Business

PERC treatment for loss-making corporations

By Mandana Ismail Abeywickrema 

With the UPFA government's decision not to privatise loss making government institutions, the Public Enterprise Reform Commission (PERC) is trying to figure out how best the government could fund already defunct corporations in its possession.

The government's firm 'no' to any form of privatisation has left PERC with one option and that is to look at restructuring methods that would convert loss making corporations into profit making ones.

Speaking to The Sunday Leader, Director General, PERC, L. Wickremarachchi explained that PERC has no authority to privatise any government institution without cabinet approval, along with the approval of the relevant ministry.

When asked about PERC's position with regard to the non-privatisation of government institutions, especially the loss making ones, Wickremarachchi maintained that in keeping with the government's policy no institution though earlier earmarked would be privatised. (See box for list)

However, he observed that among the institutions in the hands of PERC, awaiting drastic transformation, were corporations which were defunct and heavy burdens to the country's coffers.

Citing examples, Wickrem-arachchi noted that corporations such as the National Paper Corporation and the Ceramics Corporation, which are defunct are still funded by the Treasury at a large expense.

"It is a heavy burden on the Treasury and the tax payers," he said.

When The Sunday Leader contacted the Treasury, officials maintained they could not give the exact amount spent on defunct corporations off-hand, adding that none of them are to be privatised.

An official said all government institutions would be made viable institutions through restructuring.

However, Wickremarachchi noted that corporations such as those mentioned above are now being looked into by PERC to find alternative methods of restructuring, which does not include privatisation.

PERC is the statutory body responsible for formulating and implementing the privatisation and public enterprise reform programme of the government of Sri Lanka and was established by the Public Enterprise Reforms Commission of Sri LankaAct No. 1 of 1996 to formulate and implement the government's privatisation andpublic enterprise reform programme.

As outlined in this act, PERC's objectives are to promote economic development, improve efficiency and competitiveness of the economy, encourage acquisition of new technology and expertise, develop capital markets and mobilise long-term private savings, motivate the private sector and increase government revenue.

The establishment of PERC was primarily to foster a healthy public-private partnership and also to privatise government institutions that have incurred losses over a period of time.

PERC is expected to play its role despite the recent setting up of the Strategic Enterprise Management Agency which is to play the lead role in this exercise.

The new face of online gaming in Sri Lanka

By Jamila Najmuddin 

A modern online gaming network in collaboration with the National Lotteries Board (NLB) and the Norwegian National Lotteries Board (NNLB) is to commence in a few weeks.

According to Chairman, Online Lotteries Board, Mohan Wijesinghe, although the programme was expected to be launched on March 15, the NLB had failed to decided on a specific date for the launch as the company was facing technical problems.

"As soon as we clear the minor problems, the NLB will set up the terminals in all the accessible places in the island such as supermarkets and departmental stores. We hope to commence operations in a few weeks time," Wijesinghe said.

Consultants from the Norwegian National Lotteries Board have been working for over a year in Colombo with the NLB, helping in the developing process of a modern online gaming network. President, World Lottery Association and President / CEO, NNLB, Reidar Norbdy Jr. arrived in Sri Lanka on August 19 to inspect the work that has been done so far and to find out when operations can commence.

The NNLB has invested a sum of Rs. 3 million in the project with the NLB investing a sum of Rs. 8 million. However, according to Wijesinghe, the NNLB will not be given any shares and will only remain as the 'management company' of the newly formed Online Lotteries Board.

"The Online Lotteries Board will remain 100% owned by the NLB and the board of directors of this company will only include local members," Wijesinghe said. He added that the Norwegians refused equity as they had decided to commence this programme in a bid to develop the lottery system in Sri Lanka.

"Through a recent research study that was conducted, only 10% of the local population showed an interest in the local lottery system. However, we have identified that there is a larger segment who are interested in the lottery system but do not have access to play these games," Wijesinghe said.

He added that tickets for this modern programme would be priced at Rs. 30 so that all segments of the community could afford to take part.

