GAL's rivals recently obtained an enjoining order from the Commercial High Court in Colombo. It restrained the company from selling LPG purchased from Ceylon Petroleum Corporation (CPC) as auto gas without CPC offering the same terms and conditions to them.

The interim order was to last until February 7, but GAL last week successfully challenged it arguing that facts had been misrepresented by their rivals, and that consumers have been affected.

GAL had charged that their competitors had failed to mention the fact that only they have filling stations in the outstations to cater to motorists in such areas. It was also alleged that they had not mentioned in court that the four firms have signed a 5-year exclusive arrangement with Shell which would prevent them from purchasing autogas from any other supplier.

The members of the Auto Gas Association had also made a technical error in their plaint, by stating an LPG purchase agreement was signed between CPC and GAL. However, the agreement was actually signed between the government of Sri Lanka, CPC and LAUGFS Lanka Gas (Pvt) Ltd. GAL also informed court that the plaintiffs had suppressed the fact that they sell autogas at the same rates as the others.

GAL sources said their position has been vindicated by last week's court ruling. The company's chairman W.K.H. Wegapitiya noted that the closure of their auto gas stations (from January 25 to 30) had caused losses ammounting to several millions of rupees. He also said their customers are very angry over the action taken by the association members. According to him, a large number of motorists in the outstations were greatly inconvenienced by the closure of their 11 filling stations in Kandy, Kurunegala, Galle, Gampaha, Negombo, Borella, Wattala, Col-5, Dehiwala, Mortuwa and Maharagama. GAL claims to be the only autogas retailer having auto gas stations in the outstation areas.

Wegapitiya also threatened to sue his competitors in the Auto Gas Association for initiating measures that caused heavy damages.

The four companies in the association include Gas Conversions (Pvt) Ltd., Petro Gas Pvt. Ltd., City Auto Service Pvt. Ltd., and Auto Gas On Pvt. Ltd. According to these firms, the agreement signed between LAUGFS and CPC (under which the company purchases the corporation's LPG output at a subsidised rate) allows the company to utilise the CPC supply solely for the purpose of filling domestic cylinders, and hence using it as auto gas is illegal.

They argue that while they are compelled to purchase LPG from Shell at Rs. 41 per kilogram, GAL buys gas from CPC at less than half the price. Their position is that they face a serious competitive disadvantage arising from this situation.

These companies claimed they were forced to resort to legal action to avoid closure of their businesses, which would result in loss of investment and employment.

Hony. Secretary of the Auto Gas Association, Ajith Perera said that although they did sign a 5-year exclusive arrangement with Shell, they inserted a clause which states that if another company enters the market and is willing to supply LPG at a rate lower then Shell, then Shell is obliged to match that price or allow them the freedom to purchase from other sources.

He also dismissed GAL's accusation that the companies in the association are being used by Shell to create problems. He stressed that charges of such collusion and manipulation are unfounded.

Perera said that if they lose the legal wrangle, it is not Shell but they who will suffer the consequences. "We are not being manipulated by Shell. If anything goes wrong, Shell does not lose. We do," he said.

He however conceded that Shell is obliged to look after their interests as they are dealers of the multinational. "Wegapitiya is trying to make us appear as pawns, which is not the case," he stated.

Perera also feared that GAL will build up huge reserves which will be used against them. He also pledged to continue the fight against it.

However, Wegapitiya said that allegations of unfair competition would hold water only it GAL had sold at a lower price.

He noted that until January 10, GAL was buying auto gas from Shell at a higher price than their competitors who had signed an exclusive arrangement with the multinational which entitled them to a discount.

Wegapitiya also says his company has a right to use the CPC output as auto gas as they had an arrangement with the corporation to do so. In return, the company had offered to increase their purchasing price from Rs. 15,000 to Rs. 20,000 per ton. However, a formal agreement has not been signed.

GAL is Sri Lanka's leading company in the autogas industry, and has captured over half of the market share.

A loan agreement for US$ 19.38 million special drawing rights (about US$ 25 million) was signed recently in Manila by P.G. Karunasiri, Ambassador of Sri Lanka to the Philippines and Tadio Chino, President of the Asian Development Bank.

This Southern Province rural economic advancement project will help potential entrepreneurs to identify opportunities in agriculture-based enterprise and provide them with access to technology markets and credit.

The project is designed to establish an environment to sustain private sector involvement in rural growth by:

• Providing enterprise development services and medium and long term financing for micro-small and medium sized enterprises.
• Upgrading and maintaining roads and market infrastructure essential for development.
• Demonstrating low-cost and technically sound road maintenance option to be adopted by local authorities after the project ends, and
• Upgrading skills in the Ministry of Plan Implementation and the provincial government to facilitate private sector participation.

Cost estimates

The total project cost is estimated at US$ 42.7 million equivalent, comprising US$ 13.2 million in foreign exchange and US$ 29.5 million equivalent in local currency costs.

