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28th March 1999

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New broker dealers to stimulate debt

By Dinali Goonewardene

The Colombo Stock Exchange (CSE) is considering admitting broker dealers to stimulate the debt market, Director General, CSE, Mr Hiran Mendis told the Sunday Times Business.

Broker dealers will deal on their own account and perform the function of a market maker. They are not expected to act in their capacity as agency brokers, but deal on their own, carrying inventories of debt quoting buying and selling prices as market makers. This evolvement is a feature of most developed markets.

Criteria for deciding eligibility of dealer brokers including vital points like net capital requirement has not been established as the proposal is at an early stage of discussion.

Debt capitalisation in Sri Lanka is only 3.3%, Mr Mendis stated. Debt capitalisation is 29.6% in New York, 84% in Tokyo, 49% in London, 115% in Paris and 245% in Frankfurt.

Agency brokers CDIC Sasoon Cumberbatch view this development as beneficial to the market and existing brokers. "There will be increased activity in the market and liquidity problems faced by institutional investors will be ironed out" they predicted.

Reacting to the possibility of the entry of broker dealers, Forbes ABN Amro Securities (Pvt.) Ltd. said that market makers will ensure a very small spread between buying and selling prices and reduce volatility. A ready market will be afforded to buyers and sellers, which will reduce risk and make this segment of the market more attractive, they added.

NDBS Stock Brokers say this will broaden the scope of the debt market and cause the development of debt instruments other than debentures.

Clean entertainment from Lakvision

By Shafraz Farook

NO SEX, NO CRIME, NO VIOLENCE, is the motto of Lakvahini, the latest addition to local television.

The BOI venture between Singapore Telecom and Lakvision will provide the Asian region including the Middle East, six hours of digital viewing via a satellite linkup, Chairman Lakvision Rohan Welevita said.

A satellite dish and a lifetime connection costs Rs. 3000. The size of the sattelite and the fact that it receives only Lakvahini makes it affordable.

The Rs. 250 million venture will feature cultural programs to promote Sri Lankan heritage and highlight the real situation here.

Initially international offices will be set up in collaboration with a cable operator. These offices will collect advertisements and also try to highlight the lifestyles of Sri Lankans living there.

With another Rs. 150 million Lakvision will also start a web radio station (via the Internet). Here too they will concentrate on Sri Lankan heritage and culture.

Both television and radio programs will be aired in all three languages.

Up "Hill" task for for Monara chief

Time managment must be an up "Hill" task at the Bird of Paradise in these turbulent skies. What with threatened strikes from those that navigate the Monara and annual financial performance coming up for public scrutiny, the new man at the helm appears to have too much to handle.

What else could be the reason for his inability to meet a timely scribe unless he is still feeling the heat of another 'leading' scribe pulling skeletons out of his closet last week.


When the share issue of the new bank was over-subscribed five times over, it proved that the nation had placed its trust in it.

But what it has also done is to restore the confidence of corporate bodies in the primary share issue market.

And that is why some companies which were pondering the possibility of postponing primary share issues due to bearish sentiment now want to go ahead anyway…

Star wars

There is talk that five star hoteliers in the city are contemplating fixing near uniform room rates for the tourist "season" later this year.

Their aim is to prevent the market usurped by four and three star hotels operating mostly in the suburbs north and south of Colombo.

One leading city hotel has sent out feelers to it's rivals in this regard, we hear….

Title experts call for changes in Act

By Mel Gunasekara

Experts shot down the newly enacted Registration of Title Act No: 21 of 1998 at a recent forum, alleging that the Act was riddled with loopholes, created chaos, more litigation and even undermined clear titled land.

The Act addresses landowners complaints that although they held the deed to their property, its validity could be challenged as there was no clear evidence to prove that the property had a clear title.

Act No. 21 of 1998 provides for a clear title for properties based on a survey plan.

But the legal community says there are numerous serious defects in the Act and major amendments are needed to correctly implement Title Registration in Sri Lanka.

