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Tourism and Finance Ministries are scheduled to meet the Tourist Hotels Association of Sri Lanka (THASL) and commercial banks next Wednesday (October 9) to settle the deadlock over a moratorium declared on loan repayments for the hotel industry, THASL President Gilbert Jayasuriya said.
An investment of over Rs. 25 billion has been made so far in the hotel industry and there are large borrowings by hotels. "We are simply unable to pay either the capital or the interest on these loans", he said. After taking this up with the Ministry of Tourism and the Ministry of Finance, the Cabinet approved a moratorium on the payment of loans and interest up to the end of this year. Furthermore, it has also been agreed that this would apply on a case by case basis to hotels that were adversely affected. "This decision was made about two months ago and it was intended that the banks discuss each individual case with the hotels, and even after necessary financial information was given to the banks by the hotels, nothing has happened", he said, adding that the banks are waiting for a directive from the government. He suggested that the Treasury should take the responsibility of giving a directive to the banks.
"The government will have to subsidise the banks up to a point for their loss of interest", Mr. Jayasuriya said, stressing that matters have to be finalised, because hoteliers have complained that no concrete arrangements have been made between the banks and the hotels. "But, in the meantime, the hotels that are adversely affected are not paying", he said, pointing out that this is simply because they do not have the finances to pay their loans, but, once a decision is made, this would be adjusted.
Another serious matter which is affecting the hotel industry, is that the commercial banks which are the main lending institutions have been debiting their overdraft accounts with the interest. Hence, all the affected hotels have overdrawn above their limits and at present they hardly have a working capital. "However, I am confident that the Tourism Minister will solve this problem", Mr. Jayasuriya said, adding that the former administration has had a good scheme under similar circumstances in 1988 and it is hoped that the present government will adopt the same principles. Under this scheme there had been a moratorium for three years. During this period the rate of interest payable on the loans that were in default was 2 percent and at the end of the moratorium, these would be capitalised and the hotels had to pay it at a low interest rate of 12 percent. All the loans were re-scheduled and payable within 10 years. "If they did not have this scheme, we wouldn't have a hotel industry today," he said.
In comparison to 1995, there has heen a 30 percent drop in tourist arrivals for the first 8 months of 1996. Adding to the confusion is a 49 percent increase in hotel rooms and employment created for over 80,000 people at the end of 1995.
Statistics show that in 1995, which was not a very good year for tourist arrivals, the country earned Rs. 11 mn in foreign exchange. "We have the potential to be the biggest foreign exchange earner for Sri Lanka," Mr. Jayasuriya said, adding that they have also asked the government to recognise the hotel industry as an export industry due to the foreign exchange earnings. It is estimated that for every five tourist arrivals one job is created. "It is in the government's interest to encourage tourism if employment is to be increased," he said.
Another very important matter which needs consideration is the promotion of Sri Lanka abroad. It is necessary to change the image of Sri Lanka as a country safe, both for tourism and investment. "While there is a war going on in the north and east, the rest of Sri Lanka is peaceful, both for the arrival of tourists and for investment," Mr. Jayasuriya said, suggesting that the assistance of competent public relations companies should be sought. Having suggested five such companies to the government, he hopes that necessary action would be taken. "Countries such as Ireland, Egypt, Israel and Turkey are those that have been successful, in building a good image, despite terrorism in their countries. Meanwhile, a Tourist Promotion Authority has also been suggested to the government, which would be financed both by the private and public sectors, to be run on private sector lines. The government will be represented by the Ministry of Tourism, Chairman of the Ceylon Tourist Board and AirLanka, while the rest will be from the private sector. Hence the Tourism Minister has come to a decision agreeing that this should be private sector-oriented and private sector-run.
Tourism growth has had a downward trend since 1982 largely due to the ethnic conflict in the country, with a slight increase in 1994. However, at present, much is needed to assist the hotel industry which has the potential of being one of the highest foreign exchange earners in the country.
Fears of the cost of living rising to unbearable heights are gripping the country after the government increased the prices of fuel last week.
The Sunday Times Business spoke to Energy Ministry officials, vehicle owners and others in the wake of the fuel shock.
A senior Energy Ministry official said the decline in the exchange rate of the rupee as against the dollar and the increase in the international crude oil price were the two main reasons for the price hike.
He said the prices for petroleum products that prevailed earlier were fixed in January 1995 when the exchange rate was around Rs. 49 for a dollar and the average crude oil price was $ 16.50 a barrel. "Since then, the rupee has depreciated against the dollar and the international crude oil price has considerably increased. At present, the exchange rate stands at more than Rs. 55 a US dollar while the world oil price has risen to $ 20 a barrel".
