• Mind your Business 
• Political crisis hurts business 
• Trans Asia changes hands
• Local engineers give French lady a facelift
• World Bank moves some departments to India
• Faster e-mails through new domestic Internet exchange
• Politics prevent pro-active economic role
• When the lights go out…
• News

Mind your Business 

Relief or defeat?

Orders have been sent out to try and figure out an economic relief package for the people at large within the next three months or so.

Now, that coincides roughly with the date when parliament can be dissolved at the earliest and the mandarins at Galle Face are wondering whether this is a broad hint at a snap poll.

Two-pronged invasion feared

This has sent shockwaves through the corporate establishment which is grumbling that the 'cadres' have already infiltrated their workforce.

So, several discreet messages have been sent to the powers that be that such an alliance, though it may be politically expedient, would spell doom for the private sector.

Falling for "fuming" females

And the target audience? Ah, the female of the species- after all, they have lips too.

Political crisis hurts business 

By Chanakya Dissanayake

Analysts and business leaders said any new spending on subsidies and connected issues by the PA to gain the support of the masses and the JVP, a crucial element in the numbers game in parliament, could affect economic targets and put the budget out of control.

The uncertainty is also ruining business confidence. "On top of everything – the war, economic problems, high spending by the government – we have a new uncertainty to worry about," one business leader noted. Power cuts this week will further hit production schedules. (Ple-ase see Page 2 for power crisis feature).

Worried about the situation, the National Chamber of Exporters (NCE) has organised a meeting of its members to review the crisis and look for possible solutions. "Political parties are bent on staying in power instead of serving the people. We need to mobilise civil society to confront this crisis," noted Patrick Amarasinghe, NCE chairman.

Already there have been a few signals which imply fresh public spending, namely positive responses to demands by port workers for a salary hike and efforts to reinstate railway workers who have been fired on disciplinary grounds. "There is no grouse against increasing wages as the cost of living is high but doing it at this time smacks of political opportunism," one analyst said adding, "other sops may follow."

The JVP has opposed a PA decision to freeze public sector salaries for one year.

IMF representative, Dr. Nadim Ul Haq, commenting on the possibility of a relaxation in targets set under the recent IMF standby facility, warns that if targets are not met funding would be withdrawn. "The only condition we have set is to achieve a budget deficit of 8.5% of GDP," he said.

Dr. Ul Haq also identified the current administered prices for certain food items and commodities as a blanket subsidy on the whole population. "To fix prices you need to have money. Sri Lanka is currently suffering from a fiscal imbalance. To rectify this you should subsidise only the poor, not the whole population." he said.

The political crisis appears to have provoked contradictory statements by ministers on government policy. Last week Higher Education Minister, Indika Gunawardene, lambasted the IMF deal, which has even been supported by President Chandrika Kumaratunga.

"A few officials are determining the policies of this country. They think they have found all the solutions. Some officials at the Central Bank are proud of the IMF deal. It is nothing to be proud of. We have reached the bottom by agreeing to this," he said adding: "the sooner we get rid of the noose around our neck, the better."

Mr. Gunawardene, addressing the inaugural launch of the Development Studies Institute (DSI) of the Colombo University, said Sri Lanka was facing a severe crisis and urged all sections of society to help overcome it.

Some socio-economists said fears about opposition to economic reforms by leftist parties are unfounded. "The JVP's main agenda is political discipline. They will not specifically oppose economic reforms," said Ajit Colonne, a socio -economist.

Trans Asia changes hands

Among recent developments in the five-star property was the creation of an employee share ownership trust funded by the company with additional funds being procured through a bank loan.

GHM, a Singapore-based firm, is associated with premium pricing and a distinctive branding which builds on a country's individual culture. It was established in 1992 and is headed by Adrian Zecha, the chief of AmanResorts which is investing in a Board of Investment-approved deluxe hotel in Tangalle through Tangalle Property (Pvt) Ltd. Major shareholders of Trans Asia include Asian Hotels Corporation and HPL Sri Lanka Holdings.

Local engineers give French lady a facelift

The work had been carried out to international standards specified by the Director-General of Civil Aviation who shares his rulebook with European authorities. The national carrier will be targeting Asian airlines such as Vietnam and China-based airlines. Business plans have taken into account this new opportunity, Mr. Dunning said.

The cost savings from undertaking the operation locally had been US $200,000 and could be attributed largely to a saving in labour costs. Labour costs were US $4 per man-hour locally but would have been US $35-50 overseas. Long work shifts by a 14-member team comprising skilled and unskilled workers had been punctuated with burns from a deadly chemical used for paint stripping. 

"I feel very proud. I was in Manchester when the same operation was carried out but it is very difficult here because of the climate," Aircraft Appearance Manager, SriLankan Airlines, H. A. Soysa said. "Every morning we checked whether the climate was below 75C for our two painters to get cracking," Duty Engineer-Workshops, K. T. C. P. Jayawardene said.

