The tea industry will be fully in the hands of the private sector by next April, Plantation Industries Minister Ratnasiri Wickremanayake said at the 142nd annual general meeting of the Planters Association of Ceylon.
Of the 23 plantation companies under state control, 13 are under private management while a further six are being privatized. The remaining four companies will be privatized by April next year, Mr. Wickremanayake said.
He added that since the plantation companies were handed over to private entities on a long-term lease, the government theoretically owned the land. "This was necessary to safeguard the national interest, as we are answerable to the voters. Moreover plantations, the first sector to be unionized, are politically sensitive."
The minister said that after the Kotagala controversy, legislation was introduced to bar the free transfer of shares without the approval of the government and that a national policy was being formulated for the estate sector.
He also said certain plantation companies in the upper Kotmale region had been uprooting tea bushes to cultivate potatoes which the Minister described as very disturbing. "Indiscriminatory tree felling has to be stopped with the help of new legislation as it was not in line with the national interest. This has caused severe soil erosion and is threatening the very fabric of the tea industry with land being rendered futile for future crops," Mr. Wickremanayake said.
"We found that companies were not prepared to pump capital when they had five-year leases as initially offered by the government. As a remedy we introduced 50-year leases allowing plantation companies to reap the harvest of their capital investments, Mr. Wickremanayake pointed out.
Public Enterprise Reform Commission (PERC), Director General Ananda Weerasinghe told The Sunday Times Business the controversy over the Kotagala deal, their maiden privatization effort, was very unfortunate. "We have re-structured the privatization strategy with regard to the six plantation companies - Mathurata, Namunukula, Malwatte Valley, Elpitiya, Elkaduwa and Kahawatte plantations now on offer.
"Interested parties will initially have to register with the PERC. The bid would be in two stages with all bidders being required to submit a 'Long-term Technical and Business Evaluation.' Based on this, the PERC would short-list a number of companies to bid over the counter at the Colombo Stock Exchange. The highest bidder would gain control of the plantation," Mr. Weerasinghe said.
The principal investor would acquire the majority of the shares (51%) while 10% would be distributed among the workers and the remainder (39%) would be open to the public through the Stock Market, Mr. Weerasinghe added.
Plantations Ministry Director General Anura Ekanayake said planters were bound by the Central Environmental Act and the Soil Conservation Act. Breach of either might result in penalisation. Extension of the 50-year leases would solely depend upon the performance of the investors.
Commenting on the diversification of crops, Mr. Ekanayake said it was not prohibited as long as it did not result in the uprooting of tea bushes for short-term gains.
Sri Lankan Brokerages would be allowed to trade on their own accounts, and carry positions in stocks next year, like their counterparts in developed markets.
"This is part of the growing up process of the Colombo Stock Exchange," CSE Director General Dylan Moldrich told The Sunday Times Business.
CSE officials have been using the current lull in the market to upgrade their infrastructure and fine tune operations at the exchange. Recently The CSE introduced a second board, and mock-trading on the screen-based trading system is due to start soon.
Mr. Moldrich said the rules were still at a discussion stage and would be adopted around the first quarter of next year.
A broking company wishing to trade must have a minimum net capital of Rs. 20 mn. Net capital is arrived at by deducting from shareholders' funds of the broker firm, falls in market values of stock positions, unsecured loans, all amounts due from directors, connected persons, employees and associated companies of the firm, deferred expenses, intangible assets, fixed assets and overdue accounts.
This capital requirement will be adjusted periodically.
Broker firms would not be allowed to acquire more than 2 per cent of the issued capital of a single listed company or acquire shares of its own or group companies.
They would also not be allowed to invest more than the equivalent of 5 per cent of their net capital in any single security.
Firms would also be allowed to underwrite initial offers subject to the above restrictions, according to the draft set of rules that have been circulated for discussion.
Any broker buying from a client or selling to a client from its own positions, would be required to inform the client by indicating it on the contract note.
The firm should provide a bank guarantee to the CSE on the basis of the net capital requirement as well as a cash deposit, and be under the strict supervision of the surveillance division of the CSE.
AirLanka itself had made profits of Rs.29.58 mn. on a turnover of Rs.14,704 mn. during the year ended 31st March 1996. Last year it made Rs. 431.7 mn.
However, interest costs had risen to Rs. 2,036 mn. up from Rs. 1,486 mn., eroding group profits before interest of Rs. 2,311 mn. which was up Rs. 230 mn. from a year before.
Group post-tax profits after deducting minority interest were Rs. 70.59 mn. (Rs. 431.7 mn. last year).
AirLanka had been hit by the effect of the terrorist attacks in Colombo culminating in the Central Bank bomb blast.
"As could be expected AirLanka suffered dramatic reductions from key markets," Chairman W. T. Jayasinghe told shareholders.
