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Four new Sri Lankan energy projects stand to make extra money from the sale of 'carbon credits' under a global environmental protocol that aims to control greenhouse gases responsible for heating up the atmosphere.
'Carbon credits' are a mechanism to trade ways of reducing carbon dioxide emissions in developing countries for cash from industrialised countries which are responsible for much of the greenhouse gases that result in global warming.
Sri Lanka has submitted the four energy projects to the Netherlands government which has offered to buy the 'carbon credits' at five dollars per tonne under the Clean Development Mechanisms (CDM) of the Kyoto protocol, said Dr. B. M. S. Batagoda, the Environment Ministry's Director of Economic and Global Affairs.
The CDM is a method of meeting carbon emission reduction targets established under the Kyoto protocol - a global environmental convention that aims to reduce carbon dioxide emissions.
Under this mechanism developed countries will fund through private and public entities greenhouse gas mitigating or sequestering (confiscating) projects, such as environmentally-friendly renewable energy projects, which will help achieve sustainable development in developing countries.
The idea is to transfer or sell the carbon emissions that are avoided or sequestered by the project to the industrialised country party to meet their emission reduction commitments under the Kyoto protocol.
Among the projects are a 50 MW wind power plant, an eight MW coconut shell-based plant and a 500 KW biomass plant, Batagoda said.
An estimated 50,000 tonnes of carbon - if sold at five dollars a tonne - the maximum price offered by the Dutch government - can earn $250,000 a year, he said.
ADB president due
Asian Development Bank (ADB) President Tadao Chino will visit Sri Lanka from March 5 to 8, government sources said. They said Chino would be meeting President Chandrika Kumaratunga, Prime Minister Ranil Wickremesinghe and Finance Minister K.N. Choksy among a host of other dignitaries.
The government has decided to allow imports of copra to feed local coconut oil mills and divert enough fresh nuts to meet the demand from consumers facing sky high retail prices and the needs of the lucrative desiccated coconut (DC) export industry.
The move was prompted by the tight supply situation caused by last year's severe drought which reduced the crop and led to exploitation by middlemen who keep high profit margins during periods of short supply. Retail prices of fresh nuts are still an unprecedented Rs. 18 a nut.
Though Commerce and Consumer Affairs Minister Ravi Karunanayake told reporters last week he planned to import nuts from India, the Philippines or Indonesia to meet the supply shortfall, there is a problem regarding nut imports.
Imports of fresh nuts are not allowed under prevailing quarantine regulations as it carries the risk of introducing new pests and diseases, said Dr. U.P. de S. Waidyanatha, chairman of the Coconut Research Board.
The import of fresh nuts from India also comes under the Negative List of the Indo-Lanka free trade deal under which importers would have to pay a total import duty amounting to 46.72 percent.
Plantations Industry Ministry secretary K.A.S. Gunasekera said state-owned coconut estates were also offering fresh nuts to the Co-operative Wholesale Establishment with assistance from the Coconut Cultivation Board and Coconut Development Authority in order to control the situation.
He expressed the hope that these measures would result in lower nut prices and protect domestic industry.
Waidyanatha said that tight supply situations are invariably exploited by middlemen and retailers who this year have obtained an "unusually high margin" in January compared with that in years of a bigger crop. The December-February period is usually one of low crops.
"Manipulating equitable nut prices for the producer, consumer and the industry is no easy task for the government," he said. An alternate strategy to revive DC production would be to import good quality copra to feed local mills and increase coconut oil production, he said. Coconut Research Institute (CRI) Director Dr. Chitrangani Jayasekera also said it would not be prudent to allow the import of fresh nuts because Sri Lanka does not have the quarantine facilities to test a large number of coconuts.
She said once copra is imported the prices of fresh coconuts would fall gradually. Copra can be used to produce coconut oil for domestic use and thereby help to control fresh coconut prices.
Copra being a dried product, the probability of spreading diseases is very unlikely, Dr. Jayasekera said. The tight supply position will ease when the high yield picking starts in April, she added.
Annual consumption of coconut is nearly three billion nuts but due to unfavourable weather and drought production is expected to drop to 2.5 billion nuts resulting in a shortage of half a billion nuts.
Coconut Cultivation Board (CCC) Chairman Lincoln Fernando said they had decided to supply coconut at a lower price to the CWE in order to stop imports as a precautionary measure to prevent any diseases. The CCC is not going to make any profit from this deal, he added.
