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17th December,  2006 Volume 13, Issue 23

First with the news and free with its views                                     First with the news and free with its views                             First with the news and free with its views                                    

Business

Mahinda directs Rs 250 wage, demands strikers to return

Strike causes Rs. 1.5 bn. loss to companies

President Mahinda Rajapakse at a special cabinet meeting held on Friday to resolve the plantation strike had directed that the worker be paid a daily wage of Rs 250, Plantations Minister Milroy Fernando told The Sunday Leader.  Their current daily wage is Rs 195, with the workers demanding a daily wage of Rs 300.

Labour Ministry Secretary Mahinda Madihahewa said that Labour Minister Athauda Seneviratne had summoned a meeting at 6 pm on Friday between the striking unions and the Employers' Federation of Ceylon (EFC) in order to resolve this issue. He  was unaware of the possibility of invoking emergency regulations in order to compel workers to return to work. Talks to resolve this issue however  ended in a failure on Friday night.

A round of talks between the two parties also  failed on Thursday as the Upcountry People's Front (UPF) of Welfare Minister P. Chandrasekeran stucked to their demand for a Rs 300 daily wage.

Minister Fernando said that the private sector was amenable in the granting of a Rs. 250 increase.  Employers Federation of Ceylon (EFC) Director General Gotabhaya Dassanayake told our sister paper The Morning Leader  in its December 13 edition, that when they were negotiating with the CWC , said to be the biggest union representing plantation workers, for a wage hike, the figures that were being discussed were Rs 250  Rs 10, when negotiations broke down due to the intereference from other unions that were adamant on a Rs 300 wage. Since the beginning of this month, the CWC has withdrawn from negotiations.

"If they (workers) do not return to work, the government will be compelled to take drastic action," Fernando said.

He however refused to elaborate as to what sort of action that the government would take in order to compel workers to return to work.

When asked whether the plantation industry would be declared and essential service, Fernando directed this reporter to ask that question from Media Minister Anura Priyadharshana Yapa. Yapa was however not immeditaely available for comment.

Chairman of the Plantation Association of Ceylon Malin Gunathilake on Friday said that the 21 plantation companies have incurred a Rs 1.5 billion to date on account of this trade union action which began on November 20.

"The loss in export terms is much more," he said. Gunathilake further said that even if the workers rerturn to work tomorrow, it would take another three weeks to get the tea bushes back to shape, to be "ripe" for plucking.

The TU action became a full blown strike from December 1. There has been no plucking since and the bushes have all overgrown. This is called flush, they have to be pruned and allowed to grow again, all this takes time, he said.

Guanthilake further said that during the period  the "go-slow" was effective, that is from November 20-30, workers used to be bringing only about 1-2 kilos, as against the usual 15-20 kg.

Further, produce from the estates have been prevented from being taken to Colombo and this has affected exports, he said.

What is being sold are mainly those already in the go-downs in Colombo and in the suburbs, said Gunathilake.

"But still the workers were paid their usual daily wage," he said. Gunathilake also said that from the beginning of this week some workers had wanted to return to work, but they had been prevented from returning by mischievous elemements.

"Their festival Thai Pongal,  is next month and if they don't return to work, then they will not be entitled to their salaries.

As it is they have not returned to work since December 1 and are not entitled to be paid during the period of their absence," said Gunathilake.


Govt. ignores WB assistance to PPPs

By Sunalie Ratnayake

World Bank (WB) assistance for public-private partnerships (PPPs) though available, has not been tapped by the government, WB Country Director for Sri Lanka Naoko Ishii  said at a Central Bank lecture on Thursday.

 She further said that the WB has done a lot of activities in terms of  PPPs in Pakistan and India. PPPs are a form of government "procurement" involving private sector participation for the delivery of specific public services, said Ishii. It could also be described as an agreement between the government and a private sector entity to share in the risk and rewards of a business venture involving public services in areas such as ICT, power, transport, water and urban environment, she added.

Ishii told The Sunday Leader that the starting point of  a PPP is consensus and to have a policy framework. "But the WB and the government haven't really reached that stage as yet. "I have heard a lot of interest in PPP, but there hasn't really been a deeper discussion about what the government is actually thinking. There still is a resistance in both the private and the public sectors. Information sharing of business stories of other countries is interesting.

There are several successful cases, such as the road sector in India. We are doing the same thing in Pakistan. If we can identify sectors, we can discuss model contracts. But right now, we don't even have a counterpart to discuss PPPs.

