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Tuesday March 28th, 2023

Highway project over Thalangama wetlands put on hold – CEA Chairman

A paddyfield over which the proposed highway will run

ECONOMYNEXT – Work on the second phase of the New Kelani Bridge (NKB) to Athurugiriya Elevated Highway Project will be put on hold until a firm plan that will ensure the Thalangama Wetlands and its surrounding habitat is not disturbed, is put in place the Chairman of the Central Environmental Authority, Siripala Amarasinghe said.

Amarasinghe told EconomyNexgt the decision follows a meeting the CEA and other stakeholders had with President Gotabaya Rajapaksa recently, to update him on the environmental damage the construction of the highway would cause.

A committee headed by Secretary to the Ministry of Environment, Dr Anil Jasinghe has been appointed to come up with an acceptable proposal to preserve the rich biodiversity of the area. Amarasinghe explained that the President has said that any work on the highway could commence only after implementing a plan that would not disturb or damage the environment. To this end, he said, the committee will explore internationally accepted technology that could be applied to build the highway with minimum use of access roads, land-fill and reclamation of paddy lands. Basically, the proposal must ensure that the area through which the highway would run is protected from sound and that the fauna and flora is not disturbed, he added.

He also said that the President has advised that prior to commencing any work on the highway, the 118 hectares of paddy fields and lake covered by a 2007 Gazette which declares it as the “Thalangama Protection Area” under the National Environment Act must be developed so area residents could enjoy its natural beauty. The CEA lists its importance as, ‘an area with high biodiversity, flood control, home to a large number of reptiles, birds, mammals, fish and insects, agriculture, fisheries and recreational activities’. It is also listed as an area for educational purposes and research.

Project Director of the Road Development Authority, K Selvanathan, who also confirmed the appointment of the committee, stated that one possibility being looked into to minimise damage is installing columns with smaller width size to support the roadway.

The committee is made up of the Secretary to the Ministry of Highways and other representatives drawn from the Urban Development Authority, CEA and Road Development Authority etc.

Two alternate routes have been proposed for the 10.4 km stretch that will run from Rajagiriya to Athurugiriya, where it will connect to the Outer Circular Expressway. One through the highly residential area of Pothuarawa and some paddy fields, the other which will cut through a swathe of paddy fields and the Averihena Lake, which is part of the Thalangama Wetland.

While Pothuarawa residents have indicated their displeasure over their homes being impacted and even possible relocation, in the case of the other route, not only residents and those who farm the lands, but environmentalists and the CEA too have raised concerns about disturbing the rich eco-system.

While acknowledging the need for development, they point that damage to the environment if the second route is taken will be felt for generations to come and far outweighs the compensation that would have to be paid to home and land-owners.

The Thalangama Protected area is important for many reasons. The Talanagama Lake itself, believed to have been built around the 15th century, had been the bathing place for elephants of the Royal Palace of the Kotte Kingdom. The Lake is part of a network of wetlands in and around the city of Colombo, that play a key role in the prevention of floods, filtering of polluted water, and provides a livelihood and respite to residents and wildlife alike, from the rapid urbanisation that is a hallmark of present-day Colombo and its suburbs.

It is believed that nearly a hundred endemic, migratory and resident bird species could be spotted at the wetlands. As well, the Thalangama Wetland Watch reports that the Purple-faced leaf-monkey which makes it home in the environs of the Lake is one of the “25 most endangered primates in the world.’

It was only in 2018 that Colombo was declared an International Wetland city under the Ramsar Convention. Yet, urbanisation has, directly and indirectly, impacted Colombo’s wetlands, where records indicate about a 40percent loss over the last three decades.

Moreover, as Suwanadaratne who owns nearly five acres of paddy land that has been in his family for generations’ points out, any interference with these fields could result in flooding. He says that the 2016 flooding of the Malabe town was owing to landfill that took place in the Pore area in Athurugiriya when the Outer Circular Expressway was being built. “We grow heirloom varieties of rice such as Heeneti, Suwandel, Maa-wee etc. and participate in the New Rice Festival (Aluth Sahal Mangalaya) each year where we offer the first portion of our harvest. We also offer our rice to the Paththini Dewale feast in Nawagamuwa.’ According to Suwandaratne, there are close to 175 farming families in the area, with seventy-five of them depending solely on paddy cultivation for a living.

In fact, the Muttetuwe paddy field, from which rice was provided to the Palace is said to be cultivated even today.