Title experts pointed out defects in the proposed Bill and recommended 84 amendments to be incorporated before it became law. Depite a ministerial written agreement to include their recommendations, Title Act No 21 was passed in parliament without amendment. A walk out by the Opposition on the day of the final reading on March 17, 1998, prevented these recommendations being included.

Legal experts are questioning the necessity of a law relating to the compulsory registration of title system, as it was not prudent with regards to the social and cultural background of our country.

Experts also said the present system of registration of title through the registration of Documents Ordinance was well framed and worked satisfactorily over the years. The authorities could have made a few minor amendments to the Documents Ordinance and provided necessary modern infrastructure facilities and competent staff.

Mr. Kandiah Neelakandan, Partner Murugesu & Neelakandan, questioned the need to make the registration compulsory, including people who have a perfect title.

"Many owners who are in peaceful enjoyment of their lands will find that sleeping antagonists have been aroused when the claims notice appears under the Registration of Title Act," he said.

Under the proposed registration system, plans and paper title holders will have registered ownership while occupants of properties for periods without proper documents can be deprived of their land, he said.

There are no proper procedures for investigations. The law talks of bona fide possessions but that term is not clearly defined, he said.

Mr. Nihal Jayamanne PC also pointed out that the Act prohibits the co-ownership of land and this is bound to create several major problems. The concept of co-ownership which has very strong cultural links will create serious social, cultural, economic and problems relating to security of residence.

"In my opinion, the Act must be worked within the framework of co-ownership. We all know that most partition actions are bitterly contested. If all co- owned land in a declared area is to be settled, it will have the effect of compelling all interested parties in all co-owned property in a declared area to litigate," he said.

Another issue is that the government seeks to give guarantees to the title registered but there is an error in that compensation will be paid from an insurance fund. Mr. Jayamanne said there are no details as to how the Fund is to be financed.

He said another major problem was the absence of basic procedures for dealing with land once it has been registered. No proper procedures are provided in the Act to deal with subsequent transactions after registration.

The controversial Act is already in operation in the Pradeshiya Lekam Divisions of Udapalatha (Kandy District), Balangoda (Ratnapura District), Divulapitiya (Gampaha District), Hingurakgoda (Polonnaruwa District), Rajangana (Anuradhapura), Lunugamvehera and Rajanganaya (Hambantota District).A Bar Asociation delegation who met President Kumaranatunga to point out these deficiencies were told that a Cabinet Sub Committee has been appointed to which they could make representations.

The Title Act is part of the recommendations of a World Bank sponsored programme through AusAid (Australian Agency for International Development).

Ukraine slaps 40% duty

Sri Lanka tea exporters to the Ukraine are complaining that the Ukraine government has slapped a 40 per cent duty on all Sri Lankan exports including tea.

The Ukraine government recently increased import duties on countries they do not have a bi-lateral agreement with, including Sri Lanka.

Countries that have signed a bi-lateral agreement have to pay only 20 per cent on all exports to Ukraine.

Sri Lanka's rival, neighbouring India, has already secured a bi-lateral agreement, and is enjoying an advantage over Sri Lanka, tea exporters said.

Officials from the Plantation Ministry say the necessary legislature has been drawn up and cabinet approval has been granted.

The Sunday Times Business learns the agreement is awaiting signature from both parties for the past 15 months. Sri Lanka had earlier invited a Ukraine delegation to come to Colombo to sign the agreement. But Ukraine has not responded, so it is left to the Trade Minister, Kingsley Wickremaratne to visit Ukraine and sign the agreement.

Sri Lankan tea exports to Ukraine are between 4,500 MT - 5,000 MT.

Nearly 96 per cent of tea export volumes are in value added items like packed tea and tea bags. The remainder is exported in bulk.

Hayleys consortium for thermal power

A consortium led by Hayleys Engineering LTd has clinched a deal to construct a 165 MW oil fired combined cycle thermal power plant at the Kelanitissa power station.

The project would be on a BOT (Build Operate and Transfer) basis for a 20 year period, Hayleys Engineering, MD, Anura de Silva said.

Hayleys is the local partner for a consortium led by AES Corp. USA.