Imperial offers British Degree and MBA courses

The Imperial Institute of Higher Education (IIHE) is the only validated centre in Sri Lanka of the University of Wales to offer BSc. (Hons) in Management and the MBA.

Since 1996 IIHE has offered Sri Lankan students the chance of obtaining a University of Wales BSc (Hons) degree.

Speaking to The Sunday Leader, CEO, IIHE, Rohan Wijeratne said in 2001 their institute introduced the MBA degree to the Sri Lankan market with the intention of giving local students the chance of following a degree course recognised in UK.

According to Wijeratne, officials from the University of Wales are working closely with the IIHE to monitor and maintain strict quality standards. This degree will have a strong local relevance to students who complete the course.

"We have to be practical when organising foreign based degree courses in the country, as some students may opt to stay in the country and find employment. But those who wish to find employment abroad could do so as this degree is recognised in the UK and other countries," Wijeratne said.

Wijeratne added that students are given the option of transferring to the UK for their final year, as the standard of this degree is the same in Sri Lanka as in the UK.

IIHE students are also given the option of following the course on a part time or full time basis.

Lanka's problem: country risk 

Sri Lanka's problem is its country risk - from policy inconsistencies and erratic investor treatment, sometimes aggravated by rather unusual actions by officials acting solely on political whims and interests," said Country Chairman, Shell Companies in Sri Lanka, Roberto M. Moran in an interview with Dinesh Weerakkody.  "Because Sri Lanka's relatively small market size does not have that upside potential, it needs to reduce its country risk and make a conscious effort throughout its bureaucracy and political institutions to attract foreign investment and treat foreign investors decently," he further said.

Following are excerpts: 

Q: What is Shell's investment strategy for Sri Lanka and South Asia?

A: We view South Asia as a growth area, but to be honest, primarily because of India and its large market potential and its economic growth performance. In Sri Lanka, we decided to opt out of the petroleum third player tender because our shareholders, at the time, felt that the country risk was too high relative to the potential of the market.

Q: Shell has often been criticised for its poor customer interface. What have you done to change that?

A: Our team here has significantly improved almost all aspects of our customer offering. We conducted surveys to find out what our customers thought of us as a company, our service, our dealers and our products. We conducted them annually to measure the success of our efforts to improve. Our customer service centre was always pretty good, but its availability and coverage was limited.

We've expanded this to 24-7, home delivery and emergency response. We've likewise spent a lot of focused time and effort with our dealers and distributors, on customer service, and on safety training. Our surveys showed that we did get better, although we still have a long way to go.

Q: Pricing has been a thorny issue for Shell and the government in general. How effectively have you managed this?

A: Because cooking gas is used by a large number of users, from middle to upper income, gas prices get a lot of attention when they go up. Politicians love to jump on the issue, and we have seen too many rather unfair and exaggerated public attacks. However, we did not handle the situation as well as we could have in the earlier years.

What we did change over the past few years was in our communication of the underlying reasons behind gas prices to key stakeholders in the country, such as media, consumer groups, NGOs, academy, business groups and even politicians. We became more transparent, even volunteering to put ourselves under a controlled, automatic pricing regime under the previous government. When the Consumer Affairs Authority was created and placed domestic gas pricing under its control, we voluntarily opened up our books to demonstrate this transparency.

Q: The newspapers have been quite critical of your attitude towards the public. What have you done to change this perception and improve relations with the media?

A: As I mentioned earlier, we began to communicate much more frequently and transparently with media on many issues about Shell, often centering around the controversial issues like pricing, competition, trademark infringement and consumer affairs. But we also talked about many of the other lesser known activities of Shell in Sri Lanka, such as our LiveWIRE programme, our rural solar business and our UK university scholarships.

Q: Has the recent price hike in crude oil affected your operation adversely?

A: This has been a really tough year already because of the record highs in crude oil prices, which have affected LPG international prices. Global LPG prices have come close to record highs in the middle of summer when prices should be at their seasonal lows.

