By Akhry Ameer
The controversial gas industry was thrown into further confusion when LAUGFS Lanka Gas (Pvt) Ltd conceded it was implementing a new agreement with the Ceylon Petroleum Corporation (CPC) that is yet to be signed.
The Sunday Times Business last week quoted LAUGFS chairman, W.K.H. Wegapitiya, as saying the company had signed an amended MoU with CPC on January 10 in which the price of CPC's LPG produce was raised to Rs. 20,000 from Rs. 15,000 per tonne. LAUGFS was also allowed to sell this supply for industrial and commercial purposes, in addition to the domestic purpose that was earlier agreed upon.
But on Wednesday, Wegapitiya - when asked for further clarification on the amended MoU – changed his version of the story saying that though the MoU had not been signed, both parties had arrived at an understanding on January 10 and that LAUGFS was currently operating on the amended contract terms.
However, Commerce and Consumer Affairs Minister Ravi Karunanayake said though an amended MoU was being prepared, there was no such understanding to operate on amended terms as the MoU was yet to be signed.
Wegapitiya added that the drafts had been exchanged between both parties and that the delay in signing the MoU was due to a case pending in the Commercial High Court. But industrial analysts point out that this case was against LAUGFS' sister company, Gas Auto Lanka (Pvt) Ltd and not the main firm and should not have interfered with the signing process.
"Moreover this situation raises questions about the legality of LAUGFS operating a contract that has not been signed," said one analyst. Neither CPC chairman Daham Wimalasena nor Ranjit Wickremasinghe, deputy general manager, planning, who handles the LPG subject, was available for comment. "They are all at meetings," another official said.
The LPG industry was also abuzz over reports that a new gas company is to commence operations in about two months. Karunanayake, who made this announcement in parliament, declined to identify the new party. "We've had enough of Shell and LAUGFS trying to be Shylocks," he added. According to the minister the new gas company had been kept out earlier due to a US$2 million licence fee that had been sought by the previous regime.
The government has decided to remove the 100 percent tax on the acquisition of land by foreigners, officials said.
The move is intended to make the island more attractive to foreign investors who had hitherto seen the tax as a stumbling block in making investments here.
The 100 percent tax on land sales to foreigners, whether individuals or corporate bodies, had served as a deterrent and discouraged foreigners from acquiring land in the island.
It comes under the Stamp Act and had been in existence for over 20 years. The tax meant there had been very few outright sales of land to foreigners, officials said. "This will help attract foreign direct investment," said Radhika Jayasundera, assistant vice president of research at DFCC Stockbrokers. "Foreigners will be able to set up factories and offices with easier access to land."
Board of Investment officials said foreign investors were concerned about having to pay such a prohibitive tax in acquiring land for investment projects.
Unilever Ceylon was forced to cancel its costly re-launch of the Lux brand range of soap recently when workers who lost their jobs staged a noisy protest outside the venue of what had been billed as a "dazzling" show.
The unveiling of the new "International Lux Collection" had been scheduled for February 2 at the BMICH.
The evening was to have taken the form of a "star-studded" celebration, one of the highlights of which was to have been the appearance of four film star actresses representing the four variants of soap. An electrical fault caused by rain first disrupted the power supply at the outdoor show.
Then, some 300 workers from the Mabole tea packing plant that had been closed picketed in front of the hall, shouting slogans and brandishing placards that proclaimed the plight of their destitute families.
The authorities decided to call off the show when police warned that the demonstrators might turn violent, journalists covering the event said.
Prime Minister Ranil Wickremesinghe kicks off a major foreign investment initiative by Sri Lanka to attract investments from Asia with a trip to Singapore this week, officials said.
Board of Investment (BOI) chairman, Arjuna Mahendran, who is accompanying the PM along with UNP chairman Malik Samarawickrema, said the Sri Lankan leader was meeting Singapore Prime Minister Goh Chok Tong, senior minister Lee Kuan Yew and other senior leaders in addition to presenting the Sri Lankan case at an investment seminar.
The BOI-organised seminar will have a select group of Singaporean CEO's and presidents of companies participating, Mahendran said.
This is the premier's second trip abroad following his tour to India a few weeks after the United National Front succeeded at the December 5 parliamentary polls. The dates for this week's trip are yet to be confirmed, Mahendran said on Friday.
By Feizal Samath
The World Bank, buoyed by the success of an energy project with the private sector that's lighting up hundreds of village homes across Sri Lanka, has agreed to fund a second energy programme with a credit line of between US $ 70 to 75 million, officials said.
The proposed new Renewable Energy for Rural Economic Development (RERED) project will be presented to the World Bank board in Washington in June this year for final approval, said Vijay Iyer, the bank's senior financial analyst in energy and infrastructure for South Asia.
"The first project which ends in December 2002 has been extremely successful and beyond our expectations. Based on its success, the Sri Lankan government requested us to fund a second project which we have readily agreed," Iyer told The Sunday Times last week during a trip to Colombo to discuss the new project with government and private sector officials.
