The three-day fair held in a school in Jaffna drew about 50,000 people who were interested in the range of equipment that was on display. About 70 companies displayed their wares and services with less than five companies based in Jaffna. Pictures courtesy Uthayan newspaper

Several businesses in Sri Lanka took part in the first ever trade fair last week in the war-torn northern peninsula. There has been little or no industry in the north due to the nearly 20-year-old conflict. The two local chambers of commerce in Jaffna said they were boycotting the fair to protest a lack of government efforts to rebuild the economy which has been dogged by years of fighting. Sri Lanka's largest mobile operator MTN Networks said it would expand into the Jaffna peninsula because of the peace process.

Business sector says "NO" to poll
The business community last week came out firmly against the prospect of another election and in support of a bipartisan consensus between the United National Party (UNP) and the Sri Lanka Freedom Party (SLFP) on a solution to the ethnic problem.

In response to a snap opinion poll of CEO's and senior corporate managers of 100 companies conducted by The Sunday Times Business, there was a near unanimous 'No' answer to the question whether the business community is ready for another election this year.

Asked whether they were satisfied with the government's handling of the peace process, 85 percent of the respondents said they were but only 60 percent said they were satisfied with the government's handling of the economy.

Almost 90 percent said the main political parties, the UNP and the SLFP, should reach a bipartisan consensus on the solution to the ethnic problem.

The responses give a firm message from the business community to the two parties that have ruled the island since independence that Sri Lanka cannot afford and does not want another election. Some of the respondents said they feared that the violence which usually accompanies elections in this country would disrupt normal life and commercial activity.

But, one said another election might be a "necessary evil" because a strong government is required to overcome the difficulties the country finds itself in.

Political and market analysts said the victory of the UNP-led coalition at the general elections last December could be interpreted as a mandate for "cohabitation" and consensus politics between the two main political parties that have governed the country for the past half-century.

The opinion poll, and some of the comments made by respondents, highlight the need for both parties, especially their leaders, to put aside their political and personal differences and work together to end the war, seek a political solution to the ethnic problem and revive the economy.

The consensus among the business community appears to be that another election would be ruinous and set back the government's peace efforts and economic development programme.

The possibility of the country having to undergo the ordeal of another poll came after speculation that President Chandrika Kumaratunga was planning to dissolve parliament after it completes one year this December.

Subsequently, Prime Minister Ranil Wickremesinghe told government parliamentarians that he would have no option but to go for another election if the co-habitation arrangement with President Kumaratunga does not work.

The UNP-led coalition government has asked Kumaratunga to give up some of her powers, including the power to dissolve parliament, and has threatened to go for a snap poll if she does not do so. The uncertainty generated by speculation of another election prompted the LTTE to warn that a fresh poll would damage the peace process.

Most analysts predict another hung parliament if another poll is held with neither side expected to be able to garner enough votes to get a decisive majority in parliament.

SriLankan profits up despite slump
By John Breusch
SriLankan Airlines has managed to turn a disastrous Rs. 5 billion loss for 2002 into a Rs. 2.1 billion profit - thanks to the most tumultuous event in its history: the LTTE attack on Bandaranaike International Airport.

The national carrier lost four aircraft in the July 24 attack, which caused tourism arrivals in Sri Lanka to plummet and forced SriLankan to cease direct flights to a number of important destinations.

The airline's result for the year to March 31, 2002 bears out the extent of the damage: passenger numbers fell 14.3 percent, seat kilometres were down 24 percent and cargo tonnes declined 24 percent.

SriLankan did much to mitigate the fallout by cutting costs, routes and frequencies, and it eventually improved yields and demand on some routes. But it still posted a Rs. 5 billion loss before extraordinary items, a slight improvement on the previous year's Rs. 5.8 billion loss but still an extremely disappointing figure, analysts said.

Despite this, the company was able to record a 2.1 billion net profit - an amazing result in the worst year in the history of the global airline industry.

So what caused the massive turnaround?

The bottom-line figure was salvaged by a Rs. 7 billion extraordinary item that lived up to its name in both description and size.

The four aircraft destroyed in the Bandaranaike attack were all insured, meaning SriLankan was covered for anything it owed to the financiers and lessors of the planes.

With the planes completely out of action, the airline was also freed of its obligation to pay leases worth Rs. 7.4 billion.

Once costs relating to the disruptions to flights and the closure of some of its offices were taken into account, the airport attack produced an extraordinary item that contributed an extra Rs. 7 billion to the company's result.

In a press release issued on Wednesday, SriLankan declared that it had "emerged positively from the worst year in airline history" with a group profit of Rs. 2 billion.

Nowhere in the statement did the airline mention that this figure included a Rs. 7 billion extraordinary item, and that it had actually incurred a Rs. 5 billion loss before that entry.

Only after repeated requests from the Sunday Times did the company reluctantly release the note from its accounts that explains the extra Rs. 7 billion.

