BUSINESS

Consortium buys bus companies' equity

By Asgar Hussein 

The British-led IBIS consortium on Thursday acquired a 39% equity of 6 of the 13 state-run bus companies. It was one of the largest transactions in the history of the Colombo Stock Exchange.

As there was only one bidder for the purchase of the shares, the price was determined at the minimum purchase price required by the government, which amounts to Rs. 1.418 billion.

The British-led consortium includes IBIS Transport Consultants, with technical collaboration from Transbus International (part of the Mayflower Corporation Plc). The local partner for the consortium is Latec Engineering &  Management Services (Pvt) Ltd.

The investors were identified for Public Private Partnership Arrangements (PPPA) in the 6 state-run bus companies on the All or Nothing Board of the stock exchange.

The consortium will incorporate three companies within two weeks to run the bus companies. They include the Western Bus Company (Pvt) Ltd., Southern Bus Company (Pvt) Ltd., and New Central Bus Company (Pvt) Ltd.

The Western Bus Company will operate the Colombo Metropolitan Bus Company, Gampaha Bus Company and Kalutara Bus Company. The Southern Bus Company (with Free Lanka Trading Company as the management company) will run Sabaragamuwa Bus Company, while the New Central Bus Company, (with Free Lanka Trading Company as the management company) will handle Mahanuwara Bus Company and Rajarata Bus Company. All these companies are expected to be under the new management in mid-November.

The government will have a 51% shareholding of the 6 bus companies, the investors 39% while the balance 10% will be held by employees.

Ian Bulley, project director of the consortium said, "We are very pleased to have acquired a 39% shareholding in these companies. We are looking forward to working with our partners in the government of Sri Lanka, Free Lanka Trading Company and the existing management and staff of the bus companies. Together we will deliver a modern, reliable, safe and efficient bus network for the people of Sri Lanka."

Informed sources said the government will form a monitoring body to overlook the affairs of the privatised bus companies. As such, matters like fare increases and transport concessions will be determined only after negotiations with this authority.

The investors have agreed to abide by the terms and conditions set out in the Shareholders Agreement and the Management Agreement issued by the Public Enterprises Reform Commission(PERC) issued prior to bid date.

The six bus companies together have a fleet of around 5400 buses with 23000 employees and an annual turnover of approximately Rs. 4.5bn. The new PPPA will infuse new capital, efficient management and add value to the companies through a realistic business vision, the benefits of which will be passed on to the public and the employees of the companies. The board of directors will consist of up to 10 directors out of whom 5 will be government directors. The chairman shall be appointed from among the government directors.

"The PPPA is designed to enhance the service and efficiency levels of the bus companies in order to meet the needs of the public. This includes all remote and rural routes, first bus, last bus, school trips and other priority trips which are currently operated by the companies. Special concessions on season tickets for schools, universities and technical institutions will continue to be made available under the supervision of the government," PERC sources said.

Under the provisions of the agreements to be signed with the investors, a golden share will be allotted to the Secretary to the Treasury which carries special powers. The approval of the golden shareholder will be required for many of the activities of the companies such as procurement procedures and guidelines, lease, mortgage or charge on the assets, establishing or investing in associated or subsidiary companies. Under the terms of the agreement, to government will establish a Bus Monitoring Unit (BMU) that will monitor among other things, the provision of the service levels and quality of service provided by the bus companies under the PPPA.

•  Failure of reporting procedures at European engineering group

ABB close to collapse as shares reach a record low

ABB, Europe's second biggest engineering group, was on the brink of collapse last night after a shock profits warning cut its share price by nearly two thirds.

Prices of the group's bonds also fell sharply, leading many analysts and investors to warn of possible default if it failed to refinance $3.7 bn of debt due to be repaid over the next 12 months.

Chief Executive/Chairman, Jurgen Dormann insisted the group would survive but admitted there had been a breakdown in internal reporting procedures that encouraged managers to underestimate problems.

"I really have to sort out what is wishful thinking and what is reality," he said. "I have to change the culture, especially to encourage more openness and transparency internally, and this makes me cautious (about making promises)."

ABB's problems have been triggered by mounting asbestos losses in the US and its failure to block additional compensation claims through an appeal to the US Supreme Court.

But further details of ABB's deteriorating trading position are expected in third-quarter results due tomorrow. Following a board meeting today, Dormann is expected to announce plans to accelerate a stalled cost-cutting programme and add further companies to an existing list of disposal candidates. He also hopes to persuade friendly banks to come to the company's rescue for the second time this year.

