17th June 2001
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Beira Lake "Blues" triumph over "Greens"

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Beira Lake "Blues" triumph over "Greens"

This is the view of the Navam Mawatha side of Colombo's picturesque Beira Lake which is green in colour, but not for long! It will soon turn blue, ironically coming on the back of a current power struggle between the "green"-led Colombo Municipal Council and the "blue"-led Urban Development Authority. Later this month, seawater would be pumped into lake areas bordering Nawam Mawatha and Perahera Mawatha and the polluted green water pumped out to give an entire new "blue" look to the lake. At the lakeside near the bridge adjoining the Chamber of Commerce building, a weir or dam would be built to block the flow of water from the Elephant House end. The project costing Rs. 20 million is being funded by the Nawam Mawatha building owners and occupants in a collaborative effort with the UDA. Pic. by Dunstan Wickremaratne

'Cancel primary dealerships!'

Delay over listing of government securities causes consternation-Treasury chief

By Chanakya Dissanayake
Sri Lanka's top economist and finance secretary has slammed primary dealers for unduly delaying the listing of government securities in the stock market, which is the seen as boosting the secondary market at the Colombo bourse.

Listing government securities in the Colombo Stock Exchange (CSE) is expected to develop a strong secondary market for gilt-edged instruments. Initially this was planned to be implemented in mid-2001, however, due to differences of opinion between the CSE and the Central Bank, the listing has become a non-starter.

"The main reason for the delay is not differences between these two institutions. Essentially primary dealers were not ready and they are coming up with various excuses," said Dr. P.B. Jayasundara who is also treasury secretary.

"My radical thinking at this point is that we should cancel primary dealers. They have done nothing so far to develop a secondary market," he said in an interview with The Sunday Times Business Desk.

Dr. Jayasundara has scheduled a meeting with the primary dealers later this week and other concerned organisations to put the listing on a fast track. "Even without the scrip-less system we can go ahead. Ten years ago the CSE operated without any sophisticated technology. Now we have the technology, but there is no trading!" he added.

Discussing other issues, the treasury chief said possibilities of disposing Ceylon Petroleum Corporation (CPC)-held fuel stations are currently being evaluated as a part of a balance sheet restructuring process of the loss-incurring CPC and also the Ceylon Electricity Board (CEB).

"It is not only the fuel stations, there are many other assets they can dispose of to raise the necessary finances without relying completely on bank borrowings," he added.

Dr. Jayasundara also rejected allegations that the government is defending the local currency through high interest rates. "To do that there should be speculative money in the economy. I am certain that there is no speculative money in the system," he said.

He also forecasted that interest rates would drop to 18.5 percent at the end of 2001 provided the budget deficit is maintained at 8.5 percent.

"High interest rates are not maintained artificially. It is caused mainly by the budget deficit. We also cannot ease the interest rates until the inflation comes down," he said.

Last month point-to-point inflation reached 16 percent, according to a Census Department report. "What we are experiencing right now is corrective inflation. The average inflation should drop below 10% at end of this year," he added.

Proposed legislation riddled with omissions

Consumers left in the lurch

By Dinali Goonewardene
Sri Lanka's long-awaited Consumer Protection Authority Bill, now finally before parliament is riddled with omissions leaving consumers in the lurch, industry officials alleged.

The bill was tabled in the legislature last week and is expected to be taken up for debate and approval this week, officials said noting that despite months of preparation there appears to be many flaws in it.

Last week the Ceylon Chamber of Commerce also tried to muscle in with amendments, which they hope will be incorporated at the committee stage, before the bill is passed in parliament. The bill seeks to protect consumers, control restrictive agreements among enterprises, prevent the abuse of a dominant market position and promote competitive prices. 

It also enables the authority to issue guidelines for price marking and labeling. However, the act is based on the Consumer Protection Act of 1979 and only sets quality standards for 20 of the 514 articles the authority has control over.

Industry officials are also dismayed that though products can be included via gazette, the new legislation fails to strengthen their hand. 

While the Act often refers to articles which by definition includes food, drink, pharmaceuticals and fuel, the glaring omission of miscellaneous items which include everyday essentials like toothpaste, soap and feeding bottles have left officials aghast.