"This is a very sensitive matter," said a spokesperson for the airline.

"We put out a release to provide the facts."

The recent corporate scandals in the United States have generated much criticism of the practice of US companies' to issue "pro-forma" results - accounts that leave out all the nasty "one-off items" and supposedly focus on the underlying performance of the company.

Mundo puts LP gas into Shell and Laugfs
By Hiran Senewiratne
Multinational Shell Gas Lanka Ltd and Laugfs Lanka Gas (Pvt) Ltd, at odds for many months over the gas issue, may be getting together to fight a common enemy - new entrant Mundo Gas.

Mundo Gas chairman A. Wickremanayake's offer to consumers last week to use any cylinder for his product has triggered a storm of protests from the two companies and raises a whole range of issues including intellectual property, unfair competition and legal liability in case of an accident. Both Shell and Laugfs said they were opposed to the new player's move to use their cylinders. Mundo Gas plans to sell at Rs. 300 to Rs. 325, which is Rs. 200 lower than Shell Gas and consumers - looking for a cheaper product - are bound to use their old cylinders for Mundo gas.

Shell said it planned to seek legal action while Laugfs hoped to adopt different marketing strategies to tackle this situation. "We have already established our name globally and no one has the authority to use our brand and cylinders," a Shell spokesman said.

"We are not hoping to seek legal action but we are going to adopt market strategies to tackle the situation," Laugfs chairman W.K.H. Wegapitiya said. He said certain safety requirement and quality standards are adopted in marketing gas and they would not be held responsible if Laugfs' cylinders are used by another party.

However, Mundo's Wickremanayake said that while consumers could use other cylinders, the company - preparing to enter the market later this week - was planning to import its own stock of cylinders and give it free to consumers.

Agents end price controls on air tickets
The scrapping of a voluntary programme that set minimum prices for airline tickets could result in a free-for-all among airlines and travel agents and under-cutting, travel trade and aviation officials said. The travel trade has disbanded the Market Development Programme (MDP), a self-policing initiative by travel agents to control the minimum-selling price of airline tickets. Such prices were gazetted by the Department of Civil Aviation (DCA) based on the MDP's recommendations.

"Ticket prices could come down as a result of the competition - the public would benefit," said H.M.C. Nimalsiri, the new Director General of Civil Aviation (DGCA). But, he warned a price war could also result in unhealthy competition and may hurt airlines that might not be able to achieve the yields required to maintain services on certain routes.

The MDP, which had 320 members, was disbanded last month as most small travel agents opposed the price controls and after the DCA revoked an earlier circular to the trade that made MDP membership mandatory.

"There was no way we could carry on after that," a MDP official said.

Some agents had even taken the DGCA to court, challenging his authority to insist that all travel agents licensed by the department should join the MDP.

"The MDP brought some sanity to the market, although it may not have worked 100 percent," the MDP official said.

"Now we might go back to the pre-MDP days when there was an absolute free-for-all."

But, he added, the current lack of passenger capacity on certain heavily travelled routes out of Colombo would prevent an immediate fall in ticket prices.

"If there's no regulatory system there's bound to be under-cutting at every level among airlines and travel agencies, especially the smaller ones," he said.

"So far there's been no change in ticket prices because we're in the middle of the peak season - seats are not available," he added.

"Once the peak is over around early October, then there's going to be a problem."

While some customers would look for the cheapest ticket, others might prefer to pay higher fares to get a better service, he also said.

Officials at Connaissance de Ceylan said they preferred the MDP as it controlled the discount levels offered by airlines and agents.

"People could go by the service, not just the discount," an official said.

Ship arrests on the wane in Sri Lanka
By Naomi Gunasekara
Legal experts are calling for reforms in the laws governing the arrest of ships and other admiralty disputes in Sri Lanka to provide a better forum for claimants following a sharp fall in Admiralty Court cases.

At a time when the island is aspiring to become a hub for shipping activities in the South Asian region, problems pertaining to admiralty legislation have partly been responsible for the decrease in the number of vessels calling Colombo, causing significant damage to the shipping industry.

Admiralty matters taken up in the Admiralty Court in Colombo have fallen drastically in recent years. It handled only 20 cases last year and 38 in 2000 compared with 84 in 1999 and 110 in 1998, according to Admiralty Court sources. "Sri Lanka is not considered an attractive place for 'forum shopping' anymore," one source said.

In 'forum shopping', the jurisdiction of the court which arrests a vessel is not based on territorial, citizenship or registration principles. The only requirement is for a ship or its sister-ship to be in a port falling within the territorial jurisdiction of the court in which a claimant intends to institute proceedings.

Sri Lanka was an attractive destination for 'forum shopping' because shipowners had confidence in the island's justice and administrative systems and when bunkering charges in Colombo were reasonable. Now, however, owners prefer to settle matters out of court.

