in quandary over increasing fuel subsidy
Mandana Ismail Abeywickrema
a desperate attempt to control the rapidly increasing fuel subsidy,
the government of Sri Lanka is now in the process of holding talks
with the government of India to establish a fuel supply line on a
long-term credit basis.
fuel subsidy has seen a sharp increase lately with the rapid rise in
global fuel prices.
Ceylon Petroleum Corporation (CPC), Jaliya Medagama told The Sunday
Leader that the government has no intention of increasing fuel prices
although the subsidy to be absorbed by the Treasury is on the rise.
Medagama said that the CPC has written to the Treasury explaining the
present situation where the global and local markets are concerned.
The government does not wish to pass the burden to the public, as an
increase in fuel prices would result in a chain effect.
explained that the fuel prices not being subject to a price revision
since February has resulted in the present problem. Presently, the
Treasury has to pay the CPC a sum of Rs. 1.6 billion.
said that although a litre of petrol is sold at Rs. 57, the cost
involved in importing a litre is Rs. 63. A litre of diesel is sold at
Rs. 32 while it costs Rs. 40 to import and a litre of kerosene is sold
at Rs. 25.50 while importation costs Rs. 33.
of importation costs on an average in April, a barrel of kerosene cost
US$ 42, petrol US$ 44 and diesel US$ 44.
Medagama pointed out that by last Wednesday, a barrel of petrol cost
US$ 49, kerosene US$ 48.50, diesel US$ 46.30 and crude oil US$ 38.
This increase in oil prices, which is an ongoing process, only
increases the government's expenditure, while the avenues of revenue
remain more or less the same.
Treasury also has to absorb the subsidy of Lanka Indian Oil Company (LIOC)
and so far dues for LIOC by end April stood at Rs. 650 million.
Secretary, Dr. P. B. Jayasundara speaking to The Sunday Leader said
that the fuel prices need to be adjusted according to a formula and
the fact that it has not been revised accordingly has resulted in the
noted that the Rs. 1.6 billion payment due for the CPC would have been
less if the prices were revised accordingly in the past months.
the world prices kept increasing local market prices were not
increased accordingly," he said.
Jayasundara pointed out that the Treasury is now in the process of
addressing the issue of increasing world market prices of fuel. While
the government is engaged in talks with India over a long-term fuel
supply line, domestically they are looking at how best the prices
could be adjusted.
of the Rs. 650 million the Treasury owes to LIOC, Dr. Jayasundara said
the government does not owe any payments to LIOC but is still
reviewing claims submitted by the company.
of the intended third player in the market, Medagama said that there
too, the Treasury would have to absorb the subsidy.
Jayasundara noted that the Treasury would have to absorb the subsidy
of any company in the market as long as fuel prices are not revised
according to global prices.
to former Director General, Public Enterprise Reforms Commission (PERC),
Manjula de Silva, the entry of the third player to the market is on
hold as governments changed at the time the cabinet paper was
Silva explained that the new government is still reviewing the bids
forwarded by contenders.
from China along with two Indian companies, Bharath Petroleum and
Hindustan Petroleum, were the three contenders who were shortlisted.
the decision not to increase fuel prices in the country by the
government and the previous regime has resulted in the Treasury
spending Rs. 3 billion - which is continuously increasing - that could
have been otherwise avoided.
regime on hold
controversy over his resignation last week, former Director General,
Telecommunications Regulatory Commission (TRC), Themiya Hurulle
denying that he left under a cloud, said that his resignation was due
to a government policy decision.
told The Sunday Leader, "As per the SLT Act, the director general
of TRC is appointed by the minister holding the subject of
telecommunications. The minister decides if he wants a termination.
Telecommunications Minister D.M. Jayaratne sent a letter asking for my
resignation and that is why I resigned."
report in the media last week stated that Post and Telecommunications
Ministry Secretary, C. Maliyadde met with the Engineers Association
(EA) and Executive Officers Association (EOA) to discuss
"irregularities and misuse of funds with regard to the CPP
regime" the day before Hurulle's resignation.
to the report, Hurulle told The Sunday Leader the CPP regime is a part
of telecom reforms and the cabinet subcommittee on economic policy of
the previous government approved it for implementation, adding that it
was also presented in parliament twice.
previous government decided to implement the CPP regime in the
interest of the growth of telecom. It was a government-approved
project. Even if a full inquiry is done, everything will be in order.
The only expensive item was the retention of consultants from
Britain," said Hurulle.
speaking to The Sunday Leader, Maliyadde said there were no charges
levelled against Hurulle.
was no meeting or inquiry regarding Hurulle's resignation. He tendered
his resignation under the normal manner because of the change of
government, which is customary," Maliyadde said.
year when the CPP regime was due for implementation, it was delayed as
a result of the President's takeover of three ministries, which
included the Telecommunications Ministry, on November 3. The change of
government has resulted in its implementation being delayed once
cabinet subcommittee that approved the CPP regime was chaired by
former Prime Minister, Ranil Wickremesinghe. Now the committee has to
sit again and the government has to approve the project before the CPP
regime can be implemented.
the new government policy is not to proceed with it, all clearance has
been obtained and all that has to be done is publicise the rates
according to government regulations and implement the CPP regime. It
is also a great thing that all rates were agreed to by all the
operators," said Hurulle.
to go public next month
Indian Oil Company (LIOC) will be listed at the Colombo Stock Exchange
(CSE) next month. LIOC is planning to issue 10 million shares at the
par value of Rs. 10 each, which would raise Rs. 100 million for the
company, which is equivalent to 24% of the company's present equity.
City Bank of Sri Lanka would be the underwriter for this Initial
Public Offering (IPO).
to The Sunday Leader, Managing Director, LIOC, M. Nageswaran said the
company is confident that it would perform well at the local bourse.
He further states that since energy is an important sector in Sri
Lanka, it would be a necessity to have local participation involved in
the business. Nageswaran also believes that its shares would have a
good value in the market considering past performance.
have paid continuous dividends to our shareholders for the past 25
years and during the last five years our shareholders have received
over 100% dividends at the Indian share market," he said.