The National Development Bank will serve as the apex for the financial services component. The government will provide the credit line to NDB under the subsidiary loan agreement, NDB will administer the credit line through selected financing institutions; supervise, monitor and report on performance of agencies and utilization of funds, and train staff in the participating financial institutions.

The Cotton Textiles Export Promotion Council of India in association with the High Commission of India will be organising an exclusive 'Indian Cotton Textile Show 2002' at Upper Crystal hall, Hotel Taj Samudra from 12 to 14 February. Several big Indian companies like Arvind Mills, Oswal Cotton Mills, Maral Overseas, Suryalakshmi Cotton Mills, Bharat Vijay Mills, Rainbow Denim, Welspun, Super Spinning Mills, CLC Corporation, Western India Cotton, Lahoti Overseas, Emtex Industries, Veera Exporters, Goodwill Enterprises, Sri Lakshme Textiles and Sreekumar Texind Corporation will be exhibiting a wide range of cotton and blended textiles. They include woven fabrics of twill, drill, denim, dobby, satin, poplin, fine cotton shirting, Madras checks, prints, canvas, furnishing fabric, dress materials for ladies and children, home textiles, knit fabrics, cotton yarn of various counts in open end and ring spun.

Considering the recent spurt in apparel exports from Sri Lanka, and the lifting of quota for exports to the European Union, the forthcoming show will be a well timed event and will provide a great opportunity for the local apparel and textile manufacturers to source their raw material requirements, primarily fabric and yarn, from India.

The Indian cotton textile industry has certain unique advantages, which have made India a major player in the world trade of cotton textiles. Availability of wide varieties of raw cotton along with low cost of production has enabled India to emerge as an extremely competitive supplier in cotton dominated products. With operating experience of more than 150 years coupled with a vast pool of skilled manpower have positioned India as a force to reckon with for supply of products which combine traditional art and contemporary designs and thus catering to the needs of the global apparel and textile industry. Due to the diversified structure and operational flexibility the Indian cotton textile industry is well equipped to handle the supply of small and big quantities simultaneously.

India is today the second largest supplier of cotton textiles with a share of 14% of the world market. India has emerged as one of top ten suppliers of processed and grey fabric, besides being number one and two in cotton yarn and cotton made-ups suppliers respectively in the global market. India's historical growth in cotton textile exports of 6 percent in the last five years has been significantly superior to the world average of 2% and that of its competitors like China and Pakistan. The impressive export figure of four billion dollars is an indicator of the inherent strength and capability of the industry in terms of quality and consistency.

The geographical proximity and the existence of a strong textile industry in India can be an added advantage for the Sri Lankan apparel industry to look towards India as a first and natural choice for sourcing. The dismantling of trade quotas after almost half a century of restrictions will bring about significant and widespread changes in the global textile and apparel trading system. Some major changes have already taken place like the steady fall in international prices, the 'delocalisation of production' especially from Europe and USA to nearby countries, the growth of regional integration like NAFTA/enlargement of the European Union/ Africa growth and Opportunity Act etc. The danger for Asian suppliers being marginalised in the attractive western markets cannot be ruled out by the growing regionalisation of global textile and apparel trade. The nearby supplying countries not only enjoy the advantage in terms of 'quick response,' an extremely important parameter due to shorter lead-time and in-season ordering, but also have the benefit of 'duty-free' access even after the phasing out of quota.

These developments have posed a big challenge for the textile and clothing industry both in India and Sri Lanka, arguably the most important sector in the national economies of both countries in the context of employment and export earnings. Therefore, the situation demands more co-operation between the textile and apparel industry in the two countries and the development of synergy for mutual benefit between the Indian suppliers and Sri Lankan buyers so that bilateral trade can increase. The forthcoming show could be a stepping stone for such strategy and provide an ideal platform to make viable business deals to combat the emerging challenges.

The 'India Cotton Textile Show-2002' will be a one stop source for all types of cotton textile requirements of the Sri Lankan apparel industry and could facilitate the establishment of strategic linkages between the Indian manufacturers and Sri Lankans.

The show will remain open on the 12th, 13th and 14th of February from 10 am to 6 pm and the admission is free

Sri Lanka's tea exports increased to an all time high of Rs. 61.48 billion in 2001 with the exported quantity too achieving a highest ever of 294.5 million kgs, according to John Keells. Production during the year however reflected a decline of 10.8 million kgs, which is a drop of 3.5% when compared with year 2000. This ends 7 years of continuous record harvests. The production in the Low Country was maintained but harvests in the High Grown elevation declined 7.7 million kgs whilst the harvest in the Medium Grown elevation declined 3.1 million kgs.

Kenya, who had two very poor cropping years in 1999 and 2000, witnessed a substantial increase in the output by 58.4 million kgs to reach 294.6 million kgs for the year. "This is marginally below Sri Lanka's harvest, but marginally higher than Kenya's previous record harvest of 294.1 million kgs achieved in 1999," Keells stated.

