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16th January 2000

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Black Gold gets dearer

Local petrol prices might be raised as world oil prices doubled since last February. Therefore sources following the trends in the oil industry said last week that petrol prices might see an increase also to recover the increasing cost of crude oil.

However, Ceylon Petroleum Corporation (CPC) officials declined to comment on any likely changes and said that prices would not be increased. They said that it was the Cabinet that decided price changes and not the CPC.

But sources say that the large margins the CPC levies over petrol prices to subsidise diesel and kerosene, would not be enough to offset the present increase in world oil prices. Industry analysts say that due to this rise in world oil prices since last February the CPC has been cushioning a loss and that it would be like adding fuel to an already blazing flame. They also said that if any price increases were to be made it would be made only after the upcoming general elections.

Economic analysts commenting on the issue said that the rise in world oil prices was one of the reason for the forecast of a higher rate of inflation over last years five percent. The shrinking trade balance witnessed last year is also widening again and rising oil prices is one of the main contributors market sources said.

The auto industry is also set to slow down if petrol prices increase as the demand for petrol driven vehicles would drop. In addition the demand for petrol is also expected to come down in the case of a price rise.


Forbes cries foul

The controversial Forbes deal has run into further storm with Forbes Ceylon Ltd demanding Rs. 625 mn from Mercantile Merchant Bank Ltd (MMBL) for breach of agreement.

Forbes chief Justin Meegoda confirmed they had sent a letter to MMBL last week, but said he preferred the contents of the letter would remain confidential.

The Sunday Times Business however, learns that Meegoda writing to MMBL's chief Milinda Moragoda says, that despite MMBL's assurance that they are committed to ensure the transaction's successful completion, 'no meaningful steps have been taken, despite discussions initiated by MMBL.'

Therefore, we "are left with no option but to proceed to enforce our rights under the agreement and accordingly hereby call upon yourselves in terms thereof to pay to us immediately the sum of Rs. 625 mn."

He also adds that Forbes Ceylon Ltd (FCL) reserve 'all further rights under the said agreement and in law consequent upon your [MMBL's] breach of the agreement.'

Moragoda said they have repudiated the letter 'since there is no default on their part'. "However, we are still trying to move the deal forward and are hopeful we can move it in some direction."

Vanik acquired FCL in 1997 by buying out its two biggest shareholders Canada's Global Equity Corporation and Asia Capital Ltd.

Vanik cancelled the deal structured on August 27, 1999 worth Rs. 625 mn last November, as MMBL had failed to cough up Rs. 130 mn due to FCL on October 29. Under the original deal, MMBL was to pay Rs. 625 mn over a four-year period ending December 31, 2000.

Vanik disclosed last October that MMBL had not paid the initial payment of Rs. 200 mn, due in two Rs. 100 mn instalments by October 26.

With the initial delay, MMBL and Vanik entered into a supplementary agreement on October 29, which gave MMBL time till November 5 to settle the delayed payments and the second instalment due on or before November 23.

But MMBL failed to honour the supplementary agreement and Vanik later decided to not to hold open the deal's exclusivity to MMBL. Instead, Vanik said, that the deal was open to other interested parties.

Since then, there has been some interest from a leading plantation management company for Kahawatte Plantations and a few others for F&W Ltd.

The original deal outlined that F&W senior management would take up 26% of the new ownership structure, while MMBL would organise a consortium of foreign and local investors, through MMBL Resource Holdings for the balance 79%.

As the weeks trading closed, Vanik shares were trading at Rs. 3.25.


Mind your Business

By Business Bug
Drinks war hots up

The soft drinks market is a very competitive one and remains so despite the cola war being rather one-sided, right now. New market strategies are being sought by companies eager to gain even a small advantage in market share.So,we will soon see a popular brand of soft drink in paper cartons- the advantage being in the slashed prices. A major promotional drive is also being planned to herald the transition, but the company is yet to get the go ahead from the trademark owners, we hear...

