Bu$ine$$ Mailbag

Bank ratings cause confusion

I have read the Hatton National Bank CEO's interview with Chanakya Dissanayake in The Sunday Times Business of 10th June. It is implied that a higher capital adequacy of a bank shows that the capital has not been utilised properly. It is also stated that the Central Bank wishes to raise the capital adequacy requirement of banks further. Does this mean that the Central Bank would promote the concept of "not utilisng the capital properly" among banks?

I have obtained one clarification, which says that capital adequacy ratio means the capital given as a percentage of risk weighted assets (or loans and overdrafts, etc.). This would mean that the capital adequacy ratio would be high when the risk on the assets is low. This would mean that if the loans and overdrafts, etc. are less risky and more secure and of better quality, the capital adequacy ratio will be higher. Would this not mean that a depositor's money is much safer when the capital adequacy ratio of a bank is higher, because their lending is less risky? Also, instead of looking for more capital from the market is it not possible for this bank to improve the ratio by improving on the risk weightage of its assets - or loans and overdrafts etc.?

In the interview it is said the bank has applied for a rating, and that the rating agency has wanted the bank to wait till some matters are settled. This obviously means that a satisfactory rating is not possible as things are. It is difficult to believe that a rating agency would advise a bank seeking a rating, to improve the present position and apply again later. If it has done so, hasn't this rating agency contributed towards covering up of some sort or towards keeping important financial information from the public? The position would be different if no application was made. If what is claimed is correct, will the public not lose confidence in the ratings given by this institution in the future? Faith in ratings on the whole would be lost if this is how a rating is depicted during the introductory period itself.

We would appreciate a classification by a knowledgeable person.

Ranjith Perera

Colombo 4.

Commercial development banks?

In The Sunday Times of 10 June there was an interview with Mr. Rienzie Wijetilleke, the Managing Director of HNB and there were some comments made by the CEO of the DFCC in another article. I was surprised to note the contradictory views taken by these two gentlemen on a common issue. Mr. Wijetilleke, that well-known banker who has done yeoman service to HNB has quite rightly indicated the efforts of HNB towards the development of the country. At the same time he had mentioned that he is surprised that the development banks are making attempts to enter commercial banking when there is enough and more for them to do in the sphere of development.

Quite in contrast to what this banker said the CEO of DFCC has urged the Central Bank to change the existing regulations and to take steps to enable development banks also to get into commercial banking. It is hard to believe that this is the thinking of the Chief Executive of the premier development bank in the country which was formed, if I am not mistaken, by an act of parliament in the 1950s primarily with the objective of assisting the development efforts of the country.

The regulators and the government have an obligation to take a long term view before taking decisions on important policy issues, such as abolishing development banks and making them commercial banks to add to nearly 30 commercial banks which do not cater to the development needs of the country as a development bank would do.

Our development banks would take a cue from India and make efforts to help the small and medium entrepreneurs and industrialists in addition to financing large infrastructure projects, the handling of which the commercial banks are not geared and competent at.

H.M.S. Perera

Seeduwa.

Smoke signals from SAARC

The inauguration of the SAARC Women's Entrepreneur Council was held recently followed by a selection of women entrepreneurs of the year amidst a distinguished gathering representing SAARC countries.

At the entrance all the invitees were presented with gift items, including key tags promoting B&H cigarettes. It looked like a promotional campaign rather than a function or a ceremony.

Media institutions are providing a lot of coverage on tobacco related issues and I wonder why this organisation had used women to market tobacco products.

It is a shame that an organisation, which stands for women's liberation, had attempted to promote tobacco products at a gathering of representatives from SAARC countries.

Jeewaka Maithri.

Nugegoda.

Loaning a smile or shedding tears?

Industrial enterprises contribute to a country's economy significantly by creating employment opportunities and by earning foreign exchange.

In addition to GST and NSL, increased interest rates on loans have become the latest obstacle for industrialists interested in developing the industrial sector further.

The government's intervention in negotiating with foreign lending agencies and by providing financial assistance under a loan scheme named SMILE II at low rates of interest to the industrial sector of the country is commendable. However, the bureaucrats in some lending banks have adopted their own rules and regulations designed to deny loan facilities to deserving industrialists. It was only the other day that a senior officer of a bank blindly rejected a request of a small scale industrialist justifying his decision by stating that working capital of industries could not be financed under the SMILE II loan scheme. It was advertised in newspapers that loans are granted for construction, acquisition of fixed assets and for working capital. How can this be?

The roles played by development banks have to be appreciated as they are very liberal. A leading development bank had recently granted a loan under SMILE II scheme to an industrialist to purchase a block of land and to construct a house.

When the development banks are so liberal, it is difficult to understand why some of the other banks are so negative in this competitive banking environment.

