• TQB in the dock
• Excessive puffing and guzzling saps productivity.
• Eight primary dealers approved
• Daya Senanayake to counter file
• Silicon Valley style return for People's Venture
• TRI losing ground in research
• TRI losing ground in research
• Iraqi deal through
• Lanka cashing in on Egypt, Kenya crisis
• Lanka no longer tops tea research
• Internet tea to America
• Indian newspaper whacks Ceylon tea
• Mind your Business
• Looming fuel price hike makes motorists fume
• ABC Shipping awarded ISO 9002
• Explore the beauty of Japan with Delmege
• K Line to order eight 5,500-TEU containerships
• The nineteen nineties : a lost decade
• Local retailers prop up market
• MediPlus for 70 plus
• BOC introduces insurance cover on savings accounts

TQB in the dock

The Textile Quota Board (TQB) has landed itself in the dock, after an alleged irregular decision to allocate a large parcel of quotas to one single exporter.

A group of ten apparel exporters are scheduled to file a fundamental rights (FR) application next week protesting against the allocation.

Meanwhile a group of 20 other exporters have also banded together and are expected to file a separate fundamental rights case soon.

The dispute arose when MAS Holdings (Pvt.) Ltd sought and received 250,000 dozens of hot category 352/652 lingerie quotas worth US$ 3 million from the TQB last September.

MAS Holdings justified their request saying that they were going to invest US$ 50 mn in a new factory with BOI status. The factory is expected to give employment to 100 people and scheduled to open in 2001. The company officials had told the TQB that the project would not take place if the quotas were not granted, industry sources said.

The petitioners allege that the TQB decision contravenes the rules and regulations of the TQB.

Sources say that MAS Holdings originally sought BOI approval to start a non-quota factory. "If BOI had approved it on this basis, it is very unfair of MAS Holdings to turn around and ask for extra quotas from the TQB," an errant apparel exporter said.

The Sunday Times Business learns that the TQB has already sent the letter of intent, confirming the quota allocation to MAS Holdings despite objections from other apparel associations.

Following rumours of an expected FR case against them, MAS Holdings is said to have lured one of the petitioners Comfortwear (pvt) Ltd into a joint venture with them on a guarantee that they would withdraw their court application.

General Secretary, Sri Lanka Chamber of Garment Exporters in a letter of protest to TQB Director General last week says, "There have been many occasions when our members who requested quotas to effect shipments irrespective of category have been turned down categorically stating that they do not comply with the rules and regulations of the TQB. In fairness the TQB should amend the rules and regulations and be fair by all exporters at all times and have no exceptions."

Even the Sri Lanka Garment Buying Offices Associations has written to the TQB in protest.

The apparel exporters who are due to file action include Foundation Garments, Bernard Boteju Industries, Colombo Garments, Daya Apparels, Flair Fashions, Vogue Tex, Prominent International, Sumithra Garments, Ayomi Apparels and Rusirimal (Pvt) Ltd.

At the time of writing, TQB officials declined to comment on the issue.

Excessive puffing and guzzling saps productivity.

Excise revenue from Cigarettes and Liquor

Year 94 95 96 97 98 99(prov)

Cigarettes 7,888 8,788 12,833 14,139 15,05 17,205

Liquor 4,686 6,298 5,839 6,181 7,665 8,745

Amidst speculation that the government will introduce retail licences to cigarette dealers as a measure to help curb the tobacco addiction, the much-awaited advertising ban on tobacco and alcohol is yet to see the light of day.

Notwithstanding that, the second phase of the anti tobacco and alcohol campaign has got underway with a vengeance.

Sales volumes of Ceylon Tobacco Company (the local arm of British American Tobacco) declined seven percent during the first nine months of 1999, compared to the corresponding period in 1998. The company said total sales volumes declined due to excise duty increases in the domestic and export market.

With a 50 cents hike in cigarettes last year, industry analysts expect the volumes to decline further this year. While the anti tobacco lobby claims that the volume decline is due to their relentless campaign, equity analysts say it could be more due to a price increase.

Meanwhile, the tobacco and alcohol industry continues to remain a lucrative source of revenue to the government. In 1999 alone, excise duties from tobacco accounted for Rs. 17 bn up from Rs. 15 bn in 1998. The alcohol industry which made an after tax profit of Rs. 650 mn in 1998, contributed Rs. 7.6 bn in 1998 and Rs. 8.7 bn in 1999 by way of excise duties.