A former Agriculture Officer Salinda Waduge explains that there has never been an issue of crop failure for these farmers, owing to the salubrious conditions, and the only snag is the shortage of labour. It will be a shame, he says, if the fields are destroyed to construct highways when all that is required is wider and well-maintained roads, which could be easily achieved by expanding roadways, 20 feet on either side. Yet another resident, Percy Perera, a veritable walking encyclopedia on matters connected to Thalangama, says that if the highway must go through, indigenous trees such as Kumbuk and Mee must be planted on either side to compensate for damage to the environment.

Amarasinghe assures that if the proposal the committee comes up with does not meet expectations, an alternative solution to the highway will be found. “We went to the President because we cannot allow the destruction of the environment, and whatever is proposed, it must first be environmentally friendly.”

(Colombo, February 11, 2021)

Reported by Kshama Ranawana

Comments (3)

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  1. Leel says:

    Best possible options is use underground tunnel, no matter the cost. Every body might be satisfied

  2. Prithiviraj Perera says:

    If the real intention is to prevent destruction and not just mitigate the ill effects, then certainly, an alternative route is a must. Usually, internationally recognized practices for preservation of world heritage sites are to even impose buffer zones around such unique and irreplaceable sites and not just mitigate losses, but, find alternatives.

  3. P.Abeynaike says:

    I suggest that using the money allocated for the project either the present road way be widened or the highway go over the existing roadway thereby averting the residential areas, paddy fields ect.

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Comments (3)

Cancel reply

Your email address will not be published. Required fields are marked *

  1. Leel says:

    Best possible options is use underground tunnel, no matter the cost. Every body might be satisfied

  2. Prithiviraj Perera says:

    If the real intention is to prevent destruction and not just mitigate the ill effects, then certainly, an alternative route is a must. Usually, internationally recognized practices for preservation of world heritage sites are to even impose buffer zones around such unique and irreplaceable sites and not just mitigate losses, but, find alternatives.

  3. P.Abeynaike says:

    I suggest that using the money allocated for the project either the present road way be widened or the highway go over the existing roadway thereby averting the residential areas, paddy fields ect.

Sri Lanka stocks weaken for the second session on profit taking

ECONOMYNEXT – Sri Lanka’s stocks closed weaker on Tuesday for the second consecutive session mainly driven by month-end profit-taking by investors, according to brokers.

The main All Share Price Index (ASPI) closed down 0.56 percent or 51.81 points to 9,233.40.

The market has been on a downward trend since last week as investors are adopting a wait-and-see approach until more clarity is given regarding local debt restructuring after the International Monetary Fund approved the extended loan facility.

“The market is down as the selling trend continues,” said Ranjan Ranatunga of First Capital Holdings, speaking to EconomyNext.

“As there is a price decline in all shares across the board, combined with the month ending followed by margin calls, the market continued on a downward trend.”

The market generated a slow and thin turnover of 860 million rupees.

The main contributor to the turnover is Lanka IOC, following news that the Sri Lanka cabinet has granted approval for three oil companies from China, the United States, and Australia in collaboration with Shell Pl to lease 150 fuel stations for each company to operate in the local market.

The fears of debt restructuring mainly affected the banking and financial sectors, which dragged the index down for the day.

The market saw a net foreign inflow of 30.9 million rupees, and the total offshore inflows recorded so far in 2023 are 1.01 billion rupees.

The most liquid index, S&P SL20, closed 0.81 percent or 21.68 points down at 2,656.30.

The market saw a turnover of 860 million on Tuesday, below this year’s daily average of 1.8 billion rupees.

Top losers were Vallibel One, John Keells Holdings, and Hatton National Bank.

Analysts said the downward trend is expected to continue for the rest of the week as profit-taking is expected to continue. (Colombo/March28/2023)

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Sri Lanka rupee closes weaker at 325/328 to dollar, bond yields up

ECONOMYNEXT – Sri Lanka’s treasury bond yields were up at close on Tuesday and the rupee closed weaker in the spot market, dealers said.

A 01.07.2025 bond was quoted at 31.20/60 percent on Tuesday, up from 30.75/31.00 percent on Monday.

A 15.09.2027 bond was quoted at 28.25/29.00 percent, up from 28.10/60 percent from Monday.

Sri Lanka rupee opened at 325/328 against the US dollar steady, from 322/325 from a day earlier. (Colombo/ March28/2023)

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Sri Lanka Telecom on track rating upgrade track on planned stake sale: Fitch

ECONOMYNEXT – Sri Lanka Telecom has been place on watch for a possible rating upgrade after the government, which has defaulted on its sovereign debt said it will sell down its majority stake.

