Cell Phone operators were thrown into turmoil, when Call Link was granted approval to import used equipment by the Telecommunication Regulation Commission (TRC).
However events took a different twist this week when the Board of Investment (BOI) which earlier agreed to let Call Link import the used equipment duty free, went back on their earlier decision, in the face of objections from other celluar companies.
Call Link which is reportedly running at a loss of Rs. 600,000 a day was acquired by Hutchison Telecommuncations International Limited (HTIL) last month. The BOI and the TRC had agreed to the deal whereby Hutchison a Hong Kong based telecommuncations giant acquired 100% equity of Call Link Importing used equipment to revamp the network was a pre-condition to the sale.
A BOI official told The Sunday Times Business that as a policy the BOI does allow used equipment to be imported. "But this is subject to a competent authority revaluing the equipment and guaranteeing that the equipment is in useable condition.
However in the case of Call Link the BOI was compelled to write to the three other cellular service providers to inform them about the development regarding Call Link.
The other operators, Celltel, Mobitel and Dialog at a meeting with the BOI hieracy had objected to Call Link being allowed to import duty free used equipment, citing unfair competition. "This prompted the BOI to resort to levying taxes on the used equipment," the BOI official said.
Meanwhile, the TRC had written to the other celluar suppliers, informing them of the situation and asking them to respond within two days.
The BOI had subsequently written to the TRC explaining how other celluar service suppliers stand to lose as a result of the favourable treatment accorded to Call Link.
"As the investment coordinator in the country, the BOI had to decide whether we could allow favourable treatment to one party for the sale of investment," the spokesman added.
The TRC has in the meantime given the greenlight for the controversial import. The BOI hopes to minimise the unfairness to the other celluar operators by imposing the taxes.
Of the other celluar operators, Celltel Tel has not imported used equipment, while Mobitel initially had requested permission from the telecommunications regulator (the sole authority for telecommunications at the time) was denied.
There however is speculation in the telecom industry that Mobitel is still looking at the possibility of importing used equipment.
Call Link is in discussion with the BOI to try to reach a compromise on the situation although the BOI is refusing to budge from its current stand.
The TRC agreement with Hutchison require Call Link to replace its current exchange for the greater Colombo area with a new Digital network by the year 2001 or pay a fine Rs. 50 million a year of every year by which they delay the planned network. The whole exchange is required to be replaced by the year 2004.
Managing Director, John Houston speaking to The Sunday Times stated that the quality of the equipment although used is excellent. "Hutchison is to bring down some of their best equipment and having invested US $25 million on acquiring Call Link the public can be assured that we are not going to connect sub-standard equipment," he said.
The Motorola equipment will last much longer than the time required for the TRC.
"Our investment literally brings in another network to the country and the benefits will be immense," he said.
Mr. Houston added that the Hutchison strategy is to relocate its TACS equipment which was previously in service in Hong Kong. It is this system and equipment that made Hutchison Telecom the Market Leader in Hong Kong, he said.
The company also provided to the TRC in Sri Lanka a certificate from Motorola that this equipment will provide the highest level service for the next 10 years and Motorola will provide spares and service for this equipment. Therefore it will last much longer than necessary as in the future we must roll out a digital network.
The National Enterprise Bank is hoping to obtain a license to begin commercial banking operations after re-structuring the shareholding of the bank to comply with Central Bank regulations.
Shares of several local directors who quit the bank were re-purchased via the Malaysian owned TA securities and are to be placed among local investors, financial sources said.
At least another 54 per cent of its shareholding is believed to be foreign owned, with 50 per cent being in the hands of companies connected to TA Securities Group owned by the Malaysian tycoon Datuk Tony Tiah.
Banking sources say he had tried to set up a bank in Sri Lanka earlier but the Central Bank had not given permission to go ahead.
Existing regulations prevent foreigners from holding more than 49 per cent in a local commercial bank. Directions issued under the Banking Act also prevent any single shareholder, dependant children and spouse from holding more than 15 per cent in a licensed commercial bank.