The official explained that every rupee increase in the exchange rate results in an average increase in the cost of production (refining) by about Rs. 270 million and an increase of one dollar per barrel of crude oil would result in an additional cost about Rs. 800 million a year to the Ceylon Petroleum Corporation.
He pointed out that at the same time the demand for petroleum products continue to rise. "Annual demand growth of petrol is around 4 percent while that of diesel is around 9.5 percent", he said.
He noted that in spite of these changes, the CPC had not revised it's prices accordingly for the last two years and as a result has had to incur an additional cost of around Rs. 2400 million a year, which is expected to increase next year.
The official said the CPC was mindful that any hike in fuel prices would inevitably increase the cost of living, but the government had no option.
Petrol vehicle owners are concerned about the price hikes. Says Engineer Firoz Ismail, a private car owner, "Petrol prices are now so absurdly high. There appears to be no decrease in the number of petrol-driven vehicles on the roads. We can thus conclude that most of the petrol vehicles are maintained by Government and private sector enterprises, most marginal private users having given up long ago".
Meanwhile, reports say most three-wheel drivers have not increased fares for short distances as they fear a further increase in fares would discourage customers.
However, fares for long distance trips have been increased. For instance, a trip to Nugegoda from Park Street (Colombo 2) which formerly cost about Rs. 100 would today cost about Rs. 125.
Many taxi drivers complained that the number of hires had declined considerably after the price hikes. As a result their daily earnings have come down.
Sunil Cooray, a three-wheel driver said since the price hikes his daily earnings had decreased to about Rs. 500. "I use about four litres of petrol a day which cost me Rs. 200. I have to pay the owner Rs. 175 and I will be left with about Rs. 125. When compared to my earnings prior to the price hikes, I would probably be losing about Rs. 1,200 a month due to the increase in the price of petrol."
Economists have said that the hike in the fuel prices could result in a country-wide chain reaction on the economy with prices being pushed up by rising transport costs.
However, DFCC Economist Harsha De Silva says, "This will be set off to some extent by reducing the burden on the budget."
But other economists feel the net effect will be inflationary. Higher transport costs are pushing up the prices of vegetables and other goods.
Eventually bus fares too would have to be raised sooner rather than later.
Fears have also been voiced by some that the price hikes would be blown out of proportion by transporters and traders, further contributing to the rising cost of living.
Lorry driver S.K. Ajit says a trip from Nuwara Eliya to Colombo with a full load of vegetables (about 6000 kilos) would consume about 60 litres of diesel. He said he had decided to increase his hire rates from Rs. 4,500 to Rs. 5,000 though the eighty cents increase for a litre of diesel would only amount to less than Rs. 50 increase per trip.
Observers have pointed out that in similar situations in the past unscrupulous middlemen arbitrarily tend to increase their prices under the pretext of higher transport costs.
However, at the moment the middleman does not seem to have seized hold of the situation.
The soft drinks market has hit on hard times in the recent past, a top non-alcoholic beverage maker has said.
The slump in tourist arrivals and the periodic closure of schools due to the tense security situation that prevailed during the latter part of last year affected significant segments of the soft drinks market the local Coca Cola bottler, Pure Beverages Company Ltd., told shareholders.
Though total income increased marginally to Rs. 1.39 b from Rs. 1. 38 b a year before, volume sales had fallen by 8 per cent.
The downturn in economic growth, falling corporate earnings, tight liquidity coupled with rising consumer prices had left less disposable income in the hands of the soft drinks consumer, Pure Beverages Chairman W. D. M. Fernando observed.
Soft drinks sales had also been hit during the first half of this year.
the power crises that prevailed in the country from March 1996 has further impacted on operations primarily because retail outlets could not operate their coolers Mr. Fernando said. This had sharply reduced the availability of cooled products.
The company had made a loss of Rs. 25 m in 1995, up slightly from the Rs. 23. 5 m loss the year before.
However the company had paid Rs. 477 m to the government last year in taxes and duty.
Last year 82 per cent of the capital of the company had been acquired by Singapore based F & N Coca Cola (Pvt.) Ltd.
Despite the market downturn the company had embarked on an expansion drive.
The share capital had been increased to Rs. 756 m and new capital investments had been made.
This involved boosting capacity by 50 per cent with a new bottling line in Biyagama, the construction of a 4,000 square metre warehouse and the commissioning of a waste water treatment plant.
The company had invested Rs. 105 m to provide coolers to dealers, increasing the facility by 70 per cent.
