• Shipping crisis worsens woes
• Menu for sanity and stability
• Corporate citizen air your views!
• Mind your Business 
• IBM initiative to make kids smart
• Dav's cure for harried executives
• Millions ploughed into forest investments
• The twin crises in the economy
• Shell powers rural Sri Lanka with solar
• News

Shipping crisis worsens woes

By Chanakya Dissanayake

Ports Minister Ronnie de Mel is leading a shipping delegation comprising the Sri Lanka Navy, Sri Lanka Insurance Corporation and the Ports Authority to London this week to persuade Lloyds of London to remove the high surcharge. "The Katunayake (attack) was an isolated incident. The chance of a successful attack on the Colombo Port is zero," he told a press conference last week.

If the delegation fails to convince the underwriters next week, the government is expected to invite an independent international audit team to carry out a security audit on the port and report to insurers.

Rohan Masakorala, chairman, Sri Lankan Shippers' Council, identified the attempts to charge a massive premium on cargo by certain shipping lines who have formed a cartel to earn super profits. "We have reliably learnt that a certain shipping line is calling on other lines, urging them to quote the same premium. Our message to shipping lines is very clear - please don't try to fish in troubled waters," he said.

The recent security lapse at Katunayake Airport resulted in London-based shipping insurers and the war risk rating committee declaring the Colombo Port as a war risk zone last week. The insurers have proposed war risk surcharges ranging from US$15,000-US$150,000 depending on the size of the vessel for each visit to Colombo.

In return the shipping lines are currently contemplating surcharges ranging from US$ 500 for a 20-foot container and US$ 1000 for a 40-foot container. The Shippers' Council said the move to charge excessive premiums was both unnecessary and unacceptable. "Colombo is not a war zone. There is a vast difference between the actual Colombo security situation and the perception among the insurers in London," said Parakrama Dissanayake, a leading shipper.

The Shippers' Council has also presented a crisis recovery plan to President Chandrika Kumaratunga. The plan calls for an all-out marketing campaign by the government to rebuild confidence in the port. "The government should invite the owners of top liners - Evergreen, P&O and MAERSK - to Sri Lanka to explain the situation," said Masakorale.

The recovery plan also calls for the immediate liberalisation of the bunkering facilities and overall cost cutting at the port to attract ships." This is not the time for pen-pushing. The government needs to press the buttons or the country will slide to a massive economic disaster," Masakorala added.

The shipping crisis, if not solved this week, is also likely to affect the tea auctions with the buyers demanding a four to five rupee discount per kilogramme to offset heavy freight charges. Oil prices are also likely to go up with the surcharge, which has raised the war risk component of oil shipments by almost 300 percent.

The airlines and travel trade are still battling the after-affects of the Katunayake attacks though some analysts believe the drop in tourist arrivals may be smaller than anticipated.

"We forecast tourist arrivals to fall by 24 percent in the second half of 2001 compared to 2000 which was marred by a violent election and which saw arrivals fall by 12 percent," a senior analyst from Asia Securities said.

However, insurance premiums will increase the price of an air ticket by US $ 100 per person and Sri Lanka is a budget destination, he said.

Other research analysts forecast a 45 percent drop in earnings per share for quoted companies in the hotel sector. However, larger companies which have considerable clout with tour operators are expected to fare better than smaller resorts who have temporarily discontinued operations during the off peak season.

Colombo tour operator Jetwing has always worked closely with the Sri Lankan market and will offer a 30 percent discount on Sri Lankan rates, Managing Director, Jetwing Hotels, Hiran Cooray said.

Most hotels are planning to cope by shutting down sections of hotels, retrenching casual employees and not hiring seasonal staff. An estimated 150,000 direct and indirect employees will be adversely affected by lower incomes while government revenues will drop from the estimated Rs.1 billion earned last year, Director Operations, Confifi Group, Anura Lokuhetty said.

Occupancy at Confifi is presently 10 percent but may go down after August 15, he said. The travel industry recently met treasury officials to explain the gravity of the problems confronting them and to seek support to implement relief measures.

