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Monday March 4th, 2024

Chinese fertilizer firm demands US$8mn in damages from Sri Lanka testing agency

ECONOMYNEXT – China’s Qingdao Seawin Biotech Group Co Ltd, whose organic fertilizer, which Sri Lanka’s National Plant Quarantine Service (NPQS) said contained bacteria, has demanded 8 million US dollars from the agency, alleging negligence.

The Letter of Demand, seen by EconomyNext and dated November 5, has been addressed to NPQS Additional Director W A R T Wickramaarachchi.

The move comes a week after Chinese Embassy in Sri Lanka blacklisted People’s Bank, one of the country’s largest state banks for not honouring a letter of credit (LC) for the disputed fertilizer shipment following a court order to halting payment.

Related: Sri Lanka blocks payment to China Qingdao Seawin Biotech over fertilizer with bugs

Sri Lanka’s refusal to accept the shipment has caused some strain in diplomatic relations with China, especially after a cabinet minister made statements based on inaccurate information on events, sources familiar with the ongoing tussle between the two countries at the diplomatic level said.

The letter stated that NPQS had claimed that the organic fertilizer had been found to have gram-positive and gram-negative bacteria and said that the “preliminary studies had revealed that bacteria to be Bacillus spp. and Erwinia spp. which can be pathogenic to plants.”

“I am instructed to inform you that my client specifically and categorically deny and refute the purported findings stated in your reports referred to herein above to the effect that the samples of my client’s product does not contain the Erwinia bacteria,” Attorney at Law M J S Fonseka stated in the LOD on behalf of the Chinese company.

“Therefore I am instructed that the contents of your reports to the effect that the samples of my client’s product contain ‘Erwinia’ are wrong, incorrect and untrue which has caused and continues to cause my client enormous loss and damage.”

The LOD also said the process of manufacturing kills all pathogenic pests and bacteria as there is a “Roller Double Drying Process at temperature of 600 degree Celsius and Chinese authorities have confirmed that there was no presence of Erwinia.

It also said the NPQS had used the wrong temperature and the test was “unscientific”.

“Such erroneous conclusion has been reached by you due to your negligent conduct inter alia by not complying or conforming with the testing,” the LOD stated.

The incorrect testing due to such negligent conduct from the Sri Lanka agency has suffered significant loss and damage of around US 8 million dollars and [the company] continues to suffer further loss and damage due to loss of reputation and goodwill as well as existing and potential business, it said.

“In the above circumstances, I am instructed to demand from you and the demand is hereby made for you to make a payment of United States Dollars (USD) 8 million to my client within 3days from the date hereof for the loss and damage caused to my client due to your negligent conduct set out herein above.”

“In the event of your failure to accede to the above demand of my client I have been further instructed to institute action against you in your personal capacity to recover the aforementioned damages from you and to vindicate the rights of my client without any further notice.” (Colombo/Nov07/2021)

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Sri Lanka rupee opens at 308.20/50 to the US dollar

Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21).

ECONOMYNEXT – Sri Lanka’s rupee opened at 308.20/50 to the US dollar Monday, from 308.80/90 on Friday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.08.2026 was quoted stable at 10.90/11.00 percent.

A bond maturing on 15.09.2027 was quoted at 11.90/12.00 percent from 11.90/12.05 percent.

A bond maturing on 01.07.2028 was quoted at 12.20/30 percent from 12.15/35 percent.

The Colombo Stock Exchange opened up; The All Share was up 0.60 percent at 10,755, and the S&P SL20 was up 1.24 percent at 3,077. (Colombo/Mar4/2024)

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Sri Lanka central bank swaps top $3.2bn by December

ECONOMYNEXT – Sri Lanka’s central bank borrowed US dollars from various counterparties through swap transactions, which had topped 3.2 billion US dollars by December 2024, official data show.

The net short position, including swaps disclosed by the central bank, grew by over almost 1.28 billion US dollars from December 2022 to 3,280 million dollars.

The gross position grew from 2,263 million dollars to 3,280 million US dollars over the year.

The central bank supported some state banks with dollars to cover their dollar exposures, which had since been paid back.