Also being refurbished are the interiors of the aircraft. Smoke white, clear cloud and grey cloud hues will set off upholstery manufactured locally by Candy Garments and will replace the fire-resistant blankets and insulation bags where interiors have been stripped "A new trimming machine to trim panels was imported specially for this job but we will have further use for it," Mr. Soysa said.

World Bank moves some departments to India

By Dinali Goonewardene 

"Offshoring" is a cost saving measure and Chennai is an ideal location, world renowned for its information technology skills and human capital, Bank sources said.

"The extent of other multinationals who have established, outsourced or have offshore operations there demonstrates the viability of the environment and provides a potential source of learning and guidance," a source said.

South India has gained a reputation for mass-producing graduates with requisite skills, the sources said adding that Chennai was selected after evaluating six countries.

Annual savings of US $2.7 million are projected due to relocating and an investment of US $ 4.5 million is envisaged for total implementation. Under the plan, accounts processing work done by 85 headquarters staff will be carried out by 48 headquarters staff and 50 employees in Chennai. The transfer is expected to be completed by the end of the year. The "offshoring" study was unde-rtaken by a World Bank task team after consultations with Deloitte Touche, Tohmatsu International. The study recommended India due to its "satisfactory economic and political environment, a vast supply of skilled labour, robust technology infrastructure and a good supply of appropriate office space."

Faster e-mails through new domestic Internet exchange

By Naomi Gunasekara

Local Internet service charges are also expected to decrease with the Internet Service Providers (ISPs) saving both their bandwidth and the money spent on international bandwidth with the new exchange in place.

The Licensed Internet Service Providers' Association (LISPA) in association with the Centre for Information Technology (CINTEC) launched the exchange point to curb delays in local ISP connectivity and to ensure undisrupted local mail operations.

Before the Internet Exchange (IX) was set up recently, local mail sent through one Internet Service Provider (ISP) to another ISP had to reach the sender ISP's server in the United States or Singapore (U-net or Singapore Telecom) and then transmitted to the other relevant local ISP. With the domestic Internet Exchange point, local e-mail will not go that way and nor would local mail operations be disrupted due to a breakdown of connections of the local ISP and its international exchange.

The domestic market for IT and the industry as a whole is expected to grow with the setting up of this exchange, which saves a considerable amount of money on the international bandwidth and it would lay the groundwork to hire bandwidth at short notice from ISPs connected to the IX while offering services at cheaper rates with the availability of more bandwidth.

"That amount of bandwidth, which we have been using to send the local mail to the server and back will be saved because of the IX. So we will have more bandwidth for the international users and save money spent on the expansion of bandwidth. How much of bandwidth and money we will be saving we do not know." 

"We will have to wait until everybody links with LISPA to calculate this. But there will definitely be a lot of savings," an LISPA official said.

With the number of Internet users growing to over 60, 000 in Sri Lanka, ISPs have to expand their international bandwidth to assure better connectivity. International links get clogged with the increase of Internet users and become slow when there is an excess of users. It is to prevent this clogging and to save the expensive international bandwidth that the domestic IX was set up, according to CINTEC officials. 

Nine ISPs out of the 27 licensed ISPs in Sri Lanka have become members of LISPA and only these members would be entitled to utilise the domestic IX, officials said adding that it would be advantageous for others to join LISPA.

Politics prevent pro-active economic role

It is no longer the election years that tend to be distractions from the more serious economic concerns of a government, the intervening years too. In fact with the several layers of government - presidential, parliamentary, provincial and local, election years too are not confined to once in five or six years. With each election looked at as a vote of confidence or otherwise, the continuous stream of elections of one sort or the other, has made the government concentrate on measures to win elections rather than the longer term economic policies. Consequently fighting elections and winning them at any cost becomes the primary occupation of the government.

Currently the government's preoccupation is to ensure that it can remain in power and not be defeated in the vote on the no-confidence motion. The government being composed of a coalition of parties and without a clear majority is preoccupied with maintaining its parliamentary majority by political bargaining with its constituent elements. The recent crisis created by sacking a minister leading to his leaving the government benches with colleagues has only aggravated the problem of the government's instability. The result is that the economy has been put on the back burner at a time when it should be the primary concern.

Unfortunately the economic conditions are not propitious. Both external conditions and the fundamentals of the economy are not sound. A global recession is likely to affect exports adversely. The hangover from last year's external imbalance, loss of foreign reserves and the large budget deficit of 10 per cent of GDP, make economic management most difficult. The rate of inflation is rising. The external reserves of the country continue to be at low level despite commitments of aid recently. The trade deficit is large, export growth is minimal, and business confidence is low.