Among the measures sought were soft loans to meet working capital requirements, the allocation of funds for a public relations campaign in revenue generating markets, a moratorium on the repayment of capital and interest on loans taken previously and the waiver of landing charges levied on aircraft. The Ceylon Tourist Board (CTB) has sent out questionnaires aimed at ascertaining the cash flow and loan restructuring requirements of hotels and has set a deadline of August 14 to collect the information, Chairman, CTB, Renton de Alwis said.

Menu for sanity and stability

Are we heading in this direction? "I don't know. I think they (parties) are playing political games at the moment." 

"It will only be as a last resort that they will get together - in desperation more than serving the country," he told The Sunday Times Business Desk.

The Singer chief made these comments in the course of an interview (Please see Page 4) to discuss the global giant's 150th anniversary which is being marked across the world with a range of events like photographic exhibitions, fashion shows and donations to charities like the donation of artificial limbs to wounded soldiers in Sri Lanka.

Despite the gloomy outlook, Amarasuriya is upbeat and believes the business community should not be negative "otherwise you are setting in motion a recession". 

The company is hoping to access funds worth 200 million rupees from its large customer base, offering attractive interest rates, in a public issue to be launched on August 23.

Corporate citizen air your views!

A spokesperson for the firm said they would be interviewing close to 100 business leaders across the corporate spectrum over the telephone during August 8 to 20. She said the questionnaire would also be faxed to participants.

CEOs are being asked to list the most pressing issues in the country like peace talks, a national government, reconvening parliament, changing the constitution, the no-confidence motion, and so on and rank them in terms of priority.

One of the questions is –"do you think the private sector has done enough to help make things better for the country and its people? If no, what else can they do?"

Business analysts said the poll and its wide range of questions should produce some interesting responses and provide clues to what the business community thinks about the country's political leaders, the economy and whether it is doing enough – along with civil society – to solve the crisis.

Mind your Business 

Playing with fire

But the move required resigning from many private sector directorates and this was duly done - except for one, which he continues to hold.

And this has perturbed some who see a potential conflict of interest looming, after all there is no smoke without fire, they say....

Struggle to shine

Most hotel chains have agreed on the discounted rates to ensure there will be no undercutting but that leaves an important segment out in the cold - the city's five stars.

These big names which obviously cannot attract the 'local' tourist, face an uphill task for survival and will soon be compelled to appeal for state assistance, those in the trade say.

Shaky sheikhs

The reason? Fears that they too will become a target of the striped kind. But then, there are contracts to be honoured and obligations to be fulfilled but legal eagles in the desert are said to be studying the issue, trying to work out a quick way out...........

IBM initiative to make kids smart

By Akhry Ameer

Eleven Young Explorer Product units were given as grants to four programme partners as part of IBM's K-12 School Reinventing Education initiative. The four programme partners are the Children's Secretariat – Ministry of Women's Affairs, Early Childhood Education Department – Open University, Social Empowerment Division – Sarvodaya and SOS Children's Villages.

The Young Explorer unit in reality is an IBM PC with a 300 MHz Intel Celeron Processor with standard features just as everyone else's PC in their offices and homes. Kids between the ages of 3 –7 years would not know this as it has been designed especially for them. The computer has been locked into a little playhouse type of design so that there is no risk of pulling wires or using objects to damage the PC. Further the unit also has integrated speakers, an easily cleansable membrane keyboard, an attractive design with a double bench seat and locked castors to move the item and position in its correct place.

Beyond this it is the software that plays the actual role. Using six different applications it aims to teach kids spelling, pronunciation, problem solving, inspiring creativity, etc. with increasing difficulty levels. Interestingly, Sri Lanka was identified as a recipient of this grant after a parent from Nuwara Eliya had written to the Chairman of IBM in USA about his intention to teach his young child through the use of computers. IBM globally spent US$45 million last year on this act of corporate citizenship in reinventing education. Locally once the teachers have been trained in using these units IBM Sri Lanka hopes to sponsor another 100 units in the coming year.

Dav's cure for harried executives

The Sri Lankan-born Australian, who single-handedly reversed Sri Lanka's cricketing fortunes by the use of self-improvement techniques, will run a motivation seminar for company executives at the Colombo Hilton on September 14.