Meanwhile, Sri Lanka's tea export volume increase to 294.5 million kgs compared with 288 million kgs in the year 2000 can be attributed to the carry over from the previous year. The drop in the harvest during the last few months of the year will be reflected in the current year's exports. During the year under review tea exports in bulk accounted for 59.7%, which compares with bulk exports of 63.4% in the year 2000, and therefore shows a welcome increase in the value added exports. The Commonwealth of Independent States (CIS) accounted for 63.8 million kgs, which is 21.7% of our total exports.

The foundation stone for Coco Lands Limited, a Rs. 325 million agro based export oriented venture, was laid last week by Chairman, Coco Lands Limited, Dr. S.R. Rajiyah, and Chairperson, Renuka Group of Companies, I.R. Rajiyah. The Board of Investment (BOI) approved company will specialise in the manufacture of Ultra Heat Treated (UHT) coconut milk/cream, powdered coconut milk/cream and low fat granulated desiccated coconut. The technologically advanced plant is allocated on a three-acre site at the BOI's Wathupitiwela Export Processing Zone in the coconut triangle.

Chairman Dr. S.R. Rajiyah explained that all major machinery have been sourced from Denmark, Germany and Singapore, while packaging materials are being supplied from India and Australia, among others. The UHT process and convenient packaging is also expected to further boost quality standards of the company's products. In this regard, Coco Lanka Limited was recently awarded the HACCP (Hazard Analysis and Critical Control Points) certification, reiterating the Renuka Group's commitment to serve the quality conscious buyer. This is the first accreditation for a coconut industry in Sri Lanka.

The project is promoted by the pioneers in Sri Lanka's coconut based food and beverage manufacturer, Coco Lanka Limited and Renuka Agro Exports Limited. The project financing had been put together by equity investments from the Renuka Group and foreign principals - WT Foods Plc and Greaven Holdings Limited, Lanka Ventures Limited (LVL), existing shareholders of Coco Lanka Limited and debt instruments by DFCC Bank, LVL and Renuka Agro Exports Limited.

The new venture is expected to provide direct employment opportunities to nearly 100 educated and technically skilled persons and to another 2500 by means of an out grower system.

Mercantile Leasing Limited (MLL) celebrated its 20th anniversary recently. Incorporated on January 20, 1982, MLL is a public company listed on the Colombo Stock Exchange. Originally affiliated with Lloyds Bank Plc. UK, it is presently a subsidiary of the National Development Bank, the premier development bank in Sri Lanka, which owns a 66% stake in the company's equity. Other equity holders include JC Trust Services (Pvt) Ltd., Sri Lanka Insurance Corporation - General Fund, Allied Investments Ltd., Bank of Ceylon Ceybank Unit Trust and Commercial Bank of Ceylon.

The company's core business segments include leasing and factoring services. MLL's expertise in the leasing of plant, machinery and equipment is amply demonstrated in its portfolio of lease receivables in excess of Rs. 2.5 billion. The factoring division (MFactor) which provides specialist financial and collection services to a range of diversified entities has emerged as the market leader in its industry.

Of MLL's three fully owned subsidiaries, Mercantile Leasing (Financial Services) Ltd, is a specialist in operating leases and vehicle hire, while insurance broking is undertaken by MLL Insurance Brokers Ltd. The third subsidiary, Allied Properties Limited is engaged in property management.

MLL's growth over the years is largely attributed to dedicated customer care, the availability of state of the art technology and the support of a consortium of domestic and foreign financiers, including the Asian Development Bank and the International Finance Corporation, an affiliate of the World Bank. It is particularly noteworthy that in its ranking of Sri Lanka's leading listed companies in the year 1999/2000, the LMD 50 had accorded MLL the highest rank in terms of turnover and asset growth.

MLL's strategic focus is to provide innovative financial solutions to meet customer expectations, create customer loyalty and to enhance its presence in the respective financial markets through an extensive branch network. It is further strongly committed to upholding principles of corporate governance and high ethical standards in its conduct with all stakeholders.

Leading multi national company Proctor & Gamble (P&G), marketers of popular brands such as Pantene, Pringles, Head & Shoulders, Ariel, Whisper, Vicks and Oil of Olay to name a few in Sri Lanka, have aligned the complete media planning and buying operations with MEDIA-COM, the independent media division of Grey World Wide, Sri Lanka.

According to Country Head of the Sri Lankan operation, Pankaj Arora "only 10% of a client's money is spent on production. The larger part of the resources are used for mainstream advertising. It makes sense for the clients to derive best value for these resources, especially in the current situation where every rupee not only has to count, but also work harder." The Agency On Record (AOR) concept works best where clients have multiple brands and agencies.

The Media AOR 'plans' centrally for all the brands in a client's portfolio. The advantages it offers are many, especially in terms of the support the smaller brands get, through consolidated media negotiation with key media houses.