We even asked from the Finance Ministry which unit or which bodies we can discuss this. There are 30 successful cases among four or five Asian countries. India and Pakistan are among them," she said.

Ishii in her lecture also emphasised the importance of Sri Lanka achieving macroeconomic stability. Sri Lanka is in transition from a  low income country (LIC) to a middle income country (MIC), but MICs need a lot of efficient and effective private sources for long term financing.

"We have conducted certain studies in India in thic context and thus we have provided required technical assistance. In Sri Lanka, infrastructure, industry, housing and agriculture require more efficient and effective private sources of long term finance." She said. "We also need to ensure that the services are reached by the poor," said Ishii.

She also said that the WB plans to shift from project based lending to programme based lending. Programme based lending is where a country's balance of payments position is strengthened, as against lending for specific projects.  Multilateral donor agencies such as the IMF provide programme based lending, provided beneficiary governments adhere to certain terms and conditions as laid out by the IMF.

"Our annual lending levels to Sri Lanka is in the region of $ 150 million. But depending on Government strategy, especially since they have come out with their 10-year vision, we hope to build on our current lending amounts," Ishii said.

She however said that the WB no longer has a "monopoly" in development.  Private capital is five to six times larger than aid flows, but WB consultancy services are readily available, she said.  Asia is booming, globalization and interdependence is in occurrence and the role of the state is being subject to change, said Ishii.

  "We are trying to emphasize on  government ownership and partnership with stakeholders," she said. "We have decided to decentralize our operations, especially in the way of doing business. The WB is readily available with knowledge service or technical assistance. We are trying to introduce risk based supervision for the insurance sector and legal frameworks for the mutual funds industry."

Sri Lanka has achieved a great deal in human capital investment. The WB is concentrating on how to help Sri Lanka complete its transition from an LIC to an MIC. But achievement in human capital development has lead to MIC problems in terms of transition to an ageing society, facing non-communicable diseases and unemployment in educated youths, the WB's role is to help Sri Lanka complete its transition in a smooth manner, Ishii said. The WB also wants to ensure that Sri Lanka does not fall into MIC trap (sluggish growth).

Ishii further said that MICs require different things to overcome challenges and sustain growth. They include, how to swim in capital markets, how to compete in global markets, how to cope with domestic disparities, how to provide social protection and how to define the role of state against the private sector.

"The Government  has just published its 10-year vision. Our role is to help it to identify institutions that could help to complete the transition. Also, our goal is to help the  government to think through 'cross-cutting issues' and formulate strategy to cope with integration with global markets, increase in competitiveness and productivity as well as to deal with disparities," she said.

Its 10-year vision has identified challenges such as equitable development, integration of lagging regions into the growth part, increase in productivity, dynamic private sector development, international competitiveness and global integration as well as shifting to commercial agriculture through modern technology.

"We have a Sri Lanka Finance Ministry modernization project and pubic financial management, debt management, output-based budgeting, monitoring and evaluation are carried out. There are also modernization of Central Bank and Non Financial Regulatory Bodies projects that are being carried out," she said.


Jayasundera era incomparable with present

The times when Hayleys was considered the number one company in Sri Lanka cannot be compared in the present context due to changed circumstances, Hayleys chairman Rajan Yatawara said.

He was responding to a question raised by The Sunday Leader  which asked as to how Hayleys, which was consistently ranked the country's number one corporate in the early 1990s, the time when D.S. Jayasundera was its chairman, had since lost this top position?

"Policies and exchange rates,  export incentives, inflation, all those favoured export manufacturing and not just exports during that period, which is however absent now," he said at a recent seminar which highlighted the progress made by the Hayelys Group.

Performance measurements, as are prevalent now, were absent then, if one looks at such measurements applied by organisations such as LMD or similar parameters," Yatawara said.

 "But some of our products which grew very well in the past, have matured, so that is globalizing. We are trying to be more creative and innovative in what we do. We are also going into new areas, as you know, shipping has grown quite considerably. It is spreading into every area of transport and we have a few more ideas which will materialize in the near future," Yatawara further said. (SR)


WB ready to assist state sector

by Sunalie Ratnayake

The World Bank (WB) is prepared to render maximum assistance to make government institutions efficient in the context of the government policy not to privatise state institutions, WB Country Directory Naoko Ishii said in an interview.

"Not only in Sri Lanka, but also in other countries, there is a tendency in governments to not privatize state run ventures, but to increase efficiency and the WB is totally in favour of this concept and is willing to provide assistance towards increasing efficiency. I have worked in countries such as Vietnam and also have lots of experience in this area, and yes, the WB is ready to provide maximum assistance to this commitment of the government," she said.