Nevertheless, ABB's insistence that its $5.2 bn debt mountain was under control failed to reassure investors yesterday. Moody's and S&P cut their credit ratings for ABB and warned of further downgrades.

This would place severe pressure on ABB's attempts to issue new bonds next year and negotiate a back-up bank facility with bank lenders. An existing $3 bn facility - put in place via Barclays Bank, Citigroup and Credit Suisse during a rescue in March - is due to expire in December.

Head, Credit Research, Gartmore Investment Management, Karl Bergqwist said: "It comes down to credibility. The company has a history of relentless disappointments and investors just don't know if they can trust the numbers any more."

ABB's attempts to limit future asbestos liabilities by seeking bankruptcy protection for a troubled US subsidiary were also called into question.

US lawyers, including those behind the recent appeal to the US Supreme Court, said flaws in the legal system meant some states would allow alleged victims to sue the parent company regardless of any bankruptcy by its local subsidiary.

"Any resolution ultimately may not be effective as long as states like West Virginia can hear cases from all over the country," said Walter Dellinger, lawyer at O'Melveny and Myers, who led a recent supreme court challenge involving 250 companies.

ABB shares closed down 62% to a record low of SFr2.05 in Zurich.

- Financial Times(Asia),

October 23

Sathosa to become more customer focused and market oriented

Sathosa, the retail arm of the Co-operative Wholesale Establishment (CWE), recently enlisted the support of two of Sri Lanka's leading advertising agencies - Q&E Advertising and Masters Advertising - in their effort to become more customer focused and market oriented.

With an annual turnover of around US$ 210 million, Sathosa markets a range of essential commodities from food to hardware and sport goods at comparatively low prices. In order to expand its image and customer base , the Ministry of Commerce and Consumer Affairs is in the process of implementing a massive programme.

The existing Sathosa retail stores - all 157 of them - will be upgraded into super malls. In addition, 200 Sathosa supermarkets and 100 'A' grade Sathosa outlets are scheduled to open by the year 2005.

Commenting on the expansion programme, Minister of Commerce and Consumer Affairs, Ravi Karunanayake stated, "Sathosa has come to the government's rescue in the past to keep prices of essential commodities at reasonable levels. And the retail outlets also offer opportunities to small and medium scale industrialists to sell their produce under better terms and conditions."

According to Acting Chairman, CWE, Lal Wickramatunge, the restructuring process will enhance the service quality in terms of price, products and customer care. To that end, the ministry's consumer care unit is already involved in keeping strict tabs on service levels and handling customer complaints.

Subsequently, the ministry has assigned their advertising agencies, Q&E Advertising and Masters Advertising with the task of conveying the government's message more effectively whist uplifting the perception of Sathosa as Sri Lanka's largest retail store network.

The two agencies were chosen after a rigorous selection process. Q&E Advertising - Sri Lanka's largest independent advertising company will handle corporate advertising, while Masters DDB and Media Maps will take on the responsibility of event marketing. Commenting on their choice of the two agencies, Director, Media and Marketing Communications, CWE, Jumar Perera said, "five agencies pitched for the account. After strict evaluation, we settled for these two agencies, given their strength in corporate brand building and event marketing."

Sri Lanka Association of Travel & Tourism (SLATT) to be launched

The Travel Agents Association of Sri Lanka (TAASL) and the Sri Lanka Association of Inbound Tour Operators (SLAITO) will team up shortly to jointly form a new association named Sri Lanka Association of Travel & Tourism (SLATT) encompassing all travel agents and tour operators into one association.

This is indeed a landmark in Sri Lanka where all travel agents and tour operators will be united under one association to work for the betterment of tourism in Sri Lanka and to represent the industry with one voice.

The new association will also help to streamline the inbound and outbound sector activities to prevent a conflict of interest between them and to facilitate the new provisions that would come into effect through the proposed Tourism Development Law, mainly the new marketing bureau to promote Sri Lanka.

Although the new association will link the two main sectors, inbound and outbound, their activities will be run independently by two executive committees comprising 12 members per committee and headed by an independent chairman for each sector.

Each sector is further divided into three levels, large, medium and small, in order to ensure equal representation for all segments. Membership varies from Rs. 18,500 for the lowest category to Rs. 60,000 for the large scale category.

The committee of management of the new association will consist of a president, vice president and the two chairmen of the destination management and outbound sections.