Grey's MEDIACOM is well versed with AORs and is probably the only agency in Sri Lanka to handle two AORs. Grey also handles the complete media planning and buying for GlaxoSmithkline.

Namunukula Plantations Ltd., has undertaken a special child development project as part of their worker welfare programme with financial assistance from Save The Children-Norway. The main objectives of this programme are:

• Create conducive environment for children to learn through play
• Improving the emotional, mental and physical development of children through play
• Interaction with peers and objects in their environment
• Improve nutritional status
• Involve parents in the development and sustainability of the C.D.C.
• Sensitise parents on the importance of early childhood development.

Though the main focus is on the child, the project will go beyond the limits of traditional children's projects because it will improve the living conditions of the total worker population through numerous training and educational programmes. To improve the nutritional status of the child, parents are educated and motivated to adopt better health practices and food habits.

Parents are being educated on how they should behave to assist the child in his emotional, social and physical development. To ensure and facilitate the steady growth of the child while motivating parents to provide a 'balanced diet' at home, a glass of nutritious milk is given at the C.D.C. as a supplementary food. To monitor the growth of the child, regular monthly weighing is done and children who suffer growth faltering will be given special attention and treatment.

Under the project, 30 centres (traditional creches) will be upgraded to create a conducive environment for children to 'learn through play' - the latest concept in child development. In addition, educational play material and equipment will be given to the centres to facilitate the process of developing the emotional and mental skills of the children.

C.D.C attendants - those in charge of the centre, will be given special training on the latest concepts in child development to facilitate the process effectively.

Specifically, about 1100 children and generally 17,000 workers who live in the Namunukula Range I estates will be benefited by this project. The long term impact of the project will assist the plantations to improve its relationship with workers and retain a committed work force.

Ceybank Century Growth Fund, the first equity fund in the country and Ceybank Unit Trust, Sri Lanka's largest unit trust with net assets over Rs. 880 million as at end 2001, recorded 52% growth in year 2001, far outpa-cing the All Share Index mo-vement of 39%.

"The out-performance of over 13% in 2001, was possible due to a more aggressive growth-oriented investment stance taken by the fund managers, guided by members of the investment advisory panel and the board who have a wealth of experience in global business and finance. "We have an excellent team consisting of seasoned and well qualified investment professionals with more than eight years experience. Their in-depth knowledge and understanding of the local market, and the tactical allocation into equity facilitated us to capitalise on the post election rally of the market," said CEO/ Executive Director, Unit Trust Management Co. (Pvt) Ltd., (UTMCL), Chitra Sathkumara.

Ceybank Century Growth Fund is an equity fund with the objective of 'providing capital growth in the medium to long term by mainly investing in companies listed in the Colombo Stock Exchange.' The fund could invest up to 90% in equity whilst maintaining the balance in short term cash equivalents for liquidity purposes. Although the fund generally maintains a strategic equity allocation of 75%, tactical shifts to and from equity are made according to the market outlook. Therefore the allocation to equity varies from 60% to 90% from time to time. "Correct timing of investment and disposal of shares play a key role in beating the market" said Senior Fund Manager, UTMCL, Rachini Raja-paksa.

"We buy on market downturns and over reactions to bad news and sell on up markets. We believe in going against the herd and picking stocks at bargain prices. The fund focuses mainly on high market-cap liquid blue chips along with limited allocation to small cap growth stocks, but is cautious not to be excessive considering the lack of depth in the Colombo bourse. Our experience is that obtaining the right price when it is the time to exit is generally problematic," Rajapaksa said.

Launched in December 1996, Century Growth Fund is the largest equity fund in the country as at end 2001, and holds only about 25 stocks in its equity portfolio with a beta of over 1.

Ceybank Unit Trust (CUT) is an income and growth fund (balanced fund). The balanced fund aims to provide a reasonable capital growth in the medium to long term, along with a regular dividend to the unit holders.

CUT has a strategic allocation of 60% in equity and 40% in high interest yielding fixed income securities. The equity portfolio of the fund has been structured by diversifying across economic sectors and across securities within the sectors.

"We tactically shift our equity allocation within 15% of the strategic level up or down according to the market outlook. At present we are optimistic about the medium term potential of the market, and have increased the equity allocation to 75%," said Fund Manager, UTMCL, Niloo Jayatilake.

"Fundamentals are paramount in selection of stocks but we also believe in being a momentum player in selected companies for short term capital gains. The equity portfolio has also been restructured to reap the benefits of a market recovery," she added.

According to Sathkumara, the post election rally in the stock market since December 5 is the strongest of the past elections. What makes it more phenomenal is that the market had risen 25% from the dissolution of parliament to election day. No other market in Asia has seen such a strong reversal in sentiment, and turnover rose sharply due to strong participation of local retail and high net worth individuals.

