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9th August 1998

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Mind Your Business

Price snag

There was some fanfare regarding the launch of the country's first pay-TV network.

But after a few days of operation, the news is that the response is not very encouraging.

The operators see at least two reasons for this - the cost, at over 15,000 rupees with a thousand rupee monthly rental and the fact that there are at least eight local TV stations in operation even now.

So, a re-appraisal is on the cards. And a price reduction is very likely, top officials of the operating company say....

Tyre dilemmas

There is some hot air in the tyre trade these days.

The reason is that the prices of imported tyres - those from the Far East - have actually fallen considerably due to the devaluation of those currencies.

But some traders sell their tyres without passing the benefits to the customer, others do so. The former are accusing the latter of "under-cutting".

A recent meeting of leading importers failed to arrive at a consensus. So, in the open market prices continue to vary significantly.

Never was

Now that SAARC is over, the story can be told.

When it first became known that Sri Lanka was to host SAARC and become it's chairman some bright sparks suggested that a commemorative coin be issued to mark the event.

What's more, they wanted the Satellitic countenance to adorn the coin - after all she would be the Chairperson!

But Satellite was not in favour and saner counsel prevailed. Alas, the coin was not to be...

DIMO auto workers on the road?

by Ruvini Jayasinghe

Over 300 workers from DIMO Auto Industries Pvt. Ltd. will go on duty leave from tomorrow, following the appointment of a provisional liquidator last week, a union leader said.

The bus body building company who used to make over 55 bus bodies a month has not had a single order for the past three months, workers said.

The company has been making heavy losses for over two years, they added.

Over a month ago irate workers had suggested to the management that they be sent on duty leave until a decision on the future of the company was taken. Last week's appointment of a liquidator following a case filed in the District Court of Colombo by a creditor had prompted the management to take this step, workers said.

Union leaders are placing the blame squarely on the government who they allege have completely ignored the local company and ordered buses from India, Japan and Korea of late.

For example about five to six months ago the government ordered 500 buses from India in KD form, they said.

Until a comprehensive report with the assets and liabilities of the company are forwarded by the liquidator in 2 - 3 weeks time the company cannot make any payments, including salaries, advances etc, workers said.

A government sub committee examining defunct companies will take up this issue this week, the union leader who did not hold out much hope for the workers said.

"Right now and until such time as some decision is made, about 300 workers are on the road because of government's irrational policy," he alleged.

The union leader said that national estimates indicate that 10,000 buses are required for a day for public transport. But only 6000 - 7000 buses operate daily, creating a shortage of buses on all routes. About two to three buses become unroadworthy every day compounding the shortage, the union leader said.

When orders for bus bodies began petering out rats started leaving the sinking ship, the union leader said. Top management including directors left the company while creditors including HNB and NDB were becoming impatient.

DIMO Auto was established in 1990 with 650 workers. While Diesel and Motor Engineering Ltd. (DIMO) owns 33% of the shares, NDB and Asia Capital are also stakeholders with Equill as a Venture Capital partner.

In January 1977 workers were shut out on disciplinary grounds and except for about 60 workers, 300 were taken back following Labour Department intervention, the union leader said. "But now these very workers may be out of a job because of shortsighted government policy," he alleged.

There are three other local bus body building companies: the Ceylinco Group's Ceymo, Ashok Leyland and Latek (not in operation now.)

TRC brings in mediator

Sri Lanka Telecom Regulatory Commission (SLTRC) has brought in the services of a mediation company McAphy and Tetrault to resolve the interconnection agreement between Sri Lanka Telecom (SLT) and the two wireless loop operators (WLL).

McAphy and Tetrault are a Canadian law firm with considerable experience in alternative dispute resolutions, SLTRC Director General Prof. Rohan Samarajiva said. At present, the consultants are working closely with the three operators.

"Negotiations would be finalised within the next 10 days," SLT Customer Service Chief, Christie de Alwis said. The cost of the exercise would be borne by the World Bank.