"We hardly have any arrests - may be one in two months," the source said. The last ship arrested was a local ship, 'Goodwill Guide'. The last foreign ship arrested was 'Green Glory', which was subsequently released after the parties litigating came to an agreement.

M. V. 'Goodwill Guide', harboured at the Beruwela Fisheries harbour, was arrested on February 19 this year for non-settlement of crew wages amounting to Rs. 799,875. M. V. 'Green Glory', an Egyptian ship, was arrested on May 30, 2002 and released on June 20 subject to the plaintiff's right of re-arrest. Shipowners also prefer to avoid Colombo because of the absence of any requirement for 'counter-security' in making maritime claims as they tend to suffer heavy costs, running into millions of rupees, as a result. A maritime claim in Sri Lanka includes any claim to the possession or ownership of a ship, damages for wrongful arrest of a vessel and claims for damage done by a ship. While damages can be prayed in a case of a wrongful arrest, lack of provision requiring a person moving to arrest ships to provide adequate security (counter-security) have contributed towards the decrease in litigation.

Sri Lanka becoming a party to the International Convention for Arrests of Ships could also help provide a better forum for claimants and attract more vessels to Colombo, officials said. Sri Lanka was selected to a 12-member committee in 1999 to draft the convention, which contains a number of important provisions relating to 'forum shopping' and counter-security.

The arrest of a ship draws a host of people to Colombo to participate in the litigation. These include the owners or its agents, mortgagees like banks and other lending institutions, maritime lien holders (a privileged claim upon a ship in respect of services rendered to the ship or injury caused by the ship, which ranks above maritime claims) and all others with maritime claims against the ship. This means more business for lawyers, hotels, airlines, travel agents and suppliers of food and fuel.

The court marshal takes over the custody of a ship once a warrant of arrest is issued unless the owners settle the claims. On arrest, the marshal does the servicing of the ship like supplying bunkers and food. All stores are bought locally on a credit basis and settled once the case is over.

A Nigerian ship, Abuja, arrested on February 19 for non-payment of crew wages is in the custody of the marshal at present and has drawn supplies worth $150,000 so far.

The marshal supplies bunkers through the Ceylon Petroleum Corporation and food through a set of local suppliers who provide services on credit to be settled immediately after the dispute is resolved. The marshal wants to sell the vessel as it is in bad condition and incurs heavy maintenance expenses.

With litigation going on for months without bonds being executed for the release of ships, the marshal's charges run into millions of rupees unless the vessels manage to escape. M. V. 'Magic Swan', a Bahamian ship, arrested on February 20 due to the owner's alleged breach of contract is the last ship to have been released on the execution of a bond for $500,000. Several ships have escaped from the marshal's custody such as M. V. 'Hafina', arrested on February 23 1999 for non-payment of crew wages, which escaped on May 2 1999. Another ship, M. V. 'Draco', arrested on October 10, 2000, broke arrest on October 13, 2000 despite vital documents like passports and bills of lading being confiscated by the marshal. One ship, M. V. 'Venture', arrested on May 23, 2000 tried to escape the next day but was detained.

The navy finds it difficult to keep a close watch on detained vessels that could try to escape since the anchorage is off Panadura. "There are no secured grounds to keep ships under arrest as Colombo's inner harbour is congested," one official said. "So arrested ships tend to escape." Several ships that escaped have been re-arrested in other ports when they arrived without relevant documents after having their hulls repainted.

Sri Lanka was an attractive forum for ship arrests in the past because shipowners had confidence in the island's legal system. Being a British colony following the English law relating to arrest of ships, parties to the 1952 Convention on Arrest of Ships assumed that British legislative and administrative processes were followed here.

However, that confidence has deteriorated over the years and discouraged claimants from moving to arrest ships in Sri Lanka as a result of administrative failures and corruption. A fraud committed by a former admiralty court registrar in 1993, when she forged the High Court Judge's signature and drew over Rs. 16 million, created problems regarding the execution of bonds.

"Bonds involve large sums of money and shipowners used to deposit millions of rupees in court," a court official said. "But after the embezzlement of the deposited money, such monies are now deposited with the Justice Ministry. The recovery of these monies take a long time due to the infirmities in the administrative system."

Furthermore, shipowners who deposit money in dollars tend to lose as a result of the depreciation of the rupee. This is because such monies are released at the end of a trial in rupees at the exchange rate in effect at the time the money was deposited. This too has contributed significantly towards the decrease in admiralty litigation in Sri Lanka. "We don't have a dollar account whereas other countries do," the official said. "They deposit money in dollars and release them in dollars. So there is no loss on depreciation."

The authorities also need to reduce bunker prices in Colombo, now among the highest in the world, to attract more ships, industry officials said. Colombo was an attractive forum and owners preferred Colombo to other neighbouring ports when bunker prices were reasonable.

But now many ships skip Colombo or call here only for minimal supplies when essential now that bunker prices have increased.

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