Govt. braces for Gulf war shock

Amid dire warnings of severe disruption to the import-dependent economy if there is another war in the Gulf, the government is considering urgent measures to build up adequate stocks of essential commodities to ensure food security in the event of US military action against Iraq and provide a safety net to consumers.

Fears for the safety of thousands of Sri Lankan migrants in the Middle East, mostly housemaids, also prompted the government to consider ways to arrange an airlift home for these workers.

Tension in the Gulf has already had an impact on Ceylon tea exports, with shipments to the region, a key market, being disrupted, resulting in large quantities remaining unsold at the Colombo auctions and stocks accumulating in warehouses.
The crisis prompted warnings of unrest in villages, which depend on the tea trade, with industry officials accusing the government of not having a contingency plan to meet the situation.

Commerce and Consumer Affairs Minister Ravi Karunanayake has urged the government launch a co-ordinated programme of action to prepare for any disruption caused by the situation in the Gulf and provide a “safety net” to ensure the welfare of consumers.

In a memorandum to the cabinet, Karunanayake said the lead up to a war is likely to result in heightened volatility in world markets for commodity food items and freight rates as both governments and private trade build up strategic food stocks.

Any such supply problems would lead to panic buying and hoarding by retail traders, leaving consumers vulnerable to spiralling prices, he warned.

The government should consider “suitable contingency measures” to avert a national shortage of essential food items if normal imports are disrupted, he suggested.

These measures could primarily focus on improving the capacity of private sector trade channels to function under the conditions that would prevail during a war as well as focus on the use of public sector resources to meet the requirements of emergency food storage and distribution, Karunanayake said.

The government should determine quantities to be bought “immediately” by the CWE, assess current food stock levels islandwide to determine any shortfall against desirable safety levels, and mobilise extra storage space, he recommended.

He said the island, being a net food importing developing country, was more dependent on imports for her requirements of wheat flour, sugar, powdered milk, lentils (dhal) and about 10 percent of rice consumption, than neighbours like India and Pakistan.

The government should also consider fiscal measures to encourage higher import volumes of selected items, and step up monitoring and surveillance of the wholesale trade to effectively intervene against panic buying and hoarding, he said.

Officials said the government was worried about the vulnerability of consumers to the economic shocks of a war, especially at a time when the cost of living is already high and set to rise further with price hikes in gas, electricity and telephone calls.

The Ceylon Petroleum Corporation has said it is taking measures to source petroleum supplies from East Asia and reduce dependence on Middle East oil to prepare for a possible disruption to oil shipments or price hikes if fighting breaks.

Plantations Minister Lakshman Kiriella has summoned an emergency meeting on Wednesday of all tea trade stakeholders, along with officials from the Treasury and commercial banks, to discuss ways to resolve the crisis facing the industry.

Tea Board officials said the industry had been asked to come with specific proposals to get over the crisis and the meeting would discuss giving relief on bank loan repayments and warehousing problems.

Prices of Low Grown teas, which account for more than half of Sri Lanka s crop and are much in demand in the Gulf, fell further at the auctions of January 27-28 owing to slack demand from Middle Eastern buyers, brokers and factory owners said.

Tea brokers said the mood was “turning desperate” in the southern low country, where Low Growns are produced, mainly by some 350,000 smallholders.

The Private Tea Factory Owners Association (PTFOA) said almost a million kg or 15-20 percent of auction quantities remained unsold at the last two sales when usually all teas are sold.

“The war is probably a couple of weeks away already we’re feeling the heat. There’ll be severe repercussions,” warned PTFOA chairman Sarath Samaraweera. “This has never happened before.”

About three million kg of Low Grown teas are sold at the auctions each week on average.

Sixty percent of the crop consists of Low Growns of which 60-70 percent is shipped to the Middle East and North Africa

Samaraweera said factories would be forced to stop production owing to lack of cash if the crisis continued for a couple of weeks longer and warned that it could cause unrest in villages which depend on the cultivation and supply of green leaf.

Factory owners were demanding low-cost credit and a moratorium on loan repayments to help tide over cash flow problems, which made it difficult to pay smallholders who supply green leaf.

Samaraweera said they need government support to find storage space since warehouses in Colombo would soon be overflowing and would not be able to accept further stocks.

IFC to purchase SLIC stake in Commercial Bank

International Finance Corporation (IFC) has offered to buy part of the stake in Commercial Bank held by the government through Sri Lanka Insurance Corporation (SLIC).