Gas wars

New regulations stipulating standards for the conversion of vehicles from petrol to gas are expected to see the light of day soon- but it will not be without a fight.If these standards debar the use of the domestic gas cylinder in vehicles, the issue will in all probability end in courts.On the one hand, many conversion companies which utilize the domestic cylinder method are grouping together to contest the issue and insurance companies on the other hand are seeking their own legal advice, we hear.Either way, litigation is the most likely outcome, those in the industry say...

It's budget time folks!

And now that the polls are over it is budget time once again. And what will the black box be like this year? Parliamentary polls are around the corner and one would have expected a sunshine budget just to keep the voter happy. But it will not be so, boys in the Treasury say. The instructions are to prepare a stringent budget that will offer few luxuries for the masses.The thinking is that the budget will be early in the year; the polls will be as late as constitutionally possible...


CGE shares take a tumble

Shares of Ceylon Grain Elevators (CGE) tumbled to Rs. 20 last Friday amidst rumours that the Customs Department has refused to clear CGE shipments until a previous fine was paid.

Market analysts say the Customs Department move amounted to a contempt of court, since the case regarding the fine was still pending before courts.

The company too has not made any announcement as to the resolvement of the case.

Customs officials imposed a Rs. 1,194 mn penalty on CGE in July 1998, over a controversial sale of poultry feed to local traders.

CGE appealed against the fine, and the matter is now before the Court of Appeal since August 1998.

The delay is not caused by the petitioner but by the respondent, a legal source said.

A CGE official said there was no reason for their shares to dip, since the shareholders were aware the company was trying to resolve the dispute.

"We are hoping to resolve the matter soon and are confident justice will prevail," the official said.

The CGE was incorporated in 1982 following an agreement between the Sri Lankan government and Prima of Singapore.

The agreement gave CGE to mill and produce poultry and animal feed.

Subsequently, CGE was given an almost monopoly to import maize duty free and the company was importing by the shiploads.

Over the last six months the poultry industry has gone through a glut period and prices fell below the cost of production.

However, the industry has rebounded strongly thanks to millennium celebrations and it appears the prices have regained their former levels.


Ken to step down

Ken Balendra, Chairman of the giant John Keells group and one of Sri Lanka's top business personalities, is due to retire from the company later this year, a company official said.

He said that Balendra, on retirement, would be replaced as chairman by Vivendra Lintotawela, currently deputy chairman of the Keells group. His position, as deputy chairman, would be filled by Jagath Fernando, one of the most senior members of the Keells directorate.

The company official, also a director of Keells Holdings, said the changes in the board have been already announced to company staff. "The changes are in keeping with company policy that a director retires when he reaches the age of 60 years like in the present chairman's case," he said.

Balendra was not available for comment as he is abroad on a business trip.

A former tea planter and top-class ruggerite, Balendra took over as head of the Keells group in 1990 from Mark Bostock, the last of the Europeans to run the once-traditional tea and rubber broking house.

Under Balendra, the Keells group saw a phenomenal expansion in exports, trading, financial services, computers and information technology, tourism and hotels.

Hotels include the ones that came up in the Maldives along with new ones that are due to come up in India and the catering business like Pizza Hut for instance.

In recent months, the Keells chairman has been actively involved in the business community initiative to broker peace between the government, the opposition and the LTTE in an effort to find a solution to end the ethnic conflict.


Paris Aid meeting next month

By Dilrukshi Handunnetti

The twice-postponed Paris Aid Group will meet here in Colombo next month with a view to ascertaining the true socio-economic picture of the country before converting it into a pledging conference.

Authoritative sources said that the current political instability coupled with poor economic indicators have caused concern among the donor community which at the very outset declared that the scheduled December meeting which did not take place would not be a pledging one.

Several issues of good governance, macro economic policy, privatisations, restrictions on media and the deteriorating record of human rights have all contributed to the donors reluctance to invest here.