What has happened since early this year was the government stepped in to subsidise consumers by asking us to keep our prices constant and reimbursing us the difference between our prices and market levels as determined by the Consumer Affairs Authority.

Whilst this has kept prices steady until recently, it has cost the government a fair amount of public funds. They eventually decided to remove the subsidies, thus our prices were adjusted to market. Unfortunately, crude prices continue to go up as do gas prices and so we have not seen the end to price increases yet.

Q: What is your CSR policy and what have you done for the community around your facilities?

A: Shell has for a long time been a true believer and advocate of sustainable development, before 'CSR' became fashionable. We are committed to the triple bottom line. So whilst we are determined to get a fair return on our investments in order to sustain our business in the long run, we make sure that we do so without damaging the environment and we dedicate resources to working with and improving the communities in which we operate.

In Sri Lanka, we have a number of very relevant activities related to this. Our main social investment is our Shell LiveWIRE programme, where we encourage youth to consider enterprise as an alternative to traditional employment.

We conduct workshops throughout the country and through the year that focus on ideas for business start-ups, fundamentals on putting together business plans to help increase chances of success. We hold regional and national awards to recognise successful business start-ups and give the finalists national exposure.

Several programmes have been launched in the Kerawalapitiya area where our LPG import terminal is located. These include assistance to the Kerawalapitiya school (providing water supply and computers), Hendala temple and Wattala church. Among the other community programmes, we are in the process of organising regular English classes for youth from poor families in the area.

We recently launched a road safety education park at the Viharamahadevi Park here in Colombo, aimed at educating school children on proper safety rules and practices for drivers, pedestrians and cyclists through hands on learning. Through this, we want to help build a safety culture in the country, which can become the foundation from which any road safety improvements can be realised.

Q: Shell is very progressive when it comes to sourcing talent for its global operations. How do you rate Sri Lankan talent?

A: In the four years I've spent in the country, I have had the pleasure of working with very talented, intelligent and decent, good-hearted people, both in and outside the company. These people are world-class, capable of holding their own anywhere in the world.

In Shell, we have been fortunate to recruit so many talented Sri Lankans that we have 'exported' many of them to other Shell businesses outside. The country is really fortunate, too, to have professional and sincere leaders in the business chambers who, whilst promoting the private sector, do so with the interests of the country as priority.

Q: You will be moving on soon to another assignment. During your tenure you accomplished a lot. What has been your most significant achievement?

A: When I look back over my four year stint here, I can think of a number of achievements that I am particularly proud of. But the one thing that has probably made the biggest impact is in the improvement of Shell's reputation in the country.

We really had a very rough time during the early years and many of the actions we had to take led to a lot of bad publicity. But through our efforts at communication and stakeholder engagement and involvement with the local communities, we have changed perceptions about the company.

There are still a number of stakeholders who still look at us unfavourably and there will always be some anti-Shell people around. Fortunately, there are more people who understand our position and appreciate our transparency, our achievements and our social contributions.

Q: As a final question, what do we need to do aggressively to attract the volume of capital we need for our infrastructure development?

A: Sri Lanka's problem is its country risk, from policy inconsistencies and erratic investor treatment, sometimes aggravated by rather unusual actions by officials acting solely on political whims and interests. We experienced some of this in our LPG business despite investing over US$ 145 million. This country risk issue was the main reason why we pulled out of the petroleum race.

The reality is that there is a lot of capital looking around the world for projects and countries for good investment opportunities, but this capital is limited and competition for it is high. In Asia alone, Sri Lanka has to compete with the likes of China, India, Indonesia, the Philippines, Vietnam, Pakistan, etc., countries with similarly high country risk but large markets that provide huge upside potential to foreign investments.

Because Sri Lanka's relatively small market size does not have that upside potential, it needs to reduce its country risk and make a conscious effort throughout its bureaucracy and political institutions to attract foreign investment and treat foreign investors decently.