The second stage of the anti tobacco and alcohol campaign sponsored by the World Health Organisation began last month, aiming at reminding users how such addictive products can harm you economically.

In graphic images — sometimes showing gruesome pictures of a human heart — the campaign talks about the detrimental effect addictive substances has on productivity . A spokesperson for the advertising agent that commissions the campaign said the first stage aimed at children attracted more than 15,000 responses from the public via postcards. The agency hopes to conduct a survey at the conclusion of the second campaign to assess its impact.

Elsewhere in the world, the Canadian government recently brought in a proposal that cigarette packets in Canada should display pictures of cancerous lungs and diseased mouths and brains aimed at shocking people into giving up smoking.

The proposed health regulations require companies to cover half of every packet with stark colour photographs. They would be the most graphic anti smoking warning to appear on any cigarette packet in the world. One of the images shows a drooping cigarette to warn of the damage smoking does to a man's sex drive.

Canadian Health Minister Allan Rock, was quoted saying that "Canadians who use tobacco products need to fully understand the serious health hazards inherent in this lethal product." According to the proposal, the packets would also list toxic chemicals present in cigarettes and in second hand smoke. Tobacco companies which refuse to put the photographs on their packaging will not be allowed to sell their products in Canada. The tobacco companies are contemplating challenging the proposal on the grounds that there would be no room for trademarks, preventing their customers from knowing what brand they were buying.

Eight primary dealers approved

The Central Bank's Monetary Board last week approved eight primary dealers to commence operations from February 15, Central Bank sources said.

The eight dedicated primary dealers would form part of a new regulation, the Registered Stock and Securities (Primary Dealers) Regulations No: 1 of 1999.

The eight dealers include Ceybank Securities Ltd., HNB Securities (Pvt) Ltd., Seylan Bank Asset Management Ltd., Sampath Surakum Ltd., NSB Fund Management Co. Ltd., Commercial Bank Primary Dealers Ltd., MB Financial Services and Vanik Securities Ltd. Two other applicants namely, People's Securities Ltd and a joint collaboration between Ceylinco Securities and Financial Services/Ceylinco Shriram Ltd are also in the process of forming a separate company to deal in government securities.

The proposal to create a subsidiary for primary dealers was introduced by the Central Bank as a step to stimulate the development of the local debt market.

The proposal would also enhance the Central Bank's effectiveness in carrying out monetary policy.

Under the new regulations, primary dealers are required to form a public limited liability company with a minimum capital of Rs. 150 mn. The capital requirement would be gradually increased to Rs. 200 mn by 2000 and Rs. 500 mn by 2003.

The Central Bank would evaluate the performance of each primary dealer semi-annually at the end of June and December every year.

The concept of primary dealers was first introduced in 1992 with 18 dealers as a step to develop the government securities market. The number of dealers dropped to 17 in 1994 and later increased to 22 thereafter. In 1997 five dealers were suspended while two others were included which brought the total up to 18 dealers.

Central Bank's latest move leaves out foreign banks — who did not want to set up a subsidiary unit to deal with government treasuries — and a few non banking financial institutions who think dedicated primary dealers is not economically viable.

Daya Senanayake to counter file

Mr Bandula Ranaweera was appointed Managing Director of Blue Diamonds Jewellery Worlwide (BDJW) following the removal of Daya Senanayake from his office of director at an extraordinary general meeting last week.

Meanwhile Senanayake is in the process of filing action to refute charges filed against him by BDJW , which is suing him for Rs 1 bn. My lawyers are assessing the damages in filing action refuting the claim and damages will be substantially higher than Rs 1 bn, Daya Senanayake told The Sunday Times Business.

The plaint filed by BDJW alleges that Senanayake fraudulently submitted proposals for recommendation to the board of directors and caused the company to invest over Rs 280 mn in Energen Holding Company Ltd, which investment was subsequently questioned by the company's auditors KPMG Ford Rhodes Thornton and Company. It was also claimed that Senanayake caused jewellery to be sold to people and wrote off amounts owing as bad debts and had even fraudulently misappropriated funds of the company.