Membership in the Sri Lanka Association of Travel & Tourism will consist of three categories, inbound (destination management), outbound and associate. Current members of TAASL and SLAITO can join as inbound or outbound members and will be exempt from paying the entrance fee if joining before March 31, 2003.

Organisations in the tourism industry that are not current members of either TAASL or SLAITO can join as associate members and this category also provides membership to overseas tour operators, hotels, restaurants, airlines, tourist shops and the media.

The new association will be launched at the BMICH on November 25 and the Prime Minister is expected to grace the occasion as the chief guest and also address the gathering of approximately 500 tourism professionals. The Minister of Tourism will be the guest of honour. After the launch of the association, a cocktail party will be held at the same venue where the entire travel trade will be represented.

Further details of the Sri Lanka Association of Travel & Tourism could be obtained from the secretariat functioning under the aegis of the Ceylon Chamber of Commerce.

Diamond Milk - latest entrant to the market

With competition growing with the large variety of milk powder available in the market, consumers have become more choosy regarding the milk powder they buy.

However, for those who are familiar with the brand name of well known products, choosing the correct milk powder wouldn't be a problem.

Whether a new name or an old name, it is always the quality and high standards that attract the consumers to a product.

This is why many consumers have started purchasing Diamond Full Cream Milk Powder, the latest addition to the market. Diamond Best Foods, as the company is known today, was originally started as P.M. Mohamed Ali and Co in 1959.

Diamond Best Foods is owned by Mohamed Fawmey, who is a partner of P.M. Mohamed Ali and Co. Diamond Best Foods, while producing items such as sugar, dhal, basmathi rice and tin food among other products decided to go ahead with the packeting of milk powder as their success in the market kept growing.

According to Mohamed, the milk powder imported from Australia having passed the required standards and hygiene, is packed in Sri Lanka. The Diamond milk powder has a one year shelf life. This is the first time the company has ventured into the milk powder business.

With a 28% cream intake that is good even for children, Diamond milk powder conforms to the high standards and hygiene required in the Sri Lankan market.

According to Mohamed, their competitors have started spreading rumours that Diamond milk powder doesn't maintain the high standards required by the food hygiene authorities.

However, Mohamed guarantees all his customers that all they have to do is taste the product to see the difference in taste. "Our prices are reasonable compared to other milk powder in the market and we can assure our customers that we will continue to maintain the high standards they require," Mohamed said.

The advertising agency promoting the new brand is 7 Plus.

GB seeds to be exported to Sri Lanka

Following a British Potato Council (BPC) inward mission at the end of May, the Sri Lankan government has agreed to phytosanitary measures that will allow exports of GB seed to Sri Lanka for the first time in several years.

At present Sri Lanka imports 12,000 to 15,000 tonnes of seed each year. These seeds are largely sourced from the Netherlands with the balance brought in from Australia.

Even though Desiree was the dominant variety in Sri Lanka it is now been replaced by newer red and white varieties. R.E.W. Ritchie Seed Potatoes is the new seed produces.

Owner Bob Ritchie of Cairnandrew has for the past 20 years been exporting potatoes to Saudi Arabia, Spain, Turkey and Thailand. According to Ritchie a delegation from Sri Lanka met him as they too were interested in the Desiree variety.

In order to educate the Sri Lankan officials on the product the BPC organised a week long programme with the specific objective of opening up this potentially lucrative market for GB seeds.

During their visit Director General of Agriculture, Dr. Jayawardena and Director of Seed Certification and Plant Protection, Dr. Weerasena got a good overview of seed production and classification in Britain.

The awareness program included inspection and pest and disease testing together with an overview of the disease pressures faced by seed growers in Sri Lanka.

The Sri Lankan officials also had a look at the seed production in the fields, as well as grading, storage and packing facilities.

Notably, the Desiree variety includes the removal of the need for post harvest virus testing which will be required for seed supplied from countries other than Britain.

The post harvest virus test will be replaced by growing crop sampling and testing for virus which will not therefore take the additional time needed for the original test which makes it very difficult when supplying to Sri Lanka in time for planting.

It is hoped that by encouraging farmers to grow their own potato seeds and start their own business, the importing of food would be lessened, thereby solving part of the unemployment problem in the country.