High interest rates, increased charges for electricity and gas, among other things are placing huge burdens on the cost of living of the large mass of people. In fact it would not be incorrect to say that a feeling of economic despondency prevails among both the business community as well as ordinary people.

Shrinkage of economic opportunities and lower real incomes are eroding living standards and creating serious hardships. The opposition is no doubt exploiting these unfavourable conditions to gain political advantage. That aggravates the problem further.

While all these adverse developments are occurring the government's preoccupation expectedly is on maintaining its parliamentary majority. The preoccupation is totally political. Some rhetorical gestures to keep the economy moving are heard. Action is lacking. The political conditions are such that the government is not focussed on the economic issues. It prefers to ignore the real conditions and paint a picture of a good performance in the economy. This itself prevents corrective measures. The public service too is demoralised with no prospects of a salary increase at a time of escalating prices.

It is indeed unfortunate that the country has to face unfavourable international developments at a time when the government is incapacitated by domestic politics. The slowdown of the American economy, the failure of the Japanese economy to grow, the impact of the two largest economies on the European Union economies and no doubt soon on other Asian economies, are not likely to offer the country much prospects in international trade. In fact exports are growing at a very slow pace, at less than 3 percent. Industrial exports, especially garment exports, are showing signs of sluggishness. Agricultural exports are showing some signs of growth, but fears are that tea prices may not hold owing to higher tea production in Kenya this year. One favourable factor so far has been the reduction in crude oil prices. Yet the oil price situation is very volatile with several oil producing countries threatening to reduce production.

All the main statistics indicate a serious retardation in the economy. Official figures place the expected growth for the year at around 4 percent down from last year's 6 percent. It is very likely that the final outturn would be lower. In any case much of the so-called growth is unreal as defence expenditure and salaries for public servants give bloated figures of growth. The public debt is increasing and with it the cost of servicing it. Indications are that government revenue- expenditure outturn would result in a higher deficit.

In such an inauspicious international economic context and fundamental economic weaknesses, a constant vigil of emerging conditions and responding to these with pro-active policies are a must. This precisely is the need of the hour. What we see is the government fiddling in political manoeuvring while the economy is burning.

When the lights go out…

The stage is set for power cuts across the country this week. For over two weeks now the public had been treated to a torrent of pictures and figures depicting stone dry reservoirs and the lack of rainfall in an obvious attempt to mellow any outrage that could ensue when darkness finally falls.

The CEB says power cuts of between 1-to-1 1/12 hours during peak hours- 6 to 9 pm will start on Monday, July 2.

Contributing to the crisis are the allegations levelled against the CEB by the Committee on Public Enterprises (COPE) last week on seeping corruption and mismanagement. Although they are yet to be proved those who contest their validity must concede that there can be no smoke without fire.

The concerns of the average consumer and the industrial community, the latter whom consumes 70% of energy, are justified. If electricity - which has been called "the lifeblood of development" - is curtailed, the losses to production will undoubtedly be massive.

It is this crisis that today's special feature hopes to address. Journalists Sonali Siriwardene and Diana Mathews of the Sunday Times Business Desk spoke to officials, unions, industries, chambers and household consumers to hear their perspectives.

Power crisis a national problem-CEB

He said they can only prepare for credible contingencies and the failure of consecutive monsoons was not such a situation.

Mr. Wijeratne was quick to point out that the anticipated power cuts, which he calls 'load shedding', is not to be compared to the total failure of the system which occurred in 1996. He explained that there is a difference between a prolonged blackout and a controlled load management, adding that it is the latter which will take effect in rotation around the country.

Speaking on the need for additional power plants to meet the growing demand he cited as an example the history of the coal plant, being proposed in 1987, which is still to get off the ground after 14 years due to environmental objections. The main obstacles impeding the progress of hydro and coal plants in the country are environmental in nature, the CEB top official said adding that it is the people who are now paying the cost of placing environmental concerns over power generation.

On the issue of structural reforms, Mr. Wijeratne acknowledged the need for a regulatory commission which is the most important single element of the proposed reforms. This will require the breakdown of the monopoly power presently enjoyed by the CEB which he admits has been the fundamental bottleneck leading to the failure of the system. The proposed registration of the various plants under the Companies Act and decentralisation of the sector, he believes, would also help foster accountability.

Asked about allegations made against the CEB by COPE, Mr. Wijeratne said that while he accepts the findings of the committee, his opinion on the matter is of little relevance. When questioned further, he said government servants should not have opinions but facts and since he has none he will take every effort to carry out the COPE report.

He also said that power cuts are unlikely to affect many people, as the curtailment of supply would be limited to a few hours. But what would be the fate of the industries, which often carry out a bulk of the production during the night? Mr. Wijeratne said they should make use of their generators and points to generous concessions given to industries in 1996 to buy generators.

The crisis at hand is a national problem and the public too has its share of responsibilities to respond positively to regulations imposed to curtail consumption, he said.