An ordinary resolution removing Senanayake from office was passed after 63.68 shareholders voted in favour of a resolution to remove him. But controversy surrounds the resolution passed as the allegiance of the proxy for a block of 4.8 mn shares belonging to Goldlada Ltd was questioned by Senanayake. Goldlada has 5 mn shares for which I hold the power of attorney and when I inspected the share register at the company secretary's and deposited my power of attorney on the 21 st of January, 2000 the shares were registered in Goldlada's name, Senanayake told The Sunday Times Business.

However at the Extraordinary General Meeting the power of attorney for the Goldlada shares had been given to Mr Lalith Kotelawala from Seylan Bank. BDJW sources said Goldlada had taken a US $ 600,000 loan from Seylan Bank for which the BDJW shares had been pledged as security. The power of attorney for the shares was also transferred.

The loan had been defaulted and Seylan Bank retained the power of attorney but Goldlada had subsequently given the power of attorney to Senanayake , BDJW sources said.

At the EGM the company secretary said they received a proxy from Seylan Bank authorising Lalith Kotelawala to vote on the 4.8 mn shares but documentary evidence that Seylan had a right to give this proxy was not produced despite my asking for it, Senanayake claimed.

The question of whose power of attorney was valid at the EGM was decided by the Chairman of BDJW Lalith Kotelawala, who decided in his favour. Kotelawala declined to comment on his stance.

Meanwhile the Securities and Exchange Commission in the process of an investigation in to a discrepancy in the company's annual accounts has called for information from BDJW, Blue Diamonds Ltd and the auditors. All the information requested has not been received yet and the investigation is still in progress, SEC sources said. The investigation has resulted in a trading halt of BDJW shares from the 3 rd of December 1999.

Silicon Valley style return for People's Venture

By Dinali Goonewardene

People's Venture Investment Company (PVIC) in Silicon Valley style venture, has made a fifty times return on the sale of its investment in Millennium Information Technologies to a US based emerging markets fund recently. PVIC was the first institutional investor to invest in Millennium Information Technologies, formed through a management buy out of the open systems division of Computer Land Ltd.

Tony Weerasinghe CEO, Millennium Information Technologies and his team of computer software wizards developed the software for the Colombo Stock Exchange's state of the art Central Depository System said to be the second largest in Asia with a capacity of 20,000 trades daily.

Weerasinghe's team won the contract to develop the CDS software in a fierce competition with international bidders of the calibre of IBM, Informatics on behalf of Nixdorf and B C Computers for Unysis. The project cost approximately US $ 1 mn.

The team had to shop around for venture capital as the relatively small capital requirement of MIT did not permit a stock exchange listing. Of Colombo's seven-member venture capital industry PVIC was the first to make the bold decision to invest Rs 7.5 mn for 750,000 shares of the company in March 1996, CEO, Nissanka Weerasekera told The Sunday Times Business .

After two bonus issues the number of shares in Millennium Information Technologies (MIT) swelled to 1.7 mn. Subsequently MIT raised funds through an international private placement and PVIC sold 200,000 of its stake. PVIC was the only company to invest in MIT at par and their initial investment of Rs.870,000 raked in Rs 43 mn at US $ 3 per share in December 1999 when they partly sold out. The capital gain made on the deal is tax free as existing regulations exempt venture capital firms from capital gains tax for life.

Silicon Valley's venture capital paradigm was American Research and Development Company's investment in Digital Equipment Company which paid phenomenal dividends. MIT is Sri Lanka's venture capital paradigm, which venture capitalists want to be in on.

"When Millennium Information Technologies promoters attempted to sell their company to prospective investors based on their ability to win a contract to set up the central depository system at the Colombo Stock Exchange, nobody believed they could win the deal," Weerasekera explained. We were the first to buy in, he added.

Success stories such as this should generate optimism among venture capital firms which have recently been viewed with scepticism in the face of their mediocre performance, Weerasekera said. The impetus to form these venture capital firms came through the 1990 budget which provided a tax credit to an institution investing in a venture capital firm. The venture capital firm was given a ten year tax holiday.

PVIC is the venture capital arm of the People's Bank and is an associate of the National Insurance Corporation Ltd. The company has an issued capital of Rs 185 mn of which Rs 125 mn is available for venture investments.

Can we increase economic growth?

