BUSINESS

LP gas prices likely to rise shortly

By Asgar Hussein

The rise in world oil prices due to the proposed US military action against Iraq may compel local LPG producers to increase the price of gas cylinders. The market leader Shell Gas Lanka has stated they may have to increase prices in mid-October.

Laugfs Lanka Gas is also considering raising LPG prices. "Given the manner in which the international oil market is behaving, if  prices go up further we will be compelled to raise our gas prices," said Chairman, Laugfs Lanka Gas, W. K. H. Wegapitiya.

The company currently markets a 12.5 kg cylinder at Rs. 396, while Shell's price is Rs. 528.

Mundogas recently stated they will offer a cylinder at Rs. 350, but some expressed doubs whether this would be possible given the trend in oil prices.

World prices have increased significantly in the recent past, and this trend continues as another Gulf war looms closer. The price of a metric ton increased from US Dollars 228 in August to US Dollars 256 in September.

It is likely that the prices in October may  go up to US Dollars 300, according to Wegapitiya. He added that the 'spot price' presently stands at US Dollars 309, indicating that prices will rise further next month.

LPG is a by-product of crude oil and is composed of 70% butane and 30% propane.

Wegapitiya believed that prices will continue to increase until February next year because of purchases for the winter season.

He said if a war in the Gulf begins, prices will rise due to two reasons. Firstly, it would create a panic situation, and large consumers like Japan, Korea and China will start filling their inventories. This would result in demand exceeding supply, thereby pushing up prices.

Secondly, if a war takes place, there will be a supply shortage as oil facilities in the Middle East (including major producer Saudi Arabia) will be affected. Such a situation will be aggravated if Saddam Hussein attacks Gulf states perceived to be US allies.

 LPG World - an authoritative source on the LPG market - stated that the spectre of US military action against Iraq is keeping LPG prices high. It stated, "The LPG market is maintaining a close link to bullish but volatile crude prices. US benchmark crude WTI continues to hover just under $30/61 - boosted by uncertainty over what will happen next in president George Bush's policies towards Iraq. Crude strength in turn is supported by low stocks in the US midcontinent, uncertainties about opec's output intentions, and rising product prices.

It added that the strength in crude is keeping LPG prices firm and at their highest levels for the year.

According to LPG World, the most dramatic rise has been in large cargo propane from the Middle East heading east. Price are currently around $310/t delivered into Asia, the highest levels of 2002. Butane has followed suit.

It added that state-owned Saudi Aramco's first monthly "T1" tender is expected to attract sharply stronger bids - at just under $ 300/t fob - fuelling expectations that the monthly Saudi contract price (CP) - which is partly determined by the tenders - is due for a steep jump in October.

Sri Lanka-USA double taxation treaty concluded 

The Protocol Amending the Convention between the Government of Sri Lanka and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (1985) was signed on September 20 at the US Department of State, Washington DC.  Milinda Moragoda, Minister of Economic Reform, Science & Technology and  Christina B. Rocca, Assistant Secretary of State for South Asia, signed the agreement on behalf of their respective governments. Ambassador Ashley Wills, US Ambassador to Sri Lanka & The Maldives was also present at the signing.

The text of the new protocol, which has been long outstanding, was finalized at official level discussions during the visit of the Prime Minister Ranil Wickremasinghe to Washington D. C. in August 2002.

The protocol reflects changes in the laws and policies of both countries since the signing of Double Taxation Convention in 1985. It contains provisions to facilitate investment between the two countries by addressing the issue of taxation of cross-border payments, investment income, business profits, capital gains and other types of income. The convention and the protocol also provide for the exchange of information on tax matters.

The conclusion of the Protocol to the USA Double Taxation Convention is expected to generate greater confidence in USA investors wishing to invest in Sri Lanka and would strengthen the existing legal framework for the promotion of US investments, such as the bilateral Investment Promotion and Protection Treaty and the Trade and Investment Framework Agreement (TIFA) which was concluded during the Prime Minister's visit to Washington D. C. in August.

The peace dividend

By Dinesh Weerakkody

Influenced by the peace process and a successful round of peace talks in Thailand, the Colombo bourse has been soaring to record levels helped of course to some levels by the waning resistance of the PA and the JVP to the on-going peace process, a major issue some months back.

Despite the positive public sentiment and the general buoyant mood, the real economic position according to IMF does not look so good. It was however not anticipated that the economy would show any marvellous results in the first half of the year after last year's disastrous performance. But nobody really expected the exports to decline by 18% in the first half, however the pick up so far in the second half is slower than expected.

We all know the state coffers are empty. The money the government collects is enough to only meet our current expenditure. The world is talking of the need to reconstruct the north-east and they are for peace.