This indicates that investors are expecting Prime Minister Ranil Wickre-mesinghe and the UNF government to execute better economic and political policies to pull Sri Lanka back from the current economic downturn.

"Although the current top down view looks worrisome, especially from a valuation perspective, we do not think that this rally has run its full course - though interim pull backs could not be eliminated. When the market moved up more than 70% just after the elections from its low of 383 (ASI) on August 17, we also sold some equity and realised profits but remained overweight," a company press realease stated.

"We have decided to remain overweight because; first, liquidity is still ample and investor confidence is recovering from 3Q01 due to expectations of post election improvements to economic and political conditions in the country."

"Second, improvement in trade activities in the north and east could have a beneficial impact on the manufacturing and service segments to the extent of triggering an upward revision to earnings forecast. Therefore future corporate earnings could surprise the market positively," it added.

Initial Public Offering (IPO) of ordinary shares of Touchwood Investments Ltd., (TIL) will open on Tuesday, February 6. Merchant Bank of Sri Lanka Limited will act as managers to the issue.

This IPO is unique in many ways: TIL is the pioneer nature investments company to be listed in the CSE. It is also the first IPO to reach the market after new listing rules were introduced by CSE, and is the first IPO for the year 2002. 800,000 ordinary shares of TIL will be offered to the public at par value of LKR 10 per share. A total of 2.23 million ordinary shares are planned to be quoted on the CSE.

TIL is the pioneer BOI approved company marketing and managing investments in mahogany plantations. Investments in mahogany have been well accepted by the public as a retirement and child plan, and also as a worthwhile investment for corporates who have long-term liabilities.

Already over Rs. 40 million have been invested by the public in mahogany and over 30,000 mahogany trees been planted by the company.

LOLC added another 'first' to their record by becoming the first non-bank to become a Participative Credit Institution (PCI) for the Indian Line of Credit where Bank of Ceylon acts as the apex bank. The agreements were signed by General Manager, Bank of Ceylon, Sarath Silva and Managing Director, LOLC, Raj de Silva, recently.

The credit line which amounts to USD 100 million was extended by the government of India to the government of Sri Lanka to be disbursed over a period of three years. It facilitates the import of capital goods, consumer durables, food items and also consultancy services from India. 90% of the FOB value of these goods will be funded by the government of India at a concessionary rate.

This transaction has further strengthened the relationship between LOLC and BOC where BOC was a founding shareholder and the biggest facility provider to LOLC. LOLC expects to extend this facility to their current customer base which represents all sectors of the economy.

LOLC also became the first non-bank PCI under the Tea Development Project scheme funded by the ADB. In addition, during the current financial year, LOLC issued the first rated commercial paper to the Sri Lankan market and became the lender for the first Share Buying and Lending Transaction (SBL) in the country. The company was also instrumental in issuing the innovative Long Team Floating Rate Note (FRN) during this period.

Total tea production for the month of December 2001 has been declared at 26.9 million kilos. This figure is 1.59% or 0.44 million kgs lower when compared with the 27.3 million kgs produced in 2000. The Low Grown sector shows a decline of 3.96% when compared with 2000. High Growns show an increase of 1.13% whilst the Medium Growns show an increase of 2.15%.

Quarterly analysis

Production for the months of January and February 2001 reached all time high levels. As a result of the all time record production during the first two months of the year, the first quarter of 2001 recorded a healthy growth of 3.94% over the same period last year.

Despite the production of 31.3 million kgs for the month of May being an all time high for the month, production for the second quarter of the year saw a decline of 5.5% when compared with the same period last year. The downward trend continued into the third quarter. The third quarter recorded the highest decline of 14.9%. The fourth quarter recorded a positive variance of 1.26% when compared with the same period last year, mainly due to a healthy 24.8 million kgs produced during the month of October.

Down 10.75 million kgs (3.52%) for the year

The failing of the south west monsoon along with work stoppages contributed towards production in 2001 showing a decline of 10.75 million kgs or 3.52%, when compared with the record production of 305.8 million kgs in 2000. The High Growns show the largest drop of 10.03% or 8.37 million kgs when compared with 2000. The Medium Growns have declined 4.33% or 2.43 million kgs. The Low Grown sector has recorded a marginal increase of 0.03% or 0.05 million kgs.

The 22.9 million kgs of tea exported during the month of December inclusive of imports re-exported is 2.5 million kgs or 9.8% lower when compared with the 25.4 million kgs exported during the same period last year.

Highest ever quantity exported for the year

The 294 million kgs of tea inclusive of imports re-exported is the highest ever recorded during a calender year. The total quantity exported shows a growth of 6.07 million kgs or 2.1% when compared with the 287.9 million kgs exported in 2000.

Value added exports which accounted for 36.5% of total exports in 2000 has grown to 41% in 2001. This augurs well for the industry. Teas in bulk in 2001 however have declined to 6.8 million kgs or 3.73% when compared with the 182.9 million kgs of bulk teas shipped in 2000.