Items of hardware such as cement and PVC pipes have also been excluded and computers were perhaps not so important in 1979.

The Act also requires goods to be actually sold in order to enable the authority to take action on an offer for sale or the refusal to sell will not pass muster. 

While industry officials think the deck is stacked against them the Ceylon Chamber of Commerce has its own grouse. 

In an effort to provide a level playing field for the state and private sectors the chamber seeks to do away with exemptions for public corporations and institutions given exclusive supply rights prior to the new Act being enacted. It also seeks to place the burden for not approving proposed price increases squarely on the shoulders of the new authority instead of on enterprises to explain price increases.

Do or die by Metalix 

Metalix Engineering Company Ltd has gone to courts challenging a decision by the National Development Bank (NDB) to auction its factory complex at Watareka this week to recover loan facilities given to the company.

The company, in an action filed in the Appeal Court, is seeking an order to quash NDB board resolutions approving the auction. The case will be taken up on Monday.

The mortgaged property comprises two buildings, machinery and land. The company had asked NDB to sell one building and reschedule the rest of the loan but the offer was rejected. The bank has now scheduled the auction of the entire factory complex for Wednesday, June 20.

Metalix had stated that the NDB has security (in buildings and property) in excess of Rs. 90 million for an aggregate (loan) facility of Rs.30 million.

Local prices in line with world trends-ASJ

Central Bank Governor A.S. Jayawardena said Sri Lanka has no option other than to increase local prices when world prices go up as the country is moving away from subsidies.

"There is nothing we can do if world prices go up, because any subsidy to prevent world prices being reflected in local prices or for that matter, any other subsidy, means that instead of asking the users of the products to pay for the use, the non-users are compelled to pay for the loss incurred through taxing," he wrote in an exclusive article for The Sunday Times on the recent IMF standby package.

He said it was courageous on the part of President Chandrika Kumaratunga to make the public aware of the IMF-Sri Lanka deal as "there has been a lot of misreporting of such arrangements in the past". The IMF-Sri Lanka agreement is due to be debated in parliament this week.

Mr. Jayawardena said the IMF's stamp of approval at this time is crucially important to Sri Lanka because of the negative international impact due to the conflict and the expected slowdown in the world economy during 2001. "Many nations around the world are getting ready to face a slowdown in the coming year and it is always useful to have the support of the international community for Sri Lanka in these circumstances."

He said the government rejected a request by the IMF to raise GST as it was felt an increase might encourage avoidance. (Please see Page 5 for full text of the Central Bank governor's article)

Indian bottler for Elephant Brand?

John Keells Holding Ltd (JKH) is looking for an Indian soft-drink bottler to introduce Elephant Brand to the Indian market. JKH chairman Vivendra Lintotawela said that exporting locally manufactured soft drinks to India is not viable due to the large volume involved.

"We are planning to export the essence only and do the production in India. There is a vast potential for the Elephant Brand in India," Mr. Lintotawela added. Already the company's flagship soft drink, Ginger Beer is being exported to Australia.

JKH expects Ginger Beer to be successful in the Indian market due its natural content and originality. JKH for the year 2000-2001 recorded a 10% drop in profits before tax, from Rs 1.45 billion in 1999-2000 to Rs 1.3 billion. The Return On Equity (ROE) has also declined sharply by 21.7% to 9.53% in 2000-2001.

"ROE at 9.5% is not low considering the market circumstances and high reserves due to revaluation of assets," Mr. Lintotawela said defending the drop in profitability.

Commenting on the high level of property holdings of many subsidiaries that are not yielding returns, Mr. Lintotawela said JKH is not willing to part with them at today's low market prices. "We will dispose them only if we get the right price."

The company has also introduced a Volunteer Retirement Scheme to shed excess staff at Colombo Cold Stores. However, the group is unlikely to embark on an aggressive staff reduction programme to improve efficiency on a group-wide basis. "Reducing staff cannot be done overnight. The exit cost is very high in Sri Lanka unlike in many other countries due to stringent labour laws," Mr. Lintotawela added.

Mind your Business 

Stateless sector
Is the lure of the country's much sought after state sector companies fading? 

That is the question bothering government officials. First those who deal with gases went into a shell saying they did not want the balance stake, even if it was handed to them on a platter. 

