War threatens economic recovery
As US and British armoured cavalry forces charged across the Iraqi desert last week, preceded by Tomahawk cruise missile shots, in the first phase of a military campaign to disarm the oil-rich Gulf state, Sri Lanka's business community warned that the war could set back the island's fledgling economic recovery.

They forecast possible losses resulting from imminent freight rate hikes, higher insurance premiums, and delays and diversion of export cargo with the Ceylon tea industry, whose low growns are much in demand in the Middle East, being hit hard. Higher oil prices could translate into increased transport and production costs and fuel inflation, which could hamper government efforts to lower borrowing costs.

Pledges of foreign aid that have come with the progress of the peace talks might also be affected if donors divert funds to rebuild Iraq after the war.

Mahen Dayananda of the Colombo Tea Traders' Association and deputy chairman of the Ceylon Chamber of Commerce, said the war could further dampen demand at the Colombo tea auctions.

"We have had slightly less demand in the auctions over the last couple of weeks but now that the war has actually broken out it could get worse for teas which are normally bought by the Middle East," he said.

"Buyers may not have enough orders to operate on a regular basis if war continues for a period of time at which stage the buyers' cash flow get affected which means pre-shipment credit is going to be an issue," he said.

"If shipments are not moving smoothly to the Middle East we could have storage problems in Colombo."

Dayananda, who heads a Ceylon Chamber crisis committee involving the affected sectors, said they were trying to liaise with the goverment to see what support could be given to help the private sector.

"If demand in the auction is not sustained the negative effects will flow down to the producer which we must try and avoid by having plenty of liquidity in the export system so buyers can continue to operate in the auctions."

Private tea factory owner Herman Gunaratne said low grown tea prices had plunged as a result of the crisis and shipments to the Gulf were being held up.

The government has assured the industry of support to buy and store unsold teas until the war is over.

The garments industry is worried that the war would affect last-minute spring shipments, according to Ashraff Omar, managing director at Mast Lanka.

PM orders probe on Ibis deal after media spotlight
The intense media spotlight, including reports in last week's Sunday Times newspaper, on the controversy surrounding the Ibis bus privatization deal, saw Prime Minister Ranil Wickremesinghe call for an immediate report from Treasury Secretary Charitha Ratwatte on the issue.

The premier, according to informed sources, had called for a report within three days on why the sale of 39 percent shares of six cluster bus companies to Ibis could not be finalised.

Asked for his comments, Ratwatte confirmed that a report had been called for and said: "We are trying to get to the bottom of this (issue)."

The Sunday Times FT last week in a story headlined "IBIS bus privatization a major scam?" raised concerns that the deal was heading for a disastrous scandal. The report said that attempts were being made to provide a loan to the British company sans the 39 percent stake in the six bus companies, violating rules of the Public Enterprise Reforms Commission (PERC).

A fresh valuation of the 39 percent stock had also been called for in a bid to raise the loan facility, the paper said. The Sunday Times, in a separate report in its main section, also raised issues about delays and extensions connected to the controversial deal.

Several newspapers and unions have raised serious concerns over the Ibis offer.

The prime minister's intervention came amidst reports that he summoned senior officials of the Board of Investment (BOI) and expressed annoyance over the lack of progress at this institution.

First national media survey
Survey Research Lanka (Pvt) Ltd, a Sri Lankan market research agency, has carried out what it says is the "first, truly national media survey" in nearly 20 years.

It said the year-old ceasefire between the government and the LTTE enabled the agency to carry out a countrywide survey which included the northern and eastern regions, untapped for many years by research agencies and the Census Department due to the conflict.

Survey Research Lanka last week released the findings of this bi-annual Media Habits Survey conducted in January - February 2003 in all nine provinces of the island.

Some of the findings of this interesting survey would be exclusively published in The Sunday Times FT next week

Demand for allowances too!
Employees of the failed Pramuka Bank, currently drawing their salaries paid from the deposits of frustrated investors, are now trying to persuade authorities to pay their allowances too.

Informed sources said that Labour Department officials have been approached by some senior employees for a ruling on this matter. For most top executives in the banking and private sector, the allowances often far exceed the monthly, taxable salary. The Central Bank began paying the salaries of Pramuka employees after its liquidation process was temporarily halted by a court action from depositors.

Shipping lines abused war risk premiums
Some shipping lines abused war risk insurance premiums imposed by underwriters after the terrorist attack on the Katunayake international airport in July 2001 to earn "windfall profits", according to a report by the Institute of Policy Studies, an independent semi-government think tank.

International underwriters have still not completely removed the war risk premium on Sri Lanka and the country still remains an excluded area, it said in a report on the state of the economy. Following the airport attack, the entire island was brought under "held cover" status under which underwriters are free to levy an additional insurance premium as war risk. Previously, only the northern waters were under held cover.

Insurance premium on ships are based on their market value, depending on size, age and condition of the vessels.

But two powerful shipping cartels serving Sri Lanka, IPBCC (India, Pakistan, Bangladesh, Ceylon Conferences) and TACA (Trans-Pacific Stabilisation Agreement) fixed war risk premiums at uniform rates without taking into account the market-based value of the vessel, the IPS report said.

"The war risk premium was abused by several lines in order to earn windfall profits and to discriminate against Sri Lanka's exporters and importers," it said.

"It not only affected the Sri Lankan economy adversely but it was implemented in the most discriminatory and disorderly manner by some shipping lines."

Representatives of shipping lines dismissed the charges in the IPS report.

"There were no windfall profits," said Rohan Perera, chairman of the Ceylon Association of Ship Agents. "During that period the premiums were yo-yoing because of the volatility at the time."

Shipping lines were forced to pay very high premiums to call at Colombo during that period, he said.

"Even today despite there being peace the country is still under held cover status," he added. "Some lines are actually paying war risk premiums to call at Colombo. It is just that it is not being passed."

Rohan Masakorala, former chairman of the Sri Lanka Shippers' Council and head of Ascobips (Association of Shippers' Councils of Bangladesh, India, Pakistan, and Sri Lanka), said the island was under held cover status although no surcharge was imposed so that underwriters can impose extra premiums if and when needed.

The shipping industry had repeatedly asked the government to lobby the London insurers and get the held cover status removed but nothing had been done, industry officials said.

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