived from the income and expenditure survey conducted in 1995/96. Thus, the SLCPI captures the changes in the consumption patterns of households in the 1990s. The SLCPI is also said to have a wider coverage of households as it takes into account the top 80 percent of households in the income brackets. Thus, it covers not only the lowest income group as in the case of the CCPI, but also the middle and upper income groups.

Taking all these factors into account, the introduction of the SLCPI can be considered a welcome move. But this index too is likely to be hampered by several drawbacks. The consumer basket used for this index seems to have been outdated by now, as five years have already elapsed since the execution of the household survey of 1985/86, on which the proposed index is based. Although the CSD could be happy about the capability of the SLCPI in capturing the price developments of the entire country, the reliability of the index, or any other index for that matter, depends on the accuracy of the price data used. As the data for the index is to be collected from all areas of the island, the CSD will have a tremendous task in monitoring data collection at the field level. Unless there is strict and close supervision, the quality of the data is likely to diminish. This trade-off between the data quality and extensive geographical coverage needs careful consideration.

Acceptability is another dimension to be considered in releasing price indices. Despite all its weaknesses, the CCPI is still acceptable to the parties concerned the government, private sector employers, employees, etc. The GCPI and other price indices do not have such common acceptance. The success of the proposed index will, of course, depend on its acceptability.

More Business
Return to Business Contents
Business Archives


Please send your comments and suggestions on this web site to
The Sunday Times or to Information Laboratories (Pvt.) Ltd.