The government at current levels of economic growth cannot fund the reconstruction and rehabilitation process. Therefore, prospective donors should not wait for peace to release their funds.  Lack of funds can endanger the very peace process that they support.

What this country needs is development and peace to travel together. This is the only way Ranil Wickremesinghe can rally all Sri Lankans to support the peace process. Therefore, Sri Lanka needs all the support it can from the donor community to put the economy back on track.

Today a mutually beneficial resolution to the north-east problem is some thing that all citizens truly desire. But the expectation of a large peace dividend is truly high.

As important as it may be, it will certainly not be the panacea to all the economic and political ills ingrained in the country. Therefore, the government needs to simultaneously work on removing the road blocks that have impeded the growth process.

Confidence

Ranil Wickremesinghe is today one of the most experienced political leaders in the Asian region and has demonstrated that he has the ability to forge political consensus.

The public, investors and businessmen are confident that the prime minister is setting the foundation to create an effective political and economic system that can pave way for a new generation of leaders who are incorruptible and have the will to bring about substantial progress to bring the country back from crisis.

In fact, the UNF administration comprises an excellent blend of experience and youth and there is evidence that there is clear focus on policy impelmentation and strengthening of the institutional framework.  This has been well acknowledged by the local and international business communities.

Investors

In the past, when many South Asian countries like India and Bangladesh won back the hearts of investors, Sri Lanka suffered neglect.  Analysts say political consensus, ongoing pace of reforms, economic revival and the ability of the UNF leadership to take tough decisions has created a new wave of confidence.

In fact, even though many of our private sector companies have suffered losses due to the economic slump in 2001 and due to deep falls in production in the non export sector, they are now gearing up for the revival.

Therefore, the developed world could help Sri Lanka immensely by providing greater access to their markets. This in fact will help the economy to grow and to provide employment to those displaced.

On the other hand, the banks should also support the economic revival by taking calculated risks.  They should not be allowed to spread their margins further to avoid a drop in profitability.

Today, like other companies banks also should be forced to find ways to save money and re-think the way they do business without being allowed to exert undue pressure on their borrowers in today's buoyant business mood.

The banks' lending has to be more competitive if the engine of growth, the private sector, is to exploit this new found confidence. After all, the financial sector can be described as the heart of modern economic life. Therefore, it is high time our leaders in the financial sector came forward to assist the government to promote macro economic development, because, it is companies that make up the economy.

Leadership

Ranil Wickremesinghe unlike any other leader in the last 15 years has pushed the peace process further than ever before. His approach to break the cycle of violence has been commendable.

He has in the last six months proved that any crisis is manageable by holding firm and by sticking to clean government.  Therefore, as investors regain their enthusiasm for venturing across Asia and the world becomes one market, Sri Lanka would need a new breed of political leaders who can articulate a clear vision, display an exemplary commitment to the law and deliver sound policies.

It is obvious that only enlightened leaders can calm jittery markets, deliver sound policies and pull our nation together to cope with today's challenges.

In the final analysis, what Sri Lanka urgently requires is foreign funding to consolidate the peace process and provide the people of north and east a peace dividend. They will not wait till a final settlement to the conflict is reached for the economic revival to take place.

People expect the government to deliver in the short term.  The government more than ever needs resources to meet the needs of the people in the north and east. Therefore, Sri Lanka needs assistance from friendly countries to begin the process of reconstruction and to maintain the momentum of the peace process.

Obviously, to rebuild the economy, we will not get all the resources we need from outside so the economy too will have to grow fast to generate the additional resources we need to fund the reconstruction.

Lastly, if we want to become the next Singapore in another 20 years from now we need to get our act together. Rhetoric will not get us anywhere.

Prima celebrates 25 years

By far the biggest foreign investment in the country, Prima Ceylon Ltd., (PCL), last week celebrated 25 years of successful operations in Sri Lanka.

Within 25 years, Prima has established itself as a major food group offering a wide range of quality products and providing direct and indirect employment for thousands of people.

Prima (which in 1961 pioneered the first flour mill in Singapore) in 1977 entered into a Build-Operate-Transfer (BOT) agreement with the Sri Lankan government to set up a modern mill to help the country produce its entire requirement of flour; with the government controlling wheat grain imports, flour distribution and pricing. This arrangement also provided valuable foreign exchange savings for the government through not having to import flour. The historic agreement between the government and Prima was signed on September 17, 1977, the birthday of the then President J.R. Jayewardene.

Prima's initial investment in Sri Lanka was US$ 54 million and it built the world's largest flour mill under one roof in Trincomalee within 32 months. President Jayewardene ceremonially opened the complex in November 1980.