Now comes the news that those from the land of the rising sun are not interested in pursuing their interests in communications either.

Uncle Sam to uplift garments?
The industry may have been promoted by the controversial former green leader but garments remain the economy's lifeblood. 

Now, the sector has been identified for preferential treatment by the policy makers and a series of concessions for the trade are being contemplated. And the icing on the cake will be fresh negotiations with Uncle Sam on quotas, we hear.

Cricket in a fix!
Beset as they are with legal problems, the authorities administering the country's favourite sport are having another headache- finding sponsors. 

The game's former benefactors are not so enthusiastic with their donations now, they say, because they fear they too will be embroiled in the on-going legal tussle. So, sponsorships will now be handed over on a series-by-series basis instead of contracts running for a few years.

Euphoria in April but trade deficit still high

There is an official euphoria about the trade performance in April this year. Certainly the trade performance in April was an improvement from what it had been in previous months and in comparison with the trade performance of the corresponding month of last year. However, since the trade performance of this year has been rather erratic (and in any case a single month is an inadequate basis for judgement of the country's trade), we must take a closer look at our trade performance for the first four months to assess the trade picture and its effect on the balance of payments.

Let us first look at the April figures that have given rise to the euphoria. In April this year our exports increased in comparison to that of April last year. It was 8.4 percent higher than that of April last year. Yet it must be noted that it was lower than the export figure for March. Our imports too declined in comparison with the previous month and April of last year. Imports declined by as much as 20 percent in comparison with the figure for April 2000. Yet this comparison is flawed by an unusually large import of a generator in April of last year. A more appropriate comparison, excluding Imagethis unusual import, still gives an import decline of about 8 percent.

These import-export features helped in reducing the trade deficit that had risen to US$ 734 million at the end of the first quarter to be reduced to US$ 518 million at the end of April. This deficit is lower than the deficit for April 2000 and for the first four months of last year. In the first four months of last year the trade deficit was as much as US$ 833 million owing to huge imports of intermediate and capital goods.

Both exports and imports have been rather erratic in the first four months of this year. In comparison with last year, exports declined in January, increased substantially in February, declined in March and rose in April. Imports displayed the same characteristics in the first three months and then in April dropped substantially. The latter drop being in large measure due to the unusual import of last year that has been noted. Given this erratic performance the more appropriate assessment of the trade balance is the performance of the first four months for which we have the figures. These figures do not give us much reason for elation as the single month's trade figures.

The trade deficit is still large at US$ 518 million. A continuation of such an imbalance in trade would once again assert an adverse effect on the balance of payments. The only hopeful signs appear to come from the decline in imports for April this year. If the decline in imports of 20 percent in April, in comparison with last year, continues then there could be a respite. The hopeful signs come from the fact that there have been decreased imports of all three categories of imports in April in comparison with both April 2000 and in comparison with March this year. Reduced oil prices, reduced needs for oil imports and lower imports of armaments could help immensely to an improvement in the trade account and the balance of payments.

The export performance of the first four months is not very encouraging. Export growth has been less than 3 percent in comparison with the 20 percent growth of last year and a projected growth of about 10 percent this year. Agricultural exports have fared somewhat well so far with an increase of 5 percent. Industrial exports have grown by less than 1 percent. The poor performance of exports, especially apparel exports is a matter for deep concern. Textile and apparel exports have in fact declined by 1.4 percent compared to the exports of last year.

There are forebodings about the potential export performance in the rest of the year owing to unfavourable global developments. The downturn of the US and Japanese economies with their impact on other economies and a lower global economic growth is expected to affect industrial exports. The revival of Kenyan tea production could result in a drop in tea prices and therefore possible reduction of tea export earnings. In this context a significant decline in imports may be needed to improve our trade balance and bring the trade deficit to manageable proportions. The improvement in the April trade figures should not lead us to a complacency that lulls us into inaction. There is a need to enhance exports as well as decrease imports if a reasonable dent is to be made in our trade deficit.

Promote eco-tourism with care - experts

By Feizal Samath
A British national walks into the dining-room of a posh Sri Lankan hotel for breakfast and is confronted by the restaurant manager dressed in a double-breasted suit who asks him, "Sausages, bacon and eggs, sir?"