By December reported gross reserves of the central bank was 4,491 million US dollars, against swaps of 3,280 billion US dollars.

Swaps of around 1500 related to the People Bank of China.

Swaps allow a central bank to increase gross reserves, without raising domestic interest rates.

Swaps with domestic counterparties lead to liquidity being injected into money markets, which can be mopped if domestic credit growth is moderate.

At the moment many private banks have large dollar positions invested outside the country, which cannot be used for transactions domestically because of a money monopoly given to macro-economists. (Sri Lanka repays debt or collects reserves of U$5bn via banking system since rate correction)

However unwinding swaps after private credit has picked, or engaging in swaps after private credit has picked up, may lead to money being injected to maintain the policy rate, leading to excess credit by banks and balance of payments deficits and or currency collapses, analysts say.

Central bank swaps in the third quarter of 2018 led to a collapse of the currency under the ‘exchange rate as the first line of defence’ policy peddled to Sri Lanka, critics have said earlier.

Domestic currency proceeds of swaps were the primary ammunition to bust East Asian currencies in 1997-98.

Any depreciation after the swap proceeds have been used for imports (effectively mis-targeting rates) a central bank will run a forex loss.

The PBOC however had put a rule, preventing the use of the swap after gross reserves fell below 3 – months of imports, preventing Sri Lanka from getting into further trouble through the use of official reserves for private imports.

Sri Lanka’s central bank also used borrowings from the Reserve Bank of India, via the Asian Clearing Union to run BOP deficits.

Losses from exposed dollar positions of central banks which have gained ‘independence’ from fiscal rules and parliaments and engaged in macro-economic policy, including the Fed, have led to taxpayers bearing the losses in the end.

Swaps were invented by the Fed in the early 1960s, as it deployed macro-economic policy (printed money for growth) threatening its gold reserves and the Bretton Woods system.

Sri Lanka has other borrowings also, including from the IMF, which has made net foreign assets of the central bank negative. (Colombo/Mar05/2024)

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Sri Lanka loses MICE tourists to Thailand on minimum room rates

ECONOMYNEXT – Sri Lanka has lost Meetings, Incentive Travel and Exhibition travelers to competitors in East Asia and India due to minimum room rates as higher standard rooms were available in other countries at lower prices, industry officials said.

President of the Sri Lanka Association of Inbound Tourist (SLAITO) Nishad Wijetunga said they the industry managed to retain a majority of booking made before the minimum room rates were imposed by the state last year.

“However, there were MICE groups that were supposed to come and cancelled Sri Lanka and went to places like Thailand and other parts of India and we lost,” Wijetunga told EconomyNext.

“We know that large groups of MICE (tourists) are affected.”

India is a key source of MICE tourists to Sri Lanka.

Sri Lanka’s businesses have got used to protectionism and try to push up prices with import taxes to extract more money from customers using the coercive power of the state, with tiles and steel being among the most prominent examples.

RELATED: Stand-alone hotels unviable in Sri Lanka due to high construction, capital costs

High priced tiles and steel in turn makes hotels expensive to build and make the leisure industry less competitive, analysts say.

However, in tourism, unlike in building materials customers are not trapped within the country and are free to move to other markets.

Managing Director of CEC Events and Travels, Imran Hassan, said the industry lost groups to East Asia due to minimum room rate.

In one instance, an operator was in discussions to get a group of 900 passengers.

“And that moved out to Thailand,” Hassan said. “Like that, there are many instances that the minimum room rate was not conducive.”

Thailand in 2023 attracted 28.04 million tourists.

A group that used to come to Sri Lanka annually used to take 40 to 50 five-star hotel rooms. This time Sri Lanka competed by offering lower standard.

“This year, they’re only giving 10 rooms to the five-star hotels,” Hassan explained. “They are staying in smaller hotels because they can’t afford it because it has become so expensive.”

“But overall, we are working with the authorities to correct it.

“We don’t mind demand and supply situation taking the rates up as in the Maldives. But what we are saying is keep an open market.”

RELATED : Sri Lanka should say good bye to minimum room rates: President

President Ranil Wickremesinghe has said Sri Lanka cannot progress with protectionism and the country has to learn to face competition. (Colombo/Mar04/2024)

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