The Wicket.Com, the online cricket magazine organising the event with Knowledge Inc.- a management company, said in a statement that the seminar would provide executives the opportunity to apply methods that have succeeded in both sport and business.The seminar will include a keynote address by former Sri Lankan captain Ranjan Madugalle and a presentation by Dian Gomes, CEO of Slimline Pvt Ltd and a former national boxer.

This is not the first time Whatmore is trying to fine-tune corporate executives. He has been involved in a few seminars in Australia and also in Colombo but to smaller groups.

Millions ploughed into forest investments

By Hiran Senewiratne

"I invested in this scheme because I wanted to give back to the environment what I - as an individual - had taken out like cutting trees to build my house for instance," said Nihal Wijeratne, a company director.

Sri Lanka's pioneering forestry investment schemes have raised Rs. 75 million from dozens of local investors, including many professionals, in the past year and have ambitious plans to bring close to 10,000 acres under timber cultivation in the next decade.

Two Sri Lankan firms, as a measure of countering increasing timber prices in the country, launched these BOI-approved projects which also encourages the general public to preserve the environment, while making a long-term profit on the investment.

The companies - Touchwood Investment Ltd (TIL) and Help Green Ltd (HGL) have large plantations where they grow teak and mahogany trees in the wet and dry zone regions in Sri Lanka. They are also constructing holiday bungalows at the site for investors.

TIL, a pioneer forestry investment company, invited investment in mahogany plantations to the public after an initial start-up capital of Rs. 10 million.

Company officials said TIL has 20, 30 and 40-perch mahogany-planted plots at Hindurangala and Eheliy-agoda in the Ratnapura district for purchase by the public. The blocks range from Rs. 90,000 for 20 perches and Rs. 150,000 for 40 perches.

Roscoe Meloney, chairman of TIL, said there was a tremendous response from the public after the company went into commercial operation in early 2000.

He said TIL, which has 420 investors, developed neglected rubber lands and abandoned forests into mahogany plantations with 120 acres already planted with these trees in the Ratnapura district.

Sri Lanka has some of the best mahogany in the world. Under the TIL investment scheme, the cost of a tree works out to Rs. 10,000 and after 17.5 years investors get a return of Rs. 250,000 on their original investment.

TIL is also planning to invest in the Philippines, Meloney said

Lushan Perera, an engineer, said he was one of the first customers of TIL and planned to purchase another plot, adding that it was a prudent investment with sufficient guarantees by the company as land deeds were clear and there were other benefits.

After investors have purchased their plots, TIL manages the plantations for an annual fee and purchases the trees after they mature.

K. Kandasamy, owner of the Oxonia educational institute, said this is a good system if the company managed the plantations properly. He has bought four plots and believes it is a good investment as there is a big demand for mahogany in the European market.

Keith Perera, a company director of Reckitt Benckiser, said that although this a novel concept for Sri Lanka it has been found to be a prudent investment in other countries, especially South America.

He said under present economic conditions, no business can guarantee a 100 percent return and hence this investment is safe, as investors own the land if something happens to the trees.

"We intend growing trees on 10,000 acres in the next ten years with the help of the public and their investments," said HGL Managing Director, A. R. Dissanayake.

HGL has 40 perch blocks, the cost of which vary according to the land value, in the Anuradhapura district which is ideal for teak plantations. This project's main aim is to provide investors with a scheme of conserving the environment and also financially gaining from it.

Dissanayake said there are 700 acres of teak in Anuradhapura on 40-perch blocks of land while the company has a 2,000-investor/customer base. The company plans to develop 300 acres this year.

The investors have weekly meetings amongst themselves to discuss matters relating to their investments.

Dr. R.G.S de Costa of the Open University of Sri Lanka said he found that this was a good investment but one of the problems was that the lengthy time factor has its share of risks.

The twin crises in the economy

Last year, despite an economic growth of 6 percent and an export growth of 20 percent, the country faced a severe balance of payments problem and a huge budget deficit of nearly 10 percent. This year's economic performance is very different. Compared to an economic growth of 6 percent last year, the projected growth ranges between 3 to 4 percent. It is more likely that it would be nearer the 3 percent than the 4 percent. With this poor economic performance we would most likely face a balance of payments crisis as well as a large budget deficit.