The project is estimated around US$ 100 mn and be funded on a 80:20 debt to equity ratio with Hayleys taking a minority stake.

A new company called AES Kelanitissa (Pvt) Ltd has been floated for this project.

"The letter of intent has been signed, and we hope to finalise the legal and power purchase agreements by April," he said.The power plant's single cycle mode with a 100 MW capacity would be operational by end 2002.

The combined cycle operations are scheduled to commence in mid 2001, he said.

This is the first time Hayleys have ventured into power plants.

At present, the company is a leading supplier of standby generators.

MBFSL Singer alliance takes debt to Kandy

MB Financial Services Ltd. (MBFSL) in a strategic alliance with Singer Sri Lanka launched the first dedicated primary dealer arm to trade in treasury bills in Kandy last week.

This follows Central Bank proposals to create subsidiaries for primary dealers to stimulate debt market development here.

Under the new regulations, primary dealers are required to form a public limited liability company with a minimum capital of Rs. 150 mn. The capital requirement would be gradually increased to Rs. 200 mn by 2000 and Rs. 500 mn by 2003.

The alliance resulted from Singer's holding in Commercial Capital Ltd. (CCL) who purchased 30 percent in MBFSL. In turn MB Corporate Services Ltd. (MBCSL) which is wholly owned by MBFSL brought a 27 percent in CCL.

MBFSL expects both companies to benefit from marketing synergies associated with the alliance. MD, MBFSL Ajith Devasurendra said that Singer's hire purchase customers could buy appliances at lower interest, against the security of the treasury bills. Compared to other methods used by customers to purchase appliances, this would cut interest by at least 1% to 2%.

MBFSL has also established another subsidiary, MBF Money Brokers Ltd. to deal in inter bank money broking services and thus enhance these services.

MBFSL is confident that this comprehensive restructuring and island-wide marketing network provided by the Singer Group will enable it to play a major role in the debt market in Sri Lanka.

People's Bank serves notice on Veyangoda Mills

Peoples' Bank served four letters of demand on Veyangoda Textile Mills Ltd last week for settlement of outstanding loan, a Bank release said. Failure to make payment within seven days would result in the bank taking action on a decision by the board of the bank, the letter said. The total amount due to the Peoples' Bank is Rs141.4 billion, inclusive of interest and statutory charges, under mortgage bond Nos. 1663, 2247, 2485 and 1517.

Veyangoda Textile Mills asked the Colombo Stock Exchange to suspend trading of the company's shares in January this year. This was attributed to the fact that the company was having discussions with financial institutions regarding proposals for restructuring and this had become known to several parties.

Spain busts $2.8 bn Iraqi money-laundering ring

MADRID, March 25 (Reuters) - Spanish police ha e broken up an international money-laundering ring dealing in at least $2.8 billion worth of Iraqi dinars, officials said on Thursday.

The Economy Ministry said police had arrested six people suspected of funnelling Iraqi dinars illegally through Jordan and Switzerland and depositing the money in a Miami bank.

"The final object of the operation was apparently to place the money on foreign markets when the (trade) embargo on the Iraqi regime is lifted, as well as presumably to finance contraband Iraqi oil sales, thus breaking the embargo," the ministry said in a statement.

Iraq is under a U.N. embargo imposed in response to its 1991 in asion of Kuwait, though it is allowed to sell a certain amount of oil in order to buy food and humanitarian supplies.

Spanish newspapers reported on Thursday that the gang also falsified United Nations permits allowing oil and food sales in order to justify the export of Iraqi currency. Five of those arrested were Spanish and one was Moroccan.

Three of them were detained last week at Madrid's Barajas airport when they were about to fly to Miami with 50 million Iraqi dinars and around $13,000. The Economy Ministry said the total volume of operations was around nine billion dinars. (Iraqi dinar = $0.3109)

Market report

Tea moves from 'Gloom to Doom'

By Feizal Samath

Sri Lankan authorities are trying to clinch a deal with India for the sale of at least 15 million kilos of tea under the controversial Indo-Lanka free trade pact, which ran into difficulties over New Delhi's reluctance to include tea in the list of items that could be freely traded, official sources said.

