• IFC to lead port project lenders
• How they make a living
• Iraq boots out Ceylon tea
• Buyers balk at PIMC fees
• Shell Gas terminal goes off shore
• South Asia beyond 2000
• Fiscal policy can have direct influence on output growth
• Moody's likely to upgrade Korea's ratings this month

IFC to lead port project lenders

By Asantha Sirimanne

The International Finance Corporation (IFC) is to lead a consortium of international banks in financing Queen Elizabeth quay Build Operate Transfer (BOT) project of the Colombo Port.

The IFC is the private sector financing arm of the World Bank. World Bank Resident Representative Roberto Bentjerodt confirmed that the IFC has already had discussions with investors in the project.

"But it is still too early to talk about numbers or amounts to be raised," Mr. Bentjerodt said. The terminal project will be carried out by South Asia Gateway Terminals Ltd. Key shareholders included the P & O Group and their agents, John Keells Holdings. At times IFC also takes up equity positions in the projects it finances.

The terminal company will have the right to build and operate the terminal for 30 years.

The whole project was initially estimated at around US $ 600 mn. However the first stage of financing is expected to be around US $ 300 mn with at least 60 per cent coming in the form of debt.

The key agreement of the project, the so-called overall concession agreement has already been negotiated and finalised, The Sunday Times Business learns.

The other agreements which are in the final stages of negotiation includes, the shareholders agreement, the terminal lease agreement, and implementation agreement.

The agreements are expected to be initialed before the end of this month to be submitted to the Cabinet for approval. The agreements are expected to officially signed by early April.

After the agreements are signed, the lenders are expected to conduct a due diligence on the agreements, going into the operational and financial aspects in detail, before committing themselves.

Four in the running for Maturata

Four prospective buyers have been finalised to bid for Maturata Plantations.

The companies are Asia Capital, Forbes Ceylon, Freelanka and James Finlay.

When Maturata Plantations was first put up for sale by the PERC it was bought by the Employees Trust Fund Board, angering many private buyers, who questioned the logic of a state managed institution buying a plantation when the state itself was attempting to sell it off.

The ETF also bought the salt corporation, but so far it has not been put up for sale.

Canadians to fund Infrastructure

The Canadian export credit agency may join the group of institutions that are financing the Private Sector Infrastructure Development Company (PSIDC) an official said.

The company has been incorporated to provide debt finance to local infrastructure projects.

It is already financed by the World Bank, and KfW of Germany.

PSIDC is also hoping to tap other top lending institutions such as OECF.

How they make a living

The Sri Lankan corporate sector is slowly making thousands of soldiers disabled in the long running conflict, into productive citizens.

In a special village set up by the Sri Lanka army in Keragala, Nittambuwa, disabled soldiers and their families are making 150,000 paper pots a week to plant tobacco seedlings for the farmers who supply the Ceylon Tobacco Company.

Despite being the country's largest manufacturer of demerit goods, which the Presidential Committee on Drugs, Tobacco and Alcohol has cited as a major cause of death in the country, CTC has attracted praise for its good management, labour relations and corporate practices.

Earlier the seedlings were planted in polythene bags.

"In 1996, army officials said, there were nearly 8,000 disabled soldiers in the country," says CTC Leaf Production Manager Lakshman Nugawala, who came up with the idea of getting disabled former soldiers to make eco-friendly bio-degradable paper pots, in place of the polythene pots used earlier.

"The numbers are on the rise and there was a problem of finding employment for them," he added.

The project began with only 12 households. But when the rest of the community saw the lucrative side of it, others wanted to join, says ex-soldier R. M. Ranbanda.

The production process is rather simple, with the only raw material being old newspapers.

The side of the pot is stitched and the pots are then individually cut into the required size. "No fancy machinery is used for this. A good pair of scissors, thread and a normal sewing machine are all that we need," the soldier said.

Sixty families are now making paper pots, supplementing their income from the army.

Each family stitches around 1500-2000 paper pots a day, depending on the number of hours they work. Though CTC is prepared to buy 30,000 pots from a family each week, they are only able to make half as much.

"It is difficult to keep to the target because only our families help us, and sometimes we have to work till 2.30 in the morning to keep to our deadlines. We also have difficulty in getting newspapers," another ex-soldier O. K. D. Lalith said.

A minimum 50 kilos of newspapers a week are required by the village. The paper is bought from suppliers in Gampaha and nearby areas. But the soldiers are charged exorbitant prices by suppliers. A kilo of old newspapers, which goes for around Rs. 8 in Colombo, is sold at Rs. 20 in Gampaha. .

"The paper mudalali knows that we would buy the paper at any cost as we need it urgently. So he charges the maximum," the soldiers lamented.

When the project began they were paying around Rs. 13 for a kilo.

"We also have to bear the additional transport costs as we don't have a bus service or a vehicle to bring the newspapers back to the village," Mr. Ranbanda said.

They also have to purchase a sewing machine. A sewing machine can be bought for around Rs. 10,300, on a hire purchase scheme.

"By the time we have paid up, the machine costs around Rs. 14,000," C K Opatha said. The company had not given the soldiers any discount so far.

"At the moment, all our savings go towards paying off the loan for the sewing machine," the soldier said.

CTC buys the entire village production at eight cents per pot. "This gives a profit of Rs. 2,500 per family per week," said Mr. Ranbanda.

However, Mr. Nugawela says the village production is not adequate for CTC's requirements. CTC is hoping to expand the paper potting industry to another army hamlet in Ibbagamuwa, in the Kurunegala district.

Mr. Nugawela who is based in Kandy is searching for donors of old newspapers. In Colombo the company's public relations manager is co-ordinating the project.