According to Nageswaran, this IPO would certainly benefit the Sri
Lankan investors. "From this IPO we are hoping to share our
company's prosperity, which we get from the energy sector, with the
local public," he said.
past performance of the company's shares in the Indian stock markets
such as the Mumbai and Chennai stock exchanges would enhance public
confidence in LIOC and the Fortune 500 Magazine recognises LIOC as one
of the top 500 companies in the world," he added.
Indian Oil Company (LIOC) is a fully owned subsidiary of Indian Oil
Corporation (IOC), which purchased 100 filling stations from Ceylon
Petroleum Corporation (CPC) for US $ 75 million in December 2002.
is India's largest commercial enterprise with an annual sales turnover
of US $ 25.22 million and profits of US $ 1,287 million. IOC is
India's sole representative to be listed in the Fortune 500 magazine
as one of the 500 largest companies in the world. The company is also
the 17th largest petroleum company in the world.
which began in 1959 as Indian Oil Company, merged with Indian
Refineries and formed Indian Oil Corporation (IOC) in 1964. IOC
presently controls 18 refineries in India with a current combined
capacity of 49.8 million metric tonnes per annum (MMTPA) or one
million barrels per day (BPD), these include subsidiaries of Chennai
Petroleum Corporation and Bongaigaon Petroleum Corporation.
Bank profit up 52% in 1Q
Bank of Ceylon Ltd. has recorded a pre-tax profit of Rs. 523.3 million
for the first quarter of 2004, a growth of Rs. 191.7 million or 57.81
percent over the corresponding period last year.
impressive pre-tax profit was achieved despite providing for the
special Value Added Tax (VAT) which increased from 10 percent to 15
percent during the period under review.
profit of the bank for the quarter ended March 31 amounted to Rs.
341.3 million, a growth of Rs. 117.7 million or 52.64 percent.
General Manager (Finance and Planning), Commercial Bank, Ranjith
Samaranayake said the bank achieved profit growths of over 50 percent
mainly due to significant growth in deposits, advances and assets.
contribution from low cost deposits in the deposit mix continued to
improve by recording satisfactory growth, Samaranayake said, adding
that net interest income - the bank's principal source of income -
totaled at Rs. 1,087.2 million in the first quarter, representing a
healthy growth of Rs. 294.5 million or 37.15 percent. Exchange profit
recorded a growth of 84.49 percent while other income recorded a
growth of 42.35 percent.
income of the bank rose the Rs. 2,750.3 million reflecting a
substantial growth of Rs. 713.3 million or 35 percent. The newly
acquired Bangladesh operations too made a significant contribution to
these results, he said.
said these results were achieved despite several constraints including
the provision of Rs. 187.5 million on account of possible loan losses
compared to Rs. 129.3 million provided in the first quarter of 2003.
disclosed, however, that the net charge to the income statement on
account of loan loss provisions amounted to only Rs. 102.6 million, as
a result of releasing an excess provision against lease receivables
amounting to Rs. 84.9 million.
excess provision arose as a result of the bank's decision to revise
its provisioning policy on lease receivables in line with the accepted
the bank's new provisioning policy on lease receivables, Samaranayake
said that a 100 percent provision in made in respect to each lease
outstanding, where six rentals or more are in arrears, after
discounting the net realisable value of the leased asset for specific
under general provisions, provision in made at 0.5 percent of the
outstanding leases, as against the 3 percent previously adopted.
of the additional provisions required under the new 'hair cut rule' of
the Central Bank, which came into effect in January has been made in
the first quarter and the balance provisions required would be made
over the next nine months, he said.
addition to the enhanced provisions for loan losses, the bank's
profits were further adversely affected by a loss of Rs. 34.2 million
on mark to market valuation. (The decrease in market prices of the
trading portfolio of treasury bills and treasury bonds as result of
the rise in the market interest rates, which result in a loss when
compared with the book value of such securities). Furthermore,
operational expenses included Rs. 24. 8 million as a result of
payments made under a Voluntary Retirement Scheme (VRS).
results of the Commercial Bank Group representing the bank, its
subsidiaries and associate companies were adversely affected by the
losses made by the bank's primary dealer subsidiary in first quarter
a result the group recorded a pre-tax profit of Rs. 505 million, a
growth of 10.62 percent over the corresponding period last year.
losses of the primary dealer were also due to the mark to market
losses incurred on its trading portfolio of treasury bills and
treasury bonds consequent to the rise in market interest rates.
losses of the bank's primary dealer and increase in the tax liability
as a result of increased tax rates on off-shore banking profits
affected the post-tax profit of the group which reflected a drop of
5.88 percent to Rs. 319.3 million in the reviewed quarter,
bank is in the process of taking necessary steps to minimise the
adverse effects on its profits resulting from the mark to market
losses in the future, he added.
decision to import rice postponed
government's decision to import rice has been postponed due to rice
millers agitating that a large stock of paddy is available in the
to Commerce Ministry officials, rice millers have voiced their opinion
on the matter saying that a large amount of paddy is available and
that due to a large number of holidays experienced during the month of
April and May, there was a delay in the milling process.
to The Sunday Leader, Additional Secretary, Commerce Ministry, Janaka
Sugathadasa said that Commerce Minister Jeyaraj Fernandopulle would
take a decision on the matter within a period of two weeks.
proposal was put forward by the Minister to cabinet that the
government should import rice and a sub committee consisting of the
Finance Ministry, Agriculture Ministry and the Commerce Ministry, has
been appointed to look into the matter," Sugathadasa said.
to Sugathadasa, a decision to import rice was taken by the Minister
due to the high prices of rice.
