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12th September 1999

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Not ready for GST, say hoteliers

By Tharuka Dissanaike

Travel Agents and hoteliers predict a drastic downturn in tourist arrivals next year if the government slaps GST on the trade by April 2000.

"Many foreign tour operators are refusing to sell Sri Lanka if the prices increase by 12.5%," said M. Shantikumar, Vice President of THASL (Tourist Hotels Association of Sri Lanka). "Already we operate on low margins. If hotels are to absorb the GST without passing it on to the tourist, then many hotels will run into huge losses. It will be a disaster," predicted Shanthikumar, who is Director Operations at Colombo's Holiday Inn.

The travel industry is demanding that they be exempted from the 12.5% Goods and Services Tax for another two years, until the industry recovers sufficiently to bear that kind of increment.

The travel industry was exempt from turnover tax from 1994, due to poor performance and low tourist arrivals to the country. When GST was introduced in 1998, the industry was exempted again until April 2000.

Meanwhile the lack of terrorist activity in the city and resultant adverse publicity were good for the sector which saw arrivals steadily increase all round this year. The trade is looking forward to a very promising winter season this year- the best since 1983, in fact.

"But this does not mean we are ready to increase prices drastically," said Shiromal Cooray Jayaweera, President of SLAITO (Sri Lanka Association for Inbound Tour Operators). "We must remember that the market is very price competitive. Sri Lanka has had to maintain low prices to attract tourists and compete against Thailand, Kenya and the Caribbean countries."

She said that a good lesson is learnt from Bangkok's experience with their resort Pukhet, where price increases following a boom year resulted in such a plummet in demand that foreign operators took Pukhet off their brochures until prices came down again.

"Foreign operators are our main source of publicity," Cooray, who heads Jetwing Travels said. "If there is enough demand for a country, they will devote more space in their brochures for that destination. But if demand fails, they will simply sell the next best destination."

The problem is acute because Sri Lanka is a dollar-priced destination, said Gehan Perera, Director-General Manager of Aitken Spence Travels.

"Since we quote rates in US dollars and the currency is very strong now, the increase will compound. If we quoted prices in rupees, foreign operators would not take the issue so seriously."

Aitken Spence Travels works with TUI, the world's largest tour operator. "TUI is very pessimistic about being able to sell Sri Lankan holidays with a 12.5 percent increase. They have reminded us that we are not the only destination in our existing price range and warned of a serious drop in demand if GST is added on to the present package prices." Perera said that most companies may have to absorb a part of the taxes and so keep prices down.

A promotional campaign by the Ceylon Tourist Board in tourism generating countries would have helped, said Abbas Esufally, Managing Director of Hemtours and Serendib Hotels. "The total lack of a destination marketing plan makes it all the more difficult for tour operators to create a demand for Sri Lanka."

The travel and hotel trade has been agitating unsuccessfully for export status. This would give the industry a zero tax rating and many other duty concessions, which they believe is the only way to face tough competition from other tourist destinations. "We certainly qualify for export status.

"We earn foreign exchange and the product is largely of local input. The difference is that we don't export like a manufacturing industry but the tourist comes here to consume," Esufally summed it up.

Unit Trusts prepare for a rainy day

By Mel Gunasekera

Local fund managers are muscling up to set up a legal expense fund to enforce investor rights.

The suggestion came from SEC Director General Kumar Paul at the recent capital markets advancement workshop following comments that the industry should exercise its right to bring errant companies to book for violating shareholder rights.

Paul said that the unit trust association has since accepted the recommendation for the fund, but things are still in a preliminary stage.

Although legal action groups are common in developed markets, this is the first time in Sri Lanka that key players in the market are uniting to take on errant companies.

Legal action will be on common ground and it will be beneficial to unit holders.

However, details like the fund's structure, the funding mechanism are yet to be worked out.

In the recent past, minority shareholders in particular have suffered at the hands of the majority and have shown reluctance to invest.

Poor management practices, large management fees charged by plantation companies, and asset stripping have made the retail investor wary.

Analysts feel shareholder rights have to be safeguarded, in order to strengthen investor confidence.

Since unit trusts are usually large investors in companies, there has always been pressure put on the industry to take errant companies to task.

The industry has argued back saying they are only responsible to their unit holders.

"The brokers are trying to push us to come forward and play the role of safeguarding the minority shareholders - but we are there to safeguard the interest of our unit holders," a senior fund manager said.