One can look at the examples of Dubai and Singapore to see how countries with limited markets and resources can grow dramatically from foreign investments. Or one can look at a thriving democracy like Thailand that has spent the past two decades with a consistent policy towards foreign investments despite changes of government. Of course, this is much easier said than done. But if the investment climate improved, foreign investments could contribute as much or more to economic growth than the resolution of the ethnic conflict.

I do wish this country all the best success. Its people certainly deserve it.

Keells Super re-launches with focus on 'gold standard' service 

Keells Super opened its first outlet in Nugegoda as part of its re-launching programme. The Nugegoda outlet was well received as over 1,000 customers visited on the opening day itself.

John Keells Holdings (JKH) took the re-launching programme forward as part of introducing the local customers to a very pleasant shopping experience.

According to Director, Jaykay Marketing Services (Pvt) Ltd., Roshanie Jayasundera-Moraes, the supermarkets will be manned by experienced and well trained managers and customer service personnel. She further said the product line-up at the supermarket would be constantly reviewed in keeping with customer needs.

Speaking of the history of the supermarket, Director, JKH, Sumithra Gunasekera said that identifying the retailing sector as a key growth area in the food and beverage sector, the group has placed special emphasis on the supermarket chain.

"Supermarketing as a modern trend has shown a double digit growth," he said.

Gunasekera observed that JKH through Keells Super outlets plan to provide customers with high quality products while giving true value to them as well.

"We offer Keells Super customers the 'Keells gold standard' service, which is the hallmark of success," he said.

He further noted that apart from equity and infrastructure, the company has invested time, energy, resources and money on training and developing its staff.

According to Gunasekera, the key thrust would be to achieve gold standards through development techniques by the in-house team of experts.

He went on to say that Keells believes in providing its customers with an unparalleled service while "being the market leader in the retail business."

Keells Super, which has 11 outlets at present, plans to add on another 50 within the next three years.

Gunasekera said that they were now looking at backward integration and plans to look into the needs of the farmers who would only produce for Keells Super. Keells Super plans to provide its customers with a wide range of fruits and vegetables.

Gunasekera also pointed out that Keells Super outlets believe in being the icon in the locality. He went on to say that they want to be involved in their customers lives in many ways, apart from business. This, he says, will be part of the company's corporate social responsibility programme.

HNB records substantial growth 

By Shezna Shums 

Hatton National Bank (HNB) recorded a 16% increase in net interest income largely due to a significant decrease in its interest expenses. The bank also posted substantial increases in both foreign exchange income and commission income.

Income from the core operations such as net interest, foreign exchange and commission income for the first half of 2004 reflected a 20% growth over the corresponding period of the previous year.

The bank also stated their income from treasury operations showed a marked decline when compared with the previous year, thereby showing only a marginal increase for the net income when compared with the previous year.

The comparative drop in treasury income was on account of the previous year being a exceptional year where considerable income was generated through bond and equity trading activities due to the prevalence of favorable economic and market conditions. As a result of operational expenses a before tax profit of Rs. 554 million and an after tax profit of Rs. 514 million was recorded for the period ended as of June 30 this year.

This figure is in comparison with the Rs. 630 million profit before tax and Rs. 576 million after tax made during the corresponding period of 2003.

However the management of HNB believes that the bank is on track for achieving a year-end profit level surpassing that of the previous year.

In the bank's balance sheet, the advances portfolio increased by approximately Rs. 3.5 billion from end of 2003 and the deposit base also grew marginally compared to the position as at year end last year. The bank's capital adequacy as at June 2004 stood at 11.27%, marginally down from the 11.47% as at year-end 2003.

The asset quality of the bank continued to improve with the NPA ratio further reducing to 13.7% in June, from 13.9% as at year-end 2003. The bank's NPL cover (loan loss reserve as a percentage of total NPA) also reflected an improvement over year-end 2003.

In the group account, HNB group showed a profit before tax of Rs. 575 million and a net profit of Rs. 488 million. This reflected a 34% drop in profit before tax and a 38% decline in net profits. The prevailing market conditions were not conducive for the operations of HNB Securities Ltd., which posted a modest profit of Rs. 19.6 million down from Rs. 200 million net profit during the corresponding period in 2003.

