24th November 1996

Shell Shock

Those in industry and government circles breathed a collective sigh of relief as the news broke on Tuesday evening that the Shell strike had been called off. The truce between Shell and its trade unions come on the fitth day of the strike.

The impact of this strike in the first major utility to be privatised was serious-several large industries had planned imminent closures. Had the strike continued for a day or two longer, Ceylon Glass Company, Maliban Biscuit Manufacturers, Noritake Lanka, Amico Industries, Lanka Tiles, and Midaya Ceramics would have shut down causing major losses to the already faltering economy.

Last week’s ( Comment covered some of the policy lessons that can be learned from Sri Lanka’s experience with privatisation. The Shell case has brought many of those policy lessons to life in the past severa months Accusations of selling valuable assets too cheaply, public outrage over gas price hikes, not-so-discreet confrontation between PERC and Shell, and trade unions springing to the defece of workers suspended for sleeping on the job.

If this was not enough drama for one privatisation, the latest chapter concludes with Shell, a -multinational gas company reputed for its high safety standards, having to take back the nine sleeping workers. To add insult to injury, Shell had to agree to pay the workers for the period of suspension even though it had deemed that they were in serious breach of safety regulations a week earlier.

Although the govemment should be commended for its unwavering commitment to privatisation, it should also be cautioned against proceeding too fast with the transfer of vital enterprises such as

public utility companies. The government must remember that, in the long run, it will not be the revenue goals of a particular year or the satisfaction of an international lending institution that will contribute either to the viability of the privatisation exercise or to the welfare of the country.

One of the most important factors in the long-term viability of the process is that there must be a supportive framework not only for the privatisation period but also for post-privatisation. The experience of the past two years demonstrates that much remains to be done in terms of building this framework. There is still no capable regulatory authority to ensure that the new owners heed national and consumer interests. The fact that Shell is virtually unregulated in post-privatisation, in spite of the tact that it is (and will be for the next five years) the only producer of a vital industrial fuel, should be a cause for great concern.

Another important part of the privatisation framework should be labour policy. Instead of creating a balanced and firm labour policy, the government has chosen the questionable approach of ignoring trade unions concerns in pre-privatisation and pandering to union demands in post-privatisation. This is counterproductive from the points of view of all parties concemed the govemment, new investors, trade unions, and the general public. This week’s drama clearly demonstrated how helpless even the most powerful multinational companies can be in the face of a stubbom trade union, an unsupportive govemment, and impending industrial collapse. The outcome was Shell dropping the charges against the nine employees in return for a flimsy promise by the union to abide by Shell rules and regulations.

Good public relations is a factor that is not given due attention by our privatisation practitioners. Particularly in the case of public utility companies, it is important to explain to consumers why privatisation is important in the long-term and to generate consumer acceptance of and support for the process. If this is not done, the public is quick to come to the conclusion that consumers are being fleeced as a result of privatisation.

The Shell case has become an unfortunate symbol of privatisation in Sri Lanka. The labour ordeal and the misunderstandings with PERC have given potential investors second thoughts. The huge price hikes have made consumers wary. This is, indeed, a heavy price to pay for a lesson learned.

Commercial bank's trading profits up

The Commercial Bank of Ceylon Limited has reported a growth of nearly 15 per cent in trading profit and 10 per cent in after tax profits to Rs. 298mn in the first nine months of 1996, the bank said.

Turnover for the nine months upto September 30, 1996 stood at Rs. 2260.7 million, an increase of 19.5 per cent over the first nine months of 1995.

"The growth in profitability has been achieved despite a drop of 45 per cent in investment income, the bank said.

According to the bank's profit and loss account for the nine months ended September 30, 1996, trading profit totalled Rs. 368.5 million, and profit before taxation Rs. 404.8 million. The highest growth in assets was recorded in the area of bills of exchange (34 per cent over third quarter of '95) and in loans and advances (21.6 per cent). Deposits from customers grew by 25 per cent during the period.

The bank had a rights issue of one share for every four shares held, in October, raising the Bank's equity funds by Rs. 425 million which is to be utilised chiefly to finance capital expenditure.