The cumulative investment by Prima Group during the past 25 years, is estimated at US$ 231 million, making it the biggest foreign investment project in Sri Lanka to date.

This large investment made in stages was to ensure technology of the flour mill is constantly upgraded and expanded in addition to strategic diversification into new and related industries to meet the growing consumer needs of Sri Lankans.

The single mill concept with large economies of scale was a key factor for PCL's success in providing an economically produced flour for the Sri Lankan government.  Under this operating concept, Sri Lanka was able to benefit from 'Government-to-Government' wheat aid of more than US$ 800 million as well.

The original capacity was 1,850 metric tons of wheat flour per day and today it has been expanded to 2,500 metric tons of wheat flour per day, with the fully integrated mill served by a transport network of road, and sea.

Prima diversified into feed business in 1982 by setting up a modern feed processing plant by incorporating Ceylon Grain Elevators, which has invested US$ 45 million to date. The company was instrumental in adding value to the animal feed industry and raising the quality of livestock industry and was proud to expand its product portfolio of offering affordable protein for the people. Prima's confidence in Sri Lanka further improved and in 1992 it invested US$ 20 million on Ceylon Agro Industries to launch the state of the art noodles and poultry processing plant.

Prima's commitment to Sri Lanka was further cemented in April 2001 when the PCL was converted from a BOT to a Build-Own-Operate (BOO) agreement which saw a further investment of US$ 65 million.

Prima's unwavering confidence in Sri Lanka's encouraging investment climate and growth encouraged the company to further invest an additional US$ 30 million in 2002 to double the silo capacity, install a new state-of-the-art flour mill, expand the jetty and wharf and launch a modern professional baking industry training centre.  More recently Prima ventured into direct transportation of its flour by introducing 25 Mercedes Benz Prime Mover trailers with an investment of Rs 220 million.  This cost efficient move was combined with a unique scheme of self-employment under which the driver-operators of the Prime Movers would eventually own the vehicles after five to seven years.

The expansion of Prima Group activities has provided valuable employment to over 3,000 persons directly while its activities are supporting the income of thousands of more people, especially in the rural sector.  Prima also offers scholarships to needy children of employees to further their higher education. Incidentally, Prima's magnanimous gesture to hand over donations received from well wishers to the government in 1980 to mark the launch of the flour mill inspired President's Jayewardene to launch the President Fund.

Prima's vision is to provide Sri Lanka with a constant supply of a wide range of food products that are affordably priced yet offer good nutritional value. With its excellent infrastructure and facilities, Prima is poised to become a leading food manufacturer not only in Sri Lanka but in Asia as well and in the process it will continue to seek excellence in product quality, innovation, affordability and delivery to the best satisfaction of all its stakeholders, especially the people of Sri Lanka.

Karu chief guest at Shipbrokers prize giving

Minister of Power and Energy Karu Jayasuriya was the chief guest at the Institute of Chartered Shipbrokers annual prize giving luncheon held in the famous Drapers Hall in London on September 26. He was accompanied by the Chairman, Institute of Chartered Shipbrokers, (ICS) SL, Maxwell de Silva.

According to Ilmi, the secretary of the institute, this is the first time a Sri Lankan was honoured by the institute and Jayasuriya being the most senior member deserves the recognition and it gives Sri Lanka much prominence in the shipping industry worldwide. This shows the importance placed by ICS London for Sri Lanka and the Sri Lanka branch.

The annual prize giving is well attended by ship owners, brokers, agents, underwriters worldwide, academics, and foreign dignitaries, and Sri Lanka is once again on the world map at a time when the peace process is in full gear. The publicity gain in the Maritime Center in London is worthwhile mentioning and this is rare honour bestowed to an individual by ICS London.

When the high powered delegation visited Sri Lanka in January headed by James Freeland, president of ICS, they were very much impressed with the initiative taken by the branch, particularly over the web site developed by ICS SL and the delegation complemented ICS SL when they met Karu Jayasuriya whilst in Sri Lanka. The Sri Lankan branch went on to record books by releasing their examination results through the website which was not done by most of the professional bodies though all talk about the net and communication.

Mirantha Perera of the British High Commission will be receiving 'Medite Shipping Co., UK Award" for the Liner Trade (world prize for overseas student) to the value of Stg. 500 from the minister. The classes for ICS examinations were conducted by the ICS panel of lecturers and it gives a lot of strength to the branch in producing world class products in Sri Lanka, and incidentally, Mirantha created history by completing the full examinations in two years.

ICS is the only professional body (member of OPA) in the field of shipping conducting professional examinations and is now embarking on a new project to train advanced level qualified school leavers, thereby making them employable.

