Sri Lanka to introduce fuel pricing formula soon

Sri Lanka will be introducing a cost reflective transparent pricing formula, based on international market prices soon, Minister of Power and Energy Patali Champika Ranawaka told the Business Times.

With this formula, consumers would be privy to the breakdown of various cost components such as cost of product in the international market, freight and insurance costs, government taxes and marketing margin.

The energy utility marketing establishments like the Petroleum Corporation and Electricity Board would not be able to hide their inefficiencies in the future as every action and activity will be scrutinised by an independent regulatory body, he said adding that no longer will those institutions be able to pass unreasonable costs to the consumer.

The government must take appropriate action so as not to giveundue burden to the consumer with inflated costs. The utility must also generate sufficient revenue for investment in developing infrastructure such as refineries, storage facilities and pipeline systems, he added.

A transparent cost reflective pricing mechanism would benefit both the consumer and the utility, he said.

Sri Lanka cannot subsidize power and petroleum with bank credit, pushing the country into a balance of payments crisis which resulted in the falling of rupee, he emphasised.

In the last few years the Sri Lankan petroleum sector was also pushed into crisis due to state price controls, and the petroleum agency had been bailed out with Treasury bonds. The issuing of Treasury bonds however increases the national debt burden on every citizen, he opined.

But an automatic fuel adjustment formula immediately cuts the disposal income of oil users reducing their ability to import consumer goods, keeping the external sector balanced with domestic demand, he explained.

Welcoming the government’s move Managing Director of Lanka Indian Oil Company (LIOC) Subodh Dakwale noted that “the formula should be such that it provides reasonable margins to the oil companies to invest in energy-related infrastructure, including storage and efficient distribution of petroleum products.”

He told the Business Times that the LIOC is losing Rs.20 per litre of petrol by selling it at the current fixed price of the government. The company will not be able do so any longer as the oil price in the world market is always fluctuating.

“It would help everyone if the Government could evolve a long-term pricing formula which will provide for adjustment of duties and levies and revision in prices from time to time based on the world market prices, with provisions to protect consumers wherever required,” he said.
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Textured Jersey braces for key acquisitions

By Duruthu Edirimuni Chandrasekera

Textured Jersey Lanka PLC (TJL) will soon be acquiring Ocean India Private Limited (OIPL) in India and Quenby Lanka Prints (Pvt) Ltd under the company’s expansion programme, a top official of the company said.

TJL’s independent valuation of OIPL in India and Quenby Lanka to further its acquisition plans is poised for completion in a few months time.

“We engaged E&Y to carry out these valuations and they will be done in a few months,” Hasitha Premaratne, Director TJL told the Business Times. He added that TJL is looking to inorganically expand via acquiring OIPL running mill in India (to facilitate immediate production) and is currently undertaking test orders before the integration. Analysts say that the company is poised for future growth considering its timely strategic initiative of commissioning a multi fuel boiler easing pressure on cost margin from 1QFY16E onwards and full effect of the near 12 per cent capacity addition which is expected to be materialized during this same forecast period.

Mr Premaratne added that as TJL has an energy intensive operation, the commissioning of the multi fuel boiler in its factory premises in Avissawella will secure a substantial cost savings during FY16E.

TJL expects to inorganically expand capacity via acquiring a running fabric mill as an initiative to become the leading solutions provider of weft knit fabric in the South Asian region, he said, adding that the company’s strategy is to undertake more profitable and research and development driven orders in line with the turkey model concept (R&D driven value added fabric orders).

“We want to expand from basic cottons to other materials and in terms of this, we want to bring in process innovations to fabrics that we manufacture,” Mr Premaratne said.

He added that the acquisition of Quenby is in line with this. “We want to set a bigger footing in terms of additional products in print fabric manufacturing,” he said.

According to him, the prospects of GSP-Plus concession in future would further augment TJL’s momentum where European customers account for nearly 65 per cent TJl’s revenue.

The company recorded its highest ever annual net profit of Rs. 1.3 billion for the year ended 31 March 2015, an increase of 16 per cent year-on-year. This result was achieved on the back of a Rs. 512 million net profit for the quarter ended 31 March 2015, representing a 46 per cent increase.
According to Mr. Bill Lam, Chairman of Textured Jersey, the strong quarterly performance enabled the company conclude the year with a record profit despite the slowdown in sales experienced in the early part of the year, attributed to unusual and extreme weather conditions in the United States.

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NDB and DFCC boards decide to abandon merger

By Duruthu Edirimuni Chandrasekera

NDB Bank PLC and DFCC Bank PLC which were supposed to merge under the Central Bank’s financial sector consolidation are to abandon the plan, officials said.

A DFCC official told Business Times that at their recent board meeting, the directors decided not to go ahead with it.

“We were awaiting an indication on the government’s stance on this matter and after the releasing of the report by the committee headed by Dinesh Weerakkody examining the consolidation process of the financial sector, we have decided against merging,” the official said.

