BUSINESS

Govt. in quandary over increasing fuel subsidy

By Mandana Ismail Abeywickrema

In 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.

The fuel subsidy has seen a sharp increase lately with the rapid rise in global fuel prices.

Chairman, 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.

However, 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.

Medagama 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.

Medagama 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.

Speaking of importation costs on an average in April, a barrel of kerosene cost US$ 42, petrol US$ 44 and diesel US$ 44.

However, 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.

The 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.

Treasury 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 present problem.

He 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.

"Although the world prices kept increasing local market prices were not increased accordingly," he said.

Dr. 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.

Speaking 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.

Speaking of the intended third player in the market, Medagama said that there too, the Treasury would have to absorb the subsidy.

Dr. 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.

According 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 submitted.

De Silva explained that the new government is still reviewing the bids forwarded by contenders.

Sinopec from China along with two Indian companies, Bharath Petroleum and Hindustan Petroleum, were the three contenders who were shortlisted.

However, 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.

CPP regime on hold

By Marianne David 

Amidst 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.

Hurulle 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."

A 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.

Responding 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.

"The 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.

Meanwhile, speaking to The Sunday Leader, Maliyadde said there were no charges levelled against Hurulle.

"There 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.

Last 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 again.

The 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.

 "Unless 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.

LIOC to go public next month

By Shehan Moses 

Lanka 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).

Speaking 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.

"We 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.

"The 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.

Lanka 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.

IOC 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.

IOC, 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.

Commercial Bank profit up 52% in 1Q

Commercial 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.

This 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.

Post-tax 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.

Deputy 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.

The 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.

Gross 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.

Samaranayake 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.

He 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.

This excess provision arose as a result of the bank's decision to revise its provisioning policy on lease receivables in line with the accepted market practices.

Explaining 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 provisions.

Additionally under general provisions, provision in made at 0.5 percent of the outstanding leases, as against the 3 percent previously adopted.

Part 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.

In 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).

The 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 2004.

As 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.

The 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.

The 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, Samaranayake said.

The 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.

Govt. decision to import rice postponed

By Jamila Najmuddin 

The government's decision to import rice has been postponed due to rice millers agitating that a large stock of paddy is available in the country.

According 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.

Speaking 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.

"A 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.

According to Sugathadasa, a decision to import rice was taken by the Minister due to the high prices of rice.

"The 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.

He 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 into consideration."

Meanwhile, speaking to The Sunday Leader, former Commerce Minister, Ravi Karunanayake said that the government's decision to import rice would badly affect the economy.

"When 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.

Karunanayake 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."

Fitch assigns A-(sri) rating to Seylan Bank 

Fitch 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).

The 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.

Seylan's 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.

Over 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.

Central Bank warns public to be 
cautious when investing funds 

The Central Bank has again warned the public to exercise caution when investing funds, especially in institutions that have not been authorised to accept deposits.

In 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.

"There 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.

Virtusa raises $ 20 mn in financing 

Virtusa 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.

"The 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."

Virtusa 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.

New look Hutch ready for takeoff 

By Ann Nicholas 

Hutchison Telecom last week changed its brand name to Hutch, the group's 2G brand name in Sri Lanka.

"We 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.

Hutch 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.

"Although 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 market.

Speaking 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."

He 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%."

One 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."

"At 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.

In 2000, Hutch launched GSM connections in the outstations through the Rankatha campaign.

"Our 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.

Nadarasa 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.

To 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.

At 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.

Around 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."

What 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."

In 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.

He 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.

"Introduction of new fire tariff vital" - Consultant 

By Marianne David 

The 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).

Speaking 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 percentages."

He 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.

"Cutting 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 Fernando.

When 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 said.

According 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.

Fernando 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.

He 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.

Private sector: Heartless or mindless? 

By Dinesh Weerakkody 

The 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.

This 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 people-centered measures.

The 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 the country.

Many 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.

But 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 whole.

Beyond all this, giving something back to society is good business. Our corporate big shots would know that better than many of us.

Then 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.

Private sector

It 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.

Some 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.

According 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.

In fact, often our private sector has been slammed by unions for showing arrogance towards the country's environment and energy needs.

Social tension

It 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 state regulation.