Banking sources say a father and non-dependant son, for example, could each hold a 15 per cent stake in a commercial bank under existing regulations.
However, connected companies were prevented from owning more than 18 per cent in a bank.
There was speculation that the former Chairman Nivard Cabraal and other directors who quit, had been dumped by the Malaysian investor after it became evident that they were not able to get Central Bank approval to begin business.
It is believed that founder Chairman N. U. Jayawardena had been previously ousted with the backing of the Malaysians.
However Mr. Cabraal said the local directors had voluntarily decided to quit after they were unable to persuade the Malaysian investors to reduce their stakes to comply with Central Bank requirements.
The Central Bank had refused to issue a license to NEB after it became aware that all the foreign investment companies had the same address, and the local promoters were unable to convince authorities that the foreign investors were not connected.
Malwan Singh, Head of TA Securities operations in Sri Lanka, was out of the country at the time of going to press.
Mr. Jayawardene who has again become Chairman of NEB told The Sunday Times Business that he was hoping to complete the unfinished revolution in commercial banking he started with the Sampath Bank.
He confirmed that there would be changes in the Malaysian holdings of the bank.
"The ownership of the shares would be placed in a manner acceptable and to the satisfaction of the requirements of the Central bank," Mr. Jayawardena said.
In the aftermath of Sri Lanka's worst-ever liquor tragedy in Batticaloa, questions have arisen as to whenther heavy taxes and high prices of licensed liquor have driven large numbers of drinkers to illicit brewers and whether licensed manufactureres were also producing liquor below the counter to avoid taxes.
The state is losing more than four billion rupees in excise duty each year due to the proliferation of illicit and adulterated alcohol distilleries, Sri Lanka's largest legal liquor producer has said.
"Mushroom companies are bottling and marketing liquor in old vinegar and sugar factories, in areas where there is little or no policing," Distilleries Company of Sri Lanka Chairman V. P. Vittachi told shareholders.
Sri Lanka is still recuperating from its worst-ever hangover in the eastern province, where around 60 people died and some thousand were taken ill after drinking adulterated liquor.
"As of now the Uva region and the North and East are dominated by illegal products," Dr. Vittachi had said in a report issued before the Baticaloa tragedy.
During the last financial year taxes on hard liquor had been increased by 25 per cent provoking many to produce tax-free illicit brews.
"At present the state collects 78 per cent of the Rs 175 paid by the consumer of the so-called poor man's drink Extra Special Arrack(Gal)," Dr. Vittachi said.
The latest increase in taxation on hard liquor has led to a marked reduction in sales of tax-paid liquor, he said.
"Unlike in previous cases, the reduction appears to be sustained, and this may be an indication that the increase liquor prices have surpassed the level of consumer endurance."
He said some segments of legal arrack drinkers may have resorted to the illicit sector.
Dr. Vittachi called for the Excise Ordinance to be updated.
The Excise Ordinance which was enacted early this century is now thoroughly out of date, and "it is high time the Commissioner-General of Excise advised the government to update the legislation," he said.
Some licensed manufacturers were also producing liquor under the counter and not recording such production for tax purposes, he added.
Others were producing arrack with DCSL logo and labels.
Last year DCSL alone had paid Rs 6.9 bn in taxes and excise duties to the government. This was up from Rs 2.9 bn in 1991 when the company was sold to the private sector.
Gross turnover with taxes, rose to Rs 8.6 bn in the year ended March 1997, from Rs. 7.4 bn and after tax profit rose to Rs 305 mn from Rs 254 mn.
Shareholders funds rose Rs 203 mn to Rs 1,070 mn.
The company has also formed a joint venture with Groupe Pernod Ricard of France.
DCSL has taken a 50 per cent stake in the new company Periceyl (Pvt.) Ltd.
It will produce international brands like "Black Jack" Gin, and "House of Tilbury" whisky, the company said.
