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Bitter bottle battle
Liquor manufacturers and dealers allege unfair trade practices by DCSL
FTC launches fresh probe on six-year-old complaint

By Chamintha Thilakarathna
The Fair Trading Commission has launched a fresh inquiry into allegations by private liquor manufacturers and dealers that the Distilleries Company of Sri Lanka (DCSL) was continuing to indulge in unfair trade practices aimed at creating a monopoly.

A new officer was appointed last week to spearhead the investigation. After six years of inquiries, the commission says that although investigations have not been concluded, it does not wish to abandon them either.

I'm ready to fight allegations, says Harry
Harry S. Jayawardene, Managing Director of the Distilleries Company of Sri Lanka, says he is ready to fight monopoly allegations against his company by other liquor manufacturers, but the slow pace of the Fair Trading Commission probe is preventing him from taking any action.
"I am prepared to fight the allegations. The Fair Trading Commission's move to have a fresh investigation is of no help. I am not willing to go ahead with a new inquiry. I want the previous inquiry to continue," Mr. Jayawardena told The Sunday Times.

He said during the past six years, the DCSL had spent much of its time and energy to make several submissions to the FTC and therefore a fresh inquiry was not necessary when enough information had already been gathered.

"This is like hearing the case all over again when a new judge takes over the case," he said. Mr. Jayawardena, like other manufacturers, accused the FTC of not dealing with the case speedily.
Refuting allegations made against him and the DCSL, Mr. Jayawardena asked, "how can I monopolise the liquor industry and sales? Tell them to go to the police if they have proof to make such allegations."

"Other manufacturers are discrediting me and my company by false allegations, rumours and adulterations of my liquor. All I want to do is give customers a high quality alcohol."

Dismissing charges that the DCSL applied pressure on local and foreign spirit suppliers, he said manufacturers had the freedom to import spirits from any country or any company. But he also accused other manufacturers of purchasing his liquor and adulterating them.

"We are compelled to open a separate desk for complaints. Customers bring sealed DCSL bottles which are filled with adulterated alcohol.

While we enjoy a 25 percent market share, 50 percent of the market consists of adulterated alcohol," he charged.
Mr. Jayawardena also called for streamlining of issuing liquor licences.
"There are instances where one person has obtained upto 40 licences in different names and sold them to various people. The man running the liquor shop has to pay large sums of money to buy the licence from a licensee and as a result, he is forced to adulterate the liquor to make more money," Mr. Jayawardena explained.

"The commission feels that there is a prima facie case which is one reason why we have not jettisoned it. The problem is complicated.

Yet evidence gathered is strong and we will have to consider every aspect. I have initiated a fresh probe to identify any new circumstances that may have occurred since last year," the FTC's new chairman K.D.V.T. Indraratne said.
Lack of funds, human resources and powers and changes in government officials were among the main reasons for the investigations to drag on for six years, but whether political influence suppressed the investigations will be known only after the fresh probe is completed.

The Fair Trading Commission Act gives the commission authority to inquire and give a ruling on a party whose monopoly in an industry is not in the public interest. However, lacuna in the powers vested in the Commission has restricted it from providing temporary relief to the complainants until the investigation has been concluded.
The initial complaint was made by several private liquor manufacturers against the DCSL as far back as 1996. The signatories include Randenigala Distilleries Lanka (pvt) Ltd, Wayamba Distilleries (Pvt) Ltd, Rio Marketing Services (pvt) Ltd. and W. M. Mendis & Company Limited. The complaint expressed fears of a DCSL monopoly in the liquor industry and included details of personal threats and alleged attempts made by DCSL officers to stop sales of products other than DCSL products.

As investigations proceeded, statements to the Commission from all parties have been recorded during the last few years. While inquiries progress leisurely, grievances of the private liquor dealers have multiplied as blockage of spirit supplies and sales of locally produced alcohol have continued at a rapid pace, the complainants claimed.Liquor manufacturers complain of a sixty percent drop in sales and a danger of closure of their plants in the near future while thousands of employees in the liquor industry face job losses.

In addition the threat of adulterated liquor or illegally produced liquor gaining dominance in the market prevails. "If this non supply and non purchasing attitude by dealers and spirits suppliers continues, we will have to stop production," a leading manufacturer said.

Already, Mestiya Distilleries which marketed White Label Arrack has closed down and Hingurana Distilleries has lost its market share and has ceased productions as well.

Manufacturers also point out that International Distillers & Vintners, one of the largest distillers and manufacturers in the world, carrying out profitable operations in Britain and elsewhere, have run up a loss of millions on its manufacturing operations in Sri Lanka.

In June 2000, two managers claiming to be officials from the DCSL had visited wine stores in Colombo, allegedly telling dealers not to sell products other than those manufactured by the DCSL.

Authorities helpless until FTC completes its inquiry
With their complaint to the Fair Trade Commission making little progress, desperate liquor dealers and manufacturers are turning to Excise officials, Ministers and the Secretary to the Finance Ministry but none has come forward to solve the crisis.
Senior Excise officials told The Sunday Times allegations made by liquor dealers and manufacturers against the DCSL were not baseless.

"The DCSL has stopped the supply of liquor to certain wine stores and is attempting to monopolize the market. It has threatened dealers not to sell products other than those of the DCSL but there is very little that the Excise Commissioner can do about the situation until the inquiry by the Fair Trading Commission is completed," one senior official said.