The present interconnection agreement, which was to expire last November, was extended for another year, as the operators failed to agree on favourable terms. The existing agreement permits the operators from whom the calls originate, to keep all the revenue (sender keeps all) from domestic telephone calls.

All International calls are routed through SLT and the WLL operators are given a 35 per cent discount on outgoing calls. When the two WLL operators, Suntel and Lanka Bell were originally connected to SLT, the regulator had put the 'sender keeps all' agreement in place, as SLT could not agree on a better revenue sharing agreement with the wireless operators.

However, SLT lacked the necessary equipment to track all calls, to gain information on how to apportion costs between carriers, industry sources said. SLT now says they have the equipment since 1997, but both parties must agree on a measurement, Prof. Samarajiva said.

If a wireless customer calls an SLT customer, a simple revenue sharing agreement may provide half the revenue from a call collected by the wireless operators to be paid to SLT.

But it may be more complicated if trunk carriage costs are also taken into account. Some countries like Canada have favoured this present method, as little information is required to enforce it and very little information has to be passed onto competitors, sources said.

A 'sender keeps all' agreement works best when incoming and outgoing calls from each network remains on an equal footing, and calls to and from each network balances out over time. SLT with more than ten times the subscriber base of the WLL operators has more calls originating from its network, Mr. de Alwis said.

However, industry sources say the actual situation is quite contrary. SLT has been providing telecommunication services islandwide and to non-profitable remote regions over the past several years. Nearly 80 per cent of the SLT's total revenue is said to come from a mere 20 per cent of its customers, leaving it to provide services to the balance 80 per cent who contribute very little revenue.

On the other hand, the WLL operators, are concentrating on built up city areas, and high revenue corporate customers. SLT says WLL operators are not going out to the rural areas to provide a service.

However, under the WLL operator licence, WLL have to provide service to the rural areas by the year 2000 or face a penalty. Whereas, SLT has no such clause in their agreement to provide a universal service. The battle is raging amongst the operators, with SLT threatening to take the WLL operators and the SLTRC to court, over the 35 per cent discounts given to WLL operators.

"Legal action would be sought if the present interconnection agreement fails to resolve the matter favourably to SLT," SLT Chairman Hemasiri Fernando said. SLT's legal challenge has caught the regulator by surprise. Prof. Rohan Samarajiva said he was surprised at SLT's statement, while all parties are in the midst of a mediation process.

DFCC for global bond issue

By Mel Gunasekera

DFCC Bank is to issue US$ 70 mn in long term international bonds, to raise money specifically for the debt market, a top company official said.

The ADB and the Sri Lankan government have come forward to assist this pioneering project by guaranteeing the issue, with ADB partially guaranteeing the principal.

ABN Amro Bank would handle the issue. and together with a group of international lawyers are to commence work on the due diligence report next week, the official said.

Though the agreement for this issue has not been signed yet, the legal agreements have been finalised. "We need to ascertain at what price to place it, due to the prevailing poor market conditions," the official said.

The bidding process has re-started, after being postponed earlier due to the Asian financial crisis last year, DFCC Chief Executive Moksevi Prelis said.

"Funds raised, will be utilised to purchase long term bonds of companies which would consequently be marketed as tradable debt securities," he said.

An integral part of this project is the setting up of a credit rating agency in the country as well as the promotion of institutions to provide liquidity to investors in long-term bonds, he said.

This pioneering project would be named Credit Enhancement Facility (CEF) and is aimed at developing a long-term tradable debt securities market in the country. "This will not only enhance credit to companies but also will benefit financial institutions which could then raise long term funds from the market and enable the creation of a reliable yield curve," he said.

Market analysts say DFCC is going to have an uphill task to raise funds, due to the credit squeeze prevailing in the region. Capital market funds are only available in Europe and USA at present. Since Sri Lanka does not have a sovereign rating, and the absence of a rating agency would mean the DFCC issue to be priced rather high, an analyst said. Even the recent South Korean bond issue is priced high, due to the prevailing market conditions in the region.