The economy is like a stranded child. In the hurly burly of electoral poli- tics, bomb blasts, killings and the plotting and planning of political parties, the economy has been virtually forgotten. We have arrived at the beginning of the 21st century without much hope of achieving the targeted sustained growth of 7 per cent set for the 1990s. What is even more alarming is the slowing down of the economy witnessed in the last few years. What about the oft spoken and little defined achieving of NIC status? How far have we progressed in our goal of 'development with a human face'?

Today we publish a new column Focus on the Economy, which analyses the recent economic performance and demonstrates the slowing down of the economy in some detail. The declining economic growth rates are evidence of this. More significant are the other more reliable statistics quoted in the article displaying an unsatisfactory growth in several areas. Our industrial exports which, grew at nearly 20 per cent in 1995 has declined since then and even registered a decrease in 1999. The only exception was in 1997 when industrial exports grew by 14 per cent. This decreased exports of industrial goods in 1999 is more serious than it appears, as we are a country whose export structure has changed significantly and industrial exports account for as much as 75 per cent of our total exports.

Our agricultural exports have fared no better. As the analysis points out, in 1995 they grew by 18 per cent, in 1996 by 16 per cent and then declined to less than 7 per cent in 1997, and 2.4 in 1998. Agricultural export earnings dropped by about 14 per cent in the first 11 months of 1999, compared to even a poor performance in the previous year.

The analysis points out that there is a qualitative difference between the decline in industrial exports and the decreased earnings from agricultural exports. The decline in industrial exports is a pointer to a reduced competitiveness of our industrial exports. At first our competitiveness was eroded by the massive devaluation of the East and South East Asian countries. It now appears that the adjustment of these economies may have strengthened their economies. It is possible that in spite of an appreciation of their currencies, productivity gains would have made them more competitive than us in international markets.

There appears to be more hope on the agricultural front as the large decrease in export earnings was entirely due to reduced prices for tea and rubber. Prices of both these commodities are bouncing back. Tea prices are likely to witness an up-trend owing to global supplies falling below demand. Fortunately, our tea production has been on an up-trend, especially in the last 6 years, and there is no reason except poor weather conditions which would reduce our tea output. The story is somewhat different in rubber where production has remained more or less static in recent years or even declined if we take the entire decade. Our gains in rubber export earnings would have to come almost entirely from improved prices. We could expect improved prices owing to higher petroleum prices having an impact on synthetic rubber production costs and increased demand for rubber based goods owing to the global economic up turn.

The past decade has been described as a lost decade. The question now is whether the new decade will be any better. Have we now given up expecting to double our per capita incomes in a decade? No. Last week the Governor of the Central Bank re-iterated the hope or expectation that the economy would grow at 7.5 to 8 per cent. This would not happen automatically. There is a need for policy interventions to achieve this level of economic growth. Are we likely to take the hard decisions, which would enable such growth? Do we have a programme to spur economic growth?

TRI losing ground in research

Do you know that black and green tea suppresses the growth of tumours and that tea drinkers are protected against cardiovascular and inflammatory disease?

This may be stale news in the field of tea research but a current international project for the generic promotion of tea costing 4.6 million US dollars is going all out to conclusively prove the theory that tea is good for one's health.

The Talawakelle-based Tea Research Institute (TRI), in a report released last week, says that the project - organized by the Food and Agricultural Organisation (FAO) - was underway in the tea consuming countries like the U.S., Britain and Canada and major producers like India, Indonesia, Kenya and Sri Lanka.

The first phase of the project is scientific research to confirm the health benefits of tea and the second is to mount a promotional campaign as more and more positive evidence emerges out of the scientific research.

"Whether the positive health attributes can boost tea sales will be tested in four, widely differing markets: in Europe (Catalonia in Spain and the Czech Republic), in Africa (Zimbabwe) and in Asia (East Java in Indonesia)," the TRI said in its 1999-2003 corporate plan.

It said that no specific health claims were being made as yet because acceptable pharmaceutical and clinical trials would take years to complete, and the trade could not pre-empt the results of these trials.

Until then, the TRI noted, tea would continue to be regarded as an inexpensive, pleasant beverage that confers definite psycho-physical benefits.

The report added that research in the past showed that black tea was slightly better than green tea against skin cancer from ultra violent light.