Minister will visit Polonnaruwa within the next few weeks to have a
look at things. However, a decision will be taken on the issue only
after the Minister has a discussion with the Agriculture
Minister," Sugathadasa said.
added that currently a specific figure could not be quoted as to how
many tonnes of paddy were available as various people stated different
figures and that "the government is seriously taking the matter
speaking to The Sunday Leader, former Commerce Minister, Ravi
Karunanayake said that the government's decision to import rice would
badly affect the economy.
the United National Front (UNF) was in power, the Janatha Vimukthi
Peramuna (JVP) shouted against us saying rice should not be imported
as local farmers should be given a chance, but today they have
forgotten all their promises," Karunanayake said.
added that the country produces 2.1 billion tonnes of rice per annum
and this decision by the government raised a serious question as to
where this amount of rice was "disappearing."
assigns A-(sri) rating to Seylan Bank
Ratings Lanka Ltd (FRL) assigned A-(sri) (A minus) national rating for
implied long-term unsecured senior debt of Seylan Bank and at the same
time assigned BBB+(sri) (triple B plus) national rating to the bank's
subordinated debentures. The subordinated debentures, in terms of
priority, will be subordinate to deposits and all senior debt
obligations, but will rank above preference and ordinary shares.
Consequently, and in accordance with FRL's criteria, the rating
assigned to Seylan's subordinated debentures is one notch lower than
its senior debt rating of A-(sri).
A-(sri) rating denotes a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong. This
capacity may, nevertheless be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings reflect its relatively large size within the domestic banking
system, its core deposit base, and also its wide market presence.
However, the rating also reflects the bank's relatively poor asset
quality and weak capital position. Though a relatively young bank,
Seylan expanded aggressively to achieve its present position as the
third largest private bank. Efficiencies and control systems however
did not keep pace and consequently weak asset quality and high
expenses impaired profitability.
the past few years, Seylan has undergone a period of consolidation
with management laying greater emphasis on securing operational
procedures, developing risk management systems and improving
efficiencies. Such initiatives are still ongoing, but some
improvements are now visible. Taking advantage of substantial capital
gains realised on the sale of government securities during the last
two years, and also an equity infusion of Rs. 1 billion in August
2003, the bank set aside significantly larger provisions against NPLs.
Nonetheless, coverage of approximately 30% as at December 2003 is yet
low. Hence the bank's capital position, once adjusted for an adequate
level of provisioning, continues to be weak, as indicated by its net
NPL/equity ratio of 110%.A key challenge for the bank would be to
maintain adequate profitability, in order to continue its drive to
improve provision cover.
Bank warns public to be
cautious when investing funds
Central Bank has again warned the public to exercise caution when
investing funds, especially in institutions that have not been
authorised to accept deposits.
a statement released last week, the Central Bank observed that some
institutions which do not have any legal authority to accept deposits
from the public solicit monies from the public. "In order to
protect the public, only certain categories of institutions are
legally authorised to accept deposits of money from the public.
Licensed commercial banks, licensed specialised banks and registered
finance companies have been given authority by the Central Bank to
mobilise deposits from the public. Also, cooperative societies
registered under the Cooperative Law No. 5 of 1972 can accept deposits
from the public in the respective provinces. In addition, building
societies can accept deposits from their members. Furthermore, any
legitimate non-profit oriented institution can accept deposits only
from its member with the written permission of the Monetary Board of
Central Bank of Sri Lanka.
are institutions that raise funds from the public by the issue of
investment and debt instruments. The Central Bank has observed that
some institutions engage in mobilising funds on such instruments on a
regular basis as a principal line of business under various schemes
and the funds so mobilised for lending and investment. Many of these
schemes have characteristics that are similar to deposit taking.
However, as these institutions are not licensed or registered as
deposit taking institutions, they would not be subject to the
prudential norms applicable to banks or finance companies nor will
they be supervised or regulated by the Central Bank. Therefore, the
risks undertaken by these institutions could be very much than those
undertaken by institutions that are regulated by the Central
Bank," the press release stated.
raises $ 20 mn in financing
Corporation announced last week that it has raised $ 20 million in its
series D round of financing. Focus Ventures led the round that also
included participation from existing investors Sigma Partners, Charles
River Ventures and Globespan Capital Partners.
proceeds of this round will be used for general corporate purposes,
global expansion, and sales and marketing," said Chairman/CEO,
Virtusa Corp, Kris Canekeratne. "Virtusa has made excellent
progress. We grew revenue by 74% with profitability in our 2004 fiscal
year that ended March 31. Virtusa has posted 11 consecutive quarters
of quarter over quarter growth demonstrating stability and
predictability of its business model."
builds complex mission-critical solutions for its clients through a
comprehensive array of software development and related IT services
designed to increase IT efficiencies. Virutusa's productisation
methodology unleashes the full potential of clients' software assets
by consolidating disparate software assets and applications into one
or more organisation specific software platforms. There platforms are
than shared across several lines of business and vertical
markets to immediately reduce Total Cost of Ownership (TCO),
reduce time-to-market and accelerate revenue creation.
look Hutch ready for takeoff
Telecom last week changed its brand name to Hutch, the group's 2G
brand name in Sri Lanka.
are making our presence known in Colombo and finally making our grand
entrance," said the Chief Executive Officer, Hutch, Thirukumar
Nadarasa speaking to The Sunday Leader on the most recent offer of
mobile telephony services to the city of Colombo, starting from
Katunayake to Panadura, at unprecedented low rates of Rs. 10 a day for
all incoming calls and Rs. 8 per minute outgoing.
is a 100% owned subsidiary of Hutchison Whampoa Limited of Hong Kong,
which is a large conglomerate that has besides telecom, diversified
businesses such as property and hotels, ports and retail shops.