Stembo president of ACPM

Sam Stembo took over the presidency of the Association of Certified Professional Marketers (ACPM) with effect from October 2002. ACPM is a global association of certified professional marketers, founded in March 2002. Sam, a certified professional marketer and a chartered marketer (UK) counts over 20 years in marketing and management. He is a founder fellow of the ACPM, member of the Sri Lanka Institute of Marketing, Chartered Institute of Marketing (UK), Canadian Institute of Marketing and Institute of Marketing Management, South Africa.

He is currently the managing director/CEO of Institute of Global Resource Development (INGRED). He has held the positions of managing director of Panlanka Networking (Private) Limited and Specetonet (Private) Limited, director, educational projects of Worldview Global Media Limited, director/general manager of Worldview Institute, executive director of Sri Lanka Institute of Marketing, marketing director of Family Planning Association, marketing manager of GTE Directories Lanka (Private) Limited, account planner of Mel Ads Limited and director of Business Support Services (Pvt) Limited before he took over the current position in September 2002.

Sam is a teacher and a trainer in marketing and management. He has functioned as a resource person is training programmes and workshops conducted in Singapore, Malaysia, Philippines, Hong Kong, Thailand, Taiwan, Japan, India, Bhutan and Nepal.

He has also presented papers at numerous professional forums and contributed articles to various journals and magazines including the South Asian Journal of Management. The case study co-authored by him won the second position in the case study competition conducted by the Association of Management Development Institutes in South Asia (AMDISA).

Janashakthi forges ahead successfully

If their performance in today's intensely competitive insurance market during only the first six months of 2002 is the standard to judge success by, then Janashakthi Insurance is surely on its way up among the key players in the industry and poised to forge ahead and increase their present significant share of the market.

The company has recorded a 31% growth in the first six months of this year in comparison with 2001, from Rs. 130 million to Rs. 170 million in life business.

The growth in first year premiums, or FYP as it is commonly known in the industry, stood at 53% for the same period. In terms of financial statistics, FYP grew from Rs. 58.6 million to Rs. 89.5 million.

Director, Marketing, Tryphon. R. Mirando said, "The growth in FYP is very satisfying, since it is a clear indication of a greater number of customers preferring Janashakthi policies."

"As in most other areas of our business, we adopt the more realistic approach in measuring progress. Hence, the choice of FYP to measure progress," he added.

With regard to general insurance, the company continues to maintain its steady progress. Once again, it has proved to be a very formidable source in the local insurance industry by posting a 26% growth over the previous year from Rs. 343 million to Rs. 432 million.

Janashakthi's total gross written premium from January to June 2002 increased from Rs. 473 million to Rs. 602 million. This reflects a 27% growth over the same period in 2001 in respect of life and general business.

The key factors behind the success trends are stronger focus on customer service that ensures retention of their business, restructuring and consolidation of company network and enhancing the quality of field sales operations and greater public confidence consequent to the acquisition of the National Insurance Corporation.

Mirando added that the company is now in the process of installing a highly advanced computer system networked to all branch offices. This is expected to enhance the overall quality of service standards considerably.

NTB acquires commercial banking operations of AEB in Sri Lanka

Nations Trust Bank made local banking history when they took over the commercial banking operations of international banking giant American Express Bank (AEB) in Sri Lanka, having successfully negotiated its purchase.

Nations Trust Bank, a public quoted company backed by three main shareholders, the premier local blue chips John Keells Holdings Ltd, and Central Finance Co. Ltd, and the International Finance Corporation (IFC) of the World Bank, declared open this latest addition to their banking operations at 104, Dharmapala Mawatha, Colombo 7, in the presence of chief guest, Governor, Central Bank, A.S. Jayawardene, Chairman Vivendra Lintotawela, directors of Nations Trust Bank, customers and well wishers.

Nations Trust Bank, which has embarked on a dual strategy of expansion through acquisition of related strategic businesses and branch openings, presently operates 16 state-of-the-art branches in strategically important locations.

The bank's acquisitions include Standard Chartered Kandy branch, Waldock Mackenzie Ltd., Deutsch Bank retail operations and now Sri Lanka's commercial banking business of American Express Bank.

Director/CEO, Nations Trust Bank, Moksevi Prelis said that both American Express and Nations Bank were committed to a smooth transfer of operations, with the least possible inconvenience to the customers.

Prelis also said that they would ensure the provision of the highest standards of service, augmented by greater accessibility and a broader product range "Our online connectivity gives our customers the flexibility to transact their business at any of our 16 branches, including those that offer everyday banking."

