20th May 2001
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No fuel shocks for four months

Sri Lankan fuel prices - particularly diesel, which has risen by more than 100 percent in the past year - won’t be revised in the next four to seven months unless overseas crude prices go beyond US$ 30 per barrel which is unlikely to happen, the government assured last week.

“We won’t raise prices in the next few months. Price hikes could happen only if overseas crude prices rise to more than US$ 30 per barrel from a current US$ 28 but prices are unlikely to rise that much. We expect crude prices to settle down in the next seven months,” Treasury Secretary, Dr P.B. Jayasundara told The Sunday Times Business Desk.

He noted that normally world crude prices rise during the second half of the year as the winter raises demand but this year an expected worldwide recession would reduce demand and slow down prices against traditional winter pressures.

Consumers have been reeling under high inflation and the cost of living due to fuel price hikes in the past year. In addition to a ripple effect on consumer prices, high fuel prices had an impact on power rates with the Ceylon Electricity Board (CEB) depending on thermal power for two-thirds of its requirements.

Dr. Jayasundara said they were hoping to cut Ceylon Petroleum Corporation (CPC) losses this year due to lower fuel prices but noted that crude was unlikely to fall below US$. 25 per barrel at least in the short term. Forward buying of crude is also being considered by the CPC but this may not be the best time to resort to this mechanism, as fuel prices were unpredictable, he added.

The Treasury Secretary, referring to last month’s sale of the flour milling facility at Trincomalee for US$. 65 million, which has come under criticism from opposition circles, said the government had been negotiating the termination of the Prima contract for the past three to four years. “It was nothing new. It was under negotiation for a long time.”

He said worldwide tenders could not be called for the sale of the facility as it was not government property until the agreement ended in 2005. Prima owned the factory under a BOT (build, operate and transfer) agreement with Sri Lankan investment authorities many years ago. “If we waited for five years more for Prima to hand over the factory and then seek offers, the factory would be run down and we may have not got a good price,” he said.

Wheat flour would be subject to a regulatory price mechanism in which prices would be fixed for a 12-month period and reviewed annually based on the world price plus taxes. “No one can sell over this fixed price. With the market freed, importers can sell lower than this rate, not higher.”

Dr. Jayasundara said every importer including Prima would be subject to taxes. “If there is a duty exemption, it would apply to every importer.”

On plans to sell another stake in Sri Lanka Telecom, the Treasury Secretary noted that though the government was hoping to raise between US$. 200-250 million from this deal, no details had been worked out as to the price, quantity and total worth which would depend on the interest shown by prospective investors

“We plan to make a local listing and are looking for several investors, not a single entity. Japan’s NTT which has a 35 percent stake (and manages SLT) could also make an offer,” Dr. Jayasundera said noting that the SLT stake was likely to hit the markets around July-September this year.

But SLT Chairman Lalith de Mel was however of the view that the international telecom industry is depressed at the moment and it would not be the right time to put SLT in the market. “Telecom shares are falling globally and this scenario is likely to remain throughout this year,” he said.

Denial of foreign currency trade: Mercs Bank protests

National Mercantile Bank or Mercs Bank, Sri Lanka’s newest bank, has protested to the Supreme Court against a decision by the Central Bank to deny it the right to foreign currency dealings, a facility enjoyed by all other commercial banks.

In a fundamental rights petition filed last month, the bank says the authorities have been unreasonable, unfair, arbitrary and discriminatory in not providing authority to Mercs Bank to deal in foreign exchange which would contribute between 15 and 20 percent to the bank’s revenue.

The petition is due to be taken up in court on Tuesday, bank lawyers said. Mercs Bank began operations in May 23, 2000 but when it transacted foreign currency business worth US$.22,200 sometime later, an explanation was called for from the exchange controller as to why it was dealing in foreign exchange when it did not have a licence to do so.

Mercs Bank then wrote to the controller referring to an application made in October 1999 for authorised dealership in foreign exchange and followed it up with letters to President Chandrika Kumaratunga and other authorities, pleading for sanction to be given. But there was no positive response to this request.