It was 25 years after the company had been set up that production had been expanded by installing a second bottling line at Kaduwela in 1980. Since then the company had increased production capacity every 5 years.
We remain optimistic of the prospects and profitability of the business in the long term, and plan to make further investments to make available a wider range of packages and flavours to meet the changing needs of our customers Mr. Fernando said.
Renewed optimism led the market to close-up ASPI 15 points in the review-period. With ASPI registering 580 levels and turnover averaging a healthy Rs. 30-35 million per day, foreign participation was evident with large parcels changing hands frequently and in addition it was also evident, that the foreign investors were selectively changing stocks from one to another. Net buying by overseas investors was minimal; as foreign institutional buyers have rated Sri Lanka as high-risk. High net worth individuals (HNI) buying was concentrated mainly on Banks/Manufacturing with expected speculative returns being highest in these sectors. Companies which are trading below Rs. 20 in the banking sector are recommended by most analysts as return percentage is expected to be very attractive in the short-term (6 months). Shares which fall into this category are e.g., Merchant Bank, Vanik, PMB, Ceylinco Securities, Seylan Merchant (high risk).
Seylan Bank, Sampath Bank, Commercial Bank shares would be an ideal investment option to investors who are interested in short to medium term (6-12 months) returns. These companies are fundamentally sound with attractive P/E's in addition to an ideal price.
Market-momentum is expected to be curtailed by time to time profit taking by investors, which could be ideally suited for trading than holding on to shares by investors.
Bullishness in the market could be temporary; as the possibility exists of a terrorist act which could have repercussions in the economy, and eventually 'the CSM'.
Fundamentally Sri Lanka's economy seems to be in trouble due to some poor strategies adopted in managing the economy. With controllable inflation in the 20%'s, labour unrest some uncertainty in the privatization process large and conservative money managers seem to be avoiding Sri Lanka as an investment destination.
Treasury Bill rates are likely to stabilize around 20%, and with budget coming -up in November there are expectations of more public ventures to be privatized. The most likely privatization prospect will be the state banks and the insurance sector. In mid-December privatization of AirLanka and Lanka Telecom is expected.
Market is expected to increase upto ASPI 650 levels short-term (6 months).
A National Quality Week is being promoted by the Sri Lanka Standards Institute (SLSI) following the World Standards Day on October 14.
"Standards streamline industrial activities and facilitate trade, providing for maximum economic efficiency and contributing to better standards of living," the SLSI said.
To mark this occasion the SLSI has organised a publicity campaign through the media and a poster competition among school children.
In the meantime a National Quality Week will be observed from October 14, with a view to improving the quality of products and services of the local industry through creation of a wide sense of awareness of quality among the industry and the consumer.
Quality Week will be observed by industrial and business establishments by hoisting the special Q flag (Quality Flag) and through various activities such as meetings, seminars and publicity programmes aimed at highlighting the importance of quality for survival, as well as growth in a competitive market environment.
The theme for this year's World Standards Day is "Raising Standards for Services" as informed by the International Organization for Standardization (ISO)
The fuel price hike certainly took many by surprise, including some Ministers.
But will this mean a "sunshine" budget, come November?
Certainly, bread and fuel prices are unlikely to rise again but the same guarantee cannot be given about communication charges, they say...
The market is steadily climbing once again, but will it last?
At least one top stock broker thinks it will and has advised overseas clients to bet on bargain priced blue clips.
Their estimate? The 600-level in the All Share by end October and 700 by the end of the year.
More about the market: many believed that the strong showing of the regional plantation companies triggered the upward trend.
But now, the complaints are coming in - about Indian interests using 'agents' to try and gain control and other such allegations.
Everybody is sceptical about such theories, but the government is unlikely to take chances. So, more stringent rules will govern RPC sales in future...
Some 500,000 train commuters will soon be offered a wide range of food, with 32 mobile units and 22 static units operating inside carriages at stations and on platforms, Meals on Rails, a catering company, has said.
While the mobile units would operate the restaurants on board all mainline trains, the static units would run canteens and restaurants at main railway stations, including, Fort, Maradana and Galle.
Targeting mainly office workers traveling long distances, the upgraded restaurant service with mobile salesmen on platforms, would sell packeted breakfast, lunch and dinner packets, the company said.
It said food items, suitable for an evening meal will also be available at reasonable prices.
Meals on Rails says since it emphasises on hygiene, taste and nutrition, vegetable and other ingredients would be bought from reputed suppliers. The company also pledges it would provide speedy and quality service.
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