7th MAy 2000
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Mind Your Business

By Business Bug
  • Second thoughts
  • Double blow
  • To raise or not to raise
  • Second thoughts

    Announcements have already been made about hikes in electricity charges from next month but we hear that the powers that be are having serious second thoughts. 

    An electricity tariff hike will add to the production cost of almost all goods and send the cost of living high and that appears to be the last thing the government wants at this stage when it already stands accused of mishandling the war. 

    So, with a general election mandatory within a few months some in government want the power price hike postponed at least until after the polls.

    Double blow

    With the escalation of the war, the tourist industry will surely be hit even though the theatre of conflict is far, far away in the northern province. 

    And it will be a double blow for the Goods and Services Tax to be imposed on this sector at this crucial stage and several eleventh-hour attempts were made by industry bigwigs to get the enforcement of the tax postponed. 

    But all that was of no avail and tourists will have to grin and bear it- or seek greener pastures and cooler climes.To raise or not to raise

    To raise or not to raise

    And more about price hikes- the state sector telecommunications giant has no such second thoughts: their charges will increase in mid-year as already announced. 

    The question now bothering competitors and the cellular networks is whether they too would cite the state sector precedent and raise their rates or maintain their present rates and try to capture a larger market share. 

    The good news for subscribers is that at least one cellular network and one land-line network has decided on the latter and may even lower some of their rates to try and increase their hold in the market...

    45m euros for Asia

    45 mn euros are up for grabs but takers are few and far between. The European commission allottment of 45 mn euros for its Asia Invest programme which began in 1998 will end in 2002. Funds are available for 15 European countries and 18 Asian countries. 

    At a seminar to promote Asia Invest locally, Asia Invest, Director, Luk Verscoore said their role did not involve finding markets for Sri Lankan exporters but was geared to provide information and training and find business partners. 

    Asia Invest aims to foster business co-operation between the European Union and Asia. "A major portion of the 45 mn euros is still available as not many projects have been put forward," Executive director, European Business Information Centre, Roshan Lyman told The Sunday Times Business. The project started operations in 1998 and will end in 2002. 

    Asia Invest co-finances technical assistance, training programmes and business cultural familiarisation programmes. Up to 50 per cent of the cost of training sessions will be met by Asia Invest with a maximum limit of 60,000 euros per project being imposed. 

    The cost of technical assistance for the transfer of know how will also be provided up to a maximum of 120,000 euros per project with 50-80 per cent of the cost being bourne by Asia Invest. Funds are also available for sectoral business meetings to seek business partners. While 50 per cent of the eligible cost will be bourne by Asia Invest, a maximum of 100,000 euros has been set, for each project.

    Organisations such as chambers of commerce and industrial and sectoral associations representing groups of companies will be provided this type of assistance.

    Asia invest has funded three projects in Sri Lanka. It disbursed 93,000 euros to the processed food sector to identify business partners and bore the cost of a series of training programmes for the printers association. 

    It has also approved the funding of a programme to foster business culture familiarisation for which 30 companies will be selected to participate.

    Malwatte gets weak response

    The Malwatte Valley Plantations (MVP) initial public offering drew a weak response when it opened last week amidst a stock market collapse. 

    Four million ordinary shares were offered to the public at Rs 10. By Friday afternoon, managers to the issue, Vanik Corporate Services had received 2250 applications for 1.4 mn shares.

    Brokers said they received a very small number of applications in comparison to other issues. 

    The offer as per market regulation will remain open for 21 market days and will close on June 5 th.

    The National Development Bank is underwriting the issue while a sub underwriting agreement has been entered into with Hatton National Bank. 

    MVP was formed in 1992 to take over parts of the Janatha Estate Development Board and Sri Lanka State Plantations Corporation. Subsequently 51 per cent of the ordinary share capital of the company was sold to Wayamba Plantations Ltd who were short listed by the Public Enterprises Reforms Commission. 

    The employees of the company were also gifted 10 per cent of the ordinary shares of the company. 

