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| Pramuka
falls, depositors howl The Central Bank’s Director of Bank Supervision P.T Sirisena said in a statement that a lack of commitment by the Board of Directors and the shareholders of Pramuka to inject additional funds to help revive the bank, compelled the Monetary Board to request the Director of Bank Supervision to cancel Pramuka’s license and liquidate its assets. Pramuka becomes
the first bank in Sri Lanka to be liquidated. An emotional Pramuka Chairman Udaya Nanayakkara, responding to the Central Bank’s decision to liquidate the bank, said that the Central Bank had not considered its proposal to obtain a Rs.600 million credit line for a period of two years. He said he was unaware of the whereabouts of the bank’s former chairman, Rohan Perera, who is believed to have fled abroad. The Pramuka Bank Depositors Association (PBDA) President Ranjith Arambawela blamed the Central Bank for Pramuka’s downfall, saying it had not fulfilled its role as an independent supervisor. Arambawela asked why the Central Bank did not take action against the loss incurred by Pramuka in 1997. “Did they not know that the losses would accumulate?” He described the Central Bank’s decision to liquidate the bank as “heartbreaking.” The PBDA, which strived untiringly to bring about an understanding between the then-Chairman Rohan Perera and the Central Bank, said that this shocking decision has cast a doubt in the minds of the depositors as to whether they will ever see their money again. “Mercantile Credit Leasing company has been in liquidation for the past 14 years and some stakeholders are still to receive their money.” Arambawela said other banks could be in similar trouble without the Central Bank’s knowledge. Reyaz Mihular, Senior Partner of auditing firm KPMG Ford Rhodes & Thornton Co. said the auditors had qualified five issues in Pramuka’s accounts and drawn attention to 15 matters for the year 2001 in August that year. The auditors had drawn their attention to the involvement of 15 related parties in the bank, and had also qualified the controversial staff provident fund monies which were drafted into the bank’s own shares and unsecured debentures. Mihular said
that the Central Bank should have acted on the auditor’s report
in August. “We are not regulators. It was up to the Central
Bank to act on our report.” When asked why they had not qualified Pramuka as a going concern, Mihular said that the Balance Sheet for 2001 did not reflect a negative net asset position. International Auditing Standards required that only if a company had a Negative Net Asset position could the auditors have qualified it as a going concern. “We however made an Emphasis of Matter (drew attention) on certain transactions, which could have brought about a collective net asset.” Mihular said that since banks operated on confidence, a qualification on its position as a going concern could immediately trigger a collapse. “Therefore we had to be cautious, because any misjudgment on our part could have resulted in expensive litigation.” Nanayakkara said that despite the Director of Bank Supervision saying that a sum of Rs.600 million was inadequate to revive the bank, Pramuka’s Board had looked at a worse case scenario and come up with the figure of Rs 600 million, taking into account the amount of withdrawals that can be made through savings and demand deposits up to December 31, 2002. The Central Bank in response had submitted its investigation report on Wednesday, December 11 at 6.00 pm to the Directors of Pramuka, requesting them to respond to its findings by 4.00 pm on Friday, December 13. “We could only respond to 80 percent of the findings of the report, during which time we could only respond on the face of the findings,” Nanayakkara said. He said that the time allocated was insufficient, and the Central Bank did not give the Board access to refer certain documents, which were within the premises of Pramuka. He said that the Board had invited the Central Bank to appoint a nominee of their choice to the Pramuka Board, to over see the interest of the bank during the two year period, by which time the entire credit of Rs.600 million would have been paid back. When asked why the Board was not willing to raise the amount through their private funds, Nanayakkara said that the time frame given to the Board to provide its assurance to the Central Bank was grossly insufficient. “The
report comes in on Wednesday evening, and they wanted us to give
them a commitment of Rs 600 million by Friday 4.00 pm. That was
just impossible.” He also accused
the media of misrepresenting Pramuka’s true financial position.
He accused the Central Bank of not giving Pramuka a fair hearing, and said that the Board would be meeting soon to discuss the decision. Meanwhile, the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB), which launched its own investigation into Pramuka’s past accounts, said that it was unable to say anything conclusive at present because its investigations were still in its preliminary stages. Ajith Ratnayake said that SLAASMB was investigating as to whether Pramuka had violated Sri Lanka Accounting Standards and also whether its auditors KPMG Ford Rhodes Thornton carried out the audit according to Sri Lanka Auditing Standards. Russian
tea market under threat Brokers Asia Siyaka Commodities warned that the industry could expect a “tough time” in the new year in two of its main markets, Russia and the Ukraine. Russia is one of the biggest markets for tea bag exports. The Rusteacoffee Association has been lobbying for entry barriers to value-added teas into Russia and had supported the allocation of separate customs commodity codes for tea bags, packets and bulk tea. This, the brokers said, was to selectively increase the minimum value of tea in customs declarations. If the move goes ahead effective duty on value-added teas could double, they warned. Ukraine too is considering adopting similar measures. “Lower tea prices helped counter higher duties but we feel that by next year the establishment of higher minimum FOB levels by Russia could be the beginning of the end,” Asia Siyaka said. The CIS imported 56.9 million kg of Ceylon tea up to October this year, from 52.5 million kg in the same 2001 period. Given the threat to the Ceylon tea market in Russia, the efforts to forge free trade deals with Pakistan, a big tea consumer, and Egypt, once one of the biggest buyers of Ceylon tea, will become “increasingly significant,” they said. These markets are largely supplied by African tea producers, particularly Kenya. The Ceylon tea industry has been worried about falling value-added tea exports in recent years despite pronouncements by both government and private sector officials about the need to move way from being a mere commodity exporter and the importance of increasing value-added exports. . According to export figures up to October, the share of value-added tea exports in total tea exports fell to 35 percent (88 million kg) from 40 percent (97 million kg) in the same period last year. “The negative performance from value addition has come exclusively from the packet tea segment, which declined to 58 million kg from 69 million kg the previous year,” Asi Siyaka Commodities said. Tea bag exports bucked the trend increasing a healthy seven percent to 11.6 million kg from the previous year. The brokers described this as a significant achievement given the “discriminatory” tariffs imposed by Russia with the aim of blocking imports in value-added form. DC