It said several other banks that commenced operations at the same time as Mercs Bank like Union Bank (launched in June 1995), Pan Asia Bank (October 1995), Societe Generale Bank (March 1997), Nations Trust Bank (July 1999) and Bank of Nova Scotia (August 1999) are authorised foreign exchange dealers, and it was at a loss to understand why Mercs Bank had been deprived of this right.

Mercs Bank said it suffered severe financial losses due to lack of foreign currency deals and was placed at a business disadvantage against other banks.

Mercs’ Board of Directors is headed by Milinda Moragoda (Chairman and UNP MP).

Reforms before parliament soon

The government, in the next few months, is presenting two important pieces of legislation concerning the business community - the new Companies Act and the establishment of a Consumer Protection Authority, said Minister of Internal and International Trade and Commerce, Muslim Religious Affairs and Shipping Development, Minister Rauf Hakeem.

The two proposals which have been delayed for a while due to opposition, changes and a lot of discourse would be presented by the minister in parliament for debate.

Mr. Hakeem said he was still open to suggestions on the two issues and urged the business community to make their views both through the opposition and other channels.

Mr. Hakeem made these comments as chief guest at the Annual Report Awards Ceremony 2001 organised by the Institute of Chartered Accountants of Sri Lanka last week. Hayleys group won the overall award for the best annual report.

Out: Foreign promotion trips, BOI targets investor “hit list”

For Sri Lanka’s premier foreign investment promoter - the Board of Investment (BOI) - it’s going to be less overseas foreign investment promotion missions in future and more focus on a “hit list” of investors.

At least that is the philosophy of the new BOI Chairman and Director-General, Lalith de Mel, a man with wide international work experience, bringing winds of change to an institution which drew a lot of flak in recent months after former Chairman Thilan Wijesinghe quit over a bribery scandal.

De Mel’s vision is clear. “I look at it this way - who is the investor who would find it sensible and profitable to invest in Sri Lanka? I see this very clearly coming from a multinational background where we made the choice to invest in many countries. You need to look at it from the investor’s perspective. Be in his shoes and ask yourself why should I invest here?”

Cambridge-educated De Mel is a high-profile figure internationally, serving as director of UK-based CDC Capital Partners Inc. and several other companies in addition to being Chairman of Reckitt and Colman, Sri Lanka and Sri Lanka Telecom. He is also a director at John Keells Group. Industry analysts say De Mel’s time would be spent shuttling between London and Colombo in handling his schedule in both countries.

He said the real challenge is to understand investors who would find it very relevant to invest here because they give “you the highest probability of success.”

His brief - identity these investors, do the necessary homework and make a very meaningful proposition. “We need to make a hit list. When we go down this road with a hit list, if you are not successful, you learn from investors why they don’t want to come in. This helps to fine tune the hit list and build up a profile of the kind of people who would like to come.”

De Mel agrees that foreign investment missions create awareness and could help to pick up a few investments but he believes in a different approach - one that focuses on a group of investors and persuades them to invest here.

The BOI in a statement said it signed 12 agreements last month with an estimated investment of Rs.800 million, including Rs.250 million in foreign investment and an employment potential of 1,750 people. It said investment flows were on target this year.

Mind your business

Biscuits, then shoes

First it was a biscuit manufacturer who threatened to pull out of the country citing labour unrest and now it is a large-scale footwear manufacturer.

Here too the murmurs of dissent have become more than a whisper now and the management is expecting a showdown sooner rather than later. But if it comes to that, there would be no great struggle, we hear. The bosses would rather pack up their bags and leave, they say

Private hospitals watch out!

It’s a ‘cry wolf’ situation in the private sector hospital sector with tough new laws supposed to be enacted “soon”- though this has not been done so far.

But now the heat is really on and the laws might soon see the light of day - though there may yet be a last obstacle to be cleared. Some hospitals are reportedly planning to challenge the new legislation in courts saying their rights are being infringed upon- so there might be another postponement once again.

New TV channel?

We do already have enough television channels but that’s not what the TV stations think. Another network with international connections wants to begin transmissions shortly in what is being touted as a ‘pure entertainment’ channel. The powers that be, however, seem to think that enough is enough and therefore the green light is not forthcoming-at least for now.


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