In this backdrop, the source maintained that several representatives from the World Bank and the International Monetary Fund (IMF) will be visiting the country in the next few weeks to study the ground situation.

Sources also confirmed that before the proper meeting takes place in February, these representatives are also expected to meet members from both the government and opposition to discuss the country's financial situation, the burdens placed on the economy by the war effort and other issues of good governance.

The source also said that there was a possibility of the Opposition UNP making special representations to the donor community on human rights and the violations of the election laws during the recently concluded presidential polls. Human rights and media culture has always been used by the donor community as yardsticks of prudent governance.

The February meeting is expected to be a decisive one not only financially but also politically as representations are to be made on various other issues, which might reflect on the international front.


Sidetracked FTA hopes to see the light of day soon

By Feizal Samath

Sri Lanka's long-delayed fast-track trade liberalization deal with India may finally be implemented by mid-2000 as major bottlenecks appear to have been overcome, says Central Bank governor A.S. Jayawardene.

Mr. Jayawardene said that the agreement - signed between the leaders of India and Sri Lanka more than a year ago but not implemented due to delays in finalising the negative list - would open new vistas for trade between the two countries.

"The Trade Minister Kingsley Wickremaratne told me, a few days back, that he would be travelling to India very shortly to finalise the negative list. There have been problems on tea and garments exports to India and in both cases there would now be a quota for these two items," he told the Sunday Times Business in an interview. He said India was reluctant to allow tea and garment imports, so both sides have worked around that by deciding on quotas for the two products.

The Central bank governor said that if the negative list was finalized by March, then free trade between the two countries - except for items on the negative list - could begin as early as April.

Once the Indo-Sri Lanka trade agreement is off the ground, Sri Lanka would become an attractive place to invest. "One can invest in Sri Lanka and trade in India because Sri Lanka is a better place to operate than in India. I think this agreement would draw some additional investment here," Mr. Jayawardene said


New approach to a food drive

News that the government is to undertake a food drive is welcome. It is welcome for several reasons. First, because there is an expectation that it may signal a coherent and consistent agricultural policy. Second, because we expect it would strengthen the implementation of agricultural policies. Third, because we hope the institutional capacity of the government to bring about an improvement in our agriculture would be greatly strengthened as part of this drive.

The last time we had a food drive was during the premiership of Dudley Senanayake in 1965-70. This drive was characterised by several features. The personal involvement of Mr Dudley Senanayake, the primacy given to agriculture in economic development policy, the setting of targets and monitoring of performance and strengthening of the government machinery to achieve the targets.

We do not know the elements of the new Food Drive.Nor are we certain it would take off. One thing however is certain, that it cannot be the same as we had before. Times have changed. The country is in a different mould to what it was in the mid sixties. Not only has the international environment changed, but Sri Lanka's economic structure and the agrarian conditions of today are vastly different. Most important too are the sociological changes which have occurred in the past two decades. These changes imply that the new directions in policy and strategy should take cognisance of these changes. This does not mean that some aspects of the earlier strategy cannot be adopted. Certainly the instruments for the implementation of agricultural policy such as the setting of targets and monitoring may play a useful role.

It is not within our competence to suggest the detailed strategies that should be adopted. What we can do is mention a few aspects which should be taken into consideration in implementing a food drive. The most important aspect is the need to spell out the policy very clearly and indicate to the farming community the period during which there would be no basic changes in the policy. Foremost of the agricultural policy issues is the policy stance with respect to the import of food crops. Some degree of price stability and minimum prices are needed to ensure that farmers would cultivate perishable food crops. The instability to food prices, however arise not only due to food imports , but also due to unsatisfactory marketing facilities. An important component of a food drive must be the improvement of the marketing, storage and processing of agricultural produce. These are important areas in which the government has to take an active part. No longer is it adequate to concentrate on the increased production of crops. Production would in fact respond to improvements in effective demand brought about by improvements in the marketing of produce. Without it farmers are unlikely to respond to other measures to increase production. The bonus in this approach is that consumers too would benefit. This is because improved marketing, storage and processing would reduce market margins, stabilise prices and reduce post harvest losses.

