Financial Times

Govt. unwittingly killing local industry

Frustrated Hayleys Chairman appeals through media

The Hayleys Group, among Colombo’s largest conglomerates, last week called for more clarity and a proper policy framework on foreign investment saying current policies were unclear and inconsistent.

“If there were no restrictions on investing overseas, we could have advanced further as a company and brought more benefits to the country,” Hayleys Group chairman Rajan Yatawara told The Sunday Times FT in a rare interview last week to reinforce some issues that it had raised in its annual report.

Activated carbon

Haycarb is a pioneer in manufacturing eco-friendly coconut shell based activated carbon.

Its product range includes standard, washed and impregnated carbons in granular, pellet and powder form and it has the capability to regenerate and return spent carbon to chemical industries in which it is used. Activated carbon is used widely in water purification, air and gas purification, and solvent and gold recovery.

The company is the largest coconut shell based activated carbon manufacturer in the world and has production centres in Thailand and Indonesia.

The Central Bank Controller of Exchange was unable to comment on the Hayleys issue in particular but provided some guidelines on how approval is given to applications to invest abroad.

“It all depends on whether all the documents are in order. If they are not it could take longer that the normal 3-4 weeks,” said D. Vasantha, acting Controller. The Bank processes the application and if in order sends it to the Finance Minister for final approval. “Sometimes these applications take time when we have to get more details like audit reports, etc,” he said.

The company was going to the ‘press with our story as we are getting nowhere with these policies,’ he said adding: “The vulnerability of the Sri Lanka government to foreign investors is killing local competition.”

Seen here are different types of activated carbon including granules and powder. The powder is an effective antidote against poison. Haycarb donates more than Rs 2 million worth of this activated carbon powder to government hospitals annually helping save many lives. Pic by J. Weerasekera.

Yatawara, citing the group’s own case of where foreign investors have been allowed into the activated carbon sector when the supply base is limited and price under-cutting has been one of the reasons why Hayleys has set up production facilities overseas, spoke on a range of issues that have partly led to a fall in profits in the last financial year. The group reported a turnover of Rs 24 billion, up 23.5 per cent over the previous year but pre and post tax profits fell.

Delays in VAT refunds, variations in fiscal policy and inconsistencies in agriculture policy in relation to the recent withdrawal of the subsidy were raised by the Hayleys chairman in the interview. But his main point of concern was whether there is a sinister international move to kill Hayleys’ reputation as a world leader in activated carbon and whether the Sri Lankan government was unwittingly becoming a partner to this strategy.

“They (foreign investor) set up in competition with local industry and a depleted raw material base. Some 80 percent of the carbon for our main overseas comes from us and if we collapse, they collapse. They (foreign investor) can afford to say lose $1million (by paying higher prices for local raw material) to kill Haycarb (the activated carbon subsidiary) and a multinational.

We are driven to the wall. We wind up and lay off staff,” the normally-mild Hayleys chairman said angrily.

It was a very rare meeting with Hayleys (Yatawara was assisted by group directors Richard Ebell and Ananda Hettiarachchy) senior management in a normally, publicity-shy culture that the group has had in the past.

In fact Yatawara and his predecessors have expressed concern in the past on inconsistencies in regulations and problems with the exchange rate policy – but only through the chairman’s review in the annual report; rarely directly through the newspapers.

“We don’t go behind politicians or officials but play by the book,” the Hayleys chairman, who retires and gives way next January to “Tanky” Wickremeratne, said adding however that, “that hasn’t changed things.” He said recently they invited Coconut Ministry senior officials to the Hayleys activated carbon plant to show the kind of world-class technology that locals are capable of.

The officials were very impressed.

In the 2005-06 Hayleys Group annual report, Yatawara refers to the ill-advised BOI move to allow another foreign investor in the activated carbon sector. “At a time when the five local activated carbon producers have production capacity and sales prospects for using 60,000 charcoal the country has never produced more than 45-50,000 tonnes/year, the BOI grants approval with its usual incentives to another 100 percent foreign owned entity to set up an activated carbon factory here. Haycarb’s need at full capacity is 36,000 tonnes. Foreign direct investment in these instances comes in the way of machinery and buildings of questionable value, some low waged employment creation as a result (whilst elsewhere termination of better paid employees is imminent), lower export income for the same volume sent out of the country repatriation of profits,” he told shareholders.

He asked: “What purpose does such FDI serve?” “BOI approvals are confidential and neither the public nor other stakeholders are consulted. Why should this be? Sri Lanka could even be used to reactivate and export spent carbon containing toxics; or repack Chinese carbons which face anti-dumping penal duties in the West,” he said in the report, reiterating these points in the interview.

“Don’t get us wrong,” interjects Group director Ebell, adding: “Not for a moment are we saying we are opposed to foreign investment. All what we are saying is that policies should be consistent, and established and reputed local industries should not be ruined.”

On other issues, Yatawara criticized the government for delays in VAT refunds (the government owes the company more than Rs 450 million over the past six months), saying: “The VAT scam or poor tax collection is no excuse. Our shareholders don’t accept this as an explanation for low returns, nor our employees, for no bonuses.”

“It is incomprehensible to the average citizen that the government has no funds to pay us our dues,” Yatawara said in the report and also reiterated this in the interview.

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