Highest ever rupee earnings

The revenue of 61.6 billion rupees generated through exports for the year 2001 is the highest ever recorded. The approximate average unit FOB value per kilogram for exports inclusive of re-exports has grown by 13.8% to 209.66 per kg in 2001, from 184.17 in 2000.

CIS No. 01 importer of Ceylon tea again

CIS became the number one importer of Ceylon Tea in 2001. Exports to CIS has grown by 13.9% when compared with the 56.6 million kgs exported in 2000. Bulk tea remains the largest export component to the CIS. The market that has shown the largest growth has been Libya. Exports to Libya has increased by 90.1% in 2001. Although Syria comes in at second position, the volume exported has declined to 14.2%.

Exports to CIS, Syria, Libya, Iraq and Jordan show an increase when analysing the top 12 destinations for Ceylon Tea. Turkey, Iran, UK, Japan, Saudi Arabia and Tunisia show a decline.

US$ equivalent of average unit FOB down 2.10%

The US$ equivalent of the average unit FOB inclusive of imports re-exported is 2.10% lower when compared with 2000, despite the rupee analysis being 13.8% higher.

The rupee has depreciated by 16.5% against the US dollar from 2000 to 2001. The US$ equivalent of the average unit FOB in 2001 was US$ 2.33 as against US$ 2.38 in 2000. The negative variance indicates that the depreciation of the rupee has not had a positive impact on export earnings of the tea industry.

- Forbes & Walker Tea Brokers 

The Rs. 2 billion project, which celebrated its first anniversary last month, encompasses 144 acres of landscaped and developed real estate near Kotugoda in Ja-Ela. On completion in 2004, it will comprise 1800 houses with comprehensive infrastructure and recreational facilities.

"Our first year of operation has been very encouraging," said Herman Gonsal, general manager, Nivasie Developers (Pvt) Ltd, the promoter of the project. "The second phase of construction has just commenced and is scheduled for completion this year."

A distinct feature of the Nivasiepura scheme, Gonsal said, was the effort to create a green city with winding green belts, arbors, parks, man-made lakes and extensive lawns that blend to produce a tranquil resort atmosphere that is virtually impossible to attain in a big city.

Prices of the houses, in six sizes and designs, range from Rs. 900,000 to Rs. 3 million. Utilities at the site include paved roads, electricity, uninterrupted water supply, telephones, fully maintained drainage and sewerage treatment plant, and custom-built bus stand, supermarket, and day-care centers. Among the recreational facilities provided are a swimming pool, gymnasium, jogging tracks, children's parks, and a banquet hall.

"Our target market comprises of middle and upper-middle income families, who are looking for a comfortable home as well as a healthy lifestyle," Gonsal added. "We have found that the ambience and the fresh air are two key attractions at Nivasiepura."

Established under the auspices of the Board of Investment (BOI), Nivasie Developers (Pvt) Ltd., is a fully owned subsidiary of International Construction Consortium (ICC). Surath Wickremasinghe Associates are the architects for the project.

By D. Laksiri Mendis 

In a traditional sense, offshore banking relates to banking business undertaken in designated foreign currencies with non-residents. In most Offshore Financial Centres (OFCs) such banking business rarely deals with residents. These offshore banks and their customers enjoy tax exemptions and privileges in OFCs. These OFCs are distinct from mere tax havens because of their heavy involvement in financial intermediation.

Offshore banking business provides several services to non-resident High NetWorth Individuals (HNWIs) and rich corporate clients. Such banking business provides for deposits, long and short-term credit and investment opportunities in money and capital markets around the world through equity and mutual funds. Offshore banking business today has grown into a huge service industry in OFCs. It provides an avenue to develop up-market tourism with offshore trading, shipping and insurance companies. In most OFCs the major investment banks such as Merryll Lynch, Barclays Bank, Sumitomo Bank and Morgan Stanley have established branches to provide such banking services to HNWIs and rich corporate clients.

In order to function effectively as an offshore bank, it is necessary to have the following conditions.

Origins and development

Origins of offshore banking business in Sri Lanka coincided with the establishment of an 'open economy' in the post 1977 period. In 1979, the Central Bank issued a scheme for the establishment of Foreign Currency Banking Units (FCBUs) in commercial banks. The existing commercial banks were entitled to establish FCBUs with the consent and conditions set out by the monetary board under this scheme.

In terms of the 1979 scheme, the FCBUs were allowed to:

1. Accept demand deposits from any non-resident in any designated foreign currency.
2. Accept time and call deposits from any non-resident in any designated foreign currency in any amount provided that such deposits accepted from non-bank non-residents are not less than US$ 10,00 or its equivalent.
3. Borrow any designated foreign currency from any non-resident in any amount.
4. Extend any loans and advances to any non-resident in any designated foreign currency in any amount.
5. Engage in any transaction in any designated foreign currency with any other FCBUs.
6. Engage in any other transaction such as may be approved by the Central Bank of Ceylon in any designated foreign currency.