Another senior fund manager said that while the legal fund would give unit trust's the muscle to fight against errant companies, investors should not expect the association to take action against each and every bad investment.

Many senior analysts have welcomed the fund as a 'long felt need to instill greater transparency in the market'.

Bhadra resigns

Senior business tycoon Bhadra Wimalasekera resigned from the board of directors of DFCC Bank last week.

Wimalasekera who is presently the chairman of the Uni Walker Group, joined the DFCC Bank board way back in the mid 1980's as a shareholder director.

He is also a director in over a dozen companies.

Directors go back to school

The Securities and Exchange Commission (SEC) wants to set up an institute for directors, a top SEC official said.

In the recent past it has been highlighted that non-executive directors should be encouraged to play a greater role in the affairs of companies.

The proposed institute is expected to help and encourage non-executive directors and give expert advice to independent directors to avert difficult situations.

"We have had informal discussions with aid agencies as to how we can structure it and with regarding its funding," SEC Director General, Kumar Paul said.

The SEC has also had consultations with the Chambers of Commerce and the Institute of Chartered Accountants of Sri Lanka (ICASL). "But it's still at the discussion level."

ICASL used to have a director institute sometime ago but its now believed to be defunct.

We are looking at whether we can take an existing structure and set it up, or resurrect the existing one, he said.

However, it should be non-partisan with wide representation, he said.

With the role of a director widening in many jurisdictions, directors are expected to exercise greater diligence in their conduct. Directors must make sure that executives abide by the directions given to them.

If directors do not set up a system to monitor the executives they may have failed to exercise their fiduciary duty and due diligence.

However, analysts feel that the effectiveness of non-executive directors, will depend on their link to shareholders and their business interest, participants felt.

Some directors did not spend sufficient time looking into the affairs of the companies.

According to the SEC, the American Institute of Law recommends a director spends at least 100 hours annually in managing the affairs of a company.

While company directors should disclose their interest in related companies, they should also spend time managing the affairs of the companies in which they hold office.

HNB chief wants to try the insurance pie

HNB chief Rienzie T Wijetillake is spearheading a banking lobby which is tapping at the insurance sector door. So far entry has been denied and Wijetillake alleges that an insurance cartel is preventing banks from getting into full time insurance.

Insurance is something where the poorest of the poor like masons, carpenters, farmers, teachers benefit. Unlike insurance companies, banks have better access to them because of their extensive branch network, he told the Sunday Times Business.

He estimates there are ten million people between ages of 15-54, who could be considered as the 'insurable population' in Sri Lanka.

"Only 20% of the insurable population have taken some sort of life insurance cover. See what a pathetic situation it is? These facts imply there is tremendous scope for new entrants and also room for further expansion."

However, the Banking Act No: 30 of 1988 prevents any commercial bank from full time insurance.

In terms of the Act's schedule II, commercial banks are not permitted to carry on insurance business.

However, banks could invest in an insurance company subject to the company being listed and the bank holding maximum 10% shares in the company.

The total number of life policies issued as at end 1998 stood at 850,000, according to the Central Bank annual report.

It is also estimated that around one million life policies are issued under group life insurance schemes.

However, under group life insurance schemes, the life cover may not be sufficient. According to available statistics, life policies as a percentage accounts for less than 5% of the population and if group life insurance schemes are also taken into account this ratio will be around 10%, Wijetillake says.

Over the years, state institutions have dominated the local insurance business grabbing 45% of life and 60% of general insurance business.

With the government committed to progress towards a low interest rate regime, the major portion of insured population limited to Colombo and in other major towns and Sri Lanka's population ageing faster than ever, has whetted banker's appetite for a slice in the lucrative insurance business.

Financial institutions providing credit facilities are in an advantageous position to cross-sell the products or to combine the products together and offer better package to the customers at favourable rates.

"The amended Insurance Act even prevents us from doing insurance broking," Wijetillake said.

However, Chandra Schaffter, President Insurance Association denies there are moves blocking banks from coming in.

"We don't mind banks getting in. NDB is already in a big way through Eagle Insurance and Bank of Ceylon is involved through Janashakthi Life," he said. "It's alright so long as they don't have a majority stake."

In principle, a lending institution should not use its position to make their customers insure with their own insurance companies. In developed countries, the mechanism is there to prevent such things.

