4th July, 2004  Volume 10, Issue 51

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BUSINESS

UPFA decides not to privatise

By Mandana Ismail Abeywickrema 

The government has decided not to privatise government entities. Sri Lanka Railways, Ceylon Petroleum Corporation, Sri Lanka Central Transport Board and the Ceylon Electricity Board  which Finance Minister Sarath Amunugama a few days ago described as "monsters" and unprofitable organisations will be retained by the government under its new economic policy unveiled last week.

The welfare oriented economy that shuns privatisation, has taken the challenge of making unprofitable public enterprises generate bankable profit flows greater than the cash value that could be generated through privatisation. Finance Minister Dr. Sarath Amunugama however stated that to maintain these institutions is to cause  haemorrhage of  government capital.

Dr. Amunugama was quick to add that saying no to privatisation does not mean that the Treasury would keep pumping money to keep these institutions running.

Explaining further, Dr. Amunugama said that in order to achieve the set growth rates of 6-8% GDP the government would have to look at stringent reforms and make the institutions self-sufficient.

The economy policy states that the government will also encourage competition by inviting private sector entry into the specific sectors to promote healthy competition. Immediate priority will be placed on the re-engineering of the CEB with restructuring of its balance sheet, the operation of independent business units within the CEB and implementing a long term power generation plant to meet the country's demand.

The Strategic Enterprise Management Agency (SEMA) has been given the task of spearheading efficient management of the public enterprises.

Explaining further, Dr. Amunugama said that the government hopes to build a sustainable national economy giving priority to agriculture, fisheries, livestock, small and medium scale enterprises (SMEs) and tourism.

He went on to say that the country's first quarter performance, as stated by the Central Bank is encouraging.

Speaking of economic challenges, Dr. Amunugama highlighted that 40% of the contribution to the country's GDP comes from the Western Province while the contribution of most of the provinces is less than 10%. This gross disparity, he said has created a sense of two countries, adding that the government would look at fiscal policies that could bridge the gap.

As for the agriculture sector, which would receive greater attention by the government, a concept of national crops would be implemented. Amunugama said that the government will look at being self sufficient in paddy, potato, onion and sugar cane production.

Speaking of infrastructure, Dr. Amunugama said that the government would pay particular emphasis on the power and energy sector, adding that roads, railway and the transport sectors would follow suite.

As for the gap in income and expenditure, Dr. Amunugama said that the government is now working closely with the revenue collecting authorities - Inland Revenue, Customs and Excise Departments - in a bid to increase revenue, which he claimed has seen an increase in the past few months. When asked about the position of the Treasury as far as meeting subsidies on fuel, gas, flour, etc., Dr. Amunugama maintained that although the country's hard earned foreign exchange is spent on them, the government would continue with it for the time being.

As for provisions for such payment, Treasury Secretary, Dr. P. B. Jayasundara said that the government could meet the payments as funds budgeted for certain sections like the Rs. 7 billion under the VRS, could be utilised for subsidy payments.

International Monetary Fund (IMF) Head, Jeremy Carter told The Sunday Leader that he would like to see a detailed background to the government's economic policy as certain sections lacked clarity.

He also maintained that even the clause of non-privatisation lacks clarity as the government has not addressed the gamut of issues surrounding it, but merely states that 12 public enterprises would not be privatized.

A stance that Carter as well as his counterpart in the World Bank, Peter Harrold maintain is that government subsidies are not a long term solution as the large amounts of money spent on them could have been used for other more important projects.


Polythene poser

By Jamila Najmuddin 

The government's decision to ban the use of polythene has come under attack by leading polythene manufacturing and importing companies voicing their opinion that this move would cause severe losses to the country.

With more than one million people currently dependent on the polythene industry in Sri Lanka, this ban would increase unemployment in the country followed by severe losses to the companies dealing in polythene as well.

Speaking to The Sunday Leader, Managing Director, D.K.W Plastic Industries, D. K. Weeratunga noted that this ban would affect the entire packaging industry as well as many companies today that packed their products using polythene.

"We do not only manufacture sili sili bags as our company also deals in other polythene packaging like the packing of pouches, cutlery packing for SriLankan, packaging of various types of spices and the manufacture of garment polythene bags. If the government is going to ban polythene it will affect the entire packaging industry as well. The manufacture of sili sili bags is only 15% and the remaining 85% deals in the packing of other products with polythene," Weeratunga said.