Telecom contributes to around 10% of the group's business revenue. The
company has a total of 11 million mobile subscribers worldwide and
according to Nadarasa, is the leading 3G operator in the world today.
the western countries have reached a high level of penetration in
terms of mobile communication, we see a lot of potential in the
non-western countries. We have the backing of a very powerful parent
company. With that expertise we came to Sri Lanka in 1997,"
stated Nadarasa regarding the entry of Hutch into the Sri Lankan
on the approach used by the company, Nadarasa explained, "We used
a unique entry strategy. While we have the financial resources and
technological backing, we were careful not to adopt a multinational
approach and kept in mind that we are in the business of providing
telephony service that fits the needs of the Sri Lankan people."
also pointed out that when Hutch came to the country in 1997, the
cellular penetration was only 1%. "Even 15 years after the
introduction of mobile technology to the country the penetration rate
at present stands at a low 7%."
aspect cited by Nadarasa for this situation was affordability, adding,
"Unlike in the western countries, mobile phone bills are always
above average. So the bottom line is to get an affordable telephony
service in place."
the time we entered the market, in Colombo the penetration was only
20% among a population of four million, while outside Colombo it was
just 2% among 15 million. We decided to tap the market outside
Colombo," said Nadarasa articulating their rationale behind their
entry into the outstation areas.
2000, Hutch launched GSM connections in the outstations through the
aim was to provide both an affordable and accessible service. In
developing our business plan we have worked backwards and have
formulated a service that fits the average Sri Lankan household income
(which amounted to Rs. 600 at the time), in short, a relevant service
that fits the budget.
stated that when Hutch went into the outstations, surprisingly, most
people did not ask for mobility. So starting from Matara, they
launched GSM networks that would cover the city precincts, offering
200 solid minutes of usage, with an average bill of Rs. 607, outgoing
Rs. 6 during peak hours and Rs. 4 during off peak.
provide accessibility to those away from the city, the company devised
a method where one can access the GSM network through a TV antenna,
which can be plugged to the mobile phone. "Through this we were
able to provide telephony service to those who were situated as far as
30 km away from the town," said Nadarasa.
present Hutch has 82 base stations nation wide and has given GSM
connectivity to 34 cities starting from Matara and working their way
up to Trincomalee.
50,000 households outside Colombo have Hutch connections. "We
function on a door-to-door service in these areas and have around 400
to 500 people working on the field adding a personal touch to our
service. We have customised the service to meet the needs of the
people and have also invested in a branch office in each of these 34
cities," explained Nadarasa, adding, "to us the advent of
GSM technology means low connectivity cost. We have been able to
successfully pass this benefit on to the customer."
Hutch has on offer at present is a 100% prepaid service. According to
Nadarasa the reasons behind this approach is that "people prefer
the convenience and the customer is in complete control."
offering this prepaid service, Hutch uses an advanced technology known
as Intelligent Network Platform (INP). "INP to the mobile
industry is what an ATM is to a bank. It offers total freedom and
flexibility for the customer to use our services," said Nadarasa.
added that the company plans to increase the number of base stations
to 90 at the end of next month when it also hopes to link up all 35
(including Colombo) cities.
of new fire tariff vital" - Consultant
introduction of the new fire tariff is vital in order to bring
uniformity in rating, create a level playing field for all insurers
and to save the industry from collapse, said Insurance Consultant, S.I.
Fernando, a member of the committee that was appointed to review and
revise the existing tariff. The new tariff, which has met with
opposition in the insurance industry, is to be implemented from June 1
by the Insurance Board of Sri Lanka (IBSL).
to The Sunday Leader, Fernando said, "In this new tariff we have
reduced the rates, we have not increased them. But according to the
brokers, the rates have been increased by a huge percentage. I deny
that. In some cases the rates could go up but not by large
said the tariff for houses, shops and hotels has been reduced compared
to the rates charged according to the old tariff. In the case of
shops, the rate has been brought down from 0.04 to 0.024 and for
hotels, from 0.2 to 0.17. "We have also taken off the 20%
surcharge," he said.
rates to grass root levels will only bring down the industry and it
could crash. Re-insurers will not give protection because of the big
risks. If it's a good risk, there are rebates given, people won't have
to pay big premiums and they are covered adequately," said
there is a good risk, the rates are low he said, adding that rates
always commensurate with the risk involved. "For example if there
is superior construction and fire extinguishing appliances, fire
hydrants and sprinkling systems in place, there is a rebate," he
to him, fire insurance was started in 1923 and the fire tariff was
issued. It was amended from time to time and revised in 1956. From
thereon to date, insurance companies were expected to follow that
tariff but it was being violated, he said. "After privatisation
in 1988, an increasing number of companies did not follow the tariff
in order to increase business and started undercutting tariff rates.
In 2001, the Insurance Regulatory Board was formed and the board
appointed a committee to go into this tariff and issue a revised
tariff. After comprehensive research the committee compiled the new
tariff," he said.
said that in order to give lower rates, companies charge the fire
premium and also the riot, strike and terrorism premium because that
money has to be sent to the government but give free cover for alight
perils. "Then, naturally the premium comes down but when they
don't charge for alight perils, the companies are left with very
little premium. When it comes to a catastrophe such as floods, if the
company has not done the reinsurance arrangements properly, they will
not be in a position to pay the claim," he said.
added that unlike the non-tariff companies, the tariff companies are
recognised and backed by the government and the Insurance Board is
there to protect them.
sector: Heartless or mindless?
private sector is now the largest employer and the largest revenue
source in this country. However it is often characterised as ruthless,
unfeeling and motivated solely by profit.
is because some big companies over the years have shown no concern or
desire to support the government of the day to enhance economic growth
or for that matter to ensure that growth is accompanied by equitable
private sector in its own way has added to our list of problems by
raising prices and ignoring the crying needs of the of our lesser
privileged communities, selfishly unaware that a price increase in a
time of crisis would definitely have a cascading effect right across
companies do not worry about public outcry because they conveniently
assume that it is the government's responsibility to protect the
consumer by having a regulator to oversee the domestic market. Some
companies have however volunteered in times of economic difficulty and
to prevent disruption in times of confusion and unrest.
clearly, when the interest of the government and private sector
coincide and are pursued with responsibility under conditions of
openness and transparency, the end beneficiary is the country as a
all this, giving something back to society is good business. Our
corporate big shots would know that better than many of us.
why do companies fail to reach out to the larger communities the way
they reach out to political leaders to support their projects?