But in Sri Lanka it's different because NDB is a huge lender, but the Banking Act says bank's can't engage in insurance activities, Schaffter says.

Wijetillake is not pleased with the Central Bank either. Central Bank says that we are moving towards global banking standards with Basle Standards, capital adequacy ratios but when it comes to insurance we are not global.

"National Insurance Corporation is being privatised, I can buy it with one cheque. I don't need any investor, I have the resources. Rs. 200 mn - Rs. 300 mn is nothing for me and I can do a better job than the insurance companies," he adds.

The government approved the long overdue privatisation of the state insurance sector, offering 39% of National Insurance Corporation to a strategic investor. The Public Enterprise Reform Commission last month called for selection of a financial advisory group to assist in the privatisation. The draft insurance bill is also scheduled to be tabled in parliament later this year.

Attracting tourists: are we going the correct way?

One of the few favourable devel opments in the economy this year is the prospect of higher earnings from tourism. Tourist arrivals have increased by 23 per cent in the first half of this year compared to last year. It is likely that more than 425,000 tourists would visit the country this year.

However, what matters is not the number of tourists but the country's earnings from tourism. Last year we earned about Rs. 14.8 billion from 381,000 tourists. A tourist spent about Rs. 41,000 during a stay in the country. On this basis it is likely that the country would earn about Rs. 19 billion this year.

Room occupancy is still somewhat low. Last year it was about 52 per cent. Hotel expansion has been based on an expectation of larger tourist traffic. Therefore hotel earnings have been somewhat disappointing.

There are two aspects we wish to comment on with respect to tourist earnings. First is the fact that tourist expenditure is dependent on, the type of tourists we attract, the spending opportunities in the country and the quality of the services we offer. The price of our goods and services is a related issue. The second important factor is the accessibility to Sri Lanka.

Although there appears to be a slight improvement in the spending category of tourists, we do not seem to have captured much of the high spending tourist class. This is due to limited tourist campaigning abroad, the security situation in the country and the competitiveness of other destinations, especially on quality. For these reasons we continue to be a low cost destination rather than a high quality expensive one.

Tourist expenditure is also dependent on the opportunities for spending. This does not depend on hotel expenditure alone. If we can offer better prices on consumer items, tourists are likely to spend more on goods produced in Sri Lanka. This is especially so today as tourist budgets are more flexible with the use of credit cards. We may have confined our sales of goods to only a few items, gems, batiks, tea and the like. There are many more items which could attract tourists. Our approach must be to make the things which tourists want rather than make them buy what we market. Market research in this area and the dissemination of the information among producers and craftsmen would be a useful strategy. Tourists tend to buy a number of souvenir items with some distinctive feature from the place they visit. These should be attractive in design and competitive in price. The availability of a variety of attractive Sri Lankan souvenirs is indeed a means by which we could increase tourist spending.

In this connection we might point out that Sri Lanka does produce a number of utility items at very competitive prices. Clothes, shoes and ceramics are some examples of this. Yet most tourists are not exposed to the wide variety of such items available in the market. For various reasons tourists are taken only to few shopping outlets and are therefore more restrictive in their purchases. The sale of more Sri Lankan manufactures is a useful means of earning more foreign exchange from tourism.

The second issue is regarding air traffic to Sri Lanka. The number of reputed airlines calling on Colombo has dwindled. Gone are the days when SWISSAIR, KLM, British Airways and the like had regular flights to Colombo. As much as 11 per cent of tourists came to Sri Lanka on Charter flights. The lesser number of reputed airlines calling at Colombo is a definite constraint on tourist traffic. Colombo may even lose its attractiveness as a business and conference centre, if such airlines do not call over in Colombo. If, we are serious about the development of our tourism we must remedy this situation quickly. We must persuade international airlines to call over rather than follow a policy of trying to increase traffic to the 'national' airline.

Tourism has been regularly plagued by security setbacks. Yet inspite of these hoteliers have been investing in increasing room capacity. That speaks volumes for their optimism and willingness to take risks. But they alone cannot increase tourist earnings. The government must remove the bottlenecks to an increase in tourist traffic and give support to encouraging more tourists to come to the country and spend more money. There is no doubt that tourism is a good means of earning more money. We must make every endeavour to attract more tourists, especially as a vast investment has already been made.