"I was horrified," recalled the man, a professional, to a Sri Lankan conservation specialist later. "Look, sausages come from my country. I want some traditional Sri Lankan food, please." The surprised hotel employee moves away.

In another locality, residents and the clergy protest against the construction of a tourist hotel in a jungle location with extensive vegetation and bird life. Despite the protests, the hotel comes up but in a design that blends with the surroundings and does not disturb nature and the environment. The hotel was recently the recipient of an international green award for eco-tourism and has been accepted by the local people. "Listen to the villagers. Discuss issues with them even before the design stage," advises Ravi de Silva, engineer and conservationist who allayed the fears of villagers in the construction of the beautiful Kandalama Hotel set alongside a lake and rock outcrop in the north-central region.

Sri Lanka is aiming for a major shift from mass tourism, which brings in cheap, less-spending tourists, to a high-spending destination in which eco and adventure tourism, traditional values and culture play a major role.

But environmentalists and conservationists are urging the industry to beware of falling into a trap of ruining local culture and crowding villages and local communities with hordes of high-spending tourists.

"If we are being forced to venture into eco-tourism, we beg of you, let it be researched and understood before it is marketed and sold. The environment is too precious and too fragile a commodity to be experimented with," noted Ashley de Vos, a well-known architect and conservationist.

Mr. De Vos, vice-president of Sri Lanka's Wildlife and Nature Protection Society, said eco-tourism should respect scale and carrying capacity. Mountain areas are more scale sensitive than other areas by virtue of its vertically, slope geology biologically rich flora and fauna, etc. the very nature of the fragile environment and its support base should be protected and conserved.

"This requires a carefully and systematically researched study and the formulation of strict standards that will control numbers and development, protect, respect and conserve the fragile environment it will intrude into," he said.

* Sri Lanka attracts more than 400,000 foreign tourists a year from mainly Germany, Britain, France, India, Japan and the Netherlands but many are blue collar workers or budget travellers interested mainly in lazing on beaches or visiting tea estates, an alien influence. They spend less than US $ 60 per day in contrast to more than US $ 100 per day spent by tourists visiting neighbouring Maldives Islands, which draws high spenders.

In recent years there has a marked increase in eco-tourism with several hotels being set up with an environmental focus like the Kandalama Hotel or the Culture Hotel also in the same region, Ranweli Hotel or Tree of Life, which rely on a mix of Sri Lankan food, environmental-friendly surroundings and local customs. Herbal food and medicines are also becoming popular among the discerning traveller, which represents a growing segment of Sri Lankan tourism.

Adventure travel is also on the rise with new operators selling white-water rafting, mountain climbing and trekking, camping in isolated sites and biking. Even bungee jumping – a western phenomena - is being considered. "There is tremendous scope for adventure travel in Sri Lanka and we have enormous resources that have not been tapped. For instance there are 50 old shipwrecks off the southern coast that should attract divers," said Shehan Pilapitiya of Adventure Lanka Ltd, which specialises in this type of tourism.

However, environmentalists and conservationists pleaded, at a weekend conference on eco-tourism in the central city of Kandy, that the industry must take a more pragmatic look at the whole aspect of eco-tourism so that the environment and nature is preserved instead of reaping the benefits in dollars only.

"We need to involve local communities and cultures in tourism because tourism is all about learning about local culture and people," said Professor Madduma Bandara, conservationist and head of the geography department at the University of Peradeniya.

"If we don't get villagers involved, tourism is not sustainable. On the other hand mass scale development of tourism must not be allowed to erode our culture," he added.

* That may probably be hard to do though Dr. Channa Bambaradeniya, head of the bio-diversity unit of the Sri Lanka office of the International Union of the Conservation of Nature (IUCN), believes it is possible wherever indigenous villagers live.

He cited the example of the Sinharaja forest, Sri Lanka's biggest rain forest in the south and central parts of the island, where indigenous villagers have helped to preserve and protect the forest from degradation and illegal logging. Youngsters from the village act as guides, for a fee, for foreign visitors but are careful to ensure there is no over-visitation and local customs are preserved and not violated.

"This is a good example of how villages can blend into tourism without any harm to the environment or cultures but this may not be possible in the cases of villages dominated by settlers," he said.