Restore accountability

The demand for power, he said, has grown to an extent that even under good rainfall conditions hydro power can meet only 50 percent of current demand (see graph). 

Mr. Varnakulasinghe argued that if the CEB was to draft a Generation Plan it must essentially take into account the fact that hydro availability is variable from year to year. A wise step to take in this respect would be to limit usage of energy to minimum hydro (which could go as low as 2874 GWH) so that power cuts would not be a forced option even if the country was to experience a dry spell as at present. But this argument holds only if there is enough thermal power to meet the remaining demand.

Discussing other viable power options, Mr. Varnakulasinghe said the need for a large coal fired power plant is long overdue. 

He maintained that the long-term need continues to be a coal plant to serve the nation and every resource and effort should be diverted towards establishing such a plant at the earliest. Another bone of contention concerns the inextricably linked issues of duty, power and not least, accountability. The former CEB engineer contends that the CEB Act No.17 of 1969 vests all the necessary powers with the Board. However, he stated that regrettably as it stands at present, the duty lies with the Board but the power with the minister- so where, he questions, could one find accountability? He adds that the only way out of the looming darkness is to re-establish accountability within the CEB.

Consumer views

Disruptive effect on the household

According to Sugi Thevaraj, an accountant and a mother of two, power cuts would be detrimental. "My children would be the most affected," she said. "We are already paying a large sum for electricity and another increase - Oh no!"

Jayadevi Soccalingam, a housewife, sees power cuts disrupting her spare time when she likes to watch TV. "In my spare time I mostly watch TV and that would be difficult in the future," she said.

Raja Ram, working for a popular airline, finds it extremely difficult to cope with the power cuts, around this time of the year. "It is going to be hell for us, I can't believe that we have to go through the old times again," he said. He also added that they would be compelled to pay the power bills even if the charges are increased.

An accountant, Charith Wanigesekere, said it was amazing how the lower middle class has coped with the rising living costs and on top of that power cuts. "Anyway, whatever said and done, we would have to face it. We have to settle our bills," he added.

"Operational costs would increase"

Already the 25 percent surcharge affects costs, said Prema Cooray, Managing Director of Aitken Spence Hotels. The hotel industry puts aside a large segment of its costs for power which has risen sharply since diesel prices have increased by more than 100 percent in the past two years. Even though there is a 12-hour concession on the use of generators, currently the costs are still high. He said since the group has hotels in the Maldives, which run on generators, appropriate solutions to cover power shortages are available and hence power cuts won't affect the industry.

Supermarkets are also major consumers of power and the power cuts would result in an increase in the cost of operations, said Imtiaz Wahid, Director of Cargills Group which owns the Food City chain.

But with many of its outlets currently using generators, there is unlikely to be any drastic impact on costs. Like supermarkets, most city offices use generators for airconditioners and normal office use after the CEB brought in power restrictions earlier this year.

Chamber views

Tackle power, urges FCCI chief

He said power was a key component in industry and the impending power cuts would result not only in the "rhythm of production" being affected but also increasing the cost of production and the cost of living as well.

The current economic situation in Sri Lanka has already led to a downward trend in production volumes and in the level of sales as well. Any country has to support the private sector - power, water, infrastructure and other assistance should be given to the industries in the country, the chamber chief said.

Mr. Hashim believes costs increases would inevitably be passed on to the consumer while export products would be uncompetitive.

In Sri Lanka today, industries are closing down by the day, he said adding that the Nawaloka Group closed one of its factories and relocated its operations to the UAE due to the economic crisis.

The managing director of the Nawaloka Group has informed the Chamber that production levels in the factory situated in the UAE have increased and the productivity of the Sri Lankan workers has increased as well. Those products are now exported to Sri Lanka from there.

"If massive frauds in the CEB had been nipped in the bud, there would be no need to increase electricity rates," he said. He urged the government to seek the advice of experts in different sectors of the economy and work out a programme having the national interest in mind.

"The coal power project is the best solution to the power crisis and this should have been implemented many years ago. The Kandalama Hotel is now one of the best environmental-friendly hotels in the world and it was built despite much opposition. It has turned out to be an excellent project. This should be the thinking of the government," he said.

Small industries suffer

Small and the medium industries would be badly affected by power shortages, said Aloy Jayawardene, President of the Chamber of Small Industries.

Smaller sectors of industry are unable to spend money on generators unlike big industries and hence power cuts will adversely affect small industries, he said.

With power costs set to rise by 150 percent in the future, Mr. Jayawardene – like many others – believes the long-term solution lies in the implementation of the stalled coal power project at Norochcholai.

He says power cuts would add to increasing production costs and affect the consumer as costs are passed on.

"The government should follow the example of our neighbours, India and Bangladesh where concessions are given to small and medium industries. Industries in these countries are provided with facilities at a reduced rate," he said. 

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