Philanthropy should ideally provide benefits to the disadvantage
rather than enhance already well endowed activities.
is very surprising that some of our companies fail to realise that the
private sector can only prosper in a society that is permeated by
social equity and a basic sense of fulfillment, also that it does not
function in a vacuum and that its success is dependent on the
fulfillment of certain obligations to society.
companies have realised that social responsibility is important for
business growth. Take Shell Gas Lanka for example. Its parent company
believes in the triple bottom line and wants to make itself
responsible superior, environmentally sound and socially responsible.
to public opinion, Shell in Sri Lanka in the past had not done good
within its community. However, under the present chairman the company
has made a conscious effort to reach out to the larger community. This
willingness will do them a world of good to regain the confidence of
its stake holders.
fact, often our private sector has been slammed by unions for showing
arrogance towards the country's environment and energy needs.
goes without saying that the private sector cannot function
effectively when social tensions are riding high. Also if one thinks
of the social obligations of the private sector, that it creates an
image of itself which is on the right side of the moral values. If it
fails to do so it can contribute towards its own downfall and invite
this is why the involvement of the private sector some time ago in
initiating the national committee on peace was well received.
fact the National Committee for Peace and Economic Development led by
the business leaders of Sri Lanka in 1999 was a clear indication that
the private sector was asserting itself.
private sector involvement in national affairs has become necessary
because our political leaders have failed to build confidence, sending
the wrong signals and resting hopes on dangerous policies.
Sri Lanka needs effective leadership more than ever before and it is
therefore necessary for the private sector to come forward strongly to
pull our nation together to cope with the challenges of the future now
that the government has completely abdicated the responsibility of
Ford the father of the auto industry in an interview once said that
"a business that makes nothing but money is a poor kind of
fact, in the USA in the early 1900s, Andrew Carnegie and John D.
Rockefeller led the way for the establishment of benevolent
foundations for the distribution of private wealth for public benefit.
this money was relatively small, when it was targeted creatively, its
leadership value was tremendous. The need for such initiatives in Sri
Lanka cannot be more urgent than today.
investing in the well being of their communities are good for their
business. Furthermore, today it is becoming increasingly difficult for
the private sector to exist and function in isolation.
society at last has recognised the need for our private sector to take
on greater responsibility in matters affecting our society.
make sense for the private sector to take an in tense interest and
continuing interest in public issues, because, when society
disintegrates, the private sector will find it increasingly difficult
to reap the benefits of their investment.
private sector has in the recent past been criticised by its own
leaders for not acting responsibly as corporate citizens and that its
activates has little social relevance. Even though the purpose of any
business is to satisfy customers continuously at a profit to itself.
corporates in Asia that have struck partnerships with governments and
community leaders to strengthen their communities with which they do
business have realised that their investment is not just charity, that
investing in the well being of their communities is becoming necessary
for their long term survival and could benefit them by way of brand
loyalty, enhancing the long term sustainability of their investment,
better potential employees above all that it helps create a stable
a business is looking for an opportunity to generate huge profits by
overpricing its products and services, then it is not meeting its
social and community responsibilities. The often arbitrary increase of
prices is a good example of irresponsible corporate governance.
the other hand if an organisation is exploiting its employees and
vendors then it is guilty of unfair practices. We are accustomed to
thinking the West as a materialistic society.
this is what Albert Einstein had to say about USA: "The social
conscience of the well to do is much more highly developed than he
considers himself obliged as a matter of fact to place a major portion
of the wealth and often energies too at the disposal of the
public's expectations of the private sector has changed dramatically
over the past two decades.
more and more Sri Lankan people seem to support regulatory reforms
which reduce government intervention in the affairs of the private
sector as long as businesses are wiling to demonstrate commitment to
private sector is generally branded as being only profit oriented.
There are certain sections of the private sector that support
political parties and thereby obtain necessary approvals with no
apparent regard for the social costs associated with a project or a
government tender. These sections of the private sector have tarnished
the good image of the larger private sector which is conscious of its
a business point of view the argument which is most often heard in
favour of a firm's involvement in social activities is that such
activities can improve a company's public image and help to attract
new customers, investors and better employees.
is also argued that such activities may reduce the enactment of
government regulations, which are costly and restrictive to the
management decision making process.
it is maintained that involvement in social activities undermines the
efficiency of the corporation and misdirects limited resources,
serving only to increase costs and the price to the customers. Another
argument against it is that there is frequently a measurement problem.
is to say most firms which provide voluntary social information in
their annual reports describe their actions in qualitative terms
rather than risks in order to give a reasonable return to the
also have to repay the loans borrowed from banks and also retain a
portion for expansion. Failure to understand this has also led to the
criticism of the private sector.
the employer's view a business enterprise provides its employees with
salaries and wages, so the employees are concerned with the ability of
the enterprise to generate favourable cash flows.
they may be concerned with plant and product safety, training
programmes and fair business practices. On the other hand, as a member
of the community, the employees may also be interested in the firm's
community involvement. However, employees may see these wages and
has been pointed out that managers have social concern but, unlike
other employees, management is in the unique position of being able to
initiate social programmes and activities.
is generally felt that the it is the role of the state to provide
welfare facilities, as the private sector contributes more effectively
to economic development.
private sector employs 75% of the six million labour force and also is
the biggest direct tax payer. Therefore the revenue collected from the
private sector should be targeted more creatively for social welfare
and national security, thereby reducing the strain on the private
beyond philanthropy, in-house social responsibility, and corporate
strategies, how does a company reach out to the community?
does it determine the objectives it would hope to attain? Should it
work within its own foundation or trust or does it plug into a wider
private sector should work this out fast because it is no longer the
sole responsibility of the government to find solutions to our
national problems and the public is conscious of this.
for corporate social responsibility
National Agribusiness Council (NAC), the apex organisation for
national agribusiness, last week formally inaugurated the Society for
Corporate Social Responsibility, Sri Lanka.