Dr. Vittachi also called for retail liquor licenses to be renewed in June. At present they were renewed in December. Though December (together with March) had the highest sales, producers were reluctant to issue large stocks on credit due to the uncertainty in recovering the debt later if the retailer lost the license.
'Samagam Medura ' (Company House) the national institute dealing with registration of companies of the country has been going on understaffed for a considerable period.
The post of Registrar of Companies became vacant with the previous Registrar K. T. Chithrasiri joining the judiciary, as a District Judge from September.
Even though from about the second week of August this change was known to the ministry of trade not even interviews to fill up this position has been held to date.
At present the Deputy Resistrar of Companies D. K Hettiarachchie is acting as the Registrar working with only another assistant registrar. The post of registrar has to be filled with cabinet approval after publication of the vacancy in the Government Gazette.
The approved number of assistant registrars is three and the previous Assistant Registrars M. C. Perera retired in September 1996 and Mr. Ramzie too vacated his post in November '96. Since then these two positions have been vacant making it very difficult for the present acting registrar and the remaining assistant registrar. Although interviews were held in March '97 these positions still remain vacant.
At present the acting registrar and the only Assistant Registrar Mrs. R. De Silva Wijesuriya have to attend to (or supervise) the work of absent officers (at their places in all three floors).
The work varies from issuing certrfied copies, correspondence, and issuing form 48 (for companies applying for loans). The special duties attached to the post of registrar also includes approval of names and incorporation of companies.
The Company Secretaries, Chartered Accountants and Lawyers are more than a little worried about the delays, since the time they have to spend there seems to be ever increasing with the total workload resting on two officers alone.
'Samagam Medura' is the local authority that deals with the registration of Companies both private and public, off-shore companies, societies, associations, trust receipts,and mortgages.
What are the lessons to be learnt from the Thai and Malaysian experience? First and foremost it is important that developing countries like ours should not have an excessive dependence on the stock market. It is well-known that foreign investors in stocks tend to be affected by international factors and the financial situations around the world. Therefore placing too much trust on international portfolio investment and building an image of success on the basis of stock market performance could be perilous.
Whether Dr Mahathir's accusation that international stock brokers and fund managers manipulated the Kuala Lumpur stock exchange is true or not is not the issue. The point is that even if there is no such manipulation their investment decision making on the basis of international considerations could make them move out of a market as easily as they move in.
This should be clearly remembered and a country's economic fortune should not be linked excessively to the fortunes of the stock market. As Lord John Maynard Keynes once remarked, a stock exchange is a bubble in an ocean of speculation and he went on to say that if the fortunes of a country were to depend on a 'casino' then the job was likely to be ill-done.
The other significant issue is that developing countries should resist the temptation of large conspicuous projects for prestige reasons. The economic viability and the returns to the economy of large investments must be the rationale for undertaking such projects, rather than the admiration and gaze of the international public.
However spectacular it may be to have the tallest building in the world or construct the longest building these investments, if not economically justified, could be a drain on the public purse and strain the fundamentals of the economic and financial systems.
In the years after independence many developing countries tended to have airports which were far in excess of the needs of air traffic of the country concerned. Similarly other grandiose buildings were also constructed for the sake of projecting an image of development. Large dams and reservoirs also threatened the economic viability of countries.
The recent Malaysian experience illustrates perhaps in the most conspicuous manner a repeat of this foolishness. That Dr Mahathir has relented and withdrawn the construction of the longest building and the dam is a vindication of the idea that such investments can be a strain on a country's economy.
The third lesson to be learnt is that there is a pace and momentum at which a country's economy could grow without creating a boom-bust situation. Economic advisers must keep this in mind. Else the over heating of the economy could lead to numerous strains on development which could threaten growth in the long run.
The fourth lesson is that the process of development must not endanger the environment. The Thai experience illustrates how excessive urban development without consideration of the environment has created problems of congestion and pollution in the Thai capital.
