Food
for thought!
Commerce
Minister Ravi Karunanayake looking at some of the vegetables
on display at the recent food exhibition organised by the
Sri Lanka Food Processors' Association at the BMICH in Colombo.
IOC
deal boosts energy security
The Indian Oil Corporation (IOC), under a recent deal
with the government, would enhance the island's energy security
by giving it access to crude oil refining capacity across the
Palk Strait and shipments of petroleum products on favourable
terms, IOC chairman M.S. Ramachandran said last week.
The IOC's
term contract to supply half a million tonnes of petroleum
products to the CPC was "very good and far sighted,"
he said in an interview with The Sunday Times Business.
"Our
understanding is that the three subsequent tenders the CPC
finalised are at rates substantially higher than the rates
we signed with CPC in the term contract. This clearly demonstrates
that we offered very competitive rates to the CPC which generally
reflects our business philosophy."
The deal
would also give access to excess refining capacity in India
that would be available if there were any interruption to
the island normal supplies.
Sri Lanka's
annual consumption is around 3.4 million tonnes of petroleum
products while the CPC's refining capacity is only around
2.2 million tonnes.
"Refining
the world over is not a profitable activity at the moment
because margins are getting squeezed," Ramachandran said.
"We have refining capacity in south India available at
a moment's notice - the voyage time is next to nothing."
India
has a huge refining capacity of around 2.4 million barrels
per day while its consumption is around two million bpd. "So
we have products available for export," Ramachandran
said. "Sri Lanka can consider our Chennai refinery as
one meant for Sri Lanka but physically across the Palk Strait.
It makes sense for Sri Lanka to get it from India."
Ramachandran
said the IOC decided to invest in the island because it was
"very optimistic" about the outcome of what he described
as the "government's bold peace initiative".
The IOC
venture in Sri Lanka is supported by the governments of both
countries, he pointed out.
"That
gives us a lot encouragement to invest here," he said.
"We feel that in the long run it would a very productive
investment."
The investment
presupposes that the petroleum products market would grow
with the return of peace to the island and that the IOC would
be able to get an "acceptable return" on its investment,
he said.
The IOC
plans to spend about three billion rupees phased out over
several years on acquiring and setting up a network of retail
outlets, and leasing and repairing the CPC's oil tank farm
in Trincomalee.
"The
tank farm is not going to give us any revenue in the short
run," Ramachandran said. "Rather we would incur
substantial expenditure and operating costs because the tanks
are old and need repair."
Asked
why IOC decided to invest in the tank farm, Ramachandran said:
"There is a broad understanding between the two governments
that we should do it."
The IOC
might lease out the tank farm to a third party to be used
as a hub for imports, storage and exports like in Singapore
where there are a number of independent terminal operators.
Asked
when the Trincomalee tank farm would make money, Ramachandran
said: "It is very difficult to say at this stage. Initially
we'll spend about $2.2 million to repair it and operate it
for about a year. These are old riveted tanks, they can't
be used to store crude oil or petrol because of the lack of
floating roofs, they can only be used to store products like
diesel and kerosene which do not have a high degree of evaporation.
Also, there are a large number of small tanks spread out over
a wide area. So it is going to be a tough proposition."
Ramachandran
also said the two sides had discussed the possibility of an
"external security agency" providing security for
the Trincomalee oil tank farm, although no details had been
worked out yet.
"I
would like to believe that the threat, if any, would not be
that bad because we're going to add value here," Ramachandran
said.
Indian
Oil would also enter into a 50:50 joint venture with the CPC
in operating storage and distribution infrastructure (terminals
and depots), he said.
The CPC
would retain the Sapugaskanda oil refinery while the IOC would
get involved in all downstream activities. The IOC has also
offered to help modernise the CPC refinery at Sapugaskanda.
"The IOC has made significant strides in refining technology
which it is ready to share - in terms of low cost revamping
of the refinery, reducing fuel losses and energy consumption,
increasing distillate yield - all of which means more income
to the CPC," Ramachandran said.