An NDB official confirmed that at a recent board meeting the bank has decided not to merge with DFCC. “The report of the banking sector which was presented to Prime Minister Ranil Wickremesinghe recently has advised against forced mergers of banks and we have decided not to go ahead with this merger,” the NDB official said.

When asked whether the DFCC and NDB merger was a forced one (initiated by the previous regime), he said that the decision to consolidate wasn’t their idea and that it was mooted by the Central Bank (CB) during the previous regime.

Immediately after the regime change both parties were awaiting the government’s stance on the proposed merger. The state entities collectively own over 30 per cent in each bank.

“When banks consolidate voluntarily, they take necessary measures to protect their own interests and they would not participate in any Merger or Acquisition unless it is driven to benefit all stakeholders,” the report revealed.

According to this report, the involvement of the state in private sector banks must be reduced either through the application of the same aggregated shareholder limits as applicable to private shareholders or by placing a cap on aggregate voting rights to promote good governance and stability within the private sector banks.

The report added that the government should create an environment for voluntary consolidation of banks by providing the required legal framework and removing impediments and disincentives. It has advocated that the involvement of the state in private sector banks must be reduced either through the application of the same aggregated shareholder limits as applicable to private shareholders or by placing a cap on aggregate voting rights. www.sundaytimes.lk

SEC mulls fresh laws on audit firms

The Securities and Exchange Commission (SEC) is contemplating on bringing fresh laws on audit firms, mandating them to bring any financial irregularities or otherwise of the listed entities to the capital market regulator’s notice. 

 This objective of imposing additional responsibility on the auditors is to assist the regulator to become more vigilant and to enable taking pre-emptive actions to protect investor interests. 

 “We are exploring the possibility of placing a legal duty on audit firms carrying out audits of listed companies to report any irregularities or improper conduct they find in the financial statements of the company to SEC,” said SEC Chairman, Thilak Karunaratne. 

Currently there are no such laws on audit firms to have a separate reporting line to the capital market regulator on corporate skull duggeries. Speaking at the certificate awarding ceremony of the Corporate Directors Program jointly conducted by the Institute of Chartered Accountants of Sri Lanka and the SEC, Karunaratne said such laws are currently available in jurisdictions in countries such as Malaysia. 

 “This would lead to increased credibility and greater transparency of both listed companies and audited reports particularly in the mind of potential investors,” he remarked. 

 Past incidences demonstrate that many corporate scandals in the past - both local and international- could have well been averted without leading to calamity, had the auditors brought the suspecting incidences into the notice of the regulators and relevant parties concerned. Instead, audit firms were alleged to have covered all forms of window dressings by those companies for many years. 

 The collapse of American energy firm, Enron Corporation and the de facto dissolution of Arthur Andersen, one of the five largest audit and accountancy partnerships in the world is just a case in point. Enron was cited as the biggest audit failure. 

 The near collapse of Seylan Bank in the height of the global financial crisis for alleged financial irregularities in 2008/09 could also be attributed to audit failures. Meanwhile, drawing parallels between the strong call for good governance in the political sphere world over with that of corporate governance, Karunaratne urged the boards to strike a balance between board leadership and governance. 

 “If you have leadership without governance you risk tyranny and fraud. If you have governance without leadership you risk atrophy, bureaucracy and indifference. Hence I urge directors to utilize the skills you acquire to become pragmatic leaders who would encompass the current changes in the corporate world when formulating and implementing strategies and business processes,” he added. 

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Sri Lanka shares steady at near 10-week high; earnings awaited

May 11 Sri Lankan shares ended steady near 10-week high on Monday in thin trade as investors awaited direction on the political front and cues from earnings while foreign investors exited from risky assets for a sixth straight session, stockbrokers said.

The main stock index ended 0.02 percent up at 7,213.63, at its highest close since March 3. It has gained 4.53 percent since the central bank cut key rates on April 15, while yields on t-bills have fallen 44-57 basis points since then.

"Investors have been waiting for a bit, most investors are on a wait and see approach until the earnings come," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

Net foreign outflow from equities was 12.9 million rupees ($96,699) on Monday, extending net outflows of 753.9 million rupees for the past six sessions. Foreign investors, however, have bought a net 3.1 billion rupees worth of shares so far this year.

Turnover stood at 586.7 million rupees ($4.4 million), around half of this year's daily average of around 1.06 billion rupees.

Analysts said the market could be dull until the perception of political uncertainty is addressed, with many investors in a wait-and-watch mode before the parliamentary elections.

Sri Lanka's parliament passed reforms on April 28 to reduce some of the president's powers, although they were far fewer than President Maithripala Sirisena had promised.

Shares of Distillers company of Sri Lanka Plc ended 3.08 percent firmer, while Ceylon Cold Stores Plc jumped 3.94 percent. 

($1 = 133.3000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)