The Commercial Bank has also floated a Rs. 100 million trench of Floating Rate Certificate of Deposit (FRCD) with several new features offered for the first time in Sri Lanka such as the guarantee of a minimum rate of interest, a rate of return higher than the Average Weighted Fixed Deposit Rate (AWFDR) published by the Central Bank semi-annual (six monthly) interest payments, and exemption from withholding tax and stamp duty, the Bank said.

BOTTOMLINE

By P.M.N. Bandara

Turnover up

C.W. Mackie & Company reported Rs. 1674 m. group turnover for the six months ended 30th September, 1996. This shows 29% increase compared to the corresponding period in the previous year.

However, the group incurred Rs. 27.2 m. net loss before taxation as against Rs. 27.8 m. in the previous year. Net loss after taxation was Rs. 35.1 m. during period under review.

Shareholders' funds as at 30 September, 1996 was Rs. 547.7 m. and it shows marginal increase of 2% over the previous year.

Future plans

James Finlay Chairman R. L. Juriansz said the company's performance during the nine months ended 30 September, 1996, was satisfactory in the context of the difficult trading conditions that were experienced and the general down turn in economic activity in Sri Lanka.

Company's turnover increased by 24% from Rs. 551.4 m. to Rs. 684.6 m. during the period under review. The increase in profit before taxation was 11% from Rs. 30.7 m. to Rs. 34.1 m. Profit after taxation increased by 7% from Rs. 27.1 m. to Rs. 29.0 m. Shareholders' funds was up by 3% from Rs. 468.9 m. to Rs. 483.9 m.

Commenting on the future plans Chairman said that the construction work on the warehousing and Instant Tea project is progressing as planned and the dates of compeletion are scheduled for January 1997 and July 1997 respectively.

Good 9 months

Sampath Bank reported 16.8% increase in turnover from Rs. 1,154.2 m. to Rs. 1,348.7 m. for the nine months ended 30th September 1996 according to the provisional accounts.

Progress all round

Profit before taxation increased marginally by 2.8% from Rs. 289.5 m. to Rs. 297.5 m. Profit after taxation was Rs. 193.4 m. and it shows 11.8% increase over the corresponding period in the previous year. There had been 36.3% increase in shareholders' funds from Rs. 831.4 m. to Rs. 1,133.3 m. This increase is mainly due to increase of Recurrent reserve by Rs. 208.7 m. and revaluation reserve by Rs. 93.2 m. respectively.

Profit down

NDB's group income for the nine months ended 30 September, 1996 was up by 13.2% from Rs. 1,849.8 m. to Rs. 2,095.2 m.

According to the unaudited accounts profit after taxation was Rs. 576.1 m. and it shows 14% drop over the previous year. Profit after taxation dropped by 20.7% from Rs. 502.3 m. to Rs. 397.4 m.

However, company's shareholders' funds increased by 13% from Rs. 3,570.2 m. to Rs. 4,039.0 m. during the period under review.

Moderate results

Provisional consolidated financial statements of John Keells Holdings Limited for the six months ended 30 September, 1996 indicate moderate performance in terms of turnover and profit.

Company's turnover up by 5.5% from Rs. 2,616.2 m. to Rs. 2,761.4 m. during the period. Profit before taxation increased by 12.3% from Rs. 233.9 m. to Rs. 262.9 m. Profit after taxation increased by 4.7% from Rs. 163.1 m. to Rs. 170.8 m.

However, profit attributable to the group dropped by 4.3% from Rs. 134.9 m. to Rs. 129.0 m. There had been a substantial increase in (27.6%) shareholders' funds from Rs. 5315.8 m. to Rs. 6,783.1 m. after deducting the minority interest.

Tax hits profit

According to the interim accounts for the nine months ended 30th September, 1996, Dankotuwa Porcelain Ltd., earned a net turnover of Rs. 447.9 m. This shows an increase of 15.5% over the turnover reported for the corresponding period in previous year.

Profit before taxation increased by 8.8% from Rs. 91.7 m. to Rs. 99.8 m. However, profit after taxation dropped by 11% from Rs. 91.7 m. to Rs. 81.6 m. Shareholders' funds of the company increased by 17.2% from Rs. 389.7 m. to Rs. 457.0 m.

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