Nations Trust would also make available to all AEB customers the advantages of multi-channel accessibility which include ATMs, NTB's online internet banking and telephone banking. NTB's ATM cards which are linked to the world-wide Cirrus Maestro network, enables customer transactions both locally as well as internationally.

A majority of AEB's staff would be part of the Nations Trust Bank's team, thus ensuring continuity of operations and service to their clients.

Corporate customers too will be able to avail themselves of the full range of trade, lending, money market and foreign exchange products, as well as investment banking products through Nations Trust's fully owned subsidiary Waldock Mackenzie Ltd.

Nations Trust Bank will soon house its private banking business at the Dharmapala Mawatha branch.

After the take over of the commercial banking business of AEB, NTB will continue to operate the American Express foreign exchange services in Sri Lanka as the American Express foreign exchange representative. The customers of NTB can now have access to over 1700 travel service and foreign exchange officers world wide. NTB will continue to operate the foreign exchange booths at Gabo Travels, Ceycan, Hemtours and Jetwing Travels.

Outgoing Country General Manager, AEB, Akbar Khan said following a strategic review of its worldwide operations, the board of directors of American Express Bank Ltd. (AEB), has decided to sell its Sri Lanka commercial banking operations to Nations Trust Bank Limited.

The decision to sell this business to NTB was taken after a careful review of all interested buyers keeping the interest of clients and staff as the leading governing objective.

In conclusion, Prelis said that this was indeed a landmark event in local banking and said it augured well for the economy of the entire country, whilst reinforcing the fact that Sri Lankan banks had now assumed their role as major players and a force to be reckoned with in the local as well as foreign financial markets.

Carson Cumberbatch profits up

Carson Cumberbatch & Company Limited has reported a notable growth in consolidated turnover and profit before tax in the half yearly review for the six months ended September 30, 2002.

This growth was brought about by increases in both business volumes and profitability in their core businesses, namely, brewery, investment holdings and palm oil, based in Sri Lanka and the South East Asian region, whilst real estate and leisure sectors have not performed up to expectations.

Consolidated turnover was Rs. 2 billion and consolidated profit after tax Rs. 327 million while the shareholders' funds including minority interest as at September 30, was Rs. 6.9 billion. The half yearly results for the current year reflects almost the entire profitability of the last financial year.

The recovery in palm oil prices in global markets strengthened the performance of the plantation business. These prices are expected to hold for the next few months, enabling the sector to generate a reasonable return this year. The new plantation project in Indonesia, PT Agro Indomas (PTAI), which currently has over 3,000 hectares of immature area representing 22% of the total planted area, will attain full maturity during the year 2003/04. PTAI recorded a turnover of Rs. 489.77 million during the period under review.

The performance of PTAI is expected to improve towards the end of the financial year, given the steady world market prices and high cropping period projected towards the latter part of the year.

A planned replanting programme is presently being done in the Malaysian plantations of the group in order to ensure competitiveness and productivity in the long term.

A modest growth in sales, together with the cost savings resulting from consolidation of operations at one location, account for the improved performance for the quarter, when compared with the previous year. Nevertheless, low consumer purchasing power and regulatory constraints continued to affect shareholder returns. Brewery sector reported a turnover of Rs. 1.18 billion during the first half of the current financial year, while the profit after tax was Rs. 263 million. The group's brewery business continues to emphasis the need for speedier implementation of reforms in the regulation of the soft alcohol industry.

During the six months under review, the market value of the Guardian Group portfolio grew by 36% while market value as at September 30 stood at Rs. 2.3 billion. A consolidated profit after tax of Rs. 128.97 million was posted by the Guardian Group. The recovery in the local stock market presented more opportunities for this sector to enhance the value of its holdings.

Moreover, the proceeds of the rights issues at the beginning of the year by this sector were also utilised to secure the benefits of the revival in the stock market. The group's investment holdings sector is activity focussing on diversifying its portfolio into viable long-term infrastructure projects as a future strategy.

The real estate business turned in a satisfactory performance while the leisure sector was affected by unattractive market conditions.

Carsons reports that it is greatly encouraged by the new direction that the Sri Lankan economy appears to be taking and the progress of the peace initiatives.

It is hoped that the revival in investor confidence and the wide ranging economic reforms that have been initiated will provide a better foundation for businesses to operate in future.

Guardian performs well

The Guardian Group has posted a consolidated post tax profit of Rs. 128.97 million, for the six months ended September 30, 2002, an increase of 220% compared with the corresponding period of the previous year.