Top accounting expert in SL

Sri Lanka will take an important step closer to adopting international accounting standards when one of the world's foremost authorities on the subject conducts an international workshop in Colombo next month at the invitation of the Institute of Chartered Accountants of Sri Lanka (ICASL).

Dr. Paul Pacter, the author of International Accounting Standards 39 (IAS 39) dealing with principles for recognizing, measuring and disclosing information about financial assets and liabilities, will cover the intricacies of the standard on financial instruments, at the workshop on October 5 and 6, the institute said.

Explaining the relevance of the workshop, President, ICASL, Asite Talwatte said increased investment activity spurred by the improving prospects for peace could see the corporate sector moving to innovative financial instruments which are new to this country.

The workshop is intended to provide accounting professionals with the technical know-how and the level of expertise required for such financial instruments.

"Moreover, Sri Lanka will have to compete with other countries in the region to attract foreign capital and synchronizing with international accounting standards would be a critical factor in our success in this area," Talwatte said.

"The timing of the workshop will send a clear signal to the investor community about Sri Lanka's efforts to adopt IAS 39, as best practice in Sri Lanka. This standard has not as yet been adopted by countries in the South Asian region."

He said the ICASL, as a member of the International Federation of Accountants (IFA) was committed to promoting international best practice in accounting standards in Sri Lanka. The institute has also been given the responsibility of formulating Sri Lanka Accounting Standards (SLAS) by the Sri Lanka Accounting and Auditing Standards Act, and intends adopting International Accounting Standards as SLAS, he disclosed.

IAS 39, the subject of the Colombo workshop, covers all financial assets and financial liabilities including all derivatives, hedging instruments, securitisation, repurchase agreements and equity instruments.

It is the International Accounting Standards Comm- ittee's first comprehensive standard on these subjects.

Dr. Paul Pacter served as international accounting fellow on the International Accounting Standards Committee and as project manager for IAS 39 was involved in all stages of the development of the standard. A founder employee of the US Financial Accounting Standards Board, he has also served as vice chairman of the Advisory Council to the US Governmental Accounting Standards Board. He is currently director of the Global International Accounting Standards Office of Deloitte Touche Thomatsu in Hong Kong.

Governor, Central Bank of Sri Lanka, A. S. Jayawardena, and Chairman, Sri Lanka Accounting and Auditing Standards Monitoring Board, W.A. Wijewardena,  will also speak at the workshop.

The two-day workshop at the Taj Samudra Hotel is jointly hosted by the ICASL and the Sri Lanka Accounting and Auditing Standards Monitoring Board.

UML joins hands with Valvoline

Sri Lanka's No: 1 automobile company United Motors Lanka Ltd., has joined with Valvoline International Inc., to market the world's first lubricant, Valvoline in Sri Lanka.

Valvoline International Inc., situated in Lexingtion, KY U.S.A. commenced operations in 1866 and is in fact the oldest trademark in the lubricant industry.

Valvoline has been dedicated to the development of quality, innovative and high performance products and services for more than 135 years. However, one thing that has remained consistent throughout is Valvoline's commitment to quality. Today, Valvoline is the leading supplier of automotive and industrial lubricants, performance chemicals, coolants and radiator chemicals to more than 140 countries around the globe through 26 manufacturing facilities meeting the requirements and demands of its global operations. Valvoline is the only motor oil company with its own industry certified automotive laboratory. This technological leadership provides customers a competitive edge.

United Motors, market leaders for well over a decade in the Japanese brand new market segment, will market Valvoline.

The product portfolio will include automotive and industrial lubricants, appearance products under the sub-brand Eagle One, synthetic chemicals under the sub-brand SynPower, performance chemicals belonging to sub-brand Pyroil and also Coolants and radiator chemicals with patented technology offered under the sub-brand Zerex.

Sri Lanka has a sophisticated vehicle car park and automobile enthusiasts, who like maintaining their vehicles. In line with the vision and mission of the company, United Motors Lanka Ltd., plan to provide premium and high quality Valvoline product that would meet the expectations of the consumers in terms of quality.

Amongst the new entrants in the lubricant trade post liberalisation, Valvoline is the only brand in Sri Lanka that can effectively meet the overall requirement of industrial clients, institutions, and also automobile owners-lubricants, appearance products, performance chemicals, coolants and radiator chemicals. As the sole distributor in Sri Lanka, United Motors will initially concentrate in making this product available throughout Colombo. However, with the proposed expansion plan, United Motors will make use of its established branch offices, dealer network, dealer garages and service stations to spread the distribution of Valvoline island-wide.