Mr. Prelis added, the project is still in an embryonic stage, as a lot of things are yet to fall into place. The details of the issue are still shrouded in secrecy due to a media silence requested by the issuers.

Cabraal calls for corporate sector involvement in governance

By Feizal Samath

A top business professional says that for too long Sri Lanka's business community has watched from the sidelines as this country lurched helplessly from pillar to post run by politicians who failed to produce the goods.

"It is time," argues Nivard Cabraal, "that we, ourselves get involved in governance because for too long we have left it to others who have not done the job properly."

Cabraal is executive director of the Renuka Group of companies but is better known for a string of key positions he holds or has held in recognised institutions. He is currently vice-president of the Organisation of Professional Associations of Sri Lanka; a past president of the Institute of Chartered Accountants of Sri Lanka and South Asian Federation of Accountants and chairman of a committee to make recommendations of corporate governance.

Cabraal is among a new breed of professionals who are not shy to disclose their political affiliations, something unheard of in the past for fear of affecting business and professional interests.

He is a part of a group of professionals in the main opposition United National Party (UNP), and has an interesting story to relate about how he joined the group. "I was first asked by UNP leader Ranil Wickremasinghe to join the party but I raised the question, that all of us do, about corruption and mismanagement during the UNP's term of office.

The UNP leader said it was easy to criticise but no one was prepared to work to change the system and said if professionals also criticised and did nothing about it, the system was unlikely to change.

I was enlightened by this response."

Cabraal made these remarks in the course of an informal talk on the "current political climate" at a luncheon organised by the Rotary Club of Colombo Metropolitan, last week.

Cabraal, in exhorting professionals to get involved in the country's political landscape, made a plea for a change in the government, saying the economy was in tatters and peace was not on the horizon.

But while his speech may have appeared to be a pitch for UNP popularity, something more striking in his plea was that professionals should directly get involved in the political process and ensure that the country is properly run, by whoever is in power.

Tracing the period of the People's Alliance government, Cabraal said that the government had failed to deliver on its promises.

"On the economic front, though the policies were a continuation of those in the past and were said to be more liberal, it has been negated by a slowness on the ground.

The general perception is that the government is not investor-friendly."

He said that there was a major time lag between the stage of proposing and the stage of implementation and said there were doubts as to the government figures of foreign investment.

Cabraal said the defence budget was five times more than that spent by the previous government but the results have not been as successful as government claims.

He compared the conduct of the war to a good management strategy.

"In a good management plan to take new territory, one must first have a proper plan and then recruit staff to carry out that plan.

With this we carry out the assault, take over territory (from rivals) and increase sales."

"What happens," he asked " if we went into a territory without a proper plan (like the present military strategy) and then looked for staff. The whole plan would collapse."

Cabraal said that social discontent was growing and there was a general deterioration in society that could spark another insurrection if not nipped in the bud.

He said what was needed was for a professionally qualified and capable team to steer this country from the crisis.

"We can't afford to stay neutral while the situation is worsening. We need a set of confidence builders, a more dynamic team to deliver results not to deliver excuses like the present lot."

Shell workers shares to be bought back

Shell workers are expecting their shares to be bought back on schedule tomorrow by the government on the deadline issued by their joint unions, a union leader said. When Colombo Gas Company was privatised in December 1995 and Shell Gas Lanka set up subsequently, 10% of the shares were gifted to the workers.

Subsequently some workers had mortgaged their shares to banks to raise funds for housing and other sundry loans, the union leader said.

Problems began when shell workers fell back on loan repayments. Workers were worried that the banks would take over their shares, the union leader said.

We had to intervene at this stage and had lengthy discussions initially with the company and then with PERC.

During this time the 1997 budget announced the establishment of a workers' foundation fund as a bailout or escape mechanism for workers who held shares of privatised companies. The Finance Ministry allocated Rs. 200 million for the fund, the union leader said.