Centre for Corporate Social Responsibility has been inaugurated at the
NAC Secretariat which will be the national focal point for Social
Venture Network Asia based in Bangkok and the Asia-Pacific Corporate
Social Responsibility Centre to be based in Singapore.
NAC has been supporting the CSRC Singapore initiative, promoting Sri
Lanka's prospects to be a founder member of CSRC Asia-Pacific joining
nine other Asian nations when it is formally launched in July this
NAC with its 23 constituent member associations has a wide working
base involving the rural communities. Livelihoods of Sri Lanka's rural
masses are heavily dependent on agri-business and all member
associations are mostly involved in adding value to the agri-supply
chain. The NAC, an important stake-holder of the national effort for
regional economic advancement, sees CSR as an opportunity for
corporates to access the regional communities.
results of the recently-concluded general elections clearly
articulates that the rural poor are feeling more and more marginalised
patterns show that the stock market indices and macro-economic
performance do not meet their aspirations at a speed conducive to
NAC during its work through constituent associations in the regions
has found it that there seems the consciousness levels of regional
communities is not in keeping with the national literacy index which
we so readily flaunt when wooing investment to the regions.
Chartered to celebrate 'Partnership Week'
keeping with the Standard Chartered Group globally, the bank's local
operations will celebrate international partnership week from May 24
to 28. In a press release to the media CEO (Sri Lanka), Vishnu Mohan
said, "This week is all about celebrating and focussing on the
bank's international presence and capability, together with our strong
local presence. To endorse our commitment to work as 'one bank' across
all geographies and businesses and in providing a seamless
relationship to our customers."
Chartered employs 30,000 people in over 500 locations in more than 50
countries in the Asia Pacific region, South Asia, the Middle East,
Africa, the United Kingdom and the Americas. It is one of the world's
most international banks, with a management team comprising 70
nationalities. It is this depth of experience and knowledge that we
bring to our customers."
to the events planned by the bank would be the presence in Sri Lanka
of Chief Economist (Middle East and South Asia), Standard Chartered,
Gill James. James will be meeting with customers to share her views on
key challenges facing the world economy. In particular she will
discuss the growing role of China, the US economy, oil prices and
other global economic issues as well as discussing the future
potential for Sri Lanka.
key activities include partnering of countries within the SCB network,
which include staff interaction, sharing of ideas and understanding of
other cultures. In Colombo, branches will take on the theme of a
country in which SCB operates. Customers walking into a branch could
find it transformed for the week into Thailand, UK, Korea or India.
inward cheque clearing at HSBC Kandy
has automated the inward cheque clearing process of its Kandy branch
thereby ensuring that customers' cheques are realised faster. Kandy
cheques presented through LankaClear which were previously cleared
manually by branch staff will now be processed automatically by staff
at HSBC's clearing department at its head office in Fort.
inward cheque clearing process of all the HSBC branches in Sri Lanka
is now automated and centralised at the clearing department here in
Fort," said Manager, Network Services Centre, Malik
means that cheques drawn on our Kandy branch and presented through
LankaClear Pvt. Ltd. will be cleared by the next working day because
they no longer need to be physically sent back to Kandy for processing
on a daily basis."
other words, any person who holds an HSBC cheque will hereafter get
value in one working day," he explained. "This also means
that branch staff need not spend extra time on paper work but instead
can devote more time to servicing customers while staff at the
clearing department in Fort will now process the cheques centrally.
the automation and take-over of inward clearing of our Kandy branch,
all HSBC cheques presented through LankaClear will now be cleared by
us in just one working day irrespective of the geographical location
of our branches. We intend maintaining this practice for any branch
opened by us in any part of the island in the future,"
crisis at CEB escalates
Mandana Ismail Abeywickrema
cash crisis at the Ceylon Electricity Board (CEB) has further
agravated due to the extensive use of fuel to generate power during
the first quarter of the year.
crisis has worsened so much that the CEB is now finding it difficult
to settle its current fuel bills. Last year alone, the CEB added Rs. 4
billion to its accumulated Rs. 20 billion in losses incurred in
generating thermal power.
order to get over the problem, the CEB has reportedly arranged several
deals with the People's Bank, along with a securitisation deal of Rs.
10 billion, which failed recently.
according to an official from People's Bank, CEB never needed Rs. 10
billion as it has already arranged certain facilities, which the
official said he was not in a position to divulge.
official went on to say that the CEB has however, discussed several
options to overcome the current cash crisis, adding that among them
were several proposals to restructure the debt of CEB.
official further said that the CEB would only need cash support during
droughts as the institution otherwise records a turnover of about Rs.
official from CEB, speaking to The Sunday Leader on condition of
anonymity said that the CEB finds it difficult to meet the expenses
incurred due to the heavy use of fuel to generate electricity.
further said that CEB is facing a cash crisis as the debt has
increased to a couple of billions over a period of six months.
official said that the CEB does not have enough money to pay the
Ceylon Petroleum Corporation (CPC) for the fuel purchased, adding that
the institution hopes that there would be an infusion of money from
some external body.
the CEB does not have sufficient cash to purchase fuel from the CPC,
it continues to get fuel under a mutual understanding between the two
institutions. According to sources from the CEB, an interest component
is added to the fuel cost given by the CPC on credit.
according to Chairman, CPC, Jaliya Medagama, no interest is added to
the price of fuel purchased by the CEB, even if it exceeds the credit
CEB for the past few months has to pay approximately Rs. 350 million
to the CPC for fuel.
explained that the CEB's fuel purchases depend heavily on the amount
of hydropower generated as an increase in the generation of hydropower
means a decrease in the generation of thermal power.
asked whether the current cash crisis would result in an increase in
electricity tariffs, an official at CEB said that the increasing of
tariffs is not up to the CEB to decide but the government. He further
said that the government too has not made any decision to increase the
tariff rates and burden the public with the institution's cash crisis.
from the Power and Energy Ministry were not available for comment.
consolidates after NBL acquisition
NDB Group last week released its first quarter results for 2004. The
recent acquisition by the National Development Bank (NDB) of nearly
80% of the issued share capital of NDB Bank Limited (NBL) is expected
to transform the business model of the group, in the medium term, with
the commercial banking operations of NBL complementing the project and
SME finance activities of NDB. These first quarter figures do not
reflect this acquisition, which occurred in April this year, or the
mandatory offer to the remaining shareholders of NBL, at a price of Rs.