Much has been spoken of the neglect of the agricultural extension system. There is no doubt that it is vitally important to have an effective extension network. Yet what we need today is a vastly different system to that of the past. Our farmers are no longer ignorant of good farming practices, they don't need the persuasion of extension workers and above all they are literate and knowledgeable about the outside world. Therefore we need an extension system which would be an effective link between research and the farming community. The methods of conveying information could be both cheap and effective if the proper literature is made available and television and radio are used more extensively to disseminate the most useful advice to farmers.

The time is certainly opportune for an aggressive agricultural policy, whether it be called a food drive or by any other name. Two elements are extremely important. Getting the policies right and their effective implementation


Focus on key economic schemes

In this "millennium" issue we look at some of the key ecomomic themes impacting investment returns in the 1990's and examine how they might play out over the next ten years. The two most dominant themes are likely to be technological change, particularly the internet and globalisation. Together these are the key elements of the so-called "new economy" with faster productivity growth and strong disinflation forces. If the improvement in productivity is for real, it is great news, but the uncertainty about its extent has created new risks for central bank policy as well as for markets.

Inflation to stay low but not fall further. For investors this means that bonds will con tinue to outperform cash but not by as much as in the 1990s, while the big gains in stock markets from the expansion of PE multiples may be over. Profit growth will be the key to stock market performance and it is likely to be a stock-picker's market.

Free market reforms may slow after the rapid pace of the 1990's because the remaining reforms are harder to do. Possible exceptions are China, India, Turkey and Russia.

Globalisation to continue, with governments struggling to catch up . Globalisation supports low inflation and strong profits growth.

European integration will continue. The full effects of the single market, supported by the single currency are only just beginning. The result should be an improvement in average GDP growth and profits growth, and continuing low inflation.

US outperformance subsides.

There is a risk of a classic "mean reversion", which would see returns on US stocks much lower in coming years.

Japan finally recovers.

The government may now have done enough to create a self-sustained upturn and the private sector is reforming more rapidly. Good for stocks and the yen.

The focus on shareholder value to continue.

This points to buoyant profits growth, supporting stock markets.

Technological change will continue to be rapid.

For investors this will help to keep inflation low and profits growing strongly. But there is a lot of optimism already built into technology stocks.

Emerging markets to perform better.

New reforms since the Asian crisis and the modest starting point suggest a better outlook.

Alternative investments will proliferate.

New technology will help with distribution while the search for yield and for diversification will mean increased investor interest.

A new Economy?

Expectations are high that the new millennium will mark the start of a new economic era with accelerating productivity and incomes growth, permanently low inflation and huge new opportunities for profits. Much of this excitement is in the United States, supported by the spectacular performance of the economy in the last 4 years and the rapid spread of the internet. For most other economies the last few years have been difficult ones and enthusiasm is more muted. But the signs are that the new economic model is real and will spread.

The two key drivers of the new economy are "globalisation" and the computer and telecom revolution, which combine in the internet. The significance of the internet probably lies somewhere between the motor car and the industrial revolution. In other words it is probably at least as significant as other great technological revolutions such a railways, cars and electric power. But some observers claim that it may represent a change even more profound, like the industrial revolution which marked a complete change in the application of technology and the pace of economic growth.

The Internet is starting to affect the full spectrum of economic activity by increasing the availability and speed of information and by reducing the importance of physical location. This is likely to result in efficiency gains, boosting productivity growth, but also intensified competition between producers, as the cost of searching for the best price is dramatically reduced. Globalisation, in its widest sense has similar effects. Costs are reduced by taking full advantage of different nations' comparative advantages while, by broadening the market, competition is enhanced and scale economies are achieved.