Sri Lanka is a major attraction to the western tourist because of its biodiversity. The number of tourists visiting the island would be definitely much more than half a million people annually if not for a long-standing ethnic conflict that has killed more than 60,000 people.

The country has been listed among the top 25 biodiversity hot spots in the world in terms of animal and plant life and the natural eco system. Conservationists said that Sri Lanka is one of the few places on earth that has a diverse range of attractions like beaches, mountains, bird life, lakes, rivers, archaeological sites and indigenous/colonial-type architecture within a small land space.

But alien cultures and influences have ruined local craft with western-styled crafts instead of traditional art being sold to foreigners as indigenous craft, laments Prof. Nimal de Silva, director of the UNESCO-Sri Lanka conservation project and head of the department of architecture at Moratuwa university.

"What we sell to the foreigners is not entirely traditional products mainly because our craftsmen are ignorant or want to make a fast buck," he told the eco–tourism workshop that drew hoteliers, environmentalists and conservationists in an effort to prepare a strategy for eco- tourism.

He said Sri Lanka was gradually losing its cultural identity, partly due to mass tourism and a huge gap between knowledge of the country's culture and traditions and what people now know about these issues.

"Bring tourists in and let them blend with the people but we need to ensure our cultural values and traditions are preserved in the process," he said.

Sri Lanka should avoid moving towards the "Coca Cola and McDonalds culture", experts said.

On the other hand, eco-tourism ventures, if properly planned, can improve the quality of life, enhance self-esteem and the well-being of local communities in remote rural areas where little development takes place, said Prof. Bandara.

Eco-tourism, he argues, can preserve cultural traditions, conservation of natural environment and maintain cultural and religious values.

The eco-tourism conference held at Kandy's Tree of Life Hotel, another eco paradise, was organised and promoted by the hotel while conference arrangements were handled by Ms. Wasantha Samarawickrema, an experienced conference organiser based in the hill capital. Eco Pal Enterprise, a company making handmade recycled paper, in keeping with the eco-friendly focus of the meeting donated handmade paper and a folder for conference participants.

Among other speakers were Sri Lanka Tourist Board chairman, Renton de Alwis, Chandra de Silva, chairman of the Eco-tourism Society of Sri Lanka, and Prof. Sarath Kotagama, head of the department of environmental sciences at Colombo University. Mr. de Alwis spoke at length on a new vision for Sri Lankan tourism, Mr. de Silva dealt with the basics in eco- tourism and what is required for the industry while Prof. Kotagama called for eco-tourism guidelines from the industry while noting that guidelines were also currently being formulated.

Strategy to revitalise the rubber industry

The government should take steps to safeguard natural rubber smallholders by curtailing imports of raw rubber
By Dr. L.M.K. Tillekeratne, Director and Dr. A. Nugawela, Deputy Director, Rubber Research Institute of Sri Lanka
Natural Rubber (NR) production in the country is declining very fast since the South East Asian currency crisis started in July 1997. Since then for the first time after World War II, the total production of NR in the country has dropped to below 100,000 tonnes (MT).

Despite declining NR production there has been a substantial increase in the domestic consumption of NR since the early nineties. This increase as a percentage of the total rubber production was seen during the last couple of years due to both a decrease in the total rubber production and the increase in domestic consumption in the country.

When rubber prices improved unexpectedly during 1995/96, rubber farmers increased their interest in rubber cultivation and hence the rubber replanting targets of the country were achieved. The production also increased to a record high figure of 112,600 MT in 1996, while increasing the national productivity level from about 750-800 kg per hectare per year to about 1,050 kg/ha/yr.

However, with the SEA currency crisis, the price of rubber in the world market had gone down from US $1.05 per kg to US $0.58 within 7-8 months, thereby making rubber smallholdings and plantations uneconomic. This is especially in farms run by hired labour. However, small farming units run by family labour managed to continue latex production, thereby earning their livelihood. Most of the medium and large holdings stopped production because the cost of production (COP) for them was above the price paid for the rubber produced.

Anyhow, if the rubber prices improve, which is the main factor determining the replanting and new planting activities, such holdings will commence latex production and will adopt RRI (Rubber Research Institute) techniques to increase their productivity level.