In the light of new developments the Central Bank is likely to bring down its original projected growth rate. In the first quarter the economy grew by only 1.3 per cent. The global recession had hardly been felt in the first few months. The recession is widening and deepening. The domestic situation is hardly conducive to economic growth. Industrial production in both the public and private sectors has declined.

The political disruption, the bomb blast and its impact, inflationary pressures, high interest rates and reduced capital inflows will have adverse impacts on the economy in the second half of the year. These factors will impact on both the fiscal outturn and the balance of payments.

The impact on the government's finances may not be obvious. On the revenue side the poor performance of the economy and lower level of economic activity implies that government revenue would decline. Lower corporate profits, lesser trading activity and lower personal incomes and spending would result in revenue shortfalls. Higher government expenditure owing to the referendum, and maybe a general election later this year plus additional expenditure on arms would indeed add to the expenditure. In the situation that the government is in, it is most likely that the overall fiscal deficit would be kept down by a curtailment of capital expenditure. This has been a common strategy in public finances in recent years. In other words, the overall deficit would be offset by a reduction in capital expenditure. The implication of this is that once again we will be sacrificing long-term growth as a means of crisis management.

The balance of payments is likely to face severe pressures from several sources. The merchandise account that has always been in deficit is likely to be large. Export incomes are also seen falling. In the first five months, export earnings fell marginally compared to the same period last year. Imports decreased by nearly 8 percent owing to lesser intermediate and capital imports due to lower industrial activity. Consumer imports increased by 6 percent despite the depreciation of the currency. In the first five months when conditions were not completely unfavourable, the trade deficit was US$ 689 million. If this trend continues, and maybe gain momentum, the trade deficit is likely to be very large.

There are other items in the balance of payments that are likely to turn unfavourable. The most obvious being tourism earnings which increased in the first five months by 8 percent. Tourism earnings in the second half would drop drastically thereby not giving the expected increase in earnings this year. Capital inflows would possibly be a trickle, even official capital inflows, as the government is not likely to fulfil its obligations to get the committed funds from international agencies. The only hope is that the new situation is viewed sympathetically in the context of the global recession and the terrorist attacks and that these agencies would give the promised assistance.

The one source of balance of payments that is likely to be least affected and likely to increase slightly is the remittances from Sri Lankan nationals abroad. This is a sizable contribution. It was as much as US$ 1,115 million, about one and a half times the earnings from tea and more than one third the gross earnings from garments exports.

The lower level of economic activity and economic growth is likely to result in a higher budget deficit, while the global recession and the setback to several sectors by the political crisis and security conditions are likely to result in a severe strain on the balance of payments. The second half of the year is likely to prove a period of stress on government finances and the balance of payments.

Shell powers rural Sri Lanka with solar

By Feizal Samath

It is, however, serving a different but now a more important purpose – chasing the elephants away from attacking his home and the homes of neighbours and their crops.

"I have a powerful light outside that scares the elephants away," he said.

He is not the only villager that's using solar power for purposes other than the originally planned one. N.G. Punchi Banda, a rice and onion farmer, has more than 25 people crowding into his small mud-splattered floor in the sitting room intently watching cricket matches on a solar-powered black and white television set.

"When Sri Lanka plays I don't go to the fields. I stay at home to watch the match," he said, adding that the solar power tube lights at his home " was effectively serving its purpose."

Homes in remote corners of Sri Lanka's rural countryside, where electricity is still a luxury, are enjoying the advent of solar power, which is growing in its reach and extent across the island. Dozens of solar panels have sprung up on roofs in this district after being introduced a couple of years ago.

The entry of solar power into Sri Lankan households has much to do with the efforts of a trio of entrepreneurs – Viren Perera, Lalith Gunaratne and Pradip Jayewardene - who ventured into this business as far back as 1986.

But their pioneering efforts met with many hurdles and it was not until 1999, when the group sold the company to Anglo-Dutch oil multinational Shell that things really started moving.