Outlook for profits: rising trend in three areas

        USA       JAPAN     GERMANY

Mkt Index*             1332       17892        5230

Stk Mkt Return**       9.3         40.7          7.4

Stk Mkt PER          29.4 7          3.8        20.1

BEYR***               174.3       141.6        97.0

BEYR 10YR AVG  124.4       214.1      117.0

* S&P500, Nikkei 225 and Dax, all as at 18.8.99
** Total return in %, market indices, year to date (18.8.99),

local currency terms.

*** Bond/Equity Earnings Yield Ratio (10yr Govt. bond ylds, 10yr avg 1988-98). US PER from Datastream Total Market Index.

Company profits are on a rising trend in the three largest stock market areas: the US, Japan and Euroland. US reported earnings per share (eps) look set to increase by 9% year-on-year by December 1999 and at a similar rate in future years, assuming there is no recession. But the bond/equity yield ratio is already high, suggesting that the market is vulnerable if earnings dissappoint.

Japanese profits have been severely squeezed by the recession but are expected to rebound strongly over the next 18 months as the economy picks up and the regional upswing continues. Longer term the scope for improved earnings is enormous, partly because the return on capital is so low ( at less than 4% compared with the US at 16%).

German corporate earnings are expected to pick up with the economy too. And just as in Japan there is considerable scope for restructuring. So far the larger companies have been the leaders but this could change. Valuations in Germany are comparatively modest compared with the US.

German Outlook

Company profits are on rising trend in the three largest stock market areas: the US, Euroland and Japan. But the bond/equity yield ratio is at a worryingly high level in the US

US company profits are now recovering strongly, and reported company earnings per share (eps) are expected to rise by 9% between December 1998 and December this year, followed by a further 10% gain in the year to December 2000. Over a five-year period 2000-05, we expect (eps) growth to average around 8% assuming no major recession.

Japanese quoted companies have seen their profits hit by the severe contraction of domestic and overseas demand and by the crisis in the financial system. However, since the worst period of eps decline was reached (April 1999), there has been a small recovery. There is a strong chance that the intense pressure on company earnings is now over and that Japanese company profits will improve sharply over the next two years.

Company earnings are forecast to grow by 15-20% next year and over the following years by at least 12% annually. Return on equity capital is currently running below 4% compared with over 16% in the US. Restructuring is now an important part of the story behind improving profit prospects for many large Japanese companies.

The strong eps growth reported by German quoted companies since 1995 came to an end this year. Now that the German economy is picking up speed and overseas sales are improving, companies will benefit from higher turnover and better trading margins.

This normal cyclical upswing in margins and turnover should support higher stock prices, but how far the rally is sustained turns more on continued gains from restructuring. Improving returns on Germany equity capital are likely to be an important factor during the next five years.

At 29.4x, the US stock market price earnings ratio (PER) continues to be high by historic standards whilst the related bond equity yield ratio (BEYR) is worryingly high. With interest rates rising, the US stock market is now heavily dependent on prospects for profits. Our forecasts may be enough to sustain US stock prices around present levels, but the market could be heavily exposed if the profit performance were to disappoint.

In Japan PERs and BEYRs are favourable to stocks; the main question in this market is whether the economy is on a sustainable recovery path and whether corporate profits will improve. We believe the pace of advance in eps should be buoyant enough to generate higher stock prices, although there is still the danger that the economy weakens again and of further yen appreciation.

German stocks stand on an undemanding PER of 20x and a comfortable BEYR. Valuations point to share price appreciation. Providing restructuring can underpin eps growth so that the rate runs above nominal GDP growth, and above the 6% recorded over the last ten years, then German stocks look cheap for the longer run.

US Profits Outlook

US company profits and earnings per share (eps) are now recovering strongly, following a period of decline. Corporate profits, as measured on a national income account basis (NIA), turned positive in the first quarter of 1999 and that upturn has been continued in quoted company eps reported so far for the second quarter.

US quoted company earnings rose by 8.4% during 1998 and by a modest 1.9% since the end of 1998. Last year's rise in stock prices of 28% can be split into an expansion in the price/earnings multiple of 18.4% from 23.4 to 27.7 and a rise in eps of 8.4%.

The market's gain of 8.9% so far this year continues to rely on multiple expansion rather than earnings growth. Stock prices are probably anticipating strong corporate earnings over the next few years. Whilst prospects are good in the near term, earnings growth in the medium term will need to rely on cost cutting as much as volume gains.