The bank's insurance subsidiary also posted a healthy profit of Rs. 48 million, the bank's stock brokering subsidiary posted a Rs. 10.4 million profit, compared to the Rs. 14 million profit made during the corresponding period of the previous year.

As in the future projections of HNB, the bank will continue on its decentralisation management structure by empowering its zonal management and progressively reducing the size of the center. The zonal administrator continues to be a key driver in the bank's growth and development, and the following years will see greater autonomy and discretion passed down these zones to effectively carry out baking functions.

Other projections include placing more importance on its technology. Here HNB will continue to consolidate its different technology platforms into a signal platform thereby paving the way to a more streamlined and efficient service to customers. The bank is considerably combining its IT strategy with the business strategy and would also considerably use IT in its future expansion activities.

Risk Management (RM) is another avenue the bank will pay considerable attention to. The RM functions have been decentralised with senior officers assigned as the head of RM in each zone.

The bank will continue to promote consumer-banking activities in light of the high yields, and consequently high margins derived from such activities. However the bank would also lay emphasis on the RM associated in these schemes and would be strengthening existing processes put in place in this regard.

The bank's cost-to-income ratio is presently around 72% is expected to reduce to 67% by 2007. The bank also expects an increase in ROA from 0.75 as at present to around 1.65% by 2006. The bank states they will carefully monitor and manage its balance sheet growth keeping in line with its anticipated profit growth whilst also ensuring that capital adequacy and other regulatory requirements are also met.

The continued emphasis placed by the bank on RM is expected to result in better asset quality by 2006. The NPL ratio, presently around 13.7%, is expected to be below 10% by 2006. Further, with the fall in NPL, the bank also anticipates a progressive improvement in the NPL coverage ratio from present level of 37% to 45% by 2006.

Civil aviation industry woes 

By Marianne David 

A new civil aviation policy is presently being drafted in order to replace the act of 1950. According to Director General and Chief Executive Officer, Civil Aviation Department, H.M.C. Nimalsiri, the present act needs to be updated for safety, security and commercial reasons.

"The civil aviation industry is about 100 years old and it is being regulated with an act which is 50 years old. This act does not reflect present day requirements," he told The Sunday Leader.

Industry analysts however believe the new act will not address problems faced by the aviation industry as a whole - such as the inability to fly at night or operate within Colombo and being allowed to operate only from 6 a.m. to 6 p.m.

According to Nimalsiri, in the preparation of the new civil aviation policy, these issues have not been taken into consideration since they are regulations imposed by the National Security Council, and do not come under the purview of the Civil Aviation Department.

However, going by present day requirements, it is essential that civil aviation operators should be allowed to operate in Colombo, industry sources point out.

"As a developing country, it is best that Sri Lanka creates avenues for commercial aviation companies to operate freely," said Commander (A330 and A340), SriLankan Airlines, Captain Anil Jayasinghe. The little infrastructure that Sri Lanka has as far as aviation is concerned is also under-utilised, Captain Jayasinghe said.

"We have 15 airfields around the country. All have been given to the air force and civil traffic has been stopped. It is a labourious process to gain access to one of these military airfields. The airfields are there for the public and should be easily accessible," he said.

Acknowledging that being allowed to operate helicopters is one step in the right direction where the civil aviation industry is concerned, Captain Jayasinghe said it is important for helicopters to be allowed to operate in Colombo.

"From a business point of view, travelling for over an hour to get to an airport and then taking one third of that time to fly to places such as Polonnaruwa does not make sense. There are facilities to operate in Colombo which were not utilised due to the ban and the hotels in Colombo have helipads," he said.

He said the SriLankan Airlines amphibian operation was stopped due to a security threat and if such decisions are made at the drop of a hat, it is not commercially viable. "When the government imposed the total ban on aviation due to security threats, the entire civil aviation industry collapsed and all the flying schools closed down."