The improvement in performance is attributed to the recent progress in share market activity which responded to a series of positive events such as progress in the peace process, clear focus on economic and fiscal reforms, revival in foreign direct investment and re-activation of the privatisation process. As at September 30, 2002, the group's portfolio with a market value of Rs. 2.3 billion, recorded a significant improvement of 36% against the previous year. This increase can be compared against the increase in the ASPI of 39% during the first half of the year.

The enhanced liquidity position as a result of the group's successful rights issues during the last financial year, is now being utilised to benefit from this revival in the market. In the six months under review, the group's portfolio was enhanced by adding shares at a cost of Rs. 143.74 million. Disposals during this period enabled the group to acquire other liquid stocks with good performance potential at attractive prices.

Second TMC at Mt. Lavinia Hotel

"Though dreaming is something that is easy to do, making those dreams a reality, which requires hard work and team building is the difficult task," said the Minister of Economic Reforms and Scientific Affairs, Milinda Moragoda speaking to a large gathering of members of The Management Club as the chief guest at the launch of their newly set up extension at the Mt. Lavinia Hotel.

He indicated that the skills and resources available in Sri Lanka should be shared across the country through institutions like The Management Club and said that only such contributions will make ours a better country than now in the future.

The British High Commissioner, David Evans stressed on the importance of Sri Lanka as a regional hub where more than 120 joint ventures of Britain and Sri Lanka operate. The Director, British Council, Tony Obrien, patron, CMI, expressed his appreciation of the social welfare activities undertaken by The Management Club.

Chairman, Management Club, Fayaz Saleem indicated that the success story was a result of a collective effort of a set of individuals with a multitude of diverse talents.

How can the People's Bank be rescued?

Is there a different way out other than the arguments advanced by the trade unions and other people's organisations against privatisation? Do we have any other option other than privatisation of state banks? How would the privatisation of People's Bank which was established through the Cooperative Movement with a view to serve the masses impact upon the economy?

President, Sri Lanka Cooperative Council and Vice President, Asia-Pacific Health Cooperative Federation, Lionel Samaras- inghe's views on the issue are given below:

The privatisation process of state institutions has, of late, become the hotly debated issue in Sri Lankan society. The basic objective of this exercise is the utilisation of the proceeds accrued from privatisation of state entities in the economic development process since the aspects of management and entrepreneurship of the private sector remain more efficient than the public sector.

Notwithstanding the various shortcomings observed in the privatisation process, it has resulted in more benefits to society when comparing the benefits accrued during the period of state ownership.

In this context, one may argue whether it is not possible to build up a strong management within the state sector without resorting to privatisation of state entities. But, our past experience indicates the failure of such attempts. Most of the state sector employees lack business acumen. They always attempt to accord priority to their trade union rights.

A similar situation does not prevail in the private sector. The operation of this sector is based on the decisions and findings of the management. A case in point here is the Sri Lanka Salt Company. When it was under state ownership it almost become bankrupt and with privatisation a turnaround occurred. It had been listed as a loss making state institution. With the introduction of private entrepreneurship in to the Salt Company with the collaboration of Cooperative Council, it recorded an annual profit to the tune of Rs. 18.5 m.

The collapse of the state institutions has been caused by the excess politicitation. Although there are persons in the state sector with required management skills and business acumen they remain helpless as the writ of the politicians run in these institutions. This results in the deterioration of these institutions.

The People's Bank remains the prominent institution among the ones listed for privatisation. It was established in 1961 by the Cooperative Movement. Cooperative Federal Bank was acquired by the government under the People's Bank Act No. 29 of 1961.

Subsequently, it became the People's Bank and during its initial period operated as a bank for the common people. Particularly, it catered to the needs of the farming community. It marched forward with joining hands with the Cooperative Movement. However, gradually it distanced itself from the Cooperative Movement. In 1986, when Ronnie de Mel was holding the portfolio of finance, 51% of the shares of the People's Bank was owned by the Cooperative Movement. However, at a later stage the stake of the movement was reduced to 8% even without giving proper notice to that effect.

The trade unions which play an active role today remained silent at that time over this issue. They did not launch any action to register their protest against this move. Had they taken any action at that time against this move most probably the People's Bank would not have suffered this fate today.

When the bank distanced itself from the Cooperative Movement and its original mandate at the insistence of few persons including politicians, the responsible stakeholders should have protested against that deviation. If not for the silence of these parties, the interventions made by the politicians would have been somewhat milder. Out of the total exposure of the bank around 23 billion has been granted to 4 borrowers.