Ishii further said that the WB has continued with their assistance to Sri Lanka despite the conflict. "Even while the conflict has escalated and is still going on in Sri Lanka, we have been able to reach certain other areas where there is no conflict going on. Especially in terms of education, and uplifting education in the country, we have positive results in projects related to same.

As far as the conflict is concerned, I still believe that the WB has been able to carry on with our projects, regardless of few obstacles, because we are trying to operate in our manner of doing things. At present we are conducting discussions in terms of what we could do. In some of the conflict areas we have even being able to conduct our projects so far," she said.

Following are excerpts of this interview:

Question (Q): How does the WB work in terms of community development?

Answer (A): In terms of community development, especially with projects in relation with the tsunami, the moneys or funds go through the government to the individuals. There are different stages, about four or five different stages in this procedure, but the funds usually go via the government to the projects and the recipients.

(Q): When conducting these projects, certain main and important issues, such as water issues are not solved. For example, when building houses for tsunami victims, the place is not made clear initially. What do you have to say about this?

(A): Yes that is true. Some places are messy, but then the government's initiative is to quickly build the houses or complete the project and then attention on other issues are made. We have even done an analysis on such issues.

(Q): In WB projects, how cooperative is the Government? Are the Government and the WB getting along fine? Do you think they are cooperating enough or should they work more in terms of cooperating with the WB?

(A): I do not want to here misrepresent this issue, but I should mention that we have a Ministry of Finance modernization project as well as a Central Bank modernization project. Through these we try to help them upgrade their capacity. The Government has to identify their areas of priorities and then only the WB can assist them in many aspects. If the Government is more interested in various areas of development in the country, the WB is ready for assistance. Also, since the house should be clean, to begin with, the WB has established an 'anti corruption' framework to conduct WB operations. Also, since the Government has issued its 10-year vision, we are looking forward to many positive areas in terms of the Government's contribution towards upgrading, where we can also provide the required assistance.

Health and education sectors have been the areas where we have achieved the greatest amount of success. "We do not have to create a stand along unit in these areas. The framework is shared. After the projects are complete, the government can take it over from there. "


WB ready to assist state sector

By Sunalie Ratnayake

The World Bank (WB) is prepared to render maximum assistance to make government institutions efficient in the context of the government policy not to privatise state institutions, WB Country Directory Naoko Ishii said in an interview.

"Not only in Sri Lanka, but also in other countries, there is a tendency in governments to not privatize state run ventures, but to increase efficiency and the WB is totally in favour of this concept and is willing to provide assistance towards increasing efficiency. I have worked in countries such as Vietnam and also have lots of experience in this area, and yes, the WB is ready to provide maximum assistance to this commitment of the government," she said.

Ishii further said that the WB has continued with their assistance to Sri Lanka despite the conflict. "Even while the conflict has escalated and is still going on in Sri Lanka, we have been able to reach certain other areas where there is no conflict going on. Especially in terms of education, and uplifting education in the country, we have positive results in projects related to same.

As far as the conflict is concerned, I still believe that the WB has been able to carry on with our projects, regardless of few obstacles, because we are trying to operate in our manner of doing things. At present we are conducting discussions in terms of what we could do. In some of the conflict areas we have even being able to conduct our projects so far," she said.

Following are excerpts of this interview:

Question (Q): How does the WB work in terms of community development?

Answer (A): In terms of community development, especially with projects in relation with the tsunami, the moneys or funds go through the government to the individuals. There are different stages, about four or five different stages in this procedure, but the funds usually go via the government to the projects and the recipients.

(Q): When conducting these projects, certain main and important issues, such as water issues are not solved. For example, when building houses for tsunami victims, the place is not made clear initially. What do you have to say about this?

(A): Yes that is true. Some places are messy, but then the government's initiative is to quickly build the houses or complete the project and then attention on other issues are made. We have even done an analysis on such issues.

(Q): In WB projects, how cooperative is the Government? Are the Government and the WB getting along fine? Do you think they are cooperating enough or should they work more in terms of cooperating with the WB?

(A):I do not want to here misrepresent this issue, but I should mention that we have a Ministry of Finance modernization project as well as a Central Bank modernization project. Through these we try to help them upgrade their capacity. The Government has to identify their areas of priorities and then only the WB can assist them in many aspects. If the Government is more interested in various areas of development in the country, the WB is ready for assistance. Also, since the house should be clean, to begin with, the WB has established an 'anti corruption' framework to conduct WB operations. Also, since the Government has issued its 10-year vision, we are looking forward to many positive areas in terms of the Government's contribution towards upgrading, where we can also provide the required assistance.