S. Wijesundara,

Negombo.

Customer blows a fuse

I purchased a fuse for my VCR at Uni Walkers Ltd on 23rd April 2001. They charged Rs. 77/78 for this item. Rs. 22/22 (28.57%) as GST was also levied. On that day I purchased the same item in a shop at Main Street and paid only Rs. 5/. When I inquired from other electrical shops I found that the price of this item did not exceed Rs. 5/-. I feel that this company has cheated me.

Who can safeguard the consumers from these giants?

B. Kumara,

Colombo 6.

Right of reply

Improving all the time, says Lanka Electricity Co

Referring to the letter from LECO customer, Mr. Mansoor Ghouse, relating to the LECO service which appeared in the Sunday Times of June 24, LECO Operations Manager has thanked the former for the encouraging comments and assured all customers of improvements in the service.

He said of the two interruptions in Rajagiriya in June 2001, one was at the request of the CEB and the other was for maintenance work by LECO. In May there were twelve CEB supply failures due to faults and the balance were LECO system failures. There were three CEB supply failures and six LECO failures in the month of June.

"We agree that our systems are not up to the standard of the developed countries. However, we are working towards minimising these interruptions and improving the systems network to meet the growth of 7-8% compared to a lower growth in the developed countries," he said in a letter.

Contributions welcome!

The Sunday Times Business Desk welcomes letters/comments from readers on issues, problems and concerns relating to the Sri Lankan private sector and the economy. Letters or comments restricted to 200 words are preferred. All contributions, inclusive of the name of the writer, address and if possible, telephone number, would be edited and used at the discretion of the Business Editor. Please send contributions to the Business Editor, The Sunday Times, 8, Hunupitiya Cross Road, Colombo 2, or on e-mail: btimes@wijeya.lk.

News

SL's main drugproducer expands to provide relief

High cost of drugs inflict more pain on patients

By Hiran Senewiratne

The State Pharmaceutical Manufacturing Corporation (SPMC) is planning to invest Rs. 285 million to expand and modernise its factory at Ratmalana with a view to doubling production capacity, its chairman said.

At present the SPMC has an annual installed capacity of 550 million units of tablets and capsules and 60,000 litres of dry medical syrups. The state-owned organisation is Sri Lanka's biggest producer of drugs and pharmaceuticals. The State Pharmaceuticals Corporation (SPC) markets it's products under the SPC label.

However, the output far exceeds installed capacity and currently the SPMC is producing 825 million units to cater to the rising demand, SPMC Chairman, Nihal Kiriella told The Sunday Times Business Desk.

Mr. Kiriella said the SPMC manufactures 51 generic drugs which account for less than 25 percent of the country's drug requirements. He stressed the need to increase local production to meet the demand. The corporation conforms to World Health Organisation-recommended Good Manufacturers' Practices which are prerequisites for any pharmaceutical manufacturer.

He said that once the modernisation and expansion projects are completed the SPMC plans to enter strategic alliances and joint ventures with international pharmaceutical giants, bringing new technology and capital into the industry. Mr. Kiriella declined to give details of the proposed tie-ups.

At present the SPMC drugs comply with British and US Pharmacopoeia standards, and also with Health Ministry standards.

The SPMC has 50,000 square feet of space at its manufacturing facility which is equipped with up-to-date Japanese and German machinery.

Mr. Kiriella said the company has a committed workforce comprising 139 trained employees who work in ultra-clean zones in the factory where strict standards of hygiene are maintained.

He said that once the expansion project is completed the SPMC would start a second shift, doubling production to manufacture six new generic drugs.

The SPMC last year exported 70 million anti-filaria tablets - worth Rs 5.5 million - under the brand name Diethylcarbamazine to more than ten countries including Egypt, the Philippines, Myanmar and some islands near the United States.

The corporation is self-funded and autonomous and does not rely on government funds, said Mr. Kiriella.

The SPMC has also entered the growing debate over the use of generic drugs against branded drugs,more expensive sponsoring a Ministry of Health programme to enlighten the public on the difference between the two categories.

He said the SPMC is always committed to produce quality products at reasonable prices.

There is a growing demand by the public for doctors to prescribe drugs without brand names. Newspapers have highlighted the price difference, between generic and branded drugs. The common pain killer paracetamol for instance is available for 25 cents while the branded tablet costs Rs. 1.50.

Power crisis feature

With reference to last week's special feature on the power crisis, Mr. J. Varnakulasinghe, a former director of engineering at the CEB, has clarified some points he raised in comments made to The Sunday Times Business reporters.

He said that in respect of accountability within the CEB, the power of deciding on new projects is a joint cabinet decision and not one made by the minister alone.

