Lankan firm gets Iraqi contract

A Sri Lankan heavy engineering company has succeeded in clinching a major sub-contract in war-devastated Iraq, battling global giants in the business for reconstruction work there.

Amidst efforts by companies from India, the Philippines, Thailand, China, Singapore and Britain among others for a slice of the sub-contracting work, Sri Lanka's Vcom Heavy Engineers Pvt Ltd squeezed in with an assignment from major US contractor Betchel Corp.

It is the first local firm to win a construction contract in Iraq after US-led forces drove out President Saddam Hussein's regime.

Betchel is handling the bulk of the reconstruction phase estimated to cost some $ 500 billion and is doling out sub-contracting assignments to companies across the world. Vcom, which has been handling some big projects in Sri Lanka and has a presence in Oman, Singapore and Bangladesh, worked on the Iraqi deal through its Omani office.

"This is a major breakthrough for us and for Sri Lanka," noted a delighted Jagath Navaratne, Vcom's chairman and managing director, a marine engineer who set up the company eight years ago after extensive overseas work.

"We worked hard to get this contract over many other foreign firms," he said of the multi-million dollar assignment that involves repairing mainly power projects and other infrastructure damaged during US bombing .

Vcom, launched in 1995 as a mechanical engineering company, has completed several projects and has new ones on line in its overseas locations. It is the only Sri Lankan engineering firm with a presence in the Middle East.

Navaratne, who is preparing to fly to Iraq to sign the agreement with Betchel Corp, said that he hoped to use staff from his company in Omani in addition to Sri Lankans for the work in Iraqi.

Vcom's Omani branch is currently involved in a 300-mw power project and is helping setting up a flourmill in Salalah while in Bangladesh it is handling a fertilizer project. In Singapore it handles engineering services and is currently looking at more opportunities in the Maldives. The company is also eyeing work in Madagascar through its Oman office.

The company is a pioneer in steel fabrication, handles the installation of power distribution systems, oil rig installations, design and manufacture of petroleum storage tanks, manufacture of trailers and bowsers, and installations of fire lines and sprinkler systems. In the past three years it has handled work in Sri Lanka and the Maldives for a range of clients including Skanska, SAGT, Unilever, John Keells, two beer companies, PMB, CEB, Simco Petroleum in Male, Walls Ice Cream, Aggreko and Aitken Spence's Wartsala power plant at Horana.

Navaratne worked as a chief engineer on ships for many years before residing in Australia. From there he moved to Hong Kong before returning to Sri Lanka in 1995 to start his own firm. (FS)

Pramuka to be salvaged?

By Quintus Perera
Pramuka Bank depositors last week presented to the Central Bank a restructuring proposal aimed at reopening the failed bank and were hoping for a favourable response from the authorities in the next few weeks.

It is the first ever plan offered to the Central Bank to salvage a bank that was sealed by the Central Bank last October amidst mounting debts.

Ranjan Arambawela, President, Pramuka Depositors' Association, said they handed over the plan to Dr. P.M. Nagahawatte, Deputy Governor of the Central Bank.

He declined to give details of the proposal but said its main focus would be on the smaller depositors and their needs. It has been suggested that half the deposits of major depositors be converted to shares as part of equity as it would be 'something better than nothing'.

The new proposal has suggested six new nominees as additional directors of the bank while one more position is reserved to represent new investors to offset the powers of the existing five directors in the decision-making process. Arambawela indicated that if the restructuring proposal is accepted, Central Bank too would most likely nominate directors to the Bank board.

K.C. Vignarajah, a respected industrialist and a well-known campaigner in the garment industry through the 1980s, is helping the depositors’ association in their efforts.

Deluge of insurance claims from flood damage

The extent of the damage caused by raging floodwaters in the south became clearer last week with the low grown tea industry, the mainstay of the Colombo auctions, expected to lose upto 25 percent of production and take 2-3 months to recover.

A deluge of insurance claims is expected particularly from tea factory and shop owners.

Sri Lanka Insurance Corporation officials said teams of assessors had fanned out into affected areas to assess the damage caused by the floods, which submerged tea smallholdings and factories, washed away roads and brought down power and telephone lines.

The floods also affected fast moving consumer goods as stocks were submerged, distribution was disrupted and consumers made refugees.

Unilever Ceylon chairman Ehsan Malik said there has been no material impact on the overall business partly because the firm had significantly optimized stock holdings of its distributors and the trade.

"Where required we have taken steps to replace damaged stocks. We have also enabled our distributors to supply our products on extended (credit) terms," he said.
Floods destroyed 53,300 hectares of low grown tea out of 150,380 hectares cultivated by smallholders in the south, the Tea Smallholdings Development Authority said.