Perhaps this is why the involvement of the private sector some time ago in initiating the national committee on peace was well received.

In 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.

The 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.

Today, 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 cohabitation.

Henry 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 business."

In 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.

Though 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.

Therefore, 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.

Our society at last has recognised the need for our private sector to take on greater responsibility in matters affecting our society.

It 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.

Partnership

Our 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.

Large 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 society.

Profits

When 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.

On 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.

Yet 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 community."

Expectations

The public's expectations of the private sector has changed dramatically over the past two decades.

Today 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 social objectives.

Our 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 social obligations.

From 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.

It is also argued that such activities may reduce the enactment of government regulations, which are costly and restrictive to the management decision making process.

However, 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.

That 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 shareholders.

They 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.

From 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.

Nevertheless, 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 jobs.

Employees

It 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.

It 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.

The 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 sector.

Therefore, beyond philanthropy, in-house social responsibility, and corporate strategies, how does a company reach out to the community?

How 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 grid?

The 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.

Society for corporate social responsibility 

The National Agribusiness Council (NAC), the apex organisation for national agribusiness, last week formally inaugurated the Society for Corporate Social Responsibility, Sri Lanka.

A 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.

The 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 year.

The 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.

The results of the recently-concluded general elections clearly articulates that the rural poor are feeling more and more marginalised by globalisation.

Voting patterns show that the stock market indices and macro-economic performance do not meet their aspirations at a speed conducive to their sentiments.

The 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.

Standard Chartered to celebrate 'Partnership Week' 

In 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."

"Standard 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."

Central 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.

Other 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.

Automated inward cheque clearing at HSBC Kandy 

HSBC 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.

"The 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 Wickramanayake.

"This 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."

"In 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.

"With 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," Wickramanayake said.

Cash crisis at CEB escalates 

By Mandana Ismail Abeywickrema 

The 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.

The 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.

In 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.

However, 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.

The 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.

The official further said that the CEB would only need cash support during droughts as the institution otherwise records a turnover of about Rs. 50 billion.

An 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.

He 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.

The 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.

Although 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.

However 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 limit.

The CEB for the past few months has to pay approximately Rs. 350 million to the CPC for fuel.

Medagama 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.

When 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.

Officials from the Power and Energy Ministry were not available for comment.

NDB consolidates after NBL acquisition 

The 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.

NDB's 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% to 15%.

Group 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.

EU - The world's new economic power  

Even 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.

May 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.'

For 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.

To 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).

The 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.

With 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.

According 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.

Joining the EU amounts to "staking our bets on peace," Gunter Verheugen, the bloc's commissioner for enlargement, said recently in Lisbon.

Verheugen 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 policies.''

The 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.

The 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).

The remaining 50 parliamentarians represent small parties or are 'non-attached' members, who describe themselves as independent.

Portuguese 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."

Nevertheless, Sarfield Cabral says the enlargement process has been accompanied by doubts with respect to the future of the EU.

He 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?"

Especially 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.

To that is added expected competition from countries with cheaper labour power and higher productivity levels, especially Hungary, Slovenia and the Czech Republic.

The former socialist candidates made a huge effort in terms of overall development and transformation to prepare for Saturday's big event.

The 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.

But 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.

On 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.

In 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).

Other 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).

Meanwhile, 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).

The 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.

The 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.

The 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.

Of 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.

IPS collected opinions from east European immigrants in Lisbon and residents of Budapest and Warsaw.

Antn 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."

But 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.

An 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."

Andrea 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 country."

Polish 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."

- IPS

Sampath in Rs. 1 bn debenture issue 

By Jamila Najmuddin 

Sampath 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 oversubscribed.

The 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.

Speaking 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.

Amarasuriya 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.

Amarasuriya 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.

Deutsche 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 the bank.

"It 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.

Amarasuriya added that the debentures can also be used as security to obtain credit facilities from financial institutions other than Sampath Bank.

Sampath 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.

Asia-Invest Forum 2004 

Preparations 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.

Representatives 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.

Through the links established at this forum, the trade between EU and Asia may be strengthened. European investments in Asia could also be expected to develop.

Also by open discussions and exchanging of views, the participating countries could assess the trade and investment climate and further the business opportunities available.