Exciting European excursions from Emirates

Leisure travel to Europe has been made affordable to many Sri Lankans under new promotional packages developed by the Colombo office of Emirates, in conjunction with Emirates Holidays, the airline's leisure management company.

These packages, which combine air fares, hotel accommodation and excursions covering any of four popular destinations, Germany, Italy, Switzerland and Austria, are now available from Rs. 110,000 (US $1225) upwards per person on a twin sharing basis, the airline said.

The highest priced package, for a 14-day tour for two to Germany, Austria and Switzerland, inclusive of air tickets, 3 and 4-star hotel accommodation, sightseeing, excursions and tours with entrance fees, room taxes and service charges, costs an average of just Rs. 16,875 per person per day. Among the other packages announced is a four-day mini Northern Italy tour for two covering Rome, Assisi, Florence, Padua and Venice with air fares, transfers, four-star hotel accommodation on half board, coach fares, entrance fees, room taxes and service charges for just US $2450.

Delegation office for Panalpina

The Switzerland based Panalpina Group, one of the world's largest transport and logistics companies, has opened a delegation office in Sri Lanka.

Panalpina concentrates on providing global integrated logistics services, offering its customers comprehensive solutions in the area of supply chain management. Thanks to its worldwide network and its highly developed IT systems, Panalpina provides tailor made door-to-door solutions, meeting its clients' individual needs. The Panalpina Group owns and operates over 330 offices in 70 countries, and employs about 12,000 staff worldwide.

The Sri Lanka delegation office is headed by Chief Representative Lothar Schuster, whose last assignment was Manager of Panalpina's "Indian Subcontinent Department" in the Hamburg office, Germany. Panalpina's exclusive agent in Sri Lanka, MIT Cargo (Pvt) Ltd., is a member of Hayleys Group. MIT Cargo, which is accredited by the International Air Transport Association (IATA) and the International Federation of Freight Forwarders' Association (FIATA) is in the forefront of the Sri Lankan freight management industry. MIT has been closely co-operating with Panalpina since 1988.

Evaluation and good governance the SleVA way

By Sonali Siriwardena

Stagnating poverty, uncertainties over globalisation and threats to the environment demonstrate a constant need for good evaluation mechanisms which are fast becoming important in Sri Lanka today, notes Dr. Adil Khan, senior advisor to Sri Lanka's Ministry of Plan Implementation

Delivering the keynote address at a Colombo seminar, Dr. Khan said that in this respect, evaluation associations such as the Sri Lanka Evaluation Association (SleVA) that are outside government but work in partnership with the state, have a big role to play. "By contributing to increased professionalisation and the truthful and wide dissemination of evaluation findings, these associations could play the dual role of educator-developer in a country," he said.

He was speaking at a recent international conference on Evaluation, Good Governance and Development organised by SleVA. The conference discussed at length the concept of evaluation and its relation to good governance, which together could be used to act as catalysts to development.

Dr. Khan said he expected proponents of evaluation such as the SleVA that bring together the academics, the government and the private sector would provide the stage for objective debates on such issues. He further expressed the hope that such discourses will help people ponder more about the bigger picture, which will dictate how decisions would be made, where the resources will be allocated and how they would be distributed.

The seminar is the first of its kind to be held in the country and is seen as a pioneering endeavour by the SleVA, which according to its President, Ms. Soma de Silva is probably the only formal evaluation association in South Asia. Ms. de Silva said the objective of SleVA is to nurture evaluation to support good governance and development, adding that it should be an enabling and empowering process as opposed to a fault finding exercise.

Education Minister Susil Premajayanth highlighted the importance placed on evaluation by the government, saying President Chandrika Kumaratunga has decided to implement a comprehensive and detailed process of monitoring progress of plan implementation under the Ministerial Action Plan 2001.

This, the minister added is intended to replace ad-hoc decision-making while minimising duplication of work and wastage of valuable resources within the government sector.

Mr. Premajayanth expressed confidence that the conference would bring forth initiatives to reinforce the attempts made by the government to create good governance and enhance development through better monitoring and evaluation.

Explaining the situation as it stands at present Mr. C. Maliyadda admitted that evaluation is not in fact used effectively in government projects. As the secretary to the Ministry of Plan Implementation, he pointed out that although it is not alien to us, evaluation is not utilised in long-term planning. He explained that the project cycle begins with planning followed closely by monitoring, with evaluation coming at the very end.

Mr. Maliyadda said the latter is never re-connected to the planning process and therefore the challenge would be to secure a link between evaluation and project planning within the government sector.

House of Fashions up and running

By Diana Mathews

House of Fashions, the trendy Colombo clothes store, has rejected speculation that the store is running at a loss and defaulting on loans.

"It's all nonsense," said Preethi Jayawardene, the store's Managing Director. "Business is going on perfectly and our creditability is guaranteed. I can't believe that people could spread such rumours."