It indicates the bank's preparedness to serve a handful of individuals rather than to cater to the needs of the Cooperative Movement and the masses. Politics was the basic factor contributing to this situation. A directive coming from the office of the Secretary of the Ministry of Finance was capable of superceding the actions of the management of the bank.

A close scrutiny of the present structure and the asset base of the People's Bank would reveal that no option other than privatisation is available at this moment. The only other way out is once again injecting of funds by the state to rescue People's Bank. However, it is a well known secret that the state does not have adequate funds for such an investment. The World Bank and IMF in their proposals indicate their willingness to provide aid subject to the fulfillment of their conditions.

Privatisation remains as their basic condition. Appointment of a chairman and the board of directors does not mean that their writ runs in the bank. It is being controlled by the Ministry of Finance. In matters such as circulars, conditions and reforms the board of directors does not enjoy a free hand.

In privatising People's Bank, first of all the views of its real owners should be obtained. The Cooperative Movement remains the owner of the bank. In establishing People's Bank under the patronage of the Cooperative Movement certain conditions were laid.

The basic condition was paying due attention to the Cooperative Movement. What has happened to the close relationship that once prevailed between the Rural Bank and the People's Bank? The People's Banks were able to mobilise Rs. 990 m. within two and a half hours time during the previous Sinhala new year day transactions. No indigenous bank was capable of such an achievement. This justifies the continued existence of the People's Bank.

Under the guise of privatisation, if the ownership of the People's Bank is transferred to an individual such a move would never get our support. Invariably we should resist such moves. At one time the Cooperative Movement held 51% shares of the bank.

Once again along with a proper assessment we should go back to that position by transferring required number of shares to that movement. This should be carried out according to the provisions of the Company Law. This could be done through accumulating the shares of the private sector, state sector and the cooperative sector.

The basic objectives of the People's Bank never tallied with the objectives of the politicians in power. The stake of the Cooperative Movement in the People's Bank was reduced to 8% from 51% in 1986 as per a parliamentary act. With that change, People's Bank became a hotbed of political meddling.

Trade unions advance an argument to the effect that privatisation of People's Bank to fulfill the conditions of the World Bank/IMF would result in various injustices to the masses. Let us examine this fact here. In case we dare to defy their conditions, we should refrain from seeking their aid. We need a self-sustaining action programme in order to go against their terms. Sri Lanka does not possess such a programme.

Large volumes of public deposits are being held by the People's Bank. Therefore, it needs a proper programme to maintain such deposits. Employees of People's Bank and Bank of Ceylon remain the most privileged group among the bank employees. They should also realise this fact. Had the trade unions acted properly in 1986 when the shareholding of the Cooperative Movement in the People's Bank was reduced to 8% from 51%, perhaps this situation would not have emerged.

Another factor that contributed to the deterioration of the People's Bank was its haphazard recruitment policy. We know this fact by experience. There are a considerable number of persons in the bank who were appointed through 'chits' sent by the politicians during election times. Their professional competency and educational qualifications had not been taken into consideration.

However, in case of the private sector such a situation does not exist. An accepted age limit is considered in recruitments to the private banks. Normally in such appointments top priority is accorded to the highly qualified innovative youth. It has enhanced the efficiency and the profitability of such banks.

In the recent past the People's Bank did not operate as the bank of the masses. Neither was it the bank of the customers. It operated as the bank of the employees. It operated within a capitalist framework. This conversion resulted in the collapse of the objectives associated with the Cooperative Movement.

The bank tends to acquire the properties of the small borrowers of Rs. 100,000 when they fail to repay their loans. However, it seem to be reluctant to take any action against large defaulters who have borrowed billions of rupees. Mainly political interventions have created this situation.

A need exists for an alternative programme to rescue People's Bank, the main option being the resolving of issues through negotiations. Accordingly, a 51% share holding of the Cooperative Movement should be reintroduced. After carrying out an assessment an opportunity should be given to the public to buy such shares. An independent board of directors needs to be appointed.

Then it should be taken ahead as a people-friendly enterprise. Most of the people tend to assume that privatisation of state institutions naturally results in the retrenchment of employees. If it is implemented according to the norms of the Company Law there is no possibility for such untoward incidents.

Various reasons could be assigned for this belief. Prominent among them being deprival of undue privileges enjoyed by the workers and inability of the trade unions to interfere in the management. In this context the politicians have emerged as a prominent group among the elements who protest against bank privatisation.