"In
terms of sheer cost competitiveness it is difficult to beat
Indian Oil," he added. "Our technological expertise
is high but our fees are low."
SL
investor mystifies Colombo bourse
Raj Rajaratnam, the Sri Lankan-born fund manager based in
New York, continued to make waves last week in the Colombo
bourse, buying big blocks of shares in a number of blue chips.
His transactions
have generated mixed interest from the market. Some have welcomed
the investments as a positive sign of confidence in the Colombo
bourse that could encourage more investors to put in money
while others have raised doubts about the source of his funds.
Rajaratnam
is believed to be the third largest shareholder of the John
Keells group with a stake of upto 4 percent. "He's being
collecting JKH shares for a long time now," one broker
said. Rajaratnam is also believed to have acquired up to seven
percent of Hayleys making him the third largest shareholder
in the conglomerate, 2.5 percent of Commercial Bank and three
percent of Colombo Dockyard.
Market
sources said Rajaratnam is thought to have invested over $10
million in Colombo. The 45-year-old is the founder and manager
of the Galleon fund, a big US investment fund said to have
assets worth over $ 5 billion.
Rajaratnam
told the Sunday Times Business, just before leaving the island
after a recent visit, he was investing his personal funds
and considered himself a passive investor with a long-term
outlook. He declined to reveal the source of his funds saying
it was a personal matter.
Brokers
said investment by Sri Lankan expatriates and high net worth
individuals was a positive sign of the renewed confidence
in the Colombo bourse. "These investments have a big
impact on the market," said Jayantha Perera of DFCC Stockbrokers.
"It shows there is confidence in the market, specially
among foreign investors."
Meanwhile
the Securities and Exchange Commission (SEC) reopened its
investigation into the acquisition of Richard Pieris shares
by Dr. Sena Yaddehige and other parties after it received
fresh information from a foreign party linked to one of the
buyers of RPC shares.
This
came a few days after the SEC said it was closing the probe
after an inquiry showed the share deals had not trigged the
provisions of the takeover and merger code. The SEC said it
was "revisiting" the transactions after RPC complained
over the issue.
VAT!
No tea for locals?
A group of local tea buyers have resorted to an unprecedented
move in the past two weeks - boycotting the Colombo tea auction
- to protest against the VAT levy, trade sources said.
The group
of some 50 buyers mainly from the local Pettah trade refused
to participate at the auction on Tuesday at the Ceylon Chamber
of Commerce auditorium, over this issue.
"We
were protesting against the VAT levy on local tea purchases.
Why are only we taxed and not tea exporters?" asked M.
Wyman of Sportsman Tea Pvt Ltd, a top local buyer.
"There
was no GST on tea purchased for local sales at the auction.
Now they have imposed a 10 percent VAT while exempting tea
exporters," Wyman said adding that traders were also
protesting because tea is an essential product and shouldn't
be taxed.
"The
poor man or the farmer often drinks tea and skips a meal because
they cannot afford it. If we are forced to pay this tax we
would have to pass it to the consumer," Wyman said. The
local trade has sought a meeting with Deputy Finance Minister
Bandula Gunawardene this week before deciding on the next
course of action.
Local
consumption accounts for 20-25 million kg of tea from the
country's average annual output of some 300 million kg. Brokers
said the boycott led to secondary teas falling by between
five to 10 rupees per kg.
Cement
firms eye Jaffna plants
Cement manufacturers are interested in reviving the
Kankesanturai cement plants in the Jaffna peninsula and exploring
for fresh deposits of limestone to ensure adequate supplies
of raw material in the future, government officials said.
The two
plants in Jaffna had a combined annual capacity of around
1.5 million tonnes before they stopped production after the
Eelam war intensified.
Big manufacturers
such as Puttalam Cement, now known as Holcim, and Tokyo Cement
Company, the joint venture between Japan's Mitsui Mining Company
and St. Anthony's Consolidated Ltd, have shown an interest
in reviving the plants.