However, the airline had persisted in strategic advertising and promotion aimed at positioning it as an international carrier with 29 destinations in 21 countries.
"This policy, consciously followed throughout the year, stood the airline in good stead in the aftermath of the events in January 1996," Mr. Jayasinghe added.
AirLanka had carried 1.15 mn. passengers during the 12 months to 31st March 96, (up 6.3 per cent) while cargo carriage had jumped 23 per cent to 35,409 tons.
"Revenue increases were registered with respect to the carriage of passengers, excess baggage, cargo and mail, operations of charters, ground handling services and duty free sales", an AirLanka statement said.
It had provided ground handling services to 25 airlines flying to Colombo handling 1,049,340 passenger arrivals and 1,127.226 passenger departures.
AirLanka Catering Services Ltd. had supplied 1.8 mn. meals to 15 airlines operating to Colombo.
AirLanka said it had enhanced services, especially to Europe with the introduction of Airbus A 340 aircraft, the first Asian Airline to do so. It was currently the only airline flying direct to London from Colombo.
The carrier had also introduced non-smoking flights on Middle East, East Asian and regional routes and is planning to expand it to Europe next year.
A new class of service - select - had been introduced to Indian destination with priority baggage handling, separate check-in counter and an extra baggage allowance.
Review period 12/12 to 18/12
With the prevailing holiday-mood, the CSM was quite dull, with the indices marginally declining over the week. Foreign investors were mainly concentrating on blue-chip companies with significant interest being shown in JKH/DFCC.
Corporate performances:
Kelani Valley
Plantations Ltd:
Nine months ended 30th September 1996.
PAT of Rs. 42.2 m. an increase of 229% (corresponding period 1995 Sept.). Turnover of Rs. 579 m. increase of 117% (corresponding period in 1995)
Reasons: increase in world market commodity prices.
Risk: long-term sustainability of very high growth.
Strengths: private accountable management.
Millers Ltd:
Six months ended 30th September 1996.
PAT of Rs. 4.8 m. decrease from Rs. 12.1 m. (corresponding period m 1995)
Turnover Rs. 341.2 m. an increase from Rs. 305 million in '95.
Reasons: down-turn in economy - less demand for high premium products.
Risk: iliquid share for investors.
Strengths: prime property and large product range with some products market leader;
Corporate sector is buzzing with news of a probable corporate merger in the cellular-phone industry. This would be advantageous for the companies involved as price-wars could be avoided and more professional service could be provided to customers. Certain interests are in the negotiation stage of bringing over a rival gas distributor to Shell which presently is in a monopoly status. The distributor is from the sub-continent.
AirLanka privatization has ended in a fiasco with no committed out-right buyers. Only companies to show interest have been Virgin-air and Emirates, but interest is understood to be on a consultancy and management basis.
The CSM is expected to recover from mid-January in the short-term ASPI increase of 30-50 points is hopefully expected.
In an unprecedented move towards the establishment of internationally acceptable arbitration standards in the country, the Institute for the Development of Commercial Law & Practice (ICLP) recently entered into an agreement of co-operation with the Arbitration Institute of the Stockholm Chamber of Commerce (AISCC).
The agreement, follows the new Arbitration Law which came into operation last year.
The Arbitration Act No. 11 of 1995, provides for a legislative framework for the effective conduct of arbitration proceedings as well as the requisite mechanism for the enforcement of arbitral awards, thereby making arbitration a viable and expeditious alternative to litigation for the resolution of commercial disputes.
The ICLP, set up in 1982 by 11 leading Sri Lankan blue chip companies with the objective of effecting improvements in Commercial Law, was instrumental in the bringing about the Act.
One of the ICLP's primary aims is to assist the Government in the creation of a legal infrastructure necessary for the transition to a market econmy, including that of providing the country's private sector with an efficient arbitration procedure.
The agreement aims at facilitating the wider use of commercial arbitration in a country known for its litigous spirit.
The agreement will provide for the exchange of experienced personnel between the ICLP and the AISCC, as well as the exchange of publications and information relating to commercial arbitration proceedings.
The Sunday Times recently spoke to U. L. Kadurugamuwa, a member of the Council of Management of the ICLP and the man behind the country's new Arbitration Law and the new ICLP Arbitraion Centre.
According to Mr. Kadurugamuwa, Sri Lanka possesses an archaic judicial procedure inherited from its British Colonial Rulers based on what is known as the adversarial of confrontational system, where the parties to a dispute invariably have to be antagonists. He observed that this injudicious system which prevails to this day in English-speaking countries such as the USA and Australia as well as a good many former British Colonies, has given rise to a number of attendant evils such as perjury and forgery.
"However, this is not the case with the Inquisitorial System which prevails in Continental European Countries and is well developed in the Scandinavian States. This procedure, unlike the British System, entails a judicious system of arbitration that essentially resembles the procedure followed by the ancient Sinhalese".