31 per share, which is to be made shortly.
profit before tax (PBT) for the period increased from Rs. 273 million
for the first quarter of 2003 to Rs. 332 million in the first quarter
of 2004. Net interest income reduced, in line with the reduction in
interest rates in the economy, as the bank lowered its interest rates
to its customers, especially in the SME sector, and operated on lower
spreads. This reduction
was compensated by lower provisions, as the bank reaps the benefits of
a disciplined credit process, and consistently stringent provisioning
policies. Provisions as a percentage of non performing loans amounted
to 52% as at March 31. In addition to these provisions made according
to the minimum rules mandated by the Central Bank, the bank also has
additional general and specific provisions on its performing loan
portfolio amounting to Rs. 853 mn. The profit after tax, however,
remained virtually flat at Rs. 225.4 million in comparison with Rs.
225.9 million in the first quarter of 2003 due to an increased tax
charge, including the higher cost of VAT which was increased from 10%
profits before tax for this quarter are distorted in comparison with
profits of a year earlier, largely because of the divestment of
Mercantile Leasing Limited (MLL) and the acquisition of Eagle
Insurance Company Limited (Eagle). MLL ceased to be a subsidiary in
April 2003. Its results are therefore included in the first quarter of
2003, but not in the first quarter of 2004. The acquisition of Eagle
occurred in July 2003 and the interest costs on the bridging loan
which financed the acquisition until March, when it was replaced by
equity, is a charge against profits for the first quarter of this
year, but not the first quarter of 2003. The after tax profit of the
group also declined from Rs. 306 million in the first quarter of 2003
to Rs. 218 million for this quarter, due to the divestment of MLL,
acquisition of Eagle and the higher tax charge of
NDB, as described above. The recent changes in the group's
structure have positioned the NDB Group to harness the opportunities
that will arise in the future. This will include new infrastructure
investments that are expected to flow into the economy soon, under the
government's development programme.
- The world's new economic power
the most far-sighted observers probably did not imagine in 1952 when
six countries created the European Coal and Steel Community (ECSC)
that the treaty would be the embryo of a bloc that is becoming the
world's leading economic power, even slightly surpassing the size of
the US economy.
1 of this year marked the birth of today's new Europe no longer
separated by the 'Iron curtain,' which for 45 years divided the
continent between 'capitalists' and 'communists.'
the first time, 10 countries joined the bloc simultaneously, including
eight from the defunct Soviet bloc; Cyprus; and the tiny island of
Malta, a British colony until 1964.
better understand the origins of today's newly expanded bloc, it is
necessary to go back to the 1952 treaty and the integrationist trend
that five years later led ECSC members Belgium, France, Italy,
Luxembourg, the Netherlands, and the then Federal Republic of Germany
(West Germany) to sign the Rome Treaty, which created the European
Economic Community (EEC).
EEC was joined by Denmark, the United Kingdom and Ireland in 1973;
Greece in 1981; and Spain and Portugal in 1986. In 1992 the Maastrict
Treaty officially created the European Union (EU), which was joined by
Austria, Finland and Sweden in 1995.
the admission of Cyprus, the Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia and Slovenia on Saturday, the
15-member bloc of 378 million people expands to a 25-nation EU with a
combined population of 453 million.
to figures from Eurostat, the Statistical Office of the European
Communities, the EU's combined Gross Domestic Product (GDP) will grow
to 12.1 trillion dollars, slightly higher than the 12.04 trillion
dollar GDP of the United States, which will thus lose its position as
the world's leading economic power.
the EU amounts to "staking our bets on peace," Gunter
Verheugen, the bloc's commissioner for enlargement, said recently in
recalled that "men like Robert Schuman and Jean Monet (in France)
and Konrad Adenauer (in Germany) not only understood (in the 1950s)
the absolute urgency of restoring peace on our continent once and for
all, but they also knew that the only way to achieve that objective
was through economic integration and the development of common
political spectrum of the new 25-member EU has been dominated by the
right since four years ago, when the then-candidate countries took
part in European parliament elections for the first time.
conservative European People's Party (Christian Democrats)/European
Democrats holds 231 of the 622 seats in the European parliament in
Strasbourg, followed by the Party of European Socialists, with 173.
After that come the centrist European Liberal Democrats and Reformists
(52 seats), the Confederal Group of the European United Left/Nordic
Green Left (49), the Greens/European Free Alliance (44), and the
extreme-right Union for a Europe of Nations (23).
remaining 50 parliamentarians represent small parties or are
'non-attached' members, who describe themselves as independent.
economic analyst Luis Sarfield Cabral says that "despite all of
the defects of the European community, adhering to it was and is a
priority for many countries," because joining the bloc
"means strengthening still-insecure democracies."
Sarfield Cabral says the enlargement process has been accompanied by
doubts with respect to the future of the EU.
says the most frequent questions are "whether it will be diluted
into a mere free trade area, the objective of many opponents of
integration who have nonetheless applauded the expansion. Or will a
directorate of the big members (France, Germany, Italy and the UK) be
in control, leading to a loss of the sense of community?"
in Greece and Portugal, the least developed EU countries, expansion
has given rise to worries about the diversion of EU structural and
cohesion funds and foreign investment to the new member states.
that is added expected competition from countries with cheaper labour
power and higher productivity levels, especially Hungary, Slovenia and
the Czech Republic.
former socialist candidates made a huge effort in terms of overall
development and transformation to prepare for Saturday's big event.
ex-socialist nations, which up to the early 1990s had planned
economies, underwent major privatisation processes of industry and the
banks, liberalised their markets and prices, created new bodies to
guarantee fair competition and overhauled their judicial systems.
in terms of the number of cars, computers and cell-phones, the
countries of eastern and central Europe are even surpassed by
Portugal, which ranks last in the EU in terms of development.
the other hand, the former socialist states win handily with respect
to access to cultural events like concerts, ballet performances or
plays, as well as reading habits.