industry facing severe crisis “The future of the DC industry looks bleak with this present crisis,” said Saman Gunasekera, President of the DC Millers Association. Competitors such as the Philippines and Indonesia have captured markets supplied by Sri Lankan millers due to the prevailing production shortfall, he said. Even new players in the DC trade have exploited this opportunity. Sri Lankan DC is sought after in world markets because of its distinct characteristics. Mars Chocolates of the UK had stopped buying DC from Silvermill Holdings Ltd because of the inconsistent nature of the supply, according to Suresh Silva, a director of Silvermill Holdings. Up to 80 percent of the island’s coconut crop goes for local consumption and less than 20 percent is available for use by the DC industry. There are nearly 20,000 people directly and indirectly employed in this sector but many of them are now moving out of the industry due to the volatile situation, Gunasekera said. This was another
serious repercussion stemming from the present crisis, he added. Gunasekera also said that there are 60 DC mills in the country, out of which 20 mills have already been closed. The others are operating either once a week or once in two weeks due to the shortage of raw material. As a result, the industry is on the verge of collapse, he added. Urgent measures to protect the industry were required since the DC industry was a key foreign exchange earner, he said. Minister of Plantation Industries Lakshman Kiriella told the Sunday Times FT that the coconut industry should return to its normal state by early next year given the current favorable weather in the country. “We don’t
have enough coconuts for the DC industry. This will improve by early
next year,” he said. Up to a million coconut trees had been
destroyed by the combined The ministry had put into operation a series of measures to revive the entire coconut industry. Minister Kiriella also emphasised that with the introduction of the drip irrigation method in coconut estates in Sri Lanka the situation should improve with trees giving a better yield. The drip irrigation
system is being initially introduced to the high yield areas, especially
in the “coconut triangle”. It is supported by the Indian
line of credit. A DC mill owner, Sunil Watawala, said that the industry produced 60,000-70,000 MT of DC for the export market last year. But it had been able to produce less than 27,000 MT for the whole of this year owing to the tremendous shortage of nuts throughout the country. Watawala, who
is the immediate past president of the DC Millers Association, said
that Indonesia and Philippines are able to export DC at half the
price of Sri Lankan DC because local prices had increased as a result
of the raw material shortage. These markets would be quite difficult to recapture even if the industry returns to its previous state, he said. The exodus of skilled labour from the industry due to the highly volatile situation had created a serious problem, he added. SEC
considers “second opinion” on inside dealing probe The report on the alleged ‘inside dealing’ issue attributed to three directors of Aitken Spence and Co., including the chairman of the SEC Michael Mack was tabled at a special meeting of the SEC last Monday. The findings of the 20-page report are currently under study, acting chairman of the SEC Nihal Jinasena said. He declined further comment. The two-man panel consisted of a retired Justice of the Supreme Court and an eminent member of the accounting profession, the SEC said. The SEC probed the sale of Aitken Spence shares in May and June this year by the three former directors of the company and their relatives. Coking
coal firm clinches big supply contract The company has set up a subsidiary called Venkatesh Industries Ceylon Ltd and intends to invest around $220 million (Rs 21 billion) on a plant that will produce 750,000 metric tonnes of low ash sulphur Metallurgical Coke per annum and generate electricity for a 110MW power station. The plant would convert coal to coke, a raw material that goes to make steel, which would be exported, said Duminda Jayatilake, a director of Venkatesh Industries Ceylon. Coking coal is different from thermal coal used to produce electricity. It has a sulphur content much lower than that of thermal coal and is therefore more environmentally friendly, he said. “Also,
the fly ash content in thermal coal is very high. We’ll be
using low ash coking coal from Australia.” Venkatesh Industries
Ceylon plans to import 1.2 million metric tonnes of coking coal
a year and produce and export 750,000 metric tonnes of coke. “Our met coke (metallurgical coal) is being presold for the next 15 years,” Jayatilake said. “We have a sale contract with RAG of Germany, one of the biggest buyers of metallurgical coke, which they will sell to steel mills.” The coal would
be shipped in big bulk carriers to Trincomalee, one of the few ports
with the draft of at least 13.5 metres required to handle big cargo
ships. “This project is a reflection of more private sector initiative than government contribution,” Industries Minister Rohitha Bogollagama told a news conference recently. The project is sponsored by Venkatesh Coke and Power Ltd of India and Angleton Ltd, of the Isle of Man, U.K. The Venkatesh Group is assisted by Thyssen Krupp and RAG from Germany and Belships from Norway. The project has been given “Preliminary Clearance “ by the authorities. “This has also been given under conditions as it was needed to get the site cleared and to proceed with the basic needs to build it,” said R.A.D.P.Samaranayake, Director of the Coast Conservation Authority. A spokesman for Venkatesh Industries told the Sunday Times FT: “This is an environmentally friendly project and it saves 8000 tonnes of carbon dioxide (CO2) a year. So it does not need the Environmental Impact Assessment (EIA).” The project will generate employment for over 3,000 people during the construction of the plant and nearly 300 once it is set up. The project is expected to earn Rs 6.65 billion per year and nearly Rs 133 billion over the time span in which the project lasts. The project could exceed the foreign investment for last year, which totalled just $80 million. |
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