"We sold out to Shell and then a new company called Shell Renewables Lanka Ltd was formed. I was invited by Shell to be the managing director of the company due to my expertise and local knowledge on the subject," said Jayewardene, a grandson of former Sri Lankan President Junius Jayewardene.

Shell which sold 300 solar power units to rural households between September 1999 and December 1999, sold 1,800 units in 2000 and this year overtook that figure to 2,200 sales in the six months to June. The company is planning to sell 4,500 units in 2001 while "demand is constantly growing", says Jayewardene.

It must be - given the fact that close to 50 percent of Sri Lankan households don't have electricity and are unlikely to get it in the next decade given the high cost of installation coupled with rising demand for power amongst current users.

According to government data, 47 percent of house holds, mostly-rural homes, do not have access to the state-owned Ceylon Electricity Board (CEB) national grid. The demand for electricity is rising by an average of eight percent per year while the present demand, according to the Central Bank's annual report for 2000, will double to 9,600 GWh by 2010.

With the country's hydropower resources unable to meet the demand, dependence on thermal power has risen sharply to 35 percent of total power needs in 2000 from 20 percent in the 1990s. Delays in launching a major coal power plant on the western coast due to protests from residents and environmentalists have also stalled CEB plans to increase power resources.

Solar power, though expensive at the initial stages, has proved to be a good option for rural households spread across the north-central and north-western regions, and has seen remarkable growth. Up to two million households are in need of electricity.

Jayewardene explained, while driving through rugged roads off Dambulla last week, that he believed rural areas were too large and widespread for electricity and that it was unlikely that residents would get power from the national grid for a long time.

"Installation of power lines is a costly exercise," he said, as his driver turned the car into the driveway of Wickremasinghe Silva, a 48-year old farmer at Anakatawewa village, about five km off Dambulla.

Silva has a five-light unit costing 35,000 rupees but uses the tube lights sparingly. "For once my children can study with the help of a light," he said. The disciplined use of power by rural residents is a lesson for urban residents on how not to waste power and even water resources. Sri Lankan authorities are constantly pleading to consumers to cut waste and economise on power and water.

Like many others who use solar power in the village, Silva pays for the unit every six months – when his rice harvest is ready for sale – and hopes to settle the loan in a couple of years.

"I don't want to be in debt but Ajit convinced me that this is good for my family," he said turning to Ajit Kumarasiri, the amiable manager of the Shell Solar Centre at Dambulla. Kumarasiri's occasional client visits are a welcome distraction for the farmers who often pour out their tale of woe. Kumarasiri is a patient listener and today nods his head in agreement as Silva talks about a long-standing dispute he has had with the owner of an adjoining rice field.

The solar units which come with panels, a battery, tube lights and wiring, is offered to residents at prices ranging from 26,000 rupees for a three-light system to 76,000 rupees for 15-light unit.

Sri Lanka's few solar power companies have also joined a World Bank project where the units are subsidised to users. Under the bank-assisted Energy Services Delivery (ESD) project, solar has been recognised as a key thrust area to meet the micro level requirements of rural households. The bank has set aside US $ 5 million towards the promotion of solar home systems – via private companies – and the scheme has proved successful.

SEEDS, a local non-governmental agency and an arm of Sarvodaya, handles the financing and loan collection under the project. The bank disburses money to SEEDS. Once the units are installed, SEEDS pays the solar companies and collects the money from users. Solar clients make a small down payment and then pay once in six months for an average five-year loan. Farmers are prompt in their payments and there have been few defaulters in the past few years.

Solar power recipients are normally middle-income farmers with an average monthly income of 5,000 rupees per month. "It is still too expensive for low income farmers," Kumarasiri said.

Another solar power user K.G. Nandawathie, whose husband was away in the fields, says the family discovered that solar power was the perfect foil against marauding elephants. "We had no protection against the elephants who came and ate our crops. But when we switch on the lights in our garden, they don't come," she said 

Nandawathie's home at Kalugange, about 25 km from Dambulla, has a 13-light solar power unit installed by Shell. The power is also an advantage to cricket lovers in the vicinity. "When the matches are on, the neighbours crowd into our sitting room to watch the matches on television," she said.