Mr. Jayawardene, reacting to speculation in Colombo's fashion circles about the future of House of Fashions, said their prices were very reasonable and efforts have been taken to trim unnecessary expenses to keep prices low.

There are no expansion plans at present, Mr. Jayawardene said, as dozens of shoppers strolled through the building looking for bargains. "We run on a low profit margin and cater to all sectors of the market," he added.

Parking facilities would be improved and a new product range will also be introduced in August, Mr. Jayawardene said.

US firm invests in IT with long-term view

A US $ 2.5 million (Rs. 225 million) IT investment got off the ground last week, with iOnosphere Lanka Ltd obtaining regulatory approval.

iOnosphere Lanka is a 100 percent US-owned Internet Service Provider catering only to the corporate market. "We are in a position to guarantee 24 hours uptime 365 days a year due to our regional network," said iOnosphere CEO Anura de Silva.

iOnosphere is not expected to make profits in Sri Lanka in the near future due to the current depressed economic conditions. "We are taking a long term approach. Once the economy recovers iOnosphere's investment will be amply justified," de Silva added.

The product portfolio offered to corporate customers includes wholesale ISP facilities, customised networked infrastructure and internet virtual private networks.

The company has already signed up with leading companies in the IT sector including Mobile Media, Sabre Technologies and Affno as trial customers.

Its new Colombo office was opened at the World Trade Centre complex in Colombo on Friday.

e-WIS launches Lexmark C720 and J110

e-Wis, the sole distributors of Lexmark in Sri Lanka, has announced the launch of two high impact colour printers the Lexmark C720 and J110 which are designed for improved speed and quality output.

The Lexmark C720 laser printer is designed to give mid-volume business work groups a competitive edge. "Until now, enterprises have shied away from adopting colour laser printing technology – largely because of slower speeds and higher costs," said Ms. Francis Duggan, General Manager, Lexmark, Indian subcontinent. "The Lexmark C720 colour laser printer gives enterprises a powerful business tool to help them gain a competitive edge and enhance their printed communications," she added.

Lexmark's new J110 employs a unique combination of colour laser speed and quality with breakthrough affordability. Lexmark's Liquid Laser™ technology is an innovative approach that has enabled Lexmark to develop a fast, business class, work group colour printer at half the price of comparable colour lasers.

Training in fire fighting

The Industrial Security Foundation of Sri Lanka has embarked on a programme to train security staff in basic fire fighting utilising in-house fire fighting equipment.

The training programme includes theory on prevention, causes, fire fighting equipment, methods of extinguishing fires and practical training in the use of portable fire extinguishers. The training programme will be conducted by the former commandant of the Civil Defence Force and the first Sri Lankan to be elected a Fellow of the Institute of Fire Engineers, (UK), Wg. Cdr. (rtd) C. A. O. Direckse assisted by officers from the City Fire Brigade.

Ozone test chamber will improve the local rubber industry

The Plastics & Rubber Institute (PRI) of Sri Lanka has gifted an Ozone Test Chamber to the Industrial Technology Institute (ITI) to enable the ITI to provide an increased range of services to the rubber industry. The agreement handing over the chamber will be signed by Mr. Tilak de Zoysa, President of the PRI and Dr. N. R. de Silva, Chairman ITI at a ceremony to be held at the ITI shortly. The PRI membership comprises of several private sector companies and professionals in the field and it is thus an unique example of a much needed private sector/state sector interaction that will bring immense benefit to the country.

The Ozone Chamber costing approximately US 38,500 (Rs. 3.5 million) was financed by the US-based Technology Initiative for the Private Sector (TIPS), who recognised the need for such equipment, in order to improve the technological capability of the local rubber industry and to improve the international competitiveness of this sector. The PRI decided to donate the equipment to the ITI in recognition of the Institute's capabilities and its sustained support to the rubber products industry in the country.

Ozone test chambers are an effective means of carrying out evaluations to identify the resistance of rubber products to ozone attack. As a result of demand from many end users for rubber products that offer a longer service life, there is an increasing need for such products to be tested for ozone resistance. The task for rubber manufacturers is to identify rubber additives that can be used either singly or in conjunction to produce rubber parts of a high quality and with the high levels of ozone resistance needed for long service life. Examples of the types of products for which this is expected include windscreen wipers, door and window seals, vehicle tyres and practically any rubber product that is subjected to flexing or strain, indoors or outdoors. Accelerated static and dynamic tests can be carried out in the ozone test chamber with a controlled ozone dosage that is monitored to ensure compliance with standard test conditions. Performances of rubber compounds and additives are assessed through comparison of both appearance and mechanical properties after various levels of ozone exposure, for various times, as specified in the testing procedure.

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