The new project is aimed at generating close to 100 megawatts of power through a string of small and medium power schemes in renewable energy. It is intended to increase rural electricity access to promote economic growth and social development, said Sumith Pilapitiya, environment specialist at the World Bank office in Colombo.
It aims to raise 40 mw of grind-connected power, 30 mw of wind power and 10-20 mw of denro (fuel wood) power.
The bank's first power initiative – the Energy Services Delivery (ESD) project – was launched in 1997 with a US $ 24.2 million credit line and a grant of US $ 5.9 million from the Global Environmental Facility (GEF). The GEF is also expected to provide a grant of US $ 15-16 million for the new project, Ayer said.
The current project has not only exceeded expectations but also proved to be the World Bank's most successful renewable energy project in any part of the world. "It is being seen as a model for other countries," said Ayer.
Pilapitiya said the ESD was also the most successful World Bank funded project in any sector in Sri Lanka because of its effective utilisation of the credit line by the private sector through which the project was implemented.
Under this five-year programme, the number of solar units planned for installation was 15,000 but is now set to touch 20,000 by June this year. Under the RERED project, 85,000 solar power units are to be installed.
Grid-connected power generated from mini-hydro schemes in villages was targeted at 20 MW but it has gone up to 30 MW while a wind power experimental plant at Hambantota has also shown success. "All targets set under the ESD have been comfortably exceeded," said Iyer.
Meanwhile Shell Renewables Lanka Ltd, involved in the solar power business, said company revenues last year topped US $ 2.5 million in only its second year of operation. Shell said in a statement that it installed 10,000 solar systems islandwide last year, up from just 400 units in 1999. Shell is a partner in the World Bank-funded ESD project and the majority of Shell's solar units are under this programme.
By Dr. S. S. Colombage
The 50-year-old official inflation indicator, the Colombo Consumers' Price Index (CCPI) passed the 3,000 mark in January rising to 3,046.4 from 2,984.3 in the previous month. The monthly increase was 2.1 percent. The average inflation for the last twelve months remained high at 13.5 percent, although it was slightly lower than a month ago. The prices of most food items including rice, bread, wheat flour, milk, tea, red onions, coconut oil, beef, fresh fish and coconuts continue to increase. As food items account for two-thirds of the consumer basket, their price hikes have an enormous impact on the cost of living. Prices of rice have been rising steeply since the latter part of last year. For instance, the retail price of 'kekulu' rice increased by 54 percent to Rs. 40 per kg from Rs. 26 a year ago. The effect of this increase is somewhat underestimated in the CCPI, as the expenditure weight used for rice in this traditional index is only 6.4 percent, whereas the weight assigned in the proposed Sri Lanka Consumers' Price Index (SLCPI), which is to be based on the consumption patterns of the 1995/96 Income and Expenditure Survey, is as high as 16.3 percent. The increase in the CPI would have been much higher had this more realistic weight been used for rice.
Escalating prices put enormous pressure on the money and capital markets to push up interest rates and on the foreign exchange market to further depreciate the rupee.
There will also be trade union pressures in the labour market for higher wages. Money supply is rising rapidly at an annual rate of over 14 percent fuelling "demand pull" inflation. All these factors are likely to augment inflation in several rounds in the coming months, unless remedial measures are taken.
Meanwhile, the vote on account for a period of one month presented by the Finance Minister to the parliament a few days ago once again reflects the inflationary pressures emanating from the acute budgetary imbalance that the government is facing now. The total provisions for the month amount to Rs. 29.7 billion comprising current expenditure of Rs. 19.1 billion and capital expenditure of Rs. 10.6 billion.
The anticipated revenue for this period is only Rs. 18.8 billion thus, leaving a deficit of Rs. 10.9 billion. This deficit is to be financed from loans. Continuous borrowings of this sort in the past have been a severe burden on government finance as well as on the entire economy. This practice has resulted in the public debt surging to Rs. 1,500 billion, which is equivalent to about 120 percent of GDP.
A considerable amount of money is needed each month for debt service payments, i.e. loan repayments and interest payments. With rising expenditure on items like salaries and welfare programmes, the current expenditure is likely to exceed 20 percent of GDP for this year. This together with capital expenditure would amount to about 26 percent of GDP. With the present economic slowdown, any significant increase in government revenue cannot be expected in the near future and therefore, the revenue would not be more than 18 percent. Accordingly, this year's budget deficit would be in the range of 8 to 10 percent of GDP, compared with 10.5 percent last year. The deficit would be even higher, if the government raises capital expenditure for the much needed infrastructure development in the coming months. A part of such development is expected from the private sector. If peace is achieved, rehabilitation of the north-east areas would require large amounts of capital expenditure, particularly from the public sector.
This will be a further strain on the future budgets, but it might be eased with potential reductions in war expenditure. With all these problems in hand, coherent policies geared to attain fiscal and price stabilization are needed to resuscitate the economy from the present crisis.
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