The Sri Lanka Army has also set up a factory to employ disabled soldiers. The factory is located in Yakkala. The Rs 50 mn project is partly funded by the defence ministry.

Iraq boots out Ceylon tea

By Mel Gunasekera

The Iraqi government is believed to have imposed a ban on all Sri Lankan tea imports commencing end January this year, tea brokers said.

The ban comes in the wake of a lack of interest shown by the Sri Lankan authorities to send a high powered delegation to negotiate tea exports, with the partial lifting of the UN trade embargo in November 1996, tea brokers said.

The Iraqi government has not informed Sri Lankan government officially about the ban. Instead the Tea Board here has been informed by the intermediary suppliers, that Iraq has decided to ban tea imports from Sri Lanka commencing from the third phase," a senior Tea Board official said.

Iraq was a major buyer of Ceylon Tea during the late 1970's. They even had a tea buying house in Sri Lanka. Subsequently with the emergence of the Iran and Iraq war and latterly the Gulf war, Ceylon Tea imports have been declining, tea industry sources said.

However, under UN embargo, Iraq was permitted to import Ceylon Tea under the 'Oil for Food' programme in late 1996.

Under this programme, Sri Lanka exported tea to Iraq through an intermediary Jordanian firm, Talfeet Trading Company.

During the past year, indirect tea exports from Sri Lanka amounted to 8,500 MT. "This was one of the major reasons for the Colombo Auction tea prices to remain strong at the bottom end," one tea broker said.

Up to date, Sri Lanka has not received any direct UN L/C's to ship tea to Iraq, while India is now receiving direct orders from Iraq under UN L/C's.

It is more or less certain, that Sri Lanka will not receive direct tea orders to Iraq with UN L/C's until a delegation visits Baghdad and conclude discussions with Iraqi State Company for food stuffs, the Tea Board official said.

Despite the indirect Iraqi purchases through a Jordan company, a marginal impact could be witnessed at the Sri Lanka tea auction prices.

Tea brokers say, the bottom of the market has got stronger where the margins between the below best and the bottom is virtually insignificant. However, the Colombo auction is not in a position to derive the full advantage of Iraq's presence due to the orders coming through through another nation.

Latest reports reveal, that Iraq is tipped for an increased allocation of approximately US$ 5.2 bn for the third phase of the oil for food programme, as against the previous two stages where the allocation was US$ 2 bn each. "This implies that the future UN monitored trade with Iraq will be theoretically increased by almost three times," one broker said.

At present, Iraq has invited representatives from India, Indonesia, China and Vietnam for discussions to finalise the tea supply allocations for the third phase of the programme. India as secured a deal for 3,000 tonnes, while China, Indonesia and Vietnam are yet to receive their allocation.

Tea brokers beleive, the Iraqi government is hurt that Sri Lanka did not show her solidarity by sending a high powered ministerial delegation to Iraq.

At one time a high powered delegation led by Trade Minister Kingsly Wickremaratne, Tea Board officials and other tea trade representatives was due to visit Iraq to negotiate direct tea imports. But the visit did not materialise. Industry officials believe that Sri Lanka does not want to offend the US.

In the light of these events, the Tea Promotion Bureau is pressing for a ministerial delegation led by trade minister to visit Baghdad as soon as possible, to prevent the lucrative tea market slipping away from Sri Lanka's grasp.

Buyers balk at PIMC fees

The sell off of the Plantations Investment Management Company has run into a storm with prospective buyers expressing concern at the corporate management fees charged by the Merchant Bank of Lanka, which is bleeding the company.

The company has to pay the management fees equivalent to 1.25 per cent of the gross turnover of each company under its management for the next 15 years, according to an agreement signed between PIMC and MBSL which is one of the key promoters of the company. When the plantations privatization's started the MBSL was heavily criticised for getting into the business but the investment decisions paid off later. The PIMC also raised a hornets nest when bidders complained that it was yet another state institutions because its Rs 1,060 mn paid up capital was financed by the ETF (47.2 per cent), the National Insurance Corporation (14.1 per cent) and Sri Lanka Insurance Corporation (28.3 per cent). MBSL itself holds 10.3 per cent of the shares which includes a parcel which was allotted as promoter's shares.

"For nearly one third of the lease period of 50 years we will have to pay an exorbitant corporate management fee to the Merchant Bank," one prospective buyer told The Sunday Times. "If we buy the company we will manage PIMC and we do not want to pay a third party."

The market was taken by surprise when the Public Enterprise Reform Commission put the company on sale, a few weeks after the company's promoters made an application to list it in the Colombo Stock Exchange.

However a top MBSL official told The Sunday Times Business that the management fees were not too high considering the rates charged elsewhere.

"Anyway the agreement is open for negotiation," he pointed out.

The company owns and manages Hapugastenne and Udupussellawa plantations companies which recently had initial public offerings. Though PIMC is the so-called managing agent of the two plantations companies, the operational management is done by sub managing agents.

The PIMC charges a fee of 4 per cent of the gross turnover of each company and 10 per cent of the profit as management fees. The sub-managing agents are paid on pre-tax profits. Udussellawa Plantations which is managed by BC Plantations Services (Bartleet Group) expires at the end of 2002. Hapugastenne, which is also managed on similar terms is run by Finlay Plantations services. But there is provision for renewal for a further 10 years if the sub managing agent fulfills the performance criteria in the agreement.

Market sources say the managing agents are showing a reluctance to relinquish their rights to manage the plantations.

Analysts say the buyer of PIMC will have to pay off the two managing agents and MBSL if they want to run the plantations group themselves.

More Business * Shell Gas terminal goes off shore * South Asia beyond 2000