According to Weeratunga, more than 40% of his workforce would be forced into unemployment and the existing machines that the company had would have to be sold for scrap or modified with additional parts so that it could be used for other purposes.

Weeratunga added that since several polythene manufacturers exported to the UK market as well this would severely affect the foreign exchange coming into the country.

"Although the government says that environment friendly bags can be used instead of polythene bags what about the packaging industry? How are we going to continue our business with the packing of spices and cutlery for other companies," queried Weeratunga.

Director, Nissico Traders and Industries, Shabbir Abbas told The Sunday Leader that many people used polythene bags everyday and these bags were the cheapest to manufacture.

"With the high cost of living that the country currently faces how can people afford to buy other bags when polythene bags are the cheapest? The machines that we currently have are for the manufacture of polythene bags only and it would cost us severely if we were to discontinue using them," said Abbas.

Meanwhile, Environment Minister, A. H. M. Fowzie, told The Sunday Leader that a tax would be charged on the import of polythene and that this money would be used for other alternatives like buying new machines to make environment friendly bags and organising awareness programmes.

"If we succeed in this, the government will 'completely ban' the use of polythene within the next two years. One of the alternatives that would be used instead of polythene bags would be environment friendly bags. Used in Bangladesh, these bags are extremely cheap and are user friendly as well. They are also 'wash and use' bags so that people do not have to spend money on buying several different bags," the Minister said.

To destroy the existing polythene bags if the ban is implemented in two years, the Minister said that there were several ways that these bags could be destroyed. "One of the alternatives is that adhesive could be added to these polythene bags and within three to four months these bags would be completely destroyed," the Minister said.


Green light for Multivision 

The Commercial High Court on June 23 appreciated the application made by Ruhuna 2001 Multivision (Pvt) Ltd. seeking the permission of court to publish an advertisement in the newspapers correcting the previous advertisements placed in the newspapers by petitioner - Chalmway Proprietary Limited.

Ruhuna Multivision (Pvt) Ltd. previously filed a motion in court on June 11, whereby Multivision drew the attention of court to the newspaper advertisements published by Chalmway Proprietary Limited on May 27 and 29, 2004 whereby Chalmway Proprietary Limited it said took undue advantage of a mistake in the proceedings of court on a previous date in recording the undertaking given to court by Multivision.

Chalmway Proprietary Limited in their objections to Multivision's motion did not state that they had been mislead by the typing error in the proceedings.

Multivision in their counter objections state that the said newspaper advertisements were wrongful and malafide. Multivision further states that Chalmway Proprietary Limited thereafter proceeded to regularly publish a series of advertisements without any sanction and approval of court, without any notice agreement or approval of Multivision and without making any correction to the pervious inaccurate and misleading advertisement published by them. Multivision further stated that the advertisement published by Chalmway Proprietary Limited was intended to give maximum possible prominence and were intended to create maximum possible prejudice, disadvantage and damage to Multivision it's directors, officers and employees and to impose undue pressure and influence on Multivision it's directors, officers and employees.

It was noted that Gamini P. Gunawardena has only been appointed an alternate director to an existing director of Multivision. His appointment is purely to have the necessary representation in the board and that all decisions are within the current board of directors at Multivision.

The court held that Multivision was at liberty to publish the proposed advertisement in any manner that it thinks fit. Ruhuna 2001 Multivision (Pvt) Ltd. was represented by S. L. Gunasekera, Chanaka De Silva instructed by Sudath Perera Associates. Chalmway Proprietary Limited was represented by K. Kanagiswaran PC with Avindra Rodrigo instructed by F. I. & G De Saram.


Can we say no to privatisation? 

By Dinesh Weerakkody 

Led by the example of the developed countries, both the PA and the UNF returned state managed enterprises to the private sector for an economic boost and to raise money to bridge the budget deficits. The new generation politicians in the UNF whose basic need for economic miracles is no less pressing, discovered at least in part how to hum the trick.

They believe that the dullest state owned company, the heaviest loss making utility, or the least efficient public sector service could be transformed almost overnight into a viable entity and contributor to the national coffers by saying the magical word privatisation. In Sri Lanka privatisation has not been without controversy, or the occasional hiccup. The JVP exploited this in the run up to the election by creating a picture of victimisation of the common man and saying that privatisation should stop.