The government of Sri Lanka took almost nine years to express the scheme in legislative form in Part IV of the Banking Act of 1988. These legislative provisions have transformed the existing Foreign Currency Banking Scheme (1979) with slight modifications, but renamed FCBUs as offshore units. The aforementioned legislative provisions underwent further legislative changes in the Banking (Amendment) Act No. 35 of 1995.

In addition, offshore units are allowed to engage in banking business with companies established with the approval of the Board of Investment (BOI) and with a limited number of approved residents in Sri Lanka. Hence, its transactions are not confined to non-residents as provided in the Banking (Offshore Banking Scheme) Order of 2000. These banking transactions include syndicated loans to BOI companies especially in the garment industry.

Funds of offshore units

The funds of offshore units are an important consideration. Its success can be evaluated through the volume of offshore funds placed in offshore units. Any distortion in regard to actual volume of funds deposited is detrimental to its development and proper assessment.

According to the Central Bank Report of 1979, the total resources of FCBUs stood at Rs. 576 million in 1979 and increased to Rs. 107.8 billion in 2000. Credit granted by offshore units have increased from Rs. 5 billion in 1982 to Rs. 122.7 billion in 2000. In comparison with reputed OFCs such as Labuan (Malaysia), Channel Islands or Bahamas, the quantum of deposits is very negligible.

It is reported that these deposits in the offshore units have risen not only through non-resident investors but through transfer of foreign money lying to the NRFC accounts in DBUs of commercial banks. This will certainly lead to some double accounting of foreign funds in Sri Lanka and invariably expose the resident Sri Lankans who hold 51% of the NRFC deposits to foreign exposure if these funds are invested overseas and in the garment industry.

This is a matter of serious concern and needs to be studied carefully by the Central Bank, since financial difficulties can arise locally if commercial banks are unable to recover these foreign currency loans meted out to BOI companies especially in the garment industry. Perhaps, it is for these reasons that the new government under Prime Minister Ranil Wickremesinghe has taken timely action to secure concessions to our garment exports to the European Union.

Regulation and supervision

The main ingredients relating to regulation and supervision of offshore units in commercial banks are contained in Part IV of the Banking Act of 1988 as amended by the Banking (Amendment) Act of 1995.

Section 5(1) of the Banking Act states that a commercial bank could be licensed to undertake offshore banking business. Section 23 states that existing commercial banks which have applied for a licence under the foreign currency banking scheme may carry on offshore banking business. Sections 24 and 29 of the Banking Act exempts offshore units from complying with requirements such as reserve ratio, maintenance of liquid assets, accounts, audits and qualifications regarding directors and secretaries. Nonetheless, offshore banking units must prepare a balance sheet and a profit and loss account in respect of each year at the last working day of each financial year.

It would be seen from the above that offshore units in commercial banks are regulated more flexibly by law in comparison to domestic units. This indeed is the practice in many OFCs because offshore banking relates to banking business outside the country and their exposure has minimal effect on the domestic economy. However, the regulation of offshore banking business in Sri Lanka seems to be different. As offshore funds are invested within the country, there is an emerging trend towards greater regulation of offshore banking business in a manner inconsistent with practices followed in regard to regulation of offshore banking business in other OFCs.

Supervision is also an important ingredient with regard to offshore banking. It is an important aspect because it enables the supervisor to ascertain the financial position of offshore units. It also requires the banks to maintain high accounting standards and provides a true and fair picture of its offshore units. A supervisor in order to be effective must be independent.

In Sri Lanka, the supervisor is the Central Bank as distinct from other OFCs such as Labuan (Malaysia). By Section 33 of the Banking Act, the director of banking supervision is given powers to investigate offshore units in any commercial bank. The Monetary Board has also been empowered by Section 34 of the aforesaid Act to call for information and reports from offshore units. Hence, the Monetary Board has a major role to play in the development of offshore banking business in Sri Lanka.

Importance of bank secrecy

Bank secrecy is of fundamental importance to offshore banking business. It is the most important ingredient that attracts non-resident HNWIs to deposit funds in offshore banks in OFCs with respect to their international tax planning.

In many OFCs, bank secrecy has been strengthened in several ways with regard to offshore banking business by enacting special legislation not only to secure secrecy of those persons involved at the bank, but also persons such as accountants and lawyers involved in providing such professional services to non-residents in the OFCs through confidentiality legislation. In scope, the confidentiality legislation is wider than mere secrecy provisions found in traditional common law banking systems.

In the recent past, there has been tremendous opposition to rigid bank secrecy provisions. It has been said that these provisions protect persons in developed countries from evading their due taxes and creating harmful tax practices in regard to their revenue systems. It has also been said that it protects criminal activities.

