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Business
sector says "NO" to poll In response
to a snap opinion poll of CEO's and senior corporate managers of
100 companies conducted by The Sunday Times Business, there was
a near unanimous 'No' answer to the question whether the business
community is ready for another election this year. Asked whether
they were satisfied with the government's handling of the peace
process, 85 percent of the respondents said they were but only 60
percent said they were satisfied with the government's handling
of the economy. Almost 90 percent
said the main political parties, the UNP and the SLFP, should reach
a bipartisan consensus on the solution to the ethnic problem. The responses
give a firm message from the business community to the two parties
that have ruled the island since independence that Sri Lanka cannot
afford and does not want another election. Some of the respondents
said they feared that the violence which usually accompanies elections
in this country would disrupt normal life and commercial activity.
But, one said
another election might be a "necessary evil" because a
strong government is required to overcome the difficulties the country
finds itself in. Political and
market analysts said the victory of the UNP-led coalition at the
general elections last December could be interpreted as a mandate
for "cohabitation" and consensus politics between the
two main political parties that have governed the country for the
past half-century. The opinion
poll, and some of the comments made by respondents, highlight the
need for both parties, especially their leaders, to put aside their
political and personal differences and work together to end the
war, seek a political solution to the ethnic problem and revive
the economy. The consensus
among the business community appears to be that another election
would be ruinous and set back the government's peace efforts and
economic development programme. The possibility
of the country having to undergo the ordeal of another poll came
after speculation that President Chandrika Kumaratunga was planning
to dissolve parliament after it completes one year this December.
Subsequently,
Prime Minister Ranil Wickremesinghe told government parliamentarians
that he would have no option but to go for another election if the
co-habitation arrangement with President Kumaratunga does not work.
The UNP-led
coalition government has asked Kumaratunga to give up some of her
powers, including the power to dissolve parliament, and has threatened
to go for a snap poll if she does not do so. The uncertainty generated
by speculation of another election prompted the LTTE to warn that
a fresh poll would damage the peace process. Most analysts predict another hung parliament if another poll is held with neither side expected to be able to garner enough votes to get a decisive majority in parliament. SriLankan
profits up despite slump The national
carrier lost four aircraft in the July 24 attack, which caused tourism
arrivals in Sri Lanka to plummet and forced SriLankan to cease direct
flights to a number of important destinations. The airline's
result for the year to March 31, 2002 bears out the extent of the
damage: passenger numbers fell 14.3 percent, seat kilometres were
down 24 percent and cargo tonnes declined 24 percent. SriLankan did
much to mitigate the fallout by cutting costs, routes and frequencies,
and it eventually improved yields and demand on some routes. But
it still posted a Rs. 5 billion loss before extraordinary items,
a slight improvement on the previous year's Rs. 5.8 billion loss
but still an extremely disappointing figure, analysts said. Despite this,
the company was able to record a 2.1 billion net profit - an amazing
result in the worst year in the history of the global airline industry. So what caused
the massive turnaround? The bottom-line
figure was salvaged by a Rs. 7 billion extraordinary item that lived
up to its name in both description and size. The four aircraft
destroyed in the Bandaranaike attack were all insured, meaning SriLankan
was covered for anything it owed to the financiers and lessors of
the planes. With the planes
completely out of action, the airline was also freed of its obligation
to pay leases worth Rs. 7.4 billion. Once costs
relating to the disruptions to flights and the closure of some of
its offices were taken into account, the airport attack produced
an extraordinary item that contributed an extra Rs. 7 billion to
the company's result. In a press
release issued on Wednesday, SriLankan declared that it had "emerged
positively from the worst year in airline history" with a group
profit of Rs. 2 billion. Nowhere in
the statement did the airline mention that this figure included
a Rs. 7 billion extraordinary item, and that it had actually incurred
a Rs. 5 billion loss before that entry. Only after
repeated requests from the Sunday Times did the company reluctantly
release the note from its accounts that explains the extra Rs. 7
billion. "This
is a very sensitive matter," said a spokesperson for the airline. "We put
out a release to provide the facts." The recent corporate scandals in the United States have generated much criticism of the practice of US companies' to issue "pro-forma" results - accounts that leave out all the nasty "one-off items" and supposedly focus on the underlying performance of the company. Mundo
puts LP gas into Shell and Laugfs Mundo Gas chairman
A. Wickremanayake's offer to consumers last week to use any cylinder
for his product has triggered a storm of protests from the two companies
and raises a whole range of issues including intellectual property,
unfair competition and legal liability in case of an accident. Both
Shell and Laugfs said they were opposed to the new player's move
to use their cylinders. Mundo Gas plans to sell at Rs. 300 to Rs.