The main recommendation of the RRI to increase productivity are:

a) planting high yielding clones; b) planting optimum density; c) use of rain guards to enhance tapping days, and d) efficient exploitation techniques.

As the smallholders' replanting and new planting programmes are mainly price driven, under the ''Thurusaviya' programme to be launched shortly, attempts will be made to purchase the produce of smallholders at an attractive farm gate price. Under this programme RRI has proposed to abolish the present system of buying smallholders' produce in bulk and all the purchases to be made according to the quality of the product produced as it was done before 1981 through the Commodity Purchase Department. We have also proposed to this authority to give incentives such as good planting material, fertilizer, rain guard material and quality acid in small packs for the rubber smallholders.

We have proposed to give adequate publicity to grow rubber and also to fix a minimum floor price for the smallholders' produce. At present since there is no such arrangement, traders and concentrated latex manufacturers can manipulate the rubber prices for their advantage at the cost of the poor smallholder. Also, at this stage the policy of the government should be to protect the smallholder by way of curtailing importation of raw rubber into the country, as it is very effectively done in India. However, importation of the grades which are not made adequately in Sri Lanka and also the grades not made at all like ADS, are needed to be imported and hence should be allowed for the survival of the rubber products industry, which is adding value to the raw rubber produced more than in the case of any other raw material produced in the country.

Labour and tapper shortage
In order to arrest both the problems of labour and tapper shortage and availability of suitable land, it is the time now to shift the rubber cultivation to non-traditional areas like Moneragala, Bibile and even into high elevations like Gampola and Belihuloya. Through extensive trials the RRI has identified suitable clones and agronomic practices for such areas.

Although there is a lot of emphasis given by many countries to mechanise tapping, it is not easy to produce such a device for rubber tapping. But, if the rubber prices are attractive enough, very attractive incentives can be given to the tappers for the extra kilos of rubber they bring. This will attract them to join this profession.

Even conducting relevant tapper training courses in technical colleges would be an incentive for attracting the younger generation to this profession, as it is done in Malaysia. This will make the young workers skilled and recognised. Also they will have know-how to earn a good living through tapping.

Longer immature periods of about six years is another disincentive for smallholders to go for replanting rubber, compared to tea or oil palm planting which can be harvested in two years. During this unproductive period, farmers must be encouraged to go for short-term crops like banana, passion fruit, vegetables and pineapples. There is technology developed also to plant perennial crops like tea, cinnamon and even timber trees along with rubber, so that not even during the gestation period; but even after maturity of rubber trees, the other crops can remain in the field, giving an additional income to the farmer. This type of optimising productivity is essential for countries like Sri Lanka, where extra land available for expansion of the plantation is limited due to the rapid increase in human population.

High yielding clones recommended at present have a yield potential of about 2500kg/ha/yr. Nevertheless the target of plant breeders is 10,000 kg/ha/yr. Hence, the RRI intends to divert more resources into this programme and to use biotechnology as a tool to produce new clones to meet breeders' objectives. Clones producing a high value of timber will also be given priority in this programme. This will enable them to meet the growing demand for rubber wood in the future and the firewood and treated rubber wood furniture manufacturing programmes of the country.

When new clones are bred to give higher yield levels, fertilizer recommendations at present have to be revised by increasing nutrient levels. The Soils and Plant Nutrition Department will look into this problem while trying to minimize costs by recommending fertilizers after considering available nutrients. Increasing fertilizer efficiency by mulching and by combining with bio fertilizers is also given priority. At the same time, while developing resistant clones to diseases, attempts will be made to control occurrence of diseases by introducing accepted agronomic practices rather than by using chemicals which are costly and harmful to the environment.

Processed rubber
As rubber prices prevailing in the market are low and the cost of production of rubber is rising due to increase in chemical prices, fuel costs, electricity tariffs and labour cost, it is extremely important to help rubber factories to lower costs. Hence, the Raw Rubber Process Development Department is engaged in a programme of introducing power factor corrections in rubber factories and also in modifying gas fired furnaces to increase their efficiency of drying. Repairing drying tower boilers and the utilisation of solar energy are also priority projects in the processing side. Also production lines should be designed to minimise labour and chemical costs.

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