"Sri Lanka has had a rich tradition of dispute resolution going back to over 2000 years. Then the Village Council (Gam Sabha) was the forum for the settlement of disputes. Likewise in India, we had the panchayat system which essentially resembled our Gam Sabha", he explained.
According to Mr. Kadurugamuwa, it was the legal reforms initiated by the British that drastically changed the prevailing legal system based on the amicable settlement of disputes.
"One has only to read Major Thomas Skinner's 'Fifty Years in Ceylon' (1891) to realise the full impact of this monstrous judicial imposition upon the mass of the people", he said noting that even at the time Major Skinner lived, Court Proceedings dragged on for 10 or 11 years with postponements of cases being the order of the day, to the ruin of both plaintiff and defendant.
"Litigation is so common nowadays that our District courts and High courts are unable to handle the large volume of cases and generally put them off, the result being that today our courts are not in a position to dispense justice to those in most need of it."
Mr. Kadurugamuwa explained that the purpose of arbitration is to give the parties an opportunity for an alternative means of dispute resolution rather than invariably having to seek recourse to courts, which will almost always result in protracted legal battles.
"Arbitration is a consensual approach to dispute resolution where the parties to a commercial transaction agree beforehand in a legal agreement the manner in which they would seek legal action if a dispute were to arise between them."
According to Mr. Kadurugamuwa, although arbitration had been recognised as far back as 1866, there existed many shortcomings and anomalies that made it a worthless piece of legislation.
"Under the old law, the rules in respect of arbitration led to unnecessary delay in arbitral proceedings as it was the practise for both parties to make applications to court on various matters relating to evidence etc., or even to have the whole case reheard before courts."
"Moreover, the courts were also empowered to correct, void or set aside the award".
"Hence, the old arbitration law had outlived its usefulness and was of no real value to the interests of those parties to a dispute who wished to have a binding decision taken after a fair and impartial hearing, and enforced within a reasonable period of time. Fortunately, this has been remedied by the present legislation", he said.
Mr. Kadurugamuwa noted that due to the absence of an Arbitration Centre of international standing in the country before the new Arbitration Centre in Colombo was set up in mid March this year, local entrepreneurs had been placed in an awkward situation when negotiating commerical transactions with foreign investors.
He said that in such a context, local businessmen had no option but to agree to the conditions laid down by the foreign party, such as the centre of arbitration, they would refer their dispute. "Such a centre was usually based in a European country and in case a dispute were to arise between the parties, the local party preferred to give in to the foreign party, rather than pursue the matter in a European country where the costs of artibtration would have been massive" he said.
"Furthermore, foreign investors, too, were reluctant to enter into commercial agreements with local entrepreneurs due to the absence of an easily accessible arbitration centre as well as specialized arbitrators, in the country. Further, before the new Act, which recognised the enforcement of arbitral awards according to international law, came into being last August, such entrepreneurs were uncertain as to the position of arbitral awards in this country."
He said that the new Arbitration Act gives recognition to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Therefore arbitral awards made abroad are now enforceable in Sri Lanka. Similarly, awards made in Sri Lanka are enforceable abroad, these being subject to the provision that awards will be enforced only if made in the territory of another contracting state. 100 states have ratified the convention so far.
Mr. Kadurugamuwa said that arbitration is fast gaining recognition as a viable means of settling disputes arising from world trade.
"Nowadays a clause of a provision for arbitration is often contained in a contract between trading parties as well as in bilateral trade agreements".
"This is especially important in a context where SAPTA is fast giving way to the South Asian Free Trade Area (SAFTA), which is expected to become a reality by the year 2000", he noted.
According to Mr. Kadurugamuwa, an extremely viable arbitration procedure based on the Inquisitorial system had been developed in the Scandinavian countries, especially Sweden.
"During the Cold War, neutral Sweden was strategically placed to play the role of peacemaker for both eastern and western European states. As a result it has developed a very high standard of arbitration that is recognised throughout Europe and the Americas. The Arbitration Institute of Stockholm is amongst the best of its kind.
It is the guidelines of this internationally reputed centre that has served as the basis for the formulation of the rules for our new Arbitration Centre."
"Our very own Arbitration Act has also drawn inspiration from and is to a large extent based on, the Draft Swedish Arbitration Act submitted to the Swedish Government in 1994."
He noted that both documents incorporate the latest developments in the field of commercial arbitration, including the provisions of the UNCITRAL modal law on the International Commercial Arbitration.
He said that the Arbitration Centre would be a completely free and autonomous body within the ICLP and would comprise a Board whose members would be appointed for a period of three years by the Council of Management of the ICLP.
"It has been agreed that the Board would comprise two businessmen as (chairman and deputy chairman), two retired judges and two practicing lawyers".