Health and education sectors have been the areas where we have achieved the greatest amount of success. "We do not have to create a stand along unit in these areas. The framework is shared. After the projects are complete, the government can take it over from there. "


BoP record $ 160 mn. surplus

The balance of payments has recorded a surplus of  $ 160 million by end November 2006, the Central Bank (CB) in a statement said.

However, the CB's policy rates viz. the repurchase and reverse repurchase rates, will be increased by 37.5 basis points  to 10% and 11.50% respectively in order to curb inflation, it said in its December monetary policy review released on Friday. Government recurrent expenditure has increased above budgetary targets, necessitating increased bank borrowings, it said.

Inflation began to increase since April 2006 due to demand pressures in the economy, the upward adjustments in administered prices, increases in prices of some of the imported consumer items and adjustments in import tariffs applicable to some consumer food items, it said. High vegetable prices may remain till early next year implying the possibility of having higher headline inflation, the statement further said.

  The recent supply side disturbances due to weather also have added to the sharp increase in inflation.  Inflation as measured by the point-to-point change in the Colombo Consumers' Price Index (CCPI) increased from 6.4% in March 2006 to 17.2% in October 2006 and further to 19.8% in November 2006.

CB further firmed tight monetary policy by raising repo and reverse repo rates by additional 50 basis points in September 2006 and continued to conduct active open market operations to mop up excess liquidity from the banking system, the statement said.

  These measures were supplemented by imposing several prudential measures.  These measures have been instrumental in moderating high growth in monetary aggregates.  However, reserve money growth rose to 18% by end November 2006 and broad money grew at 16.8% in October 2006 requiring continued monetary policy action.  

In view of the above developments, the Monetary Board decided to further tighten the monetary policy to subdue the demand pressures arising from monetary expansion and to contain inflationary pressures and inflation expectations, it said.

    The CB has noted that despite several policy rate increases in the past, banks have not sufficiently raised deposit rates.  Therefore, the CB wishes that all banks raise deposit rates in line with the current policy rate increase and pass the benefit to their depositors.

The communique further said that the economy continues to grow at a healthy rate.   The Agriculture sector is expanding though some sub sectors have faced a setback.  The increased growth arose from better irrigation facilities, improved technology, high international prices, improved fertilizer application, and increased activities in the fisheries sector.

 A favourable impact from weather was seen on paddy in Maha season and coconut.  However, delayed rains have had a negative impact on Yala paddy harvest.  Tea production will fall below expectations due to the on going labour unrest.  Heavy rains in the latter part of the year also had a negative impact on vegetable production, raising vegetable prices.  The Agriculture sector is expected to grow at a healthy rate in 2007 too.

The Industrial sector growth exceeded the long run average growth.   Though some sub sectors have shown a relative slowdown, the Industrial sector will continue to grow at a satisfactory rate benefiting from the growth in food, beverage and tobacco products, rubber based products and non-metallic mineral products.

Next year, industrial growth is expected to continue at an above average rate of 6.5%, benefiting from development projects requiring industrial sector goods and the continued expansion of export demand from the European Union.

The Services sector growth is dominated by the telecoms services, port services, domestic and international trade and financial services. Responding to these developments, the Sri Lankan economy has recorded an 8% growth during the first half of 2006 and is expected to grow at around 7%  in 2006.

During the first ten months of 2006, exports increased by 6.5%.  Imports grew by 15.8% during this period with a higher growth in intermediate and investment goods.  Although the trade deficit widened due to high petroleum imports, the healthy growth of 22% in private remittances supported to finance a large part of the trade deficit.  Foreign direct investments have also increased to a record level during the first ten months of 2006.   Foreign currency inflows to government have also increased. Notwithstanding the favourable developments in the economy, continued rise in inflation remains a concern, the statement said.  The release of the next regular statement on monetary policy is scheduled for January 18 .


Fitch affirms 'AA (lka)' National long-term rating of BoC

Fitch Ratings Lanka last week affirmed the 'AA (lka)' National long-term rating on Bank of Ceylon ("BOC"). The Outlook on the rating was given as Stable.

The rating reflects BOC's systemic importance as the largest bank in Sri Lanka (c. 18.6% of banking system assets), improved financial profile and state ownership. BOC's ability to maintain profitability, asset quality and accrete equity in pace with growth in assets are key drivers of the rating, Fitch said in a statement last week.