"We have made a firm offer to the government to buy a 15 percent stake,” said Sanjeewa Senanayake, IFC Country Manager. “SLIC holds 30 percent in Commercial Bank out of which 20 percent is up for sale. We are offering to buy 15 percent of it as the Banking Act does not permit us to buy all."

Asked why Commercial Bank was chosen as an investment, he said, "We have been closely monitoring the performance of the bank. It is a well-managed bank with good corporate governance. Commercial Bank is expanding, and moving toward project lending and opening up branches in the region."

SLIC chairman Chrishantha Perera said his company was allowed to hold 30 percent of Commercial Bank, despite the restrictions under the Banking Act, because it is a state-owned entity, but that this would change when it is privatised.

SLIC has told bidders through the Public Enterprise Reforms Commission that it wants to sell a 20 percent stake in Commercial Bank at the prevailing market price, he said.
- (DM)

Renton to quit Ceylon Chamber

Renton de Alwis, Secretary General/CEO of the Ceylon Chamber of Commerce, is quitting the chamber on March 31 for “health reasons.”

De Alwis, a former Sri Lanka Tourist Board chairman who joined the chamber six months ago, said he had informed the chamber hierarchy of his decision.

“I am having a few health problems and want to take a break from a hectic work schedule,” he said adding that he has enjoyed his stint at the chamber.

New investors buy Pramuka Merchant

By Rajika Chelvaratnam
A group of investors has acquired and plan to rename Pramuka Merchant Corporation, a unit of the troubled Pramuka Savings and Development Bank which was closed by the Central Bank in December owing to alleged serious financial irregularities.

Former CEO of Union Assurance, Sarath Wikramanayake, is a consultant to the new investors.

Pramuka Merchant has decided to break away from Pramuka Savings and Development Bank in an attempt to survive the backlash due to the closure of its parent firm and to give the company a facelift.

"As the first step in giving the company a facelift we have broken away from the Pramuka Group," said Dayantha Fernando, Managing Director of Pramuka Merchant and a director on the Board of the emerging company.

The decision to make the break was made after the new investors, going by the name of Mercury Investment Holdings Pvt. Ltd., described as a holding company, acquired the stakes in Pramuka Merchant held by Pramuka Holdings and Rohan Perera, the former chairman of Pramuka Bank. Mercury Investment has on its Board Sarath Herath and Priyantha Perera.

Rohan Perera went abroad before he could be questioned by the Criminal Investigations Department about the irregularities in Pramuka Bank and is now hunted by Interpol.

Four of the five directors on the Board of Pramuka Merchant told The Sunday Times FT in the interview that the main aim in keeping the company afloat for this long, despite the severe backlash, was their concern for their customers.

The second step in rebuilding the company would be to change the name, which has been approved by the Registrar of Companies but cannot be published till certain statutory requirements are met, said Fernando.

Thirdly, the company would "be sourcing certain investors to invest in the company." Fernando said that they had received offers from UK, but were waiting till all the necessary formalities are complete.

The new Board will consist of only five directors, namely Frank Irugalbandara (chairman), Sarath Herath, Ms. Neela de Zoysa, Dayantha Fernando and Ranjan Mellawa.

The directors of the emerging company said that their business plans have not been completely formulated but one plan would be to appeal to their placement holders to keep their placements for a minimum period of one year without demanding payment even at maturity so that they could service the interest.

The directors present also expressed hope that the company, with its network of 10 branches, would do well with the investments by Mercury Investment Holdings, which is backed by construction interests.

"Very few companies would have faced what we have faced and survived for this long," said Fernando.

Mellawa, a director in the new Board of Pramuka Merchant, said, "one key area is to concentrate more on the core area of merchant banking and we've got a very senior merchant banker, the former CEO of Union Assurance, Sarath Wikramanayake as a consultant to the Board. He is planning to guide the Board in a somewhat new direction, where we will concentrate more on merchant banking."

Mellawa also said that action would be taken by them to ensure that costs are kept to a bare minimum in order for them to "survive this difficult period."

Irugalbandara said the original investment by Mercury Investment Holdings Pvt. Ltd. was motivated by public interest. But the directors said it was a good deal for anyone who was prepared to take the initial risk.

The old staff of Pramuka Merchant would be retained as "the company is trying to resurrect (itself) with the assistance of all the officers."

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