They said that, following hectic negotiations this month between Sri Lankan and Indian officials to save the pact from falling apart after problems over the negative lists, agreement on a face-saving formula in which a certain quantity of tea will be purchased by India is close to being reached.

"I believe we are close to finalising the negative lists, which hinge on the quantum of tea India would allow to be sold under preferential tariff rates," an authoritative source told The Sunday Times Business.

Indian officials have already arrived or are due in the country for probably the final round of negotiations on the free trade pact - signed by Sri Lankan President Chandrika Kumaratunga and Indian Prime Minister Atal Behari Vajpayee during her Indian visit last December. The pact should have been in force by March 1st but was stalled due to a last minute hitch.

India's tea trade opposes plans to remove tea from India's negative list and allow preferential duty rates of 50 percent (applicable to all items in the free trade list) on tea imports from Sri Lanka in the first year and reaching zero duty by the end of three years.

The two South Asian leaders signed the trade pact in December on the understanding that tea would be excluded from the Indian negative list. However, following protests from India's tea trade, authorities there sought to include tea on the negative list when officials from both sides began discussing the list of items on the two lists prior to the pact being operative in March.

While the pact has already generated a lot of heat and criticism from Sri Lankan industrialists, Indian officials offered to buy US $ 10 million dollars worth of tea which amounts to five million kilos in the first year as an option to save the pact.

But Sri Lanka rejected this deal and at the recent South Asian Foreign Ministers conference in Nuwara Eliya, President Kumaratunga - during talks with Indian Foreign Minister Jaswant Singh - is learnt to have

requested India to raise the quantity to 50 million kilos.

A senior Treasury official and Hasitha de Alwis, director of the Sri Lanka Tea Promotion Bureau, confirmed that "the ball is in the Indian court now" and the tea crisis in the pact was expected to be resolved by next week. "I believe India may agree to a quantity of 15 million kilos being sold by Sri Lanka," de Alwis said.

Whatever the formula, the opening out of India's huge domestic market to Sri Lankan teas will be a shot in the arm to an industry that is struggling to cope with a host of problems like crashing tea prices, the Russian rouble crisis and lower demand from the Middle East, particular by Egypt.

While production this year is in line for another record crop - the sixth in a row - and is projected to reach "a very conservative estimate of 285 million kilos against 280 million in 1998", according to Forbes Tea director Chrisantha Perera, prices are steadily falling.

"We have moved from gloom to doom from a boom situation early last year," Perera said, noting that the Indian market would be a window of opportunity and provide the much-needed boost to the Colombo auction which has lost its competitive edge since the Russian crisis.

Tea prices have sunk and are now at the low levels achieved in 1997. The Colombo auction average on March 17 was 104.96 rupees per kilo against 149.22 rupees per kilo in the same 1998 period. In US dollar terms, earnings have fallen further due to a weakened rupee value. The US dollar was over 69 rupees last week against 61.40 rupees per dollar and 58.05 rupees in the corresponding periods in 1998 and 1997, respectively.

Tea production costs are around Rs.100 per kilo and uneconomical to producers. While the big plantation companies have - through the economies of scale of production - been able to survive and maintain profits, though at lower levels, small tea farmers and private factory owners have been pushed to the wall. Many have stopped production while jobs have been lost in the process.

De Alwis said that a soft loan of 350 million rupees, under a scheme devised by the National Institute of Plantation Management, has been approved for private tea factory owners - to tide over their financial crisis - and it is now in force.

The Russian crisis, since August 1998, continues to hurt competition and sentiment at the Colombo tea auctions, since a sum of US $ 20 million is still due to exporters from Russian buyers. This has created a cash crunch and, both de Alwis and Forbes' Perera say this problem has led to a general reluctance by buyers to make competitive bids at the auction.

"Colombo has been affected much more than other producers by the Russian crisis since we accounted for a bulk of purchases to the CIS and Russia," Perera said, noting that buyers - in addition to a shortage of liquidity - are reluctant to be involved in competitive bidding.