Hungary, 465 of every 1,000 inhabitants read the newspaper every day,
far above the level in France (181 per 1,000), Spain (120 per 1,000),
Portugal (91 per 1,000) and Greece (82 per 1,000).
important indicators of development, such as the proportion of GDP
allocated to research and development, show that Slovenia, with 1.5
percent of GDP, and the Czech Republic (1.4 percent), surpass Italy,
which earmarks just 1.0 percent, Ireland (1.2 percent), and Greece and
Portugal (0.7 percent).
the overall infant mortality rate of the 15 EU members, 4.5 per 1,000
live births, is similar to that of nearly all of the new members, with
the exception of Latvia (9.8 per 1,000), Lithuania (7.9), Poland (7.5)
and Hungary (7.2).
average infant mortality rate of the 25-member EU will be 4.8 per
1,000 live births, lower than the US rate of 6.9 per 1,000.
eight percent average unemployment rate in the 15-member EU will now
increase to nine percent, three percentage points higher than
unemployment in the U.S. Inflation, however, will remain unchanged at
two percent, lower than the US rate.
biggest differences, which have made many countries in western Europe
fear an "invasion from the east," are seen in the national
minimum wage, in which France is in the lead, with 1,926 dollars a
month, while Portugal ranks last, with 516 dollars a month.
the 10 new members, only Malta has a higher minimum monthly wage than
Portugal. The island nation's minimum wage of 664 dollars a month puts
it on an equal footing with Spain and close to Greece's 750 dollars,
and Slovenia's 560 dollars.
collected opinions from east European immigrants in Lisbon and
residents of Budapest and Warsaw.
Mifka, a Slovakian metal-worker, pointed out that 70 percent of his
fellow countrymen and women voted for accession to the EU
"because they believe their living conditions will improve."
he lamented that in order to attract foreign investment, the centre-right
government in Bratislava modified the country's labour laws to make it
easier to hire and fire workers.
Estonian doctor, Marko Kalle, who owns a small surgical equipment
company, said that although he is not terribly excited about admission
to the EU, "Brussels must be better than the Soviets."
Czakn, who works for Pepsi in Hungary, said it is yet to be seen
whether admission will be good for the country, "because if the
cost of labour goes up, foreign companies will leave the
blacksmith Henryk Janka sounded bitter. "Being a blacksmith means
I'm practicing a trade on its way to extinction, and Poland was going
down the same road. We have no option. The alternative is an alliance
with Russia, and I prefer the EU to that any day."
in Rs. 1 bn debenture issue
Bank is launching a five-year debenture issue of Rs. 1 billion with an
option to increase it by a further Rs. 5 million if the issue is
debentures will be listed on the main board of the Colombo Stock
Exchange and therefore will be easily tradable in the secondary
market. The debenture has also been rated 'A' by Fitch Rating (Lanka)
Limited and will be launched on May 27.
at a media conference, Managing Director and Chief Executive Officer,
Anil Amarasuriya said that the debenture is an attractive investment
offer for investors who will have the added benefit of choice of three
options available for receiving interest.
said that the debenture offers a fixed interest rate of 10% per annum
which can be paid annually or a fixed interest rate of 9.75% per annum
paid bi-annually or a floating interest rate of 2% per annum above the
three months Treasury Bill rate payable quarterly.
added that a total of 10 million unsecured, subordinated redeemable
debentures of Rs.100 denomination will be on offer with an option to
issue a further five million if the issue is over subscribed. The
closing date is the date the issue is oversubscribed or June 16, 2004.
The minimum subscription is 100 debentures for Rs.10,000 and any
excess shall be in multiples of Rs.5,000.
Bank, Colombo will act as the trustees for the issue and the
redemption date is five years from the date of allotment. Anil
Amarasuriya added that the purpose of this issue is to expand the
capital base of the bank in order to fund the bank's expansion and to
mobilize medium term funds to match the medium to long term lending of
will provide the members of the public an opportunity to invest in
fixed income securities with a higher return and help to develop a
secondary market in Sri Lanka for listed debt instruments. Investors
stand to benefit from this issue due to the choice of regular income -
annually, bi-annually or quarterly. There is no capital loss if held
to maturity and investors who wish to liquidate their investment prior
to maturity can do so through the Colombo Stock Exchange with the
possibility of even capital gains," Amarasuriya said.
added that the debentures can also be used as security to obtain
credit facilities from financial institutions other than Sampath Bank.
Bank which commenced its business in 1987, now has a network of 64
branches all online real time. They introduced networked ATMs to Sri
Lanka under the popular brand name 'SET' and they now have 84 ATMs
located islandwide which are also linked to the Cirruss and and Visa
Plus international networks thereby providing global access.
are underway at the Ceylon Chamber of Commerce (CCC) for the
Asia-Invest Forum 2004 scheduled for May 31 and June 1 at the Colombo
Plaza Hotel. The European Union (EU) having identified Sri Lanka as
the suitable venue to host this event called upon the CCC to organise
this prestigious event supported by the Asia-Invest Programme.
of private sector business intermediary organisation from the Asian
and European countries will meet in Colombo on May 31 and June 1 to
discuss the future orientations of European-Asian Economic
cooperation. The primary objective of this forum is to provide a
platform for the EU and Asian private sector representative
organisations to network towards strengthening their existing
partnerships and to also pave the way for new avenues of commerce.
the links established at this forum, the trade between EU and Asia may
be strengthened. European investments in Asia could also be expected
by open discussions and exchanging of views, the participating
countries could assess the trade and investment climate and further
the business opportunities available.