The rural poor believed the JVP story because the UNF did not communicate effectively that state enterprises are burden on the tax payers and a drag on society due to years of mismanagement. In Sri Lanka however the positive benefits of privatisation in terms of revenue, raised new jobs, created productivity gains and increased investment.

A market economy the nation is best served with is when the government leaves the production of goods and services, which meet market, demand, in the hands of the private enterprise. Why? Because the entrepreneurs and the capitalists have a right to the profits that their enterprises generate. In this scenario the more innovative the initiative the larger the resources required, more hazardous the risk and higher the profits. However, the right to private property is not an absolute right. It should contain the responsibility to use private property not only to enhance wealth, but also to meet the social obligations of the community.

So by virtually saying no to privatisation we will find it hard to come out of the current state of indebtedness and low capita income and above all run the risk of isolating Sri Lanka from the global map. What we instead need is a robust process, which prevents any manipulation from the state or individuals while retaining all essential services with the state.

Benefits

Generally privatisation refers to the sale of majority stake in a state owned enterprise and with it the power to manage the enterprise. Private sector professionals who have managed state owned enterprises say it is impossible for those who have never had to tailor their commercial instincts to suit the whims of government ministers to realise just how much it means to escape from their political masters and their supporters. Therefore, the importance of the government carrying out an effective role as a facilitator of growth rather than the engine of growth has been recognised by a government for the first time since independence, this augurs well for the development of the private sector. In fact, even people in communist countries have realised that governments should not be in business. They have no business to be in business. Their job is to facilitate and regulate business and also ensure that the interest of the poor is safeguarded.

Panacea

In South Asia, privatisation has become a word with a considerable cachet, one that encapsulates the advances made by state owned industries, which have moved into the private sector. Further, the increased interest creates awareness amongst the general public with regard to the benefits of share ownership. It implies streamlined and efficient business, achieving big profits and finding better ways to compete.

However, it must not be forgotten that it is not merely the act of moving the public to the private arena which causes these things to happen. On the contrary, it is the sustained, hard work at every level of a company, which is required to ensure that they compete effectively. Becoming private itself is no immediate panacea for improvement. In fact unaccompanied by anything strategic, it would very well result in additional travail. Privatisation according to many bureaucrats brought a cultural revolution, bureaucratic hierarchies were broken down, recruitment and promotion policies re-written and over and above all this, managers were encouraged to manage. A former Chairman of British Telecom, Sir G. Jefferson once said, "they found that the quality of their people was as good as that of the workers in the private sector, but state ownership had never allowed them to realise their full potential."

Research suggests that public ownership generally leads to confused objectives for a business because social and commercial objectives get intertwined to the detriment of both. Privatisation gives management a focus, but it also intoxicates the factory floor, even in countries like Britain where there is little record of mass participation in equity markets and where prior to the sales of stocks, share ownership was confined to only a tiny fraction of the population. Again there is no real magic in the reasoning; it has been found that when employees see the management being given the right to manager, and seizing the opportunity, they begin to respect it and respond themselves.

A former Chairman of Canadian Airlines once said, "I am a believer in the idea that public companies are a lot freer to be innovative and entrepreneurial than government owned companies. Since we've come up with some very innovative ideas for financing equipment. We've become a lot more customer focused. In the long run, I believe the public will be better served because of our privatisation."

Success

Privatisation is a success story and a big business not only for governments and corporations concerned but for the investment banks, management consultants, brokers, securities, houses and law firms - indeed for all who have a part to play in keeping the financial system flexible and mobile. Now the world map of privatisation shows that the policy is being considered in every corner of the world, including, astonishingly, some communist regimes such as Cuba and Poland.

In the final analysis, some of the privatisation of our state monopolies has taken considerable time, however, the effort in some instances has been a tremendous success. However, for us to benefit from privatisation we need to ensure that the privatisation proceeds are channeled for capital investments, because they add to the capacity of the economy and thus promote growth. Therefore by saying no privatisation we may dent business confidence and our growth potential.

We also need to remember that free market capitalism motivates not only the mega entrepreneur, but also the small and medium enterprises in the country. This approach to development leverages powerful forces to increase capital efficiency.

However, there is a short term down side to this success story. That the working class low income groups invariably has to make sacrifices and be happy with the pittance coming their way until the wealth that accumulating trickles down to them. This is where state intervention is required to sustain the welfare measures in the absence of private sector participation or to prevent exploitation of the poor.


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