He said that some kind of financial assistance is required to help buyers tide over liquidity problems, which would then restore competitive bidding at the auction. "An element of competitive bidding and forward purchases are necessary for the Colombo auction to maintain its competitive edge in the global marketplace," he said.

However, de Alwis said that the Treasury had turned down repeated requests for financial facilities to prop up the market.

De Alwis said that Sri Lanka is proposing a fast track agreement with Pakistan, which is set to be the world's biggest tea consumer by 2010. Pakistan annually buys 150 million kilos of tea.

Sri Lanka's tea sales to Pakistan have dropped to a miserly five percent of the market share while Kenya has a 45 percent slice of the market, selling 65 million kilos.

President Kumaratunga also recently said that the government was planning agreements on the lines of the Indo-Lanka deal, with Pakistan and Bangladesh.

"A fast track deal with Pakistan is on the cards and we need this to counter the problems we are facing in tea sales to Egypt," de Alwis said.

Sri Lanka has rapidly lost its hold over the Egyptian market, since the 1980s when that country was Colombo's biggest tea buyer. From a quantity of 40 million kilos in 1986, Sri Lanka tea exports to Egypt have fallen to 10-12 million kilos or a 15 percent share of that market.

Colombo's market share was further affected after Egypt became a member of COMESA (Common Market for Eastern and Southern Africa) in 1998 and brought into force, from February 1999, preferential tariffs for members including tea producers like Kenya and Zimbabwe.

Kenya controls a 65 percent slice of Egypt's annual tea purchases of 70-75 million kilos and that figure is expected to rise under preferential tariff rates. Under these new rates, Kenya would pay just about six percent in import duties against Sri Lanka's 30 percent duty.

"Kenyan teas would be much cheaper to Egyptian customers," de Alwis said.


  • Tailor-made satellite cellular - Communication
  • Space Station may get crew 3 months early - Space
  • From Pentium to Play Station - Software
  • Scientists identify weight control gene - Medcine
  • Tailor-made satellite cellular

    The scramble to provide the first worldwide satellite cellular service began with Iridium LLC launching commercial operations last year, leaving its rivals Globalstar and ICO, trailing behind.

    However, a fourth operator Asia Cellular Satellite (ACeS), a regional global mobile personal communications service (GMPCS), aims to be Asia's first GMPCS tailor-made for the Asian market, senior company officials said last week.

    ACeS will commercially launch its operations in 23 countries including Sri Lanka by end 1999.

    ACeS would concentrate on the Asian, Middle Eastern and European regions.

    "We don't believe in covering the water or the mountain regions, as its too expensive to cover the globe," ACeS CEO, Adi R Adiwoso told The Sunday Times Business in an interview.

    ACeS a US$ 700 mn venture, uses a dual mode telephone handset that allows users to select between satellite or cellular (either GSM or AMPS) modes of operations with identical voice quality in either one.

    ACeS handsets are produced by Sweden's Ericsson Mobile Communications AB, will have similar characteristics: size, weight and feature set as contemporary cellular handsets.

    Each handset costs US$ 1000, while call charges are priced at US$ 1 per minute (cheaper than rival worldwide operator Iridium).

    ACeS is a part of the GSM MoU Group, thus enabling ACeS subscribers to roam to any GSM network throughout the world. Conversely, GSM users from all over the world will be able to use the ACeS dual mode handsets while travelling in Asia.

    Subscribers can use the handset for either satellite linked connection or cellular connection.

    The dual mode ACeS handset allows subscriber to select cellular networks when available or to choose to directly link-up to the satellite when outside of cellular networks.

    The ACeS system includes two satellites on a Lockheed Martin A2100AX spacecraft bus.

    With two 12 metre antennas, on board digital signal processing and up to 140 spot beams covering the whole of Asia, the ACeS system represents two of the most powerful communications satellites ever built, Mr. Adiwoso said.