As the US economy slows, it is usual to find profit margins being squeezed by rising employment costs and intense pricing pressures. Profits are also likely to be hit by slowing turnover growth. Of course, there are several 'steps' between striking a figure for company operating profits and one for ( reported) earnings per share (eps). Affecting the final eps figure could be items such as taxation, special one-off write-offs, changes in depreciation charges and interest payments. Some of these factors depressed eps during 1998, and their impact is waning. With most of the second quarter company results now published it is clear that many US companies are experiencing rising earnings. Overall reported eps growth has been running at an annual rate of 15%, and if analysts' estimates are any guide then the third quarter rate will rise to over 20%. We estimate a 9% rise in company earnings between December 1998 and this coming December.

Company eps are projected to rise by 10% between the end of this year and December 2000. There are higher estimates to be found in the stock market, but our figure is believed to be equally placed between the chances of higher and lower figures being reported.

Looking over a five-year period starting from the end of 2000, we expect eps growth to remain comparatively strong-running in excess of money GDP growth of perhaps 5% as large companies score from productivity gains and restructuring which maintains improvements in returns on equity capital. A weak dollar may also help boost corporate profits. We do not forecast a US recession during this period though clearly any sharp fall in economic activity would change the profit estimate. Over the ten years to the end of 1998, eps growth averaged 13.3% a year, but that decade covered a period of exceptionally strong eps growth during 1993-95. A medium term growth rate of 8% looks attainable.

Japan profits outlook

Japanese quoted compa nies have seen their prof its hit by the severe contraction of domestic and overseas demand, and by the crisis in the financial system. An improvement in reported earnings per share (eps) growth had begun in mid-1993 but severe margin pressures combined with weak sales let to a collapse in company earnings. This became all too visible when companies reported their results in June and December last year. The worst period of eps decline was reached at the end of April this year when eps were 28% lower than a year ago. However, since this low point there has been a small recovery although, expressed in terms of year-on-year growth, eps are still down 20%.

At first sight the picture looks unappealing for stock market investment. However, the intense pressure on company earnings is now over and there is a strong chance that Japanese company profits will improve sharply over the next two years. The pace of advance in eps should be buoyant enough to generate higher stock prices.

Japanese profits are expected to be on a rising trend even if the growth of domestic demand remains sluggish for the rest of this year and into the first half of 2000. Listed Japanese companies do not mirror the economy as a whole: manufacturing is of much higher significance to quoted companies. GDP growth in 2000 of around 1.0-1.5%, after this year's stabilisation, is not as important as progress in manufacturing output for domestic and export markets. In the past, machinery orders have been a good indicator of furture company earnings and recently orders have come in above expectations. Company earnings are forecast to grow by 15-20% next year and, given global expansion, by at least 12% annually over the following years. One recent estimate suggested that an underlying 1% gain in sales next year would translate into a gain of over 10% in recurring profits of non-financials.

Corporate restructuring is an important part of the story behind improving profit prospects for many large Japanese companies. Recently, corporate restructuring has badly damaged the 'bottom-line' for many companies, e.g. as closure and down-sizing costs have been absorbed. But much of that hit is now past and it is being replaced by commitments to profits growth and to the efficient use of capital.

The government places a high priority on corporate restructuring plans, e.g. with its Industrial Revitalisation Law, and its measures extend to 2003. The drive for better returns is expected to last for serveral years. Return on equity capital is currently running below 4% compared with over 16% in the US. Although the PER appears high, it is distorted by the way profits are reported in Japan and by cross-holdings of shares. Improving returns as well as rising turnover and low valuations, sharply contrasts Japanese with US stocks.

German profits outlook

In 1999, slow Euroland growth, the fallout from the Asian and Russian crises and, above all, weak economic growth at home badly affected economy-wise German corporate profits. However, since 1995 quoted German companies have been able to push ahead their reported earnings per share (eps) by quite significant amounts. The different record is explained by the ability of large companies to squeeze the margins of smaller companies, by quite vigorous cost-cutting and by a geographically widespread number of subsidiaries. (Constituents of the Dax Index derive about 44% of their profits from overseas operations).

Now that the economy is picking up speed profits should recover. Quoted German companies will benefit from rising sales, both at home and abroad, better trading margins and continued gains from cost-cutting and restructuring. There should also be a marginal gain from lower corporation taxes. So far this year the euro has maintained its average rate of 1998 against the US dollar, though we do expect it to strengthen in 2000.