The officials, however, said there was no documentary proof to implicate the DCSL because the alleged threats to manufacturers and dealers were verbal and dealers who had submitted letters of compliance to the DCSL were not willing to come forward to give evidence for fear of their businesses being affected.

During the PA regime, private liquor dealers made representation to Trade Minister Kinglsey T Wickremeratne who gave an undertaking that necessary action would be taken to ensure fair trading. But nothing happened, say the dealers.

They had also presented their case to the present Minister in charge of Commerce and Consumer Affairs, Ravi Karunanayake, who has reportedly declined to entertain the written complaint, saying there was little he could do.

When The Sunday Times contacted Minister Karunanayake, he said that although the dealers approached him he was helpless in this matter as he could not interfere in a dispute between two private sector parties.

"What do the dealers expect me to do. I can only help them in a policy matter. When we table the Consumer Protection Bill in the coming weeks, we can address any exploitation or monopolies of industries. Until then, I am not in a position to help them," he said.

As a final resort, members have also made representations to Finance Ministry Secretary Charitha Ratwatte who has in turn replied that, " your letter has been referred to Faiz Mohideen, Deputy Secretary of the Treasury, for observation and necessary action," dated March 19, 2002. Yet, for the past two months, they have not received any reply.

Simultaneously, they had issued a week's deadline to get rid of stocks of W. A. Mendis & Company, International Distilleries and Randenigala Distilleries among others.The charge is being vehemently denied by the DCSL Managing Director Harry S. Jayawardena who says "tell them to prove the allegations." (See separate story on this page).

The general procedure of paying for liquor supplies from the DCSL is through an advance payment or a bank order at Hatton National Bank, to which DCSL would reply."But, on July 14, 2000, when we requested for supplies, the DCSL asked us to submit a letter stating that we will not sell products other than theirs if supplies are to be sent. The DCSL stopped supplies since we refused to submit such a written agreement," one dealer complained. For the last few months, many have been forced to obtain spirits from the DCSL as some distilleries have ceased to supply spirits.
"When customers ask for DCSL which we don't sell, customers go to another wine store and never return. On the other hand, we don't like being dictated as to what should be sold and should not to be either. Yet, when customers stop coming, we pay taxes for a business that runs at a loss, especially since taxes are high," one dealer complained.

According to manufacturers, during the last budget taxes were reduced on imported spirits while taxes on local spirits had been increased. As a result, local manufacturers were left with the option of purchasing spirits for their production from two of the main suppliers Pelwatte Sugar Distilleries and Sevanagala or from the DCSL.Shortly afterwards, however, Pelwatte and Sevanagala came under the purview of PERC for privatization. Pelwatte Sugar Distilleries on April 10, this year wrote to W.M. Mendis and Company saying, "Due to non availability of molasses, we will not be able to issue extra neutral alcohol till middle of June 2002".

The new owners of Pelwatte Sugar Distilleries, however, denied that they had stopped production. But documentary evidence shows that they had informed Mendis and Company about the non-availability of spirits.Liquor manufacturers claim that it was due to pressure from DCSL that they ceased to supply spirits. In what is alleged to be a move to further throttle manufacturers and dealers, the DCSL appears to have come into an agreement with South African spirits suppliers, restricting sales with buyers other than the DCSL .

For instance, Randenigala Distilleries' request for supplies had recently been turned down by a South African supplier. No official reason had been cited for this failure. Sevenagala Distilleries too has failed to supply spirits to some manufacturers and orders made recently to the distiller have not been supplied as yet.

Consequently, manufacturers say they can neither buy spirits from local producers other than the DCSL, nor can they import necessary spirits. The joint complaint made to the FTC states that the DCSL "in addition to producing arrack at its distillery at Seeduwa in a sector where no competition exists, has since privatization purchased the entire output of the Co-operative Distillery and the Beruwela Distillery.
These two private distillers are precluded from selling any of their production to other manufacturers. Therefore, the 12 manufacturers have to rely on Waulugala Distilleries to obtain their requirements of the raw material without which they will all go into liquidation.

Despite, pressures on dealers, some 60 dealers in Colombo ceased to sell DCSL products in their outlets at a risk of low sales, by not submitting written statements to the DCSL. However, about four dealers have given into the DCSL demand due to their financial situations.

In one case, a liquor dealer having a shop in the vicinity of the Pettah fish market had initially refused to submit a letter. But later he had agreed to do so when DCSL supplies failed to arrive at his outlet. But, DCSL officials did not reply him.
When a reminder was sent on the matter, he had been told by DCSL officials that active members of the Liquor Dealers Association would not be catered to by the DCSL, the dealer claimed.

Liquor is one of the main sources of revenue in Sri Lanka in the manufacturing sector (in GDP revenue). Last year, revenue from liquor amounted to 10,900 million rupees which was a 0.8 percentage of the GDP.

W.A. Mendis & Company, a liquor exporter to more than 75 countries has been one of the main targets, the company claimed. Certain manufacturers have made appeals to the Excise Commissioner to make use of spirits available at the abandoned Hingurana Sugar Plantation which has about 250,000 litres at present. While the conflict between the DCSL and other manufacturers and dealers continues, the FTC has decided to look for fresh aspects, overlooking information collected over the past six years. Why the inquiry continued for so long and why no conclusion was arrived at, are questions that the Commission appears unwilling to tackle as yet.

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