Discussion with PERC was fruitful and they agreed to purchase the workers' shares back to the fund, the union leader said.

Workers were concerned about letting the private management who held 51% of the shares to accumulate 10% more, the union leader added.

While workers wanted Rs. 105 per Rs. 10 share, they finally agreed to Rs. 90 per share. However workers who obtained loans from the state bank will be paid only Rs. 60 per share while the balance RS. 30 will be paid to the banks in the appropriate amounts, the unionist said.

Union discussions last week with Dr. P. B. Jayasundera were positive and the workers expect Shell Gas Lanka to have the cheques ready by tomorrow, the unionist said.

Three unions in the company, the All Ceylon Commercial and Industrial Workers' Union, the Jathika Seva Sangamaya and the Sri Lanka Nidahas Sevaka Sangamaya have been instrumental in settling the workers problems.

SAARC economic co-operation

India is the centrepiece of SAARC. This is particularly clear with respect to economic co-operation in the region. No meaningful economic integration could take place in South Asia without India's commitment to such a goal and meaningful initiatives to ensure freer trade in the region.

The opening statement of the Indian Prime Minister, Atal Behari Vajpayee at the SAARC Summit stressed the need to place economic issues at the forefront of SAARC co-operation.

He also indicated a readiness on the part of India to liberalise her large market for SAARC countries.

The moves he enunciated could be decisive towards meaningful economic co-operation. So far, trade liberalisation in the region has been slow. Other aspects of economic co-operation too have been tardy and ineffective.

We, therefore, hope that India's commitment to reduce tariff barriers on a large number of commodities would result in a new era of liberalised trade in the region. Such liberalisation could be for the mutual advantage of all SAARC countries, particularly the small nations.

Yet, one has to be cautiously optimistic of the announced moves being effective. Some of the trade liberalisation measures could be negated by non-tariff barriers. The history of SAARC economic co-operation has been one of obstacles and delays in the implementation of such initiatives.

Most of all, the implementation of trade liberalisation measures could take too long a period. Recently Minister Kingsley Wickremaratne described the Indian bureaucracy as "the biggest non-tariff barrier" to the realisation of SAPTA and SAFTA.

This observation requires to be noted by the Indian government which should take every measure to ensure that bureaucratic obstacles do not impede the progress of the South Asian region achieving the status of a free trade area as early as possible.

South Asian economic co-operation should not be restricted to intra-regional issues. Collective action for the region is an urgent need. South Asia has much to gain by the region acting in one voice at international fora.

Today' s new economic order, particularly with respect to trade, is highly weighted towards the developed countries. The voice of the Third World is hardly heard, and many of the measures of the World Trade Organisation are clearly of benefit to developed countries, not the developing ones.

Besides this, developed countries often negate WTO, regulations on the basis of other issues such as environmental concerns, human rights and other non-trade considerations. It is therefore very important that the interests and concern of the Third World be articulated on the basis of well documented and practically sound arguments. On its own each country is likely to be ignored.

This is particularly so if the Third World countries themselves speak in different voices at economic negotiations.

At the last SAARC summit there was a growing realisation that South Asia must represent matters of interest and concern to the region in a concerted and united manner. It is therefore important that SAARC strengthens its Secretariat and works out a mechanism by which SAARC countries prepare themselves in a united way to address their concerns and interests. This is a priority.

Otherwise the new trade regulations could neglect the interests of Third World countries and affect South Asian economic development adversely. We therefore urge that the SAARC countries immediately work out the organisational and institutional ways by which their voice is heard in future international negotiations.

If, as it has been claimed, SAARC has reached a degree of maturity, then that maturity must be shown in designing economic policies for co-operation within the region and developing a capacity to represent the interests of South Asia effectively at international conferences.

Let not the interests of South Asia, and of the Third World, be neglected owing to a lack of cohesive representation by the countries of South Asia. ASEAN has shown the possibility of making its interest count. It is time for South Asia to do likewise.

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