Captain Jayasinghe further said while farmers in Dambulla were rebelling against seaplanes landing on the Dambulugala Lake charging it was harmful to the environment, seaplanes operate around in the world in environmentally sensitive places such as Alaska.

Meanwhile, a senior air force officer speaking to The Sunday Leader on conditions of anonymity said the air defence of the country is at a very low ebb and while successive governments have contemplated improving the aviation defence, it has not been done due to the enormous expenses that would be incurred.

"Helicopters could be commandeered by terrorists and used as a bomb or to launch an attack. In the event this occurs, we don't have the ability to stop the attack. Further, once an airplane is airborne in the night, we do not know where it is heading since we do not have radar cover around the country," he said.

To minimise the security threat with regard to civil aviation, he said the screening of passengers is possible. "Facilities have to be provided for civil operators to base their aircraft in airport bases. Air force authorities can screen the passengers and once this is done, the craft can fly anywhere. It is being done in America. With screening, in case of an emergency, we know who is on the plane and items classified as dangerous goods can be removed according to the civil aviation policy before the craft leaves the ground."

In order to overcome concerns about the operators' bona fides, there should be intelligence coverage and the credentials of the operators should be checked and the operators issued certificates accordingly, he said, further adding that improving the civil aviation industry would have a positive response on the tourist industry and the number of businessmen coming into the country since having to travel on roads that are in a bad condition, which also takes a lot of time, keeps them away.

Meanwhile, Deccan Aviation launched operations in Sri Lanka last week. Managing Director, Deccan Aviation (Lanka) Pvt. Ltd., Suren Mirchandani speaking to The Sunday Leader said the company is primarily aiming at the tourist market and the bulk of operations are directly from Bandaranaike International Airport in Katunayake and hence, not being able to operate in Colombo did not have a direct impact on the company's operations.

Deccan Aviation (Lanka) is a subsidiary of Deccan Aviation India, the largest helicopter operator in the region.

"In most cities due to noise and security concerns, all city helipads are closed. In the long-term we would definitely be happy if the facility of being able to operate in Colombo is granted but we understand that is not possible right now," Mirchandani said.

Nawaloka IPO a huge success 

By Jamila Najmuddin 

The Nawaloka Hospital IPO recorded a resounding response from the public with the 300 million issue being oversubscribed by nearly 300%. The issues, which were oversubscribed within a timeframe of two hours after the subscription, was open to the public on August 19 and had an overwhelming response from individual investors.

Speaking at a media briefing on Wednesday, Deputy Chairman/CEO, Nawaloka Hospital, Jayantha Dharmadasa said the overwhelming response from the public highlighted the confidence the public has in Nawaloka. "We are very happy to invite the public to share in our success as we opened our initial offer to the general public on August 19. We received a total of 5,000 applications within two hours out of which 4,863 applications have been approved," Dharmadasa said.

Among the larger corporate institutions which have applied for the issue are most of the commercial banks, the Al Naqib brothers, Kuwait and the AMW Group.

Dharmadasa said those who have applied for upto 10,000 shares will get 70% of the shares subject to a minimum of 1,000 shares. Applicants who have subscribed for between 10,000 and 50,000 shares will get 50% of the shares subject to 7,000 shares and those who have subscribed for between 50,000 and 500,000 shares will have 38% of the shares applied for subject to a minimum of 25,000 shares.

He said a total of 15 million shares were issued at Rs. 20 and several exclusive benefits were awarded to shareholders, which made this more than just a monetary investment. "For shareholders who own more than 1,000 shares, the hospital offers them an exclusive discount scheme as they will be awarded a 10% discount on OPD, 10% on lab services, 10% on X Rays, 10% on ECG and EEG, 10% on rooms charges, 5% on CT Scan, 5% on MRI Scan, 5% on eye surgeries and 5% on bypass surgeries," Dharmadasa said.

According to Dharmadasa, the IPO will fund a modern five storey hospital complex, estimated at around Rs. 100 million and the balance Rs. 200 million will be utilised to partly retire debts, thereby increasing the financial stability of the company as well as adding to its profitability.