By current standards the German price earnigns ratio at 20.3x does not make stocks over-valued; in fact normal cyclical upswings in margins and turnover would support higher stock prices (excluding any sharp deterioration in bond yields or the risk premium). How far any rally can be sustained rests more on future benefits from restructuring and on questions of liquidity and corporate issuance. Germany is in that sense rather in the same position as Japan. By US standards there is considerable scope for quoted companies to improve their return on equity and therefore returns to shareholders.

Restructuring can involve straight forward cost cutting: closing parts of a businesses, reducing staffing levels in existing operations and selling non-core businesses. Initially, restructuring can lead to a cash drain but, once cash flow turns positive, debt can be reduced and cash returned to shareholders. Interestingly, share buy-backs authorised by shareholders are now permitted in Germany and over sixty German companies have taken advantage of last year's change in the law. But the most important aspect of restructuring involves a process of constant pressure to achieve high and stable returns on shareholders' capital.

It may be thought that restructuring is essentially a US concept that will not travel well into Germany. But such a view is likely to be unduly pessimistic. Already many large quoted and internationally spread companies are grasping the importance of shareholder value. Pressures for cross-border amalgamations and acquisitions, coupled with raising capital on international markets, are already concentrating the minds of many corporate boards. We expect improving returns on German equity capital to be a feature of the next five years. Large quoted companies may lead the way but the important medium-sized company sector may have more scope here and indeed may seize the initiative more aggressively than their larger relatives. Courtesy Economics For Investment American Express Bank

Next week: Asian markets

Smells fishy, say the minorities

Minority shareholders of Shaw Wallace & Hedges Ltd are alleging that the majority shareholders are trying to change the company's articles of association to enable them to sell its valuable Duplication Road property.

Shaw Wallace & Hedges is 51 per cent owned by the Indian group, Shaw Wallace & Hedges Ltd. The Sri Lankan operation is headed by M R Shabria who indirectly controls the group through a 30 per cent stake in the Indian company.

The present land covers 560 acres and is expected to fetch around Rs. 400 mn.

Minority shareholders say according to the Indian company's recent annual report, the board of directors passed a resolution saying they were going to sell off the Sri Lankan operations as a whole or part by part.

Minority shareholders allege Shabria's Indian operation is in the habit of buying companies, stripping their assets and siphoning off the monies.

The present Shaw Wallace & Hedges Ltd Sri Lanka's articles of association, prevents the directors from disposing the company's assets without the consent of all the shareholders.

During the recent annual general meeting held on July 23, the board of directors sought shareholder approval to change this clause. But the minorities opposed it and the resolution was subsequently postponed. The directors have now called for an extra ordinary general meeting on September 22 to once again seek shareholders approval to change this clause. Meanwhile, minority shareholders have jointly written to the Securities and Exchange Commission and the Exchange Control Department to warn them of the company's present situation.

Shaw Wallace & Hedges's group turnover for the period 1998/99 stood at Rs. 563.75 mn. This included turnover from subsidiary companies like Viking Fashions Rs. 126.75 mn, Healthcare Products (Pvt.) Ltd Rs. 5.52 mn, Shaw Lanka Tours Rs. 604,000, Lanka Tech Management Ltd Rs. 480,000 and Shaw Wallace & Hedges Ltd. Rs. 430.38 mn. At present Viking Fashions is the only profit making arm of the company recording a profit before tax of Rs. 12.8 mn for 1998/99 period. The other subsidiaries Healthcare Products (Pvt) Ltd made a profit of Rs. 1.75 mn, Shaw Wallace and Hedges Ltd made profit of Rs. 11.78 mn, Shaw Lanka Tours Rs. 480,000 and Lanka Tech Management Ltd Rs. 53,000 in profits for the period ending 1998/99.

However, certain market analysts are of the view that the company and not the land will be sold. The company's present net asset value is Rs. 150 while the shares are trading between Rs. 30-35.

Mind your Business by Business Bug

Fare wars

The competition among landline telephone networks is now as intense as that between the cellular networks and ways and means are being explored to get ahead of rivals.

One network is considering what appears to be a winning strategy: free, unlimited local calls between local area networks for a fixed monthly rental which subscribers pay even now.

This is common practice in several countries but is a novelty in little Lanka but it has still to get the nod of approval from the watchdog commission because rivals are likely to say it is unfair competition.