He said that at present, the posts of chairman and deputy chairman are held by Mr. C. Wijenaike, Chairman, Central Finance Co. Ltd, and Mr. Ken Balendra, Chairman, John Keells, respectively. Retired Judges, Messrs. O. S. M. Seneviratne and Walter Ldduwahetty and President's Counsel K. C. Kamalasabesan and Nalin Abeysekera are also on the Board.
According to Mr. Kadurugamuwa, resorting to arbitration has a number of advantages when compared to conventional court procedure.
This includes party autonomy (where the parties to the Arbitration Agreement are free to determine the number of arbitrators, the place and language of the arbitration, as well as the applicable law under which such arbitration shall be governed), confidentiality and expeditious settlement of cases.
"Basically, arbitration has objectives that are similar to adjudication. It is however conducted in a less formal atmosphere than that of a court, with adjudicators being nominated by the parties concerned and constituted into Arbitral Tribunals".
"Arbitral Tribunals are completely autonomous and neither the Board nor the ICLP can exercise any control over their decisions."
"Law courts too cannot interfere in such proceedings. The High Courts will however play a supportive role such as interim measures for the protection of the property which is the subject matter of dispute. Under the new Act, High Courts are required to enforce the award, but will not go into the merits of the case", he said.
Mr. Kadurugamuwa explained that whereas a Law Court is bound by the Evidence Ordinance, an Arbitral Tribunal is not bound by such rules unless the parties so wish. There also exist provisions that each party should be given an opportunity to fully present and argue his case. "The party that does not avail himself of this opportunity however, cannot prevent the proceedings from advancing, in that an award can be tendered in his absence as an ex-parte award".
"Arbitration is particularly important in that it gives the parties the opportunity to influence the composition of the Arbitral Tribunals, so that professional know-how and experience are represented within the Tribunal, and so save the time that would have been spent in explaining to the judge the intricasies of the matter in question".
"The parties are also obliged to appoint an odd number of arbitrators, including a chairman to preside over the proceedings. The odd number is important for a final decision based on the majority will, to be taken", he explained.
"In case the parties appoint an even number of arbitrators, the arbitrators so appointed are jointly obliged to appoint an additional arbitrator as chairman, and if they are unable to do so, the centre would appoint a chairman".
"The parties may even stipulate that an Arbitration Centre such as ours shall appoint a chairman or some or all arbitrators".
Mr. Kadurugamuwa said that the Centre has a list of local and foreign arbitrators of various disciplines, so that the parties to a dispute can also appoint arbitrators from this list.
He said that if there is reason to believe that an arbitrator so appointed is serving certain vested interests, the centre could, upon notification by the aggrieved party, request such an arbitrator to step down.
The Centre would then give the party that appointed such an arbitrator, a list of arbitrators to select from. If they refuse to do so, the Centre would nominate an arbitrator even sans the consent of the party and so proceed with the case.
"A major advantage of arbitration is that there exists a time limit of one year for the rendering of awards after a case has been referred for arbitration though the Centre may extend such a time limit if necessary", he said.
As for the response from the country's legal sector, Mr. Kadurugamuwa said that although initially there was much antipathy towards arbitration on the part of lawyers, they have now come round to seeing things in a better light and are now very co-operative. "The response from corporate and commercial lawyers has been very positive."
"These lawyers now realise that the sooner they resolve a dispute, the better, as they would save time to get on with other cases and hence increase their earnings".
"There is also the possibility that such a situation could give rise to a thriving arbitration practice, where persons skilled in legal matters, banking, leasing etc., could offer their services as arbitrators. In such a context, lawyers would have much to gain", he said.
"We have already embarked on an awareness campaign in this connection. The ICLP, with assistance from the Swedish International Development Co-operation Agency (SIDA) has launched a number of awareness programmes including symposiums and day-sessions".
"We have already familiarized this concept among more than 300 persons, including commercial lawyers practising at Hulftsdorf and corporate lawyers of over 100 leading companies."
Mr. Kadurugamuwa said that the ICLP is in the process of organising a seminar in Bangalore to be held early next year, for leading Indian businessmen and corporate lawyers, which is intended to promote the Arbitration Centre in Colombo as a neutral and economical venue within the SAARC region for the resolution of disputes that may arise anywhere in the world.
"As our Arbitration Centre conforms to the high standards develped by the Swedish, it will give both foreign and local investors having business dealings in the SAARC region, confidence to refer their disputes here" he said.
"This in turn will generate considrable foreign exchange and also promote Sri Lanka as the financial centre of the South Asian region", he said.
"We are already well advanced in banking, computer and hotel facilities. A necessary appendage to all this is, of course, a dispute resolution centre. Our country, like Sweden, is well placed for such an esteemable service and we might as well make good use of it", added Mr. Kadurugamuwa.
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