Tea was also found to keep blood lipid levels low, decrease "bad" cholesterol and increase "good" cholesterol, the report said.

The TRI report, which gives a comprehensive analysis of the tea industry, said that the beneficial effects of tea were due to its chemical composition.

Tea contains about five percent minerals (potassium, manganese, calcium, magnesium, zinc and iron) and fluoride. These substances have useful amounts of carbohydrates, proteins, amino acids, lipids and vitamins. Many of the beneficial pharmacological effects are due to the presence of caffeine, which is a stimulant, and polyphenols.

"Although separately or in excess these compounds may be harmful, together they are not. One cup of tea (170 millilitres) contains only 34 mg of caffeine and 10-12 cups of tea a day is within the limits for most people," the TRI said.

TRI losing ground in research

By Feizal Samath

A top agriculture re search agency says that Sri Lankan tea production here is the costliest in the world and believes the way to cut costs is by reducing imported fertilizers and pesticides through organic farming methods.

"The direction of the TRI (Tea Research Institute) science into more rational, environmentally-friendly efforts such as agronomic practices based on organic amendments, and pest and disease management using natural enemies and biological control agents," noted the TRI in a report, " would result in reducing imported inputs and saving valuable foreign exchange."

The TRI said that with industrialization and urbanization, the movement of traditional labour away from the tea lands was being met by pro-active measures like developing and mechanising pruning, harvesting and fertilizer application methods, and more automatic and energy-efficient factory production technologies.

The report - the TRI's corporate plan for 1999 to 2003 - gives a detailed analysis of the tea industry, weaknesses and strengths, its markets and ways of emerging this key state-run institution to meet the challenges of the future, particularly since tea production and marketing is gradually becoming a private sector domain.

Copies of the corporate plan were sent to stakeholders - the industry and the government - last week by TRI director Dr. W.W.D. Modder.

It said that the corporate plan was a five-year blueprint for much needed and overdue changes, which should commence immediately if the TRI is to win back a wider confidence, particularly of the tea growers for whom it exists.

"Planning is therefore done in accordance with growers' needs and not only with scientists' perceptions," the report noted.

It said that hopefully the (five-year) plan would motivate TRI scientists to accomplish quality research within reasonable timeframes, and end-users to implement the institute's findings effectively.

"The plan is for bringing TRI science in line with science practised by similar institutions on the international stage, and giving it a modern outlook with a well defined corporate mission and goals," it noted.

The report gives an amazing insight into the workings of this premier research agency, the criticism, where and how it has failed and how and why these weaknesses could and should be rectified. One of the key points raised in the corporate plan is that research should not be one-way - going out of the TRI only - as in the past.

It suggests that planters and superintendents on estates, who are users of TRI technology, should be fully active partners with TRI scientists in down-stream research and development in estates - for the betterment of the industry.

A programme of scientist-superintendent research collaboration is already underway.

Industry analysts say that the report is a refreshing look - by the TRI itself - into the problems this agency faces and how it could be overcome. "This is a rare admission of failure on the part of a government agency in handling what it set out to do and sets out what it can do in the future if given the human resources and financial backup," one analyst noted.

The TRI, Sri Lanka's only tea research agency, was established in 1925 and till 1957 was a part of the Planters'Association of Ceylon. Since then, it has been a government institution with its main station and headquarters located in the central hills of Talawakelle.

It is the main source of technical information for Sri Lankan tea producers. It also has research stations at Ratnapura, Deniyaya and Kottawa (for low-country estates) and Hantane (mid-country) and Passara (Uva). The sprawling Talawakelle station cum estate caters to the needs of up-country producers.

The TRI has two estates under its management - St Coombs at Talawakelle with an extent of 238 hectares and St. Joachim at Ratnapura, which has 142 hectares.

Discussing the general tea scenario, the report says that the industry provides employment to 600,000 people on a total of 194,000 hectares of tea land. Of these, 317,000 are on plantations or estates and the rest on smallholdings.

Apart from market research that is outside its mandate, the TRI says it must redouble efforts in biological and technological research, as well as in its new sociological research - ways of improving worker welfare, contentment in the family, etc - in meeting the challenges of the industry.