The US Congress has appointed a permanent committee to investigate the situation worldwide. It is reported that criminal exploitation of offshore havens is flourishing because of secrecy and foreign governments' intransigence in the face of overwhelming evidence to protect dirty money in offshore banking business.

Nonetheless, OFCs have maintained such confidentiality and secrecy despite the attempts by the US courts to subpoena documents and witnesses from banks located overseas through the exercise of extra-territorial jurisdiction as demonstrated in the landmark case of United States vs Bank of Nova Scotia (1982).

Until the enactment of the Banking Act of 1988, our law has been governed by the English Common Law principles relating to bank secrecy. In the famous case of Tournier vs National Provincial Bank of England (1924), the courts held that bank secrecy and the duty of confidentiality applies to all banks subject to four exceptions. In Sri Lanka, these four exceptions are codifed by Section 77 of the Banking Act of 1988. However, Dr. Wickrema Weerasooriya casts some doubt as to the scope of this section and expressed his concerns as to its interpretative difficulties as to whether it has strengthened the Common Law principles enunciated in the above case.

The Banking (Amendment) Act of 1990 was enacted during the regime of President Premadasa. It established a system of numbered accounts and created absolute secrecy subject to four (4) exceptions. In 1995, these provisions were repealed. Except for the existing accounts, no new numbered accounts shall be established in commercial banks by non-residents in relation to offshore banking business.

Conclusions

Sri Lanka has tremendous potential in South Asia to develop offshore banking business through the establishment of a fully-fledged OFC as in Labuan (Malaysia), Bahamas or the Channel Islands. In this business, Sri Lanka can be to India something like the Bahamas to USA or the Channel Islands to UK or Hong Kong to China. Unfortunately, the right approach towards the development of offshore banking business has not been properly conceived by our bankers and Finance Ministry officials.

It must be mentioned that there are serious limitations in Sri Lanka in regard to the functioning and the competitiveness of offshore banking business. Firstly, the licensing of offshore banking business is limited only to commercial banks. It is not possible to establish a bank only for offshore banking business as in other OFCs.

Secondly, there is no detailed legislative regime to develop and regulate offshore banks and trusts with varied products and services.

Thirdly, offshore units do not operate as financial intermediaries but are confined mainly to deposit taking and granting of loan facilities to tax exempt BOI companies and therefore offshore banking business in Sri Lanka rarely deals with portfolio management of HNWIs and rich corporate clients in relation to capital and money markets overseas.

Hence, it is possible to conclude that offshore banking business in Sri Lanka has gravitated towards servicing the companies established under the Board of Investment (BOI) and other approved residents in Sri Lanka in the interest of our economy. In these circumstances, one may legitimately argue that the use of the term " offshore banking" in Sri Lanka is erroneous and anachronistic in the traditional sense.

It is recommended that the aforementioned serious limitations need to be eradicated with the enactment of attractive legislation by Ministers K.N. Choksy and Milinda Moragoda, if Sri Lanka were to emerge as a competitive player in South Asia. As in other OFCs in Latin America, Caribbean, European and Asia-Pacific regions, our offshore products and services need to be marketed to non-resident HNWIs effectively and efficiently by our foreign embassies in major capitals through a business plan initiated by the new foreign minister, to make Sri Lanka an offshore banking "hub" in South Asia.

The writer has had practical experience in offshore practice and administration when he served as a UN legal expert in the Caribbean region. Presently, he lectures at the Bankers Training Institute of Sri Lanka.

Puttalam Cement Company Limited (PCCL) unveiled its new company logo under the new corporate identity of Holcim (Lanka) Limited. It's flagship brand Sanstha Cement will continue to be marketed under the same brand name.

The company's new identity reflects its corporate values of strength, performance and passion. The new corporate logo also offers a graphic interpretation of global reach, openness and the precision and strength of their products and solutions.

The company, from local production to international cement trading to inter-office communications, carriers the strengths of Holcim, said Chairman, Holcim (Lanka) Limited, Manilal Fernando. "We believe that the true power of a global network is its ability to convey the knowledge, values and principles of the company."

"By creating a dynamic, collaborative global network that encourages teamwork and the exchange of best practice, we can be faster and more effective with our customers and the communities we serve" he added.

As part of their renewed customer oriented approach Holcim (Lanka) Ltd. have established a new website: http:/www.holcim.lk and a mailing address: info-lka@holcim.com.

"A clear mission, a far-reaching vision and solid values reside at the core of Holcim." Elaborating on the company's vision Managing Director Holcim (Lanka) Limited, Tim Mackay said "We are pledged to provide the most innovative solutions and services for our customers to meet their individual needs."

"We bring a passion for performance to everything we do, from the executive suite to the plant floor, elevating the standards of our industry" he added.

With the launch of their new corporate identity, Holcim (Lanka) Limited hopes to provide an open and collaborative corporate culture, a forward looking organisation, committed sustainable development and long term financial performance.