For Buddhist monk Ratnajothi, the power unit is a boon to his village of 250 families. "With the help of these tube lights, we can chase away the elephants," he said.

At least five people from the village have been killed by wild elephants. "We have appealed to the authorities to provide an electric fence but nothing has happened," lamented the priest, adding that there was a herd of 200 elephants nearby.

The elephants have ruined nearly 1,000 acres of crops and destroyed 56 bicycles, bullock and pushcarts. If Ratnajothi is compelled to venture out at night, visiting a home for a religious function for instance, he is accompanied by an armed villager to protect against wild animals.

But the villagers take care not to harm the elephants. "If confronted, we shout, scream and light fires to chase them off," Ratnajothi said adding that elephants are precious animals and villagers recognise their value. But he says long-term solutions must be found for the elephant-human conflict.

Often residents in his village light fires round their homes to stop the elephants.

For residents of solar-powered homes, the new energy source is a worthwhile investment.

A village shopkeeper who uses a unit tells Kumarasiri that there are others prepared to buy the unit and wants a Shell salesman to come and discuss terms.

"This is often happening - our units are being promoted by other users," said Jayewardene.

Sri Lanka is one of the few countries where Shell has succeeded in the renewable energy business. The local scheme of providing solar power to thousands of rural households with the help of an NGO is being used as a model for implementation in India, Indonesia and the Philippines.

Next year, solar power companies plan to install 20,000 units while demand is expected to reach 200,000 units in five years time.

For Jayewardene, the 14-year long search for success in the solar power industry has finally paid off. "I learnt many things. I lost cash but I gained in experience and knowledge," he said, recalling the time in 1986 when he quit a well-paying job as a business development executive at Mitsui and Co in Canada, to try his luck in Sri Lanka in the solar power business.

It was in Toronto that he encountered his partners-to-be, Viren Perera and Lalith Gunaratne, and the trio began exploring the prospect of launching a solar-powered water pump in Sri Lanka. Perera had a financial and accounting background; Gunaratne was an engineer by profession while Jayewardene had an aptitude for technical matters. Perera later helped found Asia Capital, which today is a giant in the investment field.

In September 1987, the group launched the Power & Sun Co with one million rupees as start-up capital and funding from the NDB and DFCC. But soon the company realised providing solar power to rural households was more attractive financially than water pumps.

The company got more funding from the banks and moved into an era of solar power. "We knew this was a worthwhile technology," Jayewardene said, recalling how his grandfather and then president egged him on and provided moral support.

A factory was constructed in Negombo where solar modules were made by 30 workers. The company imported the cells, the glass and the plastic while training 150 youths to go around the countryside as sales agents.

The company sold 50 units per month but it was not enough to keep the business going. With the chips down, Power & Sun Co tried various ways to stay afloat but was getting deeper and deeper into debt.

In 1993, with the help of a Malaysian investor whose financial support helped to wipe out a 20-million rupee debt, the company recovered and by 1997 had made a small profit.

Somewhere in early 1998, Jayewardene was told that a Shell company representative had been discussing with the World Bank the prospects of launching a company to provide solar power to rural households.

He immediately contacted the bank and said Power & Sun was interested in a foreign collaborator. A couple of months later, Shell began negotiating with the local firm and the rest is history.

"I had many sleepless nights wondering how to pay the salaries of employees or find the money to pay off the debt. But the 14-year period was not wasted. The experience was worth it even though there were times when we wanted to simply shut down,"said Jayewardene who enjoys crisscrossing the countryside looking for new business opportunities. Being an outdoor person – camping out and exploring Sri Lanka's vast landscape is a favourite pastime – has helped him in the business.

The bright smiles of users when Jayewardene and his team walk into their homes are rewarding enough for the executive. "We are selling this unit but people thank us for bringing power to their homes. If we increase on volumes we can bring prices down and then reach all segments of the farmer population," he says.

Jayewardene's former Power & Sun Co made a significant mark in the solar power industry that even under Shell the solar power units are traded under the former brand name "Suntec".

"The brand is so popular that even when our competitors go around the village selling solar power units, they often use the name 'Suntec" to explain these units," he added.

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