325, which is Rs. 200 lower than Shell Gas and consumers - looking
for a cheaper product - are bound to use their old cylinders for
Mundo gas. Shell said
it planned to seek legal action while Laugfs hoped to adopt different
marketing strategies to tackle this situation. "We have already
established our name globally and no one has the authority to use
our brand and cylinders," a Shell spokesman said. "We are
not hoping to seek legal action but we are going to adopt market
strategies to tackle the situation," Laugfs chairman W.K.H.
Wegapitiya said. He said certain safety requirement and quality
standards are adopted in marketing gas and they would not be held
responsible if Laugfs' cylinders are used by another party. However, Mundo's Wickremanayake said that while consumers could use other cylinders, the company - preparing to enter the market later this week - was planning to import its own stock of cylinders and give it free to consumers. Agents
end price controls on air tickets "Ticket
prices could come down as a result of the competition - the public
would benefit," said H.M.C. Nimalsiri, the new Director General
of Civil Aviation (DGCA). But, he warned a price war could also
result in unhealthy competition and may hurt airlines that might
not be able to achieve the yields required to maintain services
on certain routes. The MDP, which
had 320 members, was disbanded last month as most small travel agents
opposed the price controls and after the DCA revoked an earlier
circular to the trade that made MDP membership mandatory. "There
was no way we could carry on after that," a MDP official said.
Some agents
had even taken the DGCA to court, challenging his authority to insist
that all travel agents licensed by the department should join the
MDP. "The MDP
brought some sanity to the market, although it may not have worked
100 percent," the MDP official said. "Now we
might go back to the pre-MDP days when there was an absolute free-for-all." But, he added,
the current lack of passenger capacity on certain heavily travelled
routes out of Colombo would prevent an immediate fall in ticket
prices. "If there's
no regulatory system there's bound to be under-cutting at every
level among airlines and travel agencies, especially the smaller
ones," he said. "So far
there's been no change in ticket prices because we're in the middle
of the peak season - seats are not available," he added. "Once
the peak is over around early October, then there's going to be
a problem." While some
customers would look for the cheapest ticket, others might prefer
to pay higher fares to get a better service, he also said. Officials at
Connaissance de Ceylan said they preferred the MDP as it controlled
the discount levels offered by airlines and agents. "People could go by the service, not just the discount," an official said. Ship
arrests on the wane in Sri Lanka At a time when
the island is aspiring to become a hub for shipping activities in
the South Asian region, problems pertaining to admiralty legislation
have partly been responsible for the decrease in the number of vessels
calling Colombo, causing significant damage to the shipping industry.
Admiralty matters
taken up in the Admiralty Court in Colombo have fallen drastically
in recent years. It handled only 20 cases last year and 38 in 2000
compared with 84 in 1999 and 110 in 1998, according to Admiralty
Court sources. "Sri Lanka is not considered an attractive place
for 'forum shopping' anymore," one source said. In 'forum shopping',
the jurisdiction of the court which arrests a vessel is not based
on territorial, citizenship or registration principles. The only
requirement is for a ship or its sister-ship to be in a port falling
within the territorial jurisdiction of the court in which a claimant
intends to institute proceedings. Sri Lanka was
an attractive destination for 'forum shopping' because shipowners
had confidence in the island's justice and administrative systems
and when bunkering charges in Colombo were reasonable. Now, however,
owners prefer to settle matters out of court. "We hardly
have any arrests - may be one in two months," the source said.
The last ship arrested was a local ship, 'Goodwill Guide'. The last
foreign ship arrested was 'Green Glory', which was subsequently
released after the parties litigating came to an agreement. M. V. 'Goodwill
Guide', harboured at the Beruwela Fisheries harbour, was arrested
on February 19 this year for non-settlement of crew wages amounting
to Rs. 799,875. M. V. 'Green Glory', an Egyptian ship, was arrested
on May 30, 2002 and released on June 20 subject to the plaintiff's
right of re-arrest. Shipowners also prefer to avoid Colombo because
of the absence of any requirement for 'counter-security' in making
maritime claims as they tend to suffer heavy costs, running into
millions of rupees, as a result. A maritime claim in Sri Lanka includes
any claim to the possession or ownership of a ship, damages for
wrongful arrest of a vessel and claims for damage done by a ship.