    MVP is presently managed by Wayamba Plantations (Pvt) Ltd under a management agreement. The managing agents receive a fee of not less than 5 per cent of company turnover, 10 per cent of operating profits before interest taxes and depreciation, 5 per cent on all inputs other than labour, Rs. 2.50 per kilo of bought leaf tea and Rs. 1.50 per kilo of bought rubber latex.

    MVL comprises 25 estates with a total of 11,891.17 Ha of which 5717.39 Ha are planted in tea and 2645.32 Ha in rubber. The company's profits are volatile and of a seasonal nature being largely dependent on its Uva Medium range of teas. 

    The period from July to August is critical in determining profitability.

    Interest in this issue has been lacklustre in comparison to the recent Talawakele Plantation issue which was over subscribed on the 1 st day. 

    Plantation issues such as Maskeliya, Watawala, Madulsima and Balangoda were snapped up in the hey day of the Colombo Stock Exchange when the bourse was on a roll and commodity listings had become established. But the market reached a 9 year low last Wednesday, technical support levels have been breached and analysts are unsure of when the market will bottom out. 

    And this is the insecure environment in which the MVP issue will surface.

    Ceylinco in alliance

    Ceylinco Insurance Company Ltd will form a strategic alliance with Japanese insurance giant Mitsui Marine and Fire Insurance Company Ltd (MMFI). 

    The proposed strategic alliance will enable Ceylinco Insurance to tap the Japanese market in Sri Lanka, Director Technical, Ceylinco Insurance Company, Jagath Alwis told The Sunday Times Business. Japanese business interests in Sri Lanka is considerable and there are many Japanese factories and Japanese government funded projects, he said. The alliance is important to service these clients and Japanese nationals like to insure with firms linked to Japanese firms, Alwis said.

    MMFI will also assist in the development of new products, based on the Japanese experience. MMFI is the third largest general insurance company in Japan and is part of the Mitsui group which is one of the largest financial services groups in Japan. 

    The company was established in 1918 and has an asset base of US $29 bn. Mitsui Marine is a leading underwriter of comprehensive insurance products that cover a broad spectrum of personal, industrial, commercial and retail risk.

    Coal goes to court

    Mihaly International Corporation (MIC), promoters of the backfired US $400 million coal power plant in Trincomalee has taken the Sri Lankan Government to arbitration in Washington D.C. 

    The US company and its equal Canadian partner, Mihaly International Canada Limited (MICC) resolved to take legal action after a five-year-long dispute arising from the government's decision to terminate the 300 MW power project in 1995.

    MIC is claiming over US$100 million in lost costs and profits and defamation, a company release said.

    The press release says: 

    "The arbitration will be under the Rules of the International Center for the Settlement of Investment Disputes (ICSID) in Washington, D.C. ICSID is a unit of the World Bank. The US and Sri Lanka are parties to ICSID's International Investment Protection Convention (over 140 nation signatories) and a bilateral investment protection treaty. The claim was formally registered by ICSID on January 1, 2000 as ICSID Case No. ARB/00/2.

    "In January 1993, the GOSL announced that MIC/MICC had proposed the best plan out of 26 companies to construct and operate a new power facility at Trincomalee. The GOSL signed a Letter of Intent with MICC in February 1993. Negotiating the power purchase and implementation agreements commenced and a contract was awarded to MICC in September, 1993, subject to completion of contracts and financing. 

    "Negotiations stalled under the government's designated negotiating entity, SIDI, but the award was again confirmed by it in July, 1994, with milestones then set for concluding the contracts and financing."

    MIC and MICC met all their milestones, the release says while the Sri Lankan government met none. 

    In October, 1995, the government terminated the project alleging non-performance by MIC/MICC. 

    "MIC/MICC attempted in good faith for years to revive the project or receive compensation for its unwarranted canceling, without success," the release says.

    The arbitration will take place at the ICSID's facilities in Washington, D.C. before a three arbitrator panel - one nominated by each party and a president agreed by both parties. The arbitration will commence once the panel has been established, which is expected shortly.

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