The plants
have been defunct for years and damaged as a result of the
fighting and would need extensive renovation before production
could be resumed, officials said.
Tokyo
Cement joint managing director S. R. Gnanam confirmed that
his company, along with other players in the industry, was
interested in reviving the Jaffna plants.
The market
appears to be picking up after slow growth in the early part
of the year, he said.
The company
plans to raise production capacity at its main plant in Trincomalee
to around 850,000 metric tonnes annually with a planned expansion
that will add 250,000 tonnes at a cost of Rs. 500 million.
The industry
is currently struggling with an over-capacity problem and
cheap imports from India.
But a
construction boom is expected, particularly with the reconstruction
of the north and east, if talks between the government and
the Tamil Tigers, scheduled to begin next month, result in
a lasting peace.
The cement
market grew by eight percent to 2.7 million metric tonnes
last year.
Meanwhile,
cement manufacturers have applied for exploration licences
to look for fresh deposits of limestone in the north-western
coastal belt as well as the Jaffna peninsula.
Holcim currently owns and operates the only existing quarry
at Aruwakkalu, in Puttalam.
Trade
unions protest over new OT laws
New laws permitting more overtime for female workers are the
first step towards dismantling archaic labour laws that inhibited
foreign investment but trade unions - as usual - are crying
foul over the legislation.
Bala
Tampoe, general secretary of the powerful Ceylon Mercantile
Union (CMU), denounced the move saying it would force women
to work overtime against their will. "The government
is doing this to please foreign investors and garment factory
owners."
Two weeks
ago, parliament approved amendments presented by the government
to the 1942 Factories Ordinance allowing women to clock in
60 hours of overtime per month or 720 hours a year compared
to a maximum 100 hours per year earlier.
Labour
Minister Mahinda Samarasinghe said the new law was not only
necessary considering vast changes in the world but also was
a vital human rights issue.
However,
some women are not happy. "If we get better wages there
is no need for overtime. We are compelled to work overtime
because we need the money. Even if we refuse, we are scolded
by managers and harassed," said one garment worker.
Anton
Marcus, general secretary of the Free Trade Zone Workers'
Union, accused the minister of reneging a promise that the
rule would be voluntary and not compulsory.
He said
the minister at a meeting with the National Labour Advisory
Council (NLAC) - a tripartite body of government officials,
employers, unions and workers - on August 8 agreed that it
would be entirely voluntary. "But the government has
broken this promise and now introduced a clause saying workers
can refuse on reasonable grounds. Employers can decide what
reasonable grounds is and force workers to do overtime."
The extra
overtime rule would mostly impact in Sri Lanka's free trade
zones spread across the country which has a workforce of more
than 150,000 of which 90 percent are women, trade union officials
say.
Joseph
Arulvasagam, a trade union advisor, says the new law puts
women in a dilemma. "They want more work because wages
at 3,000 rupees a month are low but will factory owners exert
undue pressure on them?"
One garment
manufacturer rejected the trade union argument that factories
force women to work overtime. "The women want more work
because the fixed basic wage is low."
He added
that foreign buyers wanted factories to comply or change the
rules and threatened to give their orders elsewhere if this
didn't happen.
Chandra
Jayaratne, former chairman of the Ceylon Chamber of Commerce
which has been pushing for labour reforms for many years,
said extra overtime work for women was the first step in a
series of reforms the government has promised to implement.
He said
the chamber had proposed to the government to allow flexibility
in restructuring loss-making companies, allow secret ballots
between workers and unions in arriving at decisions to resort
to strike action, tripartite agreements on wages and other
issues between employers, employees and unions and collective
agreements binding unions, compared to the present arrangement
where agreements are only binding on employers.
Marcus
says if the government implements the legislation it would
break a code of conduct initiated by the global private sector
itself. "This code of conduct which is private industry-driven
talks of overtime but purely on a voluntary basis."
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