Consequently, Bangkok has become an unattractive location for foreign investment. It is important for countries like Sri Lanka to ensure that its development path does not destroy some of the country's attractions for foreign investment.
In fact Sri Lanka has the opportunity to make itself a congenial location for foreign investors by ensuring that the cities are not too congested; that pollution is kept to a minimum and the hinterland has adequate attractions for relaxation.
These are few of the lessons of the Thai and Malaysian experience. In addition it is vitally important to ensure that our fundamental and basic economic sectors are healthy, efficient and productive. Despite the industrial expansion of recent times with industrial out-put overtaking agricultural output, it is essential that our agriculture continues to be viable and efficient. The neglect of policies to ensure the viability of our agriculture can itself be a significant factor in weakening the fundamentals of the economy.
During the week the CSM increased nearly ASPI 20 points to record at 810 levels. Foreign investors were mainly on the selling side, with selective buying being recorded mainly in blue chip counters of NDB., DFCC., Hayleys. The plantation sector as well as the hotel sector companies were mainly stagnant in their price movements over the week. The main reason for foreigners to move into a selling mode, seems to be the currency turmoil in the East-Asian markets.
Government sale of NDB shares were allocated in the following basis:
Shares % of shares issued 100 to 1000 55 1100 to 10000 22.5 10100 to 30000 15 Unit Trust 7.5
Maskeliya Plantations offer for sale to the public is to be opened on September 19th. The offer price being 15 per share. RPK Management Services being the managers of the estates have purchased the controlling stake at Rs. 21.5 per share.
The prospectus of the company shows a prolong period of losses (over 5 years), with only a turnaround being achieved for the year ended 31.3.97. It is expected that for the 1st quarter 1997/98 period significant increases in profits and turnover will be achieved.
Ceylon Tea Servces Ltd: Unaudited results for the 1st quarter of FY97/98 the turnover has increased by 106.4% to Rs 317.5m (YOY) while operating profits have increased to Rs 28.3m, a 282.4% increase (YOY).
Central Finance Ltd: According to the 1st quarter results released, the turnover has increased by 10% (YOY) to record at Rs 1367m. Net profit has increased by 100% (YOY) to Rs. 52.4m. and with interest rates falling, the company is enjoying increased margins as it has not reduced lending rates.
Lanka Lubricant Ltd: Results for the 6 months ended 30th June 1997. Turnover has increased by 27.5% to Rs 1.2bn and PAT has increased by 80% to Rs 126.7m. Profit margins have improved upto 300%, due to lowering of base oil prices.
The Finance: Turnover has increased by 15.7% to Rs 430.3mn during 1st quarter FY 97/98(YOY). Net trading profit rose slightly to Rs 10 million in 1st quarter 1997/98. A bonus of 1:5 has been announced. In addition a 20% dividend has been proposed.
A protracted labour dispute at a leading local company seems to be finally resolved with the offer of lump sum compensation to the employees.
However, with rumours of a possible merger with a rival company being circulated, the question everybody wants to answer is who offered 100 million rupee bail out in compensation money?
Many speculate that was part of the merger deal but more interesting events will unfold in the weeks to come, we are told.
Government this week announced a twelve percent pay hike for employess of state banks.
There was some hard-nosed bargaining with the unions concerned, we hear, but finally, there was agreement on all sides.
But two questions follow this "settlement":
Firstly, won't this apply indirect pressure on private sector banks to raise wages of their employees?
And, secondly, is the substantial pay hike, with retrospective effect at that, a carrot to push through plans for privatising (or "restructuring") the state banks?
Tourist arrivals this year are exceeding all expectations, mostly because no target in the south of the country has been subjected to terrorist attacks since July last year.
The initial target was 400,000 arrivals for 1997 but that has now been revised to 450,000.
And even more optimistic is an estimate of half a million for 1998, but the net result of all this is that Colombo's five stars are seriously considering an upward revision of rates.
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