"However it is often overlooked that most aspects of the research on a perennial crop like tea is necessarily long term." The TRI said that though there has been progress in developing value-added tea, Sri Lankan marketing is still behind in the scramble to cater to the tastes of a new generation looking for convenient, healthy beverages.

It said the TRI for its part, has pioneered research into the production of convenient value-added teas such as instant, and ready-to-drink tea.

"In order to be competitive, most of Sri Lankan tea exports should be in the form of ... value-added and diversified teas and, to help in achieving this, the TRI proposes to expand its research and to interact as closely as possible with the industry and trade and marketing agencies," the corporate plan noted as one of its mission goals.

The TRI said that while in recent years its role and work has come in for criticism, such criticism provided "excellent opportunities for renewal and policy setting." "There is an urgent need to turn around, innovate and quicken the pace of TRI research."

If TRI pronouncements have sometimes been contradictory, the reason is probably due to the ignorance of scientists and extentionists about the work of their colleagues. This is indefensible and, the TRI report notes would not occur if scientists spent more time working together.

The report said that some growers were departing from and abandoning TRI recommendations, especially those on fertilizer application, for agricultural reasons arising out of their own practical knowledge and experience.

"The TRI would like to know these reasons. TRI scientists need their attention drawn to good and agricultural practices, different from what they themselves advocate, because it is necessary to learn from them. This could be an aspect of the participation with the end-users that is eminently desirable," the report says.

The report deals in depth with the TRI research activities in clonal development, soil conservation and nutrient management, mechanization of field operations and drought and stress alleviation in the tea plant.

On pest and disease management, the TRI says that it now has an acknowledged track record in the de-emphasis of hazardous agro-chemicals.

The TRI report recalls that at the International Standards Organisation (ISO) technical committee on tea in February 1997, a pronouncement was made from the chair that, on the basis of ongoing, routine analysis of made tea from all major producing countries, the ISO found Sri Lankan tea to be "the cleanest in the world" as far as pesticide residues are concerned. "Much of the credit for this should go to the TRI," the report said.

Under its five-year work plan, the TRI is planning to provide information desks at each Extension Centre with facilities like a ready-reckoner tea information chart, a computer data base, a telephone "hotline" for providing tea information and an email and internet facility.

It was also proposing to upgrade these Centres with a tea museum and an audio-visual "saloon" with publications, VCR/TV and other facilities.

From its inception the TRI has been funded by a share of the compulsory cess levied on tea exports. TRI's share of the cess has gone up to 32 percent in 1999 from 17.5 percent in the previous year. The Sri Lanka Tea Board and the Tea Smallholdings Development Authority are the other two agencies that receive the cess.

The five-year plan shows TRI's income - inclusive of donor funds and profits from its estates - at 274 million rupees in 2003 from 340 million in 1999.

Expenditure - during these years - is estimated at close to 300 million rupees in 2003 from 348 million in 1999. "The excess of expenditure over income shown against the plan years is not due to an envisaged cash outflow, but due to the depreciation of capital equipment and holdings," the report said.

Iraqi deal through

The Iraqi government responded last week to offers made by local tea exporters to supply teas under the seventh phase of the oil for food programme. The preliminary reports states that Sri Lanka has been allocated around 3000 to 4000 metric tons of tea at US$ 1.73 - US$1.75.

However, it is rumoured that the sentiment of local exports has hit rock bottom as the prices expected were around US$ 2.25. In addition, local officials were expecting a higher allocation of around 6000 metric tons, as in the sixth phase. Officials said that they expected prices also to be higher than what was offered although they did not expect Iraq to match their quotes. Industry officials said that almost half of the 31 exporters who bid for the tender had dropped out while the rest were contemplating on accepting the offer for the sake of goodwill, even though they claim to be cushioning a loss.

They said that even after considering the cyclical price drop as a result of poorer teas coming into the auctions during the end of the first quarter and the beginning of the second quarter, they could not afford to sell the three grades at the prices quoted by the Iraqis.

However, of the estimated 20,000 metric tons that Iraq is buying Vietnam has been awarded tenders to supply 10,000 metric tons, up from 7000 metric tons in the sixth phase. Meanwhile, India and Indonesia have been allocated 3000 metric tons each while Sri Lanka has been allocated 3000/4000 metric tons down from 6000 metric tons in the sixth phase.

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