Coconut Growers' Association President Denzil Aponso blamed the high price of nuts on exploitation by middlemen. "Nobody likes this price but our coconut prices have gone up due to the middleman," he said. The farmgate price at present is Rs. 10 per nut but due to the middleman the price tends to go up by Rs. 7-10, he said. Many coconut estate owners have abandoned their lands owing to high fertiliser prices and low nut prices in recent years.
"The government should not permit the import of fresh coconuts," he said.
Releasing 4-5 million coconuts to the local market from government estates which are under private management companies or advancing the coconut pick in other lands will help ease the crisis, he added.
By Dr. S. S. Colombage
With the political turbulence connected with the general election fading away, there is now renewed interest in economic reforms. The government is having talks with the visiting IMF mission on the proposed reforms. It has become necessary to implement these reforms so as to revive the IMF Standby facility abandoned by the previous regime. There seems to be a need for the government to strengthen its relations with the IMF not only to draw the balance portion of the Standby loan but also to win the confidence of the international donor community and investors. The government is engaged in this task while the local elections and the budget are in the offing.
Typically, the IMF prescribes a bitter pill based on "Washington Consensus" when an ailing economy seeks its assistance. The prescription contains distasteful medicines like cutting down government subsidies, removal of price distortions, reducing the size of the public sector by privatisation, free trade, financial liberalisation, business deregulation, flexible labour markets, etc. The IMF asserts that the sovereign governments should do proper housekeeping by way of implementing the prescribed structural adjustments if they need to put their economies on the right track. But critics point out that the IMF packages are too rigid and they have failed in many developing countries in Asia, Africa and Latin America.
The economic programme for 2001-02, which was supported by the IMF standby credit facility launched in April last year, got diluted within a short time span. The targets of inflation, GDP growth, external deficit and budget deficit could not be met. But nobody seems to be responsible or answerable for these follies. The previous political regime is replaced by a new one and therefore, no political master cannot be held responsible or accountable for the failures. In the meantime, most of the key bureaucrats in the Central Bank and government circles, who were instrumental in the preparation of the earlier Standby, are very much involved again in the current IMF negotiations unabatedly. None of them are held responsible for the collapse of the Standby. When the Standby was signed, there were clear indications that the economy was not doing well. Despite those adverse trends, optimistic economic targets were put in the MoU with the IMF. With that misleading economic outlook, it was possible to get the Standby approved by the IMF, but the programme could not be sustained even for six months. The country's credibility was lost in the process. These are some lessons for the present government.
Economic reforms are considered to be imperative to resuscitate the economy from the present crisis. Fiscal consolidation is going to be a major component of these reforms. The budget deficit needs to be brought down to at least 8 percent of GDP from last year's level of 10.5 percent. Our public finances are in a dire state. Government revenue is far below mounting expenditure. The revenue is unlikely to go up in the context of the current economic setback. Large expenditure allocations are needed for salary payments, loan repayments and social welfare. The situation seems to be getting worse as public sector trade unions are already urging salary increases in the forthcoming budget. Although a considerable decline in war expenditure is anticipated for this year, larger allocations would be needed for projects like infrastructure development and north-east rehabilitation.
Financial sector reforms are likely to be another major component of the economic agenda. Some reforms like the restructuring of the two state banks are progressing at snail's pace. The delays in the implementation of the reforms have hampered financial growth to a considerable extent. The continuing dominance of the two state banks has undermined the efficiency of the financial sector. The portfolios of these banks are relatively weak. Non-performing assets remain high. Although the successive governments have realised that these banks should be kept independent, they are still subject to a certain degree of political pressure. The government resorts to the two banks to make up daily shortfalls in the Treasury cash flows. The financial market is narrow. At present, market activity is mostly limited to government securities like Treasury Bills and Bonds. As the financial operations are limited to a few institutions and a few instruments, considerable volatility can be observed in the short end of the market.
Other key reforms that are likely to be included in the agenda are restructuring of public enterprises, privatisation of state enterprises, enhancement of tax administration, rationalisation of the public service, reform of the public service pension system, and improvements in the functioning of the labour market. Most of these would be hard decisions, as they may exert adverse repercussions on living conditions of the people in the short-run. The reform agenda needs to be prepared in a pragmatic manner to avoid any pitfalls.
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