But if it is implemented many subscribers are likely to abandon the state provider, initial research has shown...

Green for stop

The greens are busy briefing the diplomats about the alleged misdeeds of the blues, especially in tender and money matters.

But when those who lie abroad for their countries wanted to know what the greens would do about it, the answer was that all 'corrupt' deals would be abrogated.

That has not helped the country's cause because most diplomats were hurriedly sending messages back home voicing reservations about future investments, regardless of whether the blues or greens are in power...

Out of Ads?

Cricket, they say is a game of glorious uncertainties but so is advertising.

At least two advertising houses have recommended the withdrawal of two senior cricketers from their campaigns because they no longer command a regular place in the national team.

And the recommendation is that a new 'selection' be made following the performances against the Aussies in the forthcoming test series where they feel a star or two is likely to emerge.

Advertising, after all is not as easy as it looks and certainly not as easy as munching those sausages...

Playing snakes and ladders with the pact

Fresh hopes of reviving the frail bilateral free trade pact will depend a lot on the new Indian government, a top Indian industrialist said last week.

Businessmen R P Goenka said that India's bureaucratic red tape is responsible for holding up the Indo-Sri Lanka free trade agreement which was scheduled to be effective from this March.

He drew parallels between the trade pact and a game of snakes and ladders.

"The Indian bureaucracy is large, it takes a long time. It's like playing snakes and ladders.

One file goes step by step up and often the file comes right down where it first started," Goenka said at a media conference after trade talks with senior government and chamber officials.

"I am hopeful the new government will revive the trade pact," he said.

However, Ceylon Chamber of Commerce chief and CEO John Keells Group, Ken Balendra said that top government officials have indicated that some of the issues pertaining to the negative list are being ironed out - although he declined to give details of the progress.

Goenka was visiting Sri Lanka as the President of the Confederation of Asia Pacific Chambers of Commerce and Industry (CACCI) to conduct bilateral trade discussions between the two countries.

CACCI also admitted Ceylon Chamber of Commerce as a new member to its 25 year old organisation. Sri Lanka is also represented by the Federation of Chambers of Commerce and Industry.

CACCI officials were also here to apprise its members on the agenda of forthcoming World Trade Organisation (WTO) ministerial meeting in Seattle, Washington State, this year.

The WTO meeting will launch global negotiations to liberalise trade sectors in goods, services and agriculture.

WTO will also take up the issues of the WTO dispute settlement issue, the intellectual property rights, issues on certain restrictions on foreign investment, CACCI economic advisor P Panadikar said.

Issues like social clauses concerning labour laws, making labour issues a part of trade agreements and producing goods which are not environmentally friendly are some issues of great concern to developing countries, he said.

"Since these issues more or less affect developing countries CACCI will have to take a position on this when we meet in October," he said.

Inter-terminal row rages on

By Shafraz Farook

The row over handing over inter-terminal container transfers to a single party raged into another week. The Association of Container Transporters (ACT) last week made an appeal to the Sri Lanka Ports Authority (SLPA) to re-consider this decision, they said.

However, industry officials say inter-terminal container transfers and other transportation within the port had always been the responsibility of the port operators and terminal operators. Private contractors were called in only when there were shortages of prime movers and trailers in the terminal and subsequently terminated. In addition, individual lines were allowed to operate their own inter-terminal transports and they in turn appointed a private contractor who was already in the business. Further, they said only around 200 to 250 containers were transported from the Jaye Container Terminal (JCT) to the Queen Elizabeth Quay (QEQ) and vice versa on a good day. Inter terminal transfers are only a small part of a massive industry and most of these transporters are engaged in more than one of these operations, officials said.

However, to enhance the quality of services and to stem the decline of the transshipment volumes, the SLPA and the South Asia Gateway Terminal (SAGT) agreed to take over and manage this responsibility. For this, SLPA and SAGT set up the Container Inter-terminal Trucking Office (CITO) and called for quotations from existing trucking operators, officials said. Competitive bidding by the transporters saw the contract go to one of the parties who had quoted the price at almost half the previous price. Officials of this company who did not want the company name to be mentioned said that they had quoted a price lower than the previous price because they were sufficiently covering their costs and making reasonable profit. ACT officials however said that quotations were never called for and that they would have been much obliged to have directed their members to such a quotation if there was one. The ACT continues to appeal to the authorities to retain the trend followed earlier.

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