    Each of the two L-band satellites is capable of supporting 11,000 simultaneous telephone channels and up to two million subscribers in an area extending from Guam and Papua New Guinea in the east to Pakistan in the west, and from Japan in the north to Indonesia in the South.

    Because of the relatively high cost of constructing terrestrial cellular networks, large areas within ACeS' coverage have no access to telecommunication services.

    ACeS will offer a convenient and cost effective means of providing mobile communications to these areas in 1999.

    With its extremely low infrastructure cost per circuit per square kilometre, ACeS provides the solution for total access in mobile telecommunications in Asia.

    ACeS registered in Bermuda, is jointly owned by Indonesia's PT Pasifik Satelit Nusantara (PSN), Lockheed Martin Global Telecommunications USA, the Philippine Long Distance Telephone Company (PLDT) and Thailand's Jasmine International Public Company Ltd (JSN).

    Lockheed will hold 30 per cent of the company with the founding ACeS partners retaining the balance 70 per cent.

    The tie up with Lockheed ensures that the project will be fully funded through early operations, and enables commencement of construction of second satellite, Garuda-2, to serve first as a back up and then for expansion of the systems to provide coverage to western and central Asia, eastern Europe and parts of northern Africa, ACeS Senior Vice President, Ashutosh Garg said.

    ACeS's first satellite Garuda-1 will be launched in July 1999 on a Proton launch vehicle and manage a satellite control facility and network control centre on Batam Island, Indonesia.

    The satellite, under development for the past 3 years, is now undergoing final testing, the ground segment is nearing completion and gateways in Indonesia, Philippines, Thailand, Taiwan and India are under construction.

    "Of the regions 3 mn inhabitants, less than 25 per cent have access to wireline coverage and less than 11 per cent have access to wireline services. This, combined with a region comprising a huge and diverse geographic landmines, makes Asia Pacific one of the best areas for mobile satellite services in the world," Mr. Adiwoso said.

    ACeS system consists of five components which are the ACeS satellite, a spacecraft control facility (SCF) a Network Control Centre (NCC), gateways in countries where ACeS has national service providers, and subscriber handsets.

    The ACeS satellite, SCF and NCC will be owned and operated by ACeS. The gateways will be under the management of the national service providers.

    Indonesia's first private satellite telecommunications company PSN, boasts of a US$ 285 mn in assets.

    Based in Jakarta, PSN is focused on becoming a fully integrated provider of satellite based telecommunications products and services in Asia, including the wholesale leasing of satellite capacity and a variety of end-user services such as Xpress Connection (a low cost VSAT based rural telephone service.)

    The PLDT is the principal long distance and international telephone company in the Philippines providing 80 per cent of all fixed line services. PLDT operates the only nationwide digital microwave backbone and is Philippine's second largest terrestrial cellular system operator.

    The Thailand based JSN holds 22 per cent of Thai Telephone and Telecommunications – a leading 1.5 mn line telephone network.

    The worldwide market for mobile satellite services is projected to reach US$ 35 bn annually by year 2003, with Asia alone accounting for more than one third.

    Space Station may get crew 3 months early

    After years of delays on the International Space Station, the United States and Russia are working on a surprise plan to launch the first crew in October, three months earlier than planned.

    The unannounced change, if approved at a meeting next month, would represent a major publicity coup for the $60 billion station, which has been marred by repeated Russian delays in building the living quarters.

    "The idea here is that the earlier you can begin the manned program in the module the better," said Alexander Botvinko, deputy head of the Russian Space Agency's manned space division. "The station would begin to exist from the standpoint of its scientific work."

    Russia's dire financial problems have set back its completion of the vital living quarters by a year and a half, but officials now say it will be ready for shipment to the launch site at Baikonur in Kazakhstan early next month.

    It will then need about four and a half months of testing before an expected launch in September, when it will link up with two unmanned space station modules already in orbit.

    The three-man Russian-American crew was scheduled to go up in January, but the latest idea is to launch two men a few weeks after the living quarters module goes into orbit. The third man would come up by U.S. space shuttle soon after.