"It is feared that 20-25 percent of the total tea production was affected by this calamity," it said in a statement. It estimated the loss to the national economy from the damage caused by floods to tea smallholdings at Rs. 2.8 billion.

"It will take at least three months to bring low country tea production back to normal, due to mud and animal carcass in dirty flood water."

Some of the affected tea estates will take an estimated three months to resume work.

"It is feared that tea lands in Ratnapura, Nivitigala, Iyagama, Elapatha, Kalawana and Kuruwita, which were totally destroyed, may never be cultivated again," the statement said.

Some 150,000 tea smallholders, out of a total of 250,000 who account for 62 percent of the annual crop, have been affected by the floods.

Niraj de Mel, CEO of the Tea Association of Sri Lanka, said initial estimates of a 60-80 percent drop in auction quantities in the weeks ahead may have been on the high side.

Action was required to ensure that the smallholders, who produce more than half the island's crop, do not abandon damaged tea lands, he said.

Factories had lost a lot of made tea while leaf could not be immediately harvested from bushes that were submerged for several days.

"The bush is hardy and will not die and most will come back to bearing in a month or so, except those uprooted by landslides which was minimal," de Mel said.

Mobitel to shake GSM market

By Akhry Ameer
Mobile operator Mobitel looks set to cause ripples in the local mobile industry with a $200 million investment plan over the next five years in rolling out a new service on the GSM standard.

Approximately $140 million of this investment would be utilized within three years with the operator's aim of conquering the top spot in the industry by 2007 with a target of one million subscribers.

The plan comes on the heels of main rival Dialog's recent announcement of an additional $90 million investment by its principals over the next three years. That investment - bringing Dialog's total investment close to $200 million since its inception - is aimed at doubling its existing 600,000 customer base, 300 base-station island wide coverage, expanding bandwidth and improving its customer service facilities.

The launch of the Mobitel service is to take place in September this year with an instant GSM coverage similar to that of its existing network, Chief Executive Officer, Lalith de Silva told The Sunday Times FT in an interview. It would also be launching all other value added services such as Short Messaging Service (SMS), Multimedia Messaging Service (MMS), Global Packet Radio Service (GPRS), Internet access and other content services during the same period. A unique attribute of this major development plan is Mobitel's commitment to maintain its existing TDMA network for the next three years. Industry analysts believe the fight for supremacy will depend on network availability, attractive subscriber packages and customer service.

Banks begin cutting lending rates

Commercial banks have announced cuts in lending rates after a meeting with Finance Minister K.N. Choksy, which followed prolonged complaints from the business sector of the high cost of borrowing.

But they rejected criticism they were making excessive profits by maintaining a huge spread between deposit and lending rates and said the existence of "willful defaulters" was one of the reasons for the high cost of borrowing.

Banking analysts also warned that the recent floods are likely to have a big impact on banks as borrowers, from home builders to industrialists, face difficulties in repaying loans after their houses and factories were damaged or destroyed.

Hatton National Bank Managing Director Rienzie Wijetilleke said they had brought down lending rates in keeping with cuts in Central Bank interest rates.

"Over the last 2-3 months we brought down lending rates by 2-3 percentage points," he said. "However, while we're aware of our social obligations, banks must look at the risk and the price - at all times we must bear in mind that we're lending other peoples' money so the risk is important."

Commercial banks were keen to provide the best facilities to customers in the form of attractive lending rates given the very competitive environment.

Wijetilleke dismissed criticism that banks reduced lending rates only after pressure from the government.

"There's absolutely nothing like that - we go on the basis of supply and demand," he declared.

"There is a certain group of borrowers who are very bad borrowers. We face very high risks in lending to them since they have a bad track record - a record of poor management of funds," Wijetilleke said.

"Those are the people who are making a big noise about it - not genuine borrowers. They are part of various chambers - banks must charge very high rates from them because they take bank money with no intention of repaying."

Gaston Gunawardena, Secretary of the Sri Lanka Bankers' Association, warned that the damage caused by floods was likely to affect bank profits as borrowers find it difficult to repay loans.

"With the floods we face a still bigger risk," he said. "Our provisions are going to mount. We will have to carry those losses."

Commercial banks have to be strong and be profitable to be able to withstand shocks such as natural disasters, he said.

Derek Kelly, Director, Restructuring and Strategic Development of People's Bank, said they had been cutting lending rates in line with cuts in Central Bank repo rates but had to take into account the generally high cost base of the banking sector and the huge amount of bad loans accumulated by People's Bank over the years.

"We're carrying huge historic losses which need to be covered up in the interest of our customers and other stake holders," he said.

"Certainly we are very determined to be very competitive in this market but People's Bank historically had not been taking a risk-based approach for lending and has only done so in the last year or so."

The bank was making "good progress" in recovering some of these loans but has now been forced to "go slow on recoveries" in areas hit by floods.


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