BOC is a full service bank with a network of 302 domestic branches, 88 customer service points and three overseas branches. With 80% of the branches linked to an online network, BOC has the largest online branch network in the country.

Fitch further states BOC is the main commercial banker to the state and one of the two commercial bankers to State Owned Enterprises (SOE), extending direct credit, trade finance facilities and foreign currency funding through its large deposit base and cross border borrowings. (BOC has the largest share of inward foreign currency remittances from migrant workers.) As a result, the bank's credit exposure to the state and SOEs remains significant at 43.7% of gross loans at H106.

Fitch expects this level of exposure to remain at the current level or even increase due to the present policy stance of the state.

Overall asset quality improved with non-performing loans (NPL) to gross loans declining to 7.9% at FYE05 from 11.6% at FYE04 on the back of recoveries and loan growth. However, the NPL ratio for the state and non-state sector was 1.5% and 13.4% respectively at FYE05. Solvency, measured by Fitch as net NPLs to equity also improved to 21.2% at FYE05 from 36.8% at FYE04.

Return on Assets increased to 0.7% in FY05, albeit was lower than the industry average of 1.0%. Profitability is constrained by declining net interest margins and a high cost-to-income ratio, the latter of which is not expected to improve at least in the mid-term.

Despite high profits, internal capital generation was relatively low at 5.5% due to high dividend payouts (56.8% in FY05). However, BOC's capital adequacy ratios were healthy, partly due to the zero risk weights applied to state and SOE exposures during computation.

State and SOE exposures benefit the bank as it frees up capital for allocation to other sectors. However, such exposures at current or higher levels, while providing a capital adequacy benefit to meet regulatory capital, would discourage profit retention to meet prudent levels of capital. Furthermore such exposures also increase the linkage to the state's financial profile as the sole shareholder and largest borrower, Fitch has further said.


MTI releases Strategy Effectiveness Report at global banking forum

MTI Consulting along with Tom Peters, Gary Hamel and Anwar Ibrahim (former Malaysian deputy prime minister) took centre stage at WIBC 2006 that kicked off in the capital of Bahrain.

About 1000 of the world's leading bankers congregated for this 13th annual event which explored the challenges faced by both conventional and Islamic banking, in particular the strategic marketing challenges of customer conversion, industry / brand positioning, service quality and channel management.

All four of these speakers emphasised the importance of financial services learning from the experience of non-financial services and cited many examples of how banks can learn from the experience of industries, companies and brands that have worked in highly competitive retail environments.

This was one of the highlights of the MTI Marketing Effectiveness Report, which studied the effectiveness of retail banks in relation to product development, branding, service, marcom and channel, and which was released at the forum.


HSBC Group Service Centre opens English language laboratory

The HSBC Group Service Centre, Colombo opened an English Language Laboratory at SWRD Bandaranaike Vidyalaya, Rajagiriya recently. The chief guest at the opening was Director and Chief Operating Officer, HSBC Bank Plc, Europe, David Budd who was in Sri Lanka for a short visit.

Also present on the occasion was Managing Director, HSBC Group Service Centre, Colombo, Alan Burton and Principal, SWRD Bandaranaike Vidyalaya, L.Gamage, along with officials from the centre and the school.

The English Language Laboratory is equipped with five computers and several language programmes to aid the students in both written and spoken English. A teacher sponsored by the HSBC Group Service Centre, Colombo will instruct both the students and teachers on how to use the programmes.

Speaking at the opening ceremony, Alan Burton said that the opening of the laboratory was a project very close to the centre's business in that it involved both information technology and communication.

He went on to say that as English is the predominant business language, the HSBC Group Service Centre was pleased to contribute to the development of the language skills of the students of SWRD Bandaranaike Vidyalaya and hoped that the students would benefit immensely from the newly installed laboratory.

He also said he looked forward to the day when students from the school work at the HSBC Group Service Centre, Colombo.

The HSBC Group Service Centre's association with the school began in January when the centre donated 10 computers and established a Computer Training Centre at the school. In June students of the school also participated in a walk to commemorate World Environment Day, in addition to participating in a poster competition on the theme of protecting the environment.

Before the new school term commences in 2007, the centre will also install taps for drinking water in the school premises and provide clean drinking water subsequently. The centre also has plans to support the school in various other requirements during 2007.

Commenting on the partnership, the school Principal, L.Gamage said, "My sincere thanks go to the HSBC Group Service Centre, Colombo for the assistance extended to uplift the education of children from low income families.  We welcome the gift of the Language Laboratory, which will give our students the opportunity to improve their English. We look forward to the support extended to us for the development of these school children's education."


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