    "We first proposed the idea and now the Americans are even more enthusiastic than we are," said Leonid Gorshkov, head of space station design at the Energia Rocket Corporation, which is now finishing work on the living quarters module.

    Mike Baker, Moscow-based deputy head of the U.S. Johnson Space Centre, said he believed the October launch would be approved although it was now only under discussion.

    He said the early launch idea rose from contingency plans to send up astronauts if the living quarters do not properly attach to the rest of the station automatically.

    "So some of the thinking is that perhaps we could just go ahead and launch the crew at that time as well even if there isn't a contingency," he said.

    "The sooner we can get the crew on board the better off we are if there are any failures so the crew can intervene and perform maintenance," he said. An early launch might also calm critics in the U.S. Congress upset about Russia's many delays to the program, and it could help build public enthusiasm which has been muted to date by putting astronauts on board before the new millennium dawns.

    The October launch plan could win approval in early April when top U.S. space officials travel to Moscow for an overall review of the new space station program.

    "I think we will find a consensus to solve this problem," said Botvinko. "But we must first study the situation."

    Possible obstacles include more Russian financing woes or unexpected technical difficulties, officials said.

    The new station brings together the United States, Russia, Europe, Canada and Japan in what has been described as the most ambitious technological project undertaken. (Reuters)

    From Pentium to Play Station

    A new software emulator that turns Pentium PCs into Sony PlayStations may be challenged in court by the Japanese electronics giant.

    Like the Connectix Virtual Game Station released in January, the Bleem emulator released Monday turns a personal computer into a US$120 Play Station game console.

    Unlike the Connectix product, the Bleem emulator doesn't require a fast, new Power Mac G3. Bleem says its emulator will run on older 166 MHz Pentium systems.

    A demonstration version of the emulator is available from Bleem's Web site. The full product will be released 10 April for $39.95. The demo version has limited resolution, will not save games, has no sound effects, and does not support 3-D graphics.

    But just as Sony tried to block the Connectix emulator, the electronics giant may also challenge Bleem. In February, Sony failed to get a court injunction blocking the Virtual Game Station.

    "If Sony wants to get litigious with us, it'll be very tough," said David Herpolsheimer, a partner in Bleem. "They have a very, very big stick, and they could bludgeon us to death with lawyers if they want to."

    Herpolsheimer said the three-man San Diego company was so apprehensive about legal action, it delayed releasing the emulator. Now that the company has taken the plunge, no attempt has been made to contact Sony for fear of waking the sleeping giant.

    "We're keeping our heads down," Herpolsheimer said. "The lower we are on their radar, the better."

    A Sony spokesperson said the company had no comment regarding the prospect of legal action at this time.

    However, even if Sony decides to sue for infringement of intellectual property rights, Bleem is on solid legal ground because the emulator was re-engineered from the ground up, Herpolsheimer said.

    "There's not a bit of code in there that Sony can say is theirs," he said. "Legally, they don't have a leg to stand on."

    Herpolsheimer cited last year's Digital Millennium Copyright Act, which he said protects re-engineering as a fair practice.

    "We're following PC-industry standards that can be traced back to the early 1980s when Compaq and the early PC clones came out," he said. "As long as we design our own solution, we're OK."

    Now that the emulator is out, Herpolsheimer said he hoped Bleem could come to an agreement with Sony. He noted that with Play Station hardware sales in decline, it's in Sony's best interest to encourage low-cost emulators and continue making money from licensing games and software development tools.

    "It's absolutely the end of this hardware's lifecycle," he said. "It's a dead platform, it's over."

    Bleem is also hoping to license the emulator to game developers, who would include it for free with their software. It's a lot cheaper than porting a game to PCs, Herpolsheimer said.

    "We're not out to hurt Sony or take any of their market share," he said. "It's a way for people who already own a Play Station to get new life out of their games because it offers better resolution and better 3-D graphics. It'll also help sell more games. I'll bet Sony makes more money out of this [from software licensing] than we do."

    Bleem is also planning to port the emulator to the Mac. Unlike Connectix's emulator, the Bleem emulator will run on first-generation Power Macs, Herpolsheimer said.

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