Economic consequences

The key impact of the new economy is faster productivity growth, which brings faster growth of living standards, more rapid profits growth and downward pressure on inflation. Over the last three years non-farm output per hour has averaged 2.5% p.a. in the USA versus the historical trend of 1.1%. Many mainstream US economists believe that this trend can continue. Perhaps half of the improvement is due to a change in the way the government is calculating the numbers and half is a new acceleration.

Some new paradigm theorists argue that productivity growth can accelerate further. However skeptics argue that it is too early to conclude that even the acceleration seen so far is sustainable. It could just be a reflection of rapid growth of demand. And one academic study, by Robert Gordon, found that most of the gain in recorded productivity so far is due to massive productivity gains in the production of computers (ie not their use).

It is hard not to be impressed by the possibilities of the new technologies and the speed at which they are being introduced. However, a faster rate of growth of productivity will not eliminate recessions or financial instability. In fact the uncertainties it creates could increase the risks. So while the new economy does point to an excellent long term outlook for investments in both bonds and stocks. it will not eliminate cycles and setbacks. There are three particular concerns.

First, central bankers have a more difficult job now. If they take too little account of the change in the economy then they risk causing an unnecessary recession. Alternatively if the gains from the new economy come through more slowly than they expect them the old problem of inflation will re-emerge and they will have to tighten sharply, also bringing a recession.

Secondly, globalisation could break down. The failure of the WTO meetings is illustrative of the resistance to globalisation. Political resistance could mean that globalisation is slowed down or even that new barriers are erected and there is a return to a more geographically-based economy.

Thirdly, the US stock market may be over-pricing the stocks of many of the technology companies at the forefront of the new economy. There are signs of " mania", particularly in those stocks which are not yet profitable. For investors this looks like a very risky investment area.

The new economy does not eliminate recessions or financial instability but, if verified in coming years, it will bring faster growth in GDP, faster growth in profits and continued downward pressure for inflation. These are all good news for living standards and good news for investors.

Ten themes in the 1990's

Disinflation

Continuing a theme which started around 1980, world inflation fell, with some countries, like Japan, China and Hong Kong, experiencing actual deflation in recent years. Latin America escaped from hyper-inflation. Disinflation brought excellent returns for bond holders as yields fell, and higher price-earnings rations on stocks, but smaller capital gains on property.

Free market reforms.

In the 1990's central and Eastern Europe joined the trend towards free market reforms, such as liberalizing prices and tariffs, cutting subsidies and privatizing enterprises. Other emerging countries continued the process, despite the Asia crisis. Notable success stories have been India, Argentina, Brazil, Mexico and Egypt. In the industrial countries the main emphasis has been on privatization, which has spread dramatically in the last decade. For investors, market reforms have boosted profits, slowed inflation and brought strong stock market gains.

Globalisation. The 1990's saw a huge increase in foreign direct investment and in private portfolio capital flows, an increasing trend towards world-wide production patterns by multinationals and a continuing rapid expansion of world trade and increasingly services, boosted by the Uruguay trade round. In tandem global institutions have been strengthening, notably the increased role of the IMF, the introduction of a World Trade Organization with enforcement powers and the emergence of globally organized non-government organizations (NGOs) such as Greenpeace. For investors, there has been an increased availability of investment opportunities globally, but also a renewed focus on globally competitive companies.

European convergence. The Single Market came into force officially in 1992 and has been reinforced by the single currency. Qualification for EMU restricted economic growth in the middle of the decade and hurt stock market returns, but the process of bond market convergence provided very good returns, with periodic volatility.

US economic boom and bull stock market. The US economy, after a sluggish recovery from recession at the beginning of the decade, has grown at an average 4% P.A. over the last 4 years, with inflation stable at around 2%. For investors the stock market has been the place to be in the 1990's rising 293% since January 1990. About half of the gain reflects a higher price-earning multiple and half is due to the rise in profits.

Japanese slump and stock crash. While the US stock market boomed the Japanese market crashed and remains at only about half its peak level.

Japanese GDP growth averaged just 1.7% during the decade, compared with 4.1% in the 1980's. Investors in japanese bonds, though, did well, as yields came down, especially in the early part of the decade.

