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The government is vigorously pushing ahead with the reforms programme, opening out the petroleum sector and selling off the marine and aviation fuel businesses, privatising the remaining plantation companies and restructuring the Insurance Corporation, senior officials said.
The privatisation of Lanka Marine Services, a Ceylon Petroleum Corporation (CPC) subsidiary responsible for bunker marine fuel, would be formally announced this week via an advertisement calling for prospective buying offers, officials at the Public Enterprises Reforms Commission (PERC) said.
This would be followed by the sale of Pelwatte Sugar Corporation which is likely to raise Rs. 250 million with the sale of Higurana and Sevanagala, also state sugar companies, taking place thereafter.
PERC will spend a lot of time this year on opening up the petroleum sector and restructuring the CPC. "That's priority number one and by March we would be ready for the privatisation of the petroleum sector," noted a PERC official.
Several companies including local conglomerates like the John Keells group and multinationals Shell and Caltex are interested in government plans for the local petroleum industry. Officials said interested companies also had an eye on oil exploration off the northwest coast, expected to be revived under a petroleum strategy policy framework now being prepared with technical assistance from the ADB.
The sale of Lanka Marine Services is expected to yield between Rs. 200 to Rs. 300 million rupees while stakes in Talawakelle Plantations and Malwatte Plantations are likely to net a total of Rs. 100 million.
The 60 percent government stake in Sri Lanka Telecom would also be offered in the next six months after a delay of nearly two years, officials said adding that the management contract with NTT Japan ends in August this year.
Officials said amendments to the CPC Act to end its monopoly status would be presented in parliament shortly to speed up the privatisation process. The CPC restructuring involves breaking up its import, distribution, refinery and transport segments and allowing them to run as independent units or profit centres in competition with the private sector.
The decision by multinational Unilever to close down its value-added tea factory at Mabole is a huge blow to Sri Lanka's ambition of becoming an international hub for tea, industry experts said.
"This is a direct blow to the industry's vision of making Sri Lanka an international hub for global tea trading," said Hasitha de Alwis, director, Tea Promotion Bureau.
"When a world leader like Unilever goes out of Sri Lanka how can we make Colombo an international hub for tea?" he asked during an interview. "To do so we should have all the big players here, not only in the auctions, but in blending, packing and branding."
Unilever Ceylon Ltd, a subsidiary of the foods and personal care products multinational, attributed the plant's closure late last month to poor productivity and loss of markets.
Company officials declined requests for interviews but a Unilever statement said orders for tea bags and blended teas had fallen sharply over the years as costs went up. Unilever said it will continue as a big buyer of bulk tea at the Colombo auctions for blending and packing abroad for its brands such as Lipton and Brooke Bond.
The company had originally wanted to make Colombo an international hub for tea under Unilever's policy of having bagging plants closer to their markets, where raw material is available.
Michael de Zoysa, the former managing director of Unilever Ceylon's Tea Division, said the main reason for the multinational to close its plant was the government's policy of restricting tea imports for blending and re-export. Labour unrest and poor productivity may also have played a part. Restrictions on tea imports had made Unilever "wary" of doing business here, he said.
"Unilever found it could not import all the tea they wanted for blending in their value-added tea operation which required multi-sourcing of different teas," he said. "Despite this they operated their Mabole factory." Exports of tea bags at this plant peaked at 5,000 tonnes in 1998. Unilever was now setting up value-added tea factories in Dubai, India and Poland to serve regional markets, he said.
Board of Investment chairman Arjuna Mahendran said he believed logistical difficulties in shipping tea out of the island may have influenced Unilever's decision, with Dubai and Singapore offering better connections.
Colombo has gradually become a bulk supplier for Unilever in the last three or four years, de Alwis said, adding that the firm's purchases of Ceylon tea at the Colombo auctions might fall now that it would not be doing blending and packing here.
The move could also affect prices of CTC teas of Sri Lankan origin since Unilever was a big buyer of CTC teas.
By Hiran Senewiratne
British-based Mars chocolates, the largest desiccated coconut (DC) user in the world, is planning to stop buying the product from Sri Lanka because of wild price fluctuations and irregular shipments.
"We have received a statement from Mars Snacks Food, UK, saying Sri Lanka is an unreliable source of DC due to uncompetitive prices and also non-regular shipments," said Suresh Silva, Marketing Director of Silvermill Holding Ltd.
Local DC prices are 300 percent higher than international prices, he said, adversely affecting the entire industry which earns substantial foreign exchange.
Sri Lankan DC now costs around $1,000 a tonne while competitors such as Indonesia and the Philippines were quoting $750 a tonne, Murtaza Lukmanjee, chairman of the Coconut Product Traders' Association, told a news conference.
He said they understood and supported the need for coconut growers to get remunerative prices but wanted consistency in policy.
Silva said the government should remove the temporary surcharge of Rs. 20,000 per tonne imposed on imported vegetable oils one year ago as an interim measure to help raise farm gate coconut prices because it was severely hampering the market for the local DC industry.
The surcharge was to have been withdrawn on December 31 last year but had been arbitrarily extended till March 31 with no warning to the trade, Lukmanjee said.
Silvermill is the sole Sri Lankan supplier of DC for Mars chocolates. Mars also buys DC from Indonesia and the Philippines.
Silvermill accounts for more than ten percent of total Sri Lankan DC exports and supplies to 42 countries.
Silva said he was worried that if Mars stops buying Sri Lankan DC it might prompt other buyers such as Kelloggs and Nestle to do the same, affecting the entire export market.
DC exporters are facing a tough time because they have been priced out of major markets in the Middle East and the West, Silva said.
The local farm gate price of coconuts was far higher than in other countries such as the Philippines and Indonesia.
Asitha Gunasekera, Secretary of the DC Millers' Association, said the emergence of Indonesia and the Philippines as major DC exporters could threaten Sri Lankan DC export markets.
N. Watawala, the association president, said that markets once lost might be impossible to regain. DC millers were facing a "terrible time" because of the sharp fall in the coconut crop due to drought and the steep rise in the price of nuts, Watawala said.
This has led to the closure of 42 of the 65 mills in operation with the loss of more than 15,000 jobs and Rs. 4.3 billion in government revenue, he said.
Earnings from exports of DC products fell a staggering 40 percent up to October last year to Rs. 2.5 billion from Rs. 4.2 billion rupees in the same period the previous year, he added.
Watawala also said that local prices of coconut oil were at an all-time high of Rs. 90,000 per tonne compared with international prices of less than Rs. 30,000.
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