During the previous regime two salt companies owned by the government were sold. One was bought by the Cooperative Movement while the other went to Employees Provident Fund. In the first case Rs. 10 shares were bought by the Cooperative Movement at Rs. 40. However, we did not suffer a loss by this deal. The proper management was instrumental in enhancing the profitability. One needs to act according to the Company Law to achieve such results. Competent employees need to be recruited.

Certain structural changes should be carried out in privatizing a state institution. So far such structural changes have not been fully implemented within the People's Bank. A conducive environment could be built for this purpose. Under this programme measures such as adequate autonomy, required training recruitment of suitable employees and retrenchment of surplus employees by paying compensations need to be introduced.

Most countries of the world are engaged in closing down of state banks. All financial operations are being transferred to the private sector. The role of the trade unions in this exercise in confined to safeguard their rights. Their actions are not intended to rescue the bank. With the increase of the inefficiency of the bank profits have begun to dwindle.

For this inefficiency the employees also should be held responsible to a certain extent. If the bank becomes efficient the profit too would increase. Then it can be distributed not only among employees but also among the customers. Bank employees should ponder over this issue.

The private sector employees are bound to complete their day's work assigned to them within that day. However, such a situation does not exist in the state banks. This matter needs to be considered both by the employees as well as trade unions. They should realise that they can indulge in any thing until such time the bank is in existence.

A bank which was established for the sake of the masses should stand for their cause. Nothing will be accrued to the common man if the bank seeks to serve interests of the few individuals. Therefore, the trade unions should consider these facts.

They should stage meaningful agitations. They should give their consent for retrenchment of surplus employees. They should take measures to enhance efficiency. They should prevent the customers from leaving the bank. As of now pawning business remains the main source of income of the People's Bank. It has become most popular among our masses.

In case there remains an alternative to privatisation there is no question of taking it into consideration. Funds are required to continue People's Bank under state ownership. Is the state sector capable of supplying such funds? Whether the trade unions have the capacity to supply such funds? Besides, people's confidence in the state sector need to be strengthened.

A decades experiences show that state institutions instead of making profits as targeted continuously tend to record unexpected losses. Ultimately such institutions are closed down with retrenchment of workers with compensation. My personal feeling is that People's Bank should not suffer a similar fate.

Only way out available to rescue the People's Bank is allotment of shares to the institutions which represent masses instead of allotting shares to few individuals. The bank's shares should be allotted to all groups such as Cooperative Movement, masses and bank employees. Political meddling should be stopped.

It should be provided with the authority to enable it to function as an autonomous institution. That remains the only rescue measure to be taken to protect the bank that was built up by the monies of the masses to serve them well.

Vanguard to host fifth LBR LBO CEO forum

Vanguard Management Services (Pvt) Ltd. has announced its plan to host the fifth Lanka Business Report-Lanka Business Online CEO Forum on November 14 at 36th Level, East Tower, World Trade Center.

LBR LBO CEO Forum provides an unparalleled opportunity for senior executives to interact and discuss issues pertaining to contemporary business. The CEO Forum is designed to be a rich mixture of keynote address by an eminent personality and interactive sessions to share ideas. Numerous Sri Lankan CEOs with diverse backgrounds and experience have graced the previous events.

The keynote address of the upcoming forum titled 'The Changing Regulatory Framework in Sri Lanka' will be delivered by Prof. Rohan Samarajiva, consultant to the Ministry of Policy Development & Implementation and Ministry of Economic Reform, Science & Technology. It will be followed by a Q&A session.

Professor Rohan Samarajiva is currently assisting the government of Sri Lanka as team leader of the public interest program unit of the Ministry of Economic Reforms. He also serves as visiting professor of economics of infrastructures at the Delft and director of University of Technology in the Netherlands. He was director general of the Telecommunications Regulatory Commission in Sri Lanka (1998-99) and associate professor of communication and public policy at the Ohio State University (1987-2000).

At this forum Prof Rohan Samarajiva will discuss the changing role of regulators in the contemporary governance in Sri Lanka. This will facilitate the business executives to gain a sound understanding on the likely scenarios that may arise due to changing regulatory framework, and accompanied business opportunities.

Participation at the forum is restricted to the invitees only. Those who wish to receive an invitation could e-mail ceoforum@vanguardlanka.com. The CEO forum will be followed by a cocktail and fellowship. Lanka Bell will be the main sponsor for the fifth LBR LBO CEO Forum.