In the 1980's the Japanese model of consensus decision-making and companies focused on growth was widely admired. In the 1990's the key ideas have come out of the US. notably shareholder value, with its emphasis on return on capital, economic value-added and the widespread use of stock options to motivate employees. Stock markets have benefited.

Computers, mobile phones and recently the Internet have been the most visible new technologies. They have helped to boost economic growth and hold down inflation, both good news for investors. For investors in stocks, many of the technology companies have provided huge gains, but new investors must now pay demanding valuations.

Investor interest in emerging markets rose dramatically in the 1990's. But a series of crises, from Mexico in 1994 to the Asian crisis in 1997-8 and Russia in 1998 brought massive volatility and, in the end, disappointing returns. Latin American stocks and Brady bonds were the stars particularly in the first half of the decade. Asian and EMEA stocks offered poor returns after a good start.

Alternative investments

Hedge funds received a bad name when they were held responsible for currency collapses and then when one of the most prestigious, Long Term Capital Management, had to be bailed out in 1998. But there has been a huge increase in interest in alternative investments, sometimes to raise risk levels, eg., geared plays, sometimes to reduce them, eg., capital protected strategies, and sometimes primarily to spread risks through investments uncorrelated with major markets.

Long term forecasts are notorious for their lack of vision (in hindsight) but we could not resist the temptation to have a go anyway! It is helpful to think about the future in the context of three possible patterns:

A. Extrapolation, or "more of the same".

B. Mean reversion: a return to the average.

C. Something completely new: a "shock".

Shocks are impossible to forecast, almost by definition, though we can certainly note some risk areas, e.g. a political crisis in a major country, a war, a stock market crash, a severe recession etc. Many of the themes below are essentially extrapolations, though there are changes within the broad theme. But, arguably, most investors rely heavily on extrapolation, so these themes may already be priced into markets. Mean reversion may be the most interesting, because it may be the area where investment returns will be the most affected.

There is considerable historical evidence of mean reversion investments.

Disinflation is likely to give way to "low inflation". Inflation targeting, explicit or de facto, is now widespread, so the risk of high inflation seems low. However high government liabilities in Japan and Europe (including pensions) are a worry, while the recent inclination of some central bankers in the US and UK to "test the limits" of the economy could go badly wrong. Probably a greater risk, though, is still deflation, if a recession emerges. Low inflation means that returns on bonds will be lower than in the past but still higher than returns on cash. PE multiples on stocks have already adjusted to low inflation so have little upside.

Free market reform will slow down. Many countries have already taken the easier steps. Further steps in area such as labour market reforms, welfare reforms and more cuts in tax rates may be harder to achieve. "Third way" policies often seem to involve heavy regulation and government intervention (better than government ownership but still costly). Key exceptions will be in countries behind the trend e.g. China, India, Russia and Turkey.

Globalisation continues but governments lag behind. Government responses to the globalisation of markets are likely to be focused more on international rules, "harmonization" etc, and also to strengthen regional groupings.

European integration continues.

Central European countries will join the EU, probably around the middle of the decade. The single currency, helped by the internet revolution, will push European companies and consumers to source on an EU- wide basis. Together these trends will bring large efficiency gains and strong disinflation pressures.

US out-performance subsides.

The unique dynamism of the US economy is unlikely to change but the out performance of the US stock market overall should not be expected to continue indefinitely. If mean reversion really sets in then returns could be very disappointing.

Japan finally recovers.

Another candidate for mean reversion after the horrible economic and stock market performance in the 1990's. But government reforms are painfully slow and the rising government debt could prove a major problem.

Focus on shareholder value to continue

Globalisation of share ownership will bring new pressure on companies world-wide to perform. The implications are excellent for stock market returns over the long term.

Technological change will continue at a rapid rate with the internet revolution, for example, only just beginning.