While damages can be prayed in a case of a wrongful arrest, lack
of provision requiring a person moving to arrest ships to provide
adequate security (counter-security) have contributed towards the
decrease in litigation. Sri Lanka becoming
a party to the International Convention for Arrests of Ships could
also help provide a better forum for claimants and attract more
vessels to Colombo, officials said. Sri Lanka was selected to a
12-member committee in 1999 to draft the convention, which contains
a number of important provisions relating to 'forum shopping' and
counter-security. The arrest
of a ship draws a host of people to Colombo to participate in the
litigation. These include the owners or its agents, mortgagees like
banks and other lending institutions, maritime lien holders (a privileged
claim upon a ship in respect of services rendered to the ship or
injury caused by the ship, which ranks above maritime claims) and
all others with maritime claims against the ship. This means more
business for lawyers, hotels, airlines, travel agents and suppliers
of food and fuel. The court marshal
takes over the custody of a ship once a warrant of arrest is issued
unless the owners settle the claims. On arrest, the marshal does
the servicing of the ship like supplying bunkers and food. All stores
are bought locally on a credit basis and settled once the case is
over. A Nigerian
ship, Abuja, arrested on February 19 for non-payment of crew wages
is in the custody of the marshal at present and has drawn supplies
worth $150,000 so far. The marshal
supplies bunkers through the Ceylon Petroleum Corporation and food
through a set of local suppliers who provide services on credit
to be settled immediately after the dispute is resolved. The marshal
wants to sell the vessel as it is in bad condition and incurs heavy
maintenance expenses. With litigation
going on for months without bonds being executed for the release
of ships, the marshal's charges run into millions of rupees unless
the vessels manage to escape. M. V. 'Magic Swan', a Bahamian ship,
arrested on February 20 due to the owner's alleged breach of contract
is the last ship to have been released on the execution of a bond
for $500,000. Several ships have escaped from the marshal's custody
such as M. V. 'Hafina', arrested on February 23 1999 for non-payment
of crew wages, which escaped on May 2 1999. Another ship, M. V.
'Draco', arrested on October 10, 2000, broke arrest on October 13,
2000 despite vital documents like passports and bills of lading
being confiscated by the marshal. One ship, M. V. 'Venture', arrested
on May 23, 2000 tried to escape the next day but was detained. The navy finds
it difficult to keep a close watch on detained vessels that could
try to escape since the anchorage is off Panadura. "There are
no secured grounds to keep ships under arrest as Colombo's inner
harbour is congested," one official said. "So arrested
ships tend to escape." Several ships that escaped have been
re-arrested in other ports when they arrived without relevant documents
after having their hulls repainted. Sri Lanka was
an attractive forum for ship arrests in the past because shipowners
had confidence in the island's legal system. Being a British colony
following the English law relating to arrest of ships, parties to
the 1952 Convention on Arrest of Ships assumed that British legislative
and administrative processes were followed here. However, that
confidence has deteriorated over the years and discouraged claimants
from moving to arrest ships in Sri Lanka as a result of administrative
failures and corruption. A fraud committed by a former admiralty
court registrar in 1993, when she forged the High Court Judge's
signature and drew over Rs. 16 million, created problems regarding
the execution of bonds. "Bonds
involve large sums of money and shipowners used to deposit millions
of rupees in court," a court official said. "But after
the embezzlement of the deposited money, such monies are now deposited
with the Justice Ministry. The recovery of these monies take a long
time due to the infirmities in the administrative system." Furthermore,
shipowners who deposit money in dollars tend to lose as a result
of the depreciation of the rupee. This is because such monies are
released at the end of a trial in rupees at the exchange rate in
effect at the time the money was deposited. This too has contributed
significantly towards the decrease in admiralty litigation in Sri
Lanka. "We don't have a dollar account whereas other countries
do," the official said. "They deposit money in dollars
and release them in dollars. So there is no loss on depreciation." The authorities
also need to reduce bunker prices in Colombo, now among the highest
in the world, to attract more ships, industry officials said. Colombo
was an attractive forum and owners preferred Colombo to other neighbouring
ports when bunker prices were reasonable. But now many ships skip Colombo or call here only for minimal supplies when essential now that bunker prices have increased. |
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