Emerging markets will be the superior asset class

This is a brave assertion. Partly it is a case of mean reversion after the problems of the 1990's, partly an extrapolation of the trends of more free market reforms and more focus on share holder value. Also it reflects our expectations that returns on US and European stocks and bonds will be lower on average than in the 1990's.

Alternative investments will become increasingly widespread. This trend will likely be driven by the continuing search for new uncorrelated investments. Lower returns on stocks and bonds generally and internet technology which makes product delivery much easier.

Global Overview

With strong economic growth in most regions and rising profits together with substantial corporate restructuring, equities still look like the best asset class for now, particularly in Europe and Asia. US bonds are attractive for the long term investor.

Investment Strategy

Markets are already anticipating further small rises in interest rates in the US and Europe. The main risk is that wage inflation picks up in the US or the UK, which would send yields significantly higher. But current yields in the US and Euroland look good value for the long term. The euro is likely to recover against the dollar next year. UK gilt yields are artificially depressed by a severe shortage of supply. Emerging market bond spreads should continue to close in gradually.

Stocks

The profit outlook looks good everywhere and sentiment is very strong currently. But valuations have climbed to historically high levels, particularly in the US, which suggest that a more cautious approach to US equities may be.


Telecom: Titan clash with minnows

The battle between the incumbent operator Sri Lanka Telecom (SLT) and the two local private operators intensified last week, with the wireless operators accusing SLT of disrupting the interconnection service since last December.

The wireless local loop operators (WLL) are alleging SLT for taking the law into their own hands when the matter of the interconnection is already before courts.

The operators say the telecom watchdog has become a 'toothless tiger' which leaves the WLL operators with no option but to seek legal redress.

Last Monday Suntel (Pvt.) Ltd secured an interim injunction against Sri Lanka Telecom (SLT), for disrupting their service since last December. Lanka Bell (Pvt.) Ltd too has threatened SLT with action if the situation continued to prevail. Lanka Bell CEO Vijay Watson says that SLT's latest stunt is scaring away potential investors.

"We had just got confirmation for a US$ 51 mn debt financing facility. Our shareholder Nortel has indicated willingness to increase their stake, and our supplier GTE has consented to become a shareholder," he said. Watson warned that if the situation continued, Lanka Bell may not get the much needed finances.

Suntel Director Technical Services, Mahinda Herath too expressed similar sentiments. He said, the interim injunction issued by the Colombo District Court last Monday gives SLT time till January 25, to respond to Suntel's charges.

The dispute arose when SLT transferred the WLL operators interconnection links to a new switch on December 7. The interconnection switch routes the WLL operators traffic within the Colombo area to SLT subscribers and links all outgoing international traffic.The next working day after the change, December 13, we found that the call completion rate (i.e. connection of calls) originating from Suntel and Lanka Bell numbers to SLT numbers had been severely hampered.

The call completion rates which was around 45% prior to the change had dropped to as low as 12%. "Initially we thought there was a technical error in the new switch, so we wrote to SLT and asked them to revert back to the old system until the fault was sorted out. But later we found that it was not so, and SLT was resorting to discriminatory route practices," Ramasundara said.

Since then, Ramasundara says they had written to SLT repeatedly complaining of the severe congestion in their network and the lack of any corrective action to solve the problem. Both operators also wrote to the Board of Investment and the Telecommunications Regulatory Commission (TRC) informing them of the serious situation.

In response to the allegations, the TRC convened a meeting of all parties on December 20.

During the meeting, SLT alleged that the private operators were doing some irregular activities and that any irregular traffic originating from the WLL operators would be blocked by the new switch.

While not giving explanations as to what is meant by 'irregular traffic,' the WLL operators say that SLT adopted the ruse of a purported transfer to a new switch deliberately and maliciously taking the law into its own hands to block and disrupt the services provided by them. Meanwhile, a special committee appointed by TRC to look into this matter is yet to make its decision known, private operators say. Ramasundara says, Suntel is seeking a permanent injunction pending the results of an internal inquiry set up by SLT.

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