“The rating reflects the potential rating upside due to weakening linkages with SLT’s parent, the government of Sri Lanka (Long-Term Local-Currency Issuer Default Rating: CC), due to the government’s plan to sell its 49.5 percent stake in the company,” the rating agency said.

“Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which
may take more than six months.”

The agency said it expect SLT’s revenue growth to slow to a low single-digit percentage in 2023 amid weakening consumer spending due to consumers increasingly prioritising essential needs, such as food and medicine, as real income has fallen significantly following the currency depreciation and unprecedently high inflation.

The full statement is reproduced below;

Fitch Places Sri Lanka Telecom’s ‘A(lka)’ Rating on Watch Positive

Fitch Ratings – Colombo – 27 Mar 2023: Fitch Ratings has placed Sri Lanka Telecom PLC’s (SLT) National Long-Term Rating of ‘A(lka)’ on Rating Watch Positive (RWP).

The RWP reflects the potential rating upside due to weakening linkages with SLT’s parent, the government of Sri Lanka (Long-Term Local-Currency Issuer Default Rating: CC), due to the government’s plan to sell its 49.5% stake in the company. Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which may take more than six months.

SLT’s ratings are currently constrained by its parent’s weak credit profile under Fitch’s Parent and Subsidiary Linkage (PSL) Rating Criteria. SLT’s Standalone Credit Profile (SCP) is stronger than that of the state, reflecting the company’s market leadership in fixed-line services, second-largest share in mobile, ownership of an extensive optical fibre network and a strong financial profile. The extent of SLT’s rating upside, following the proposed disposal, will depend on the credit profile of its new parent, the linkage strength with SLT according to our PSL criteria, and the proposed funding structure.

KEY RATING DRIVERS

Disposal Plan: SLT announced on 20 March 2023 that the Sri Lankan cabinet has granted in-principle approval to sell the 49.5% stake in SLT held by the state. The disposal is part of a plan to restructure state-owned entities (SOEs) to improve the state’s financial position. SLT said steps have yet to be taken to identify potential buyers and it will take at least eight to 12 months to finalise the transaction. We believe the government will push through the disposal as SOE restructuring is an integral part of the IMF’s financial support to Sri Lanka.

Sovereign Ownership Pressures Rating: We assess the legal ring-fencing and access and control between SLT and the state as ‘Open’ under the PSL criteria, given the absence of regulatory or self-imposed ring-fencing of SLT’s cash flow and the government’s significant influence over the subsidiary’s operating and financial profile. SLT’s second- biggest shareholder, Malaysia-based Usaha Tegas Sdn Bhd with a 44.9% stake, has no special provisions in its shareholder agreement to dilute the government’s influence over SLT.

Higher Rating: However, the PSL criteria allows for a stronger subsidiary to be notched above the weaker parent’s consolidated profile in extreme situations, such as when a parent is in financial distress but the subsidiary continues to operate independently and its banking access appears unaffected. We do not believe SLT is at risk of default in the next 12 months, as it has sufficient liquidity and its debt does not carry cross-default clauses that can be triggered by the parent’s distress.

SLT’s ‘A(lka)’ rating therefore reflects its relativities with national peers, but is still below its SCP due to the drag from state ownership. We apply our PSL criteria because our Government-Related Entities (GRE) Rating Criteria states that in cases where the SCP of the GRE is higher than the government’s IDR, the relevant considerations of the PSL criteria will be applied to determine whether the IDR of the GRE is constrained or capped at the government’s rating level.

Weak Demand in 2023: We expect SLT’s revenue growth to slow to a low single-digit percentage in 2023 amid weakening consumer spending. Consumers are increasingly prioritising essential needs, such as food and medicine, as real income has fallen significantly following the currency depreciation and unprecedently high inflation. SLT’s subscriber numbers and minutes of usage have already fallen in 2022. Competition has also intensified, especially in the mobile segment, leading to lower realisation of recently introduced tariff hikes.

Weak demand should be offset to an extent by increased migration to SLT’s fibre-to-the- home (FTTH) network, from its own copper network, and subscriber additions. FTTH carries higher revenue per user than the copper network. SLT had 475,000 FTTH connections, a 35% increase yoy, by end-2022.

Weakening Profitability: We expect SLT’s EBITDA margin to narrow to around 34% in 2023 (2022: 35.6%) amid lower demand and ongoing cost escalations. All telecom operators increased tariffs by 20%-25% in late 2022 to tackle falling margins. However, the realisation into revenue remains weak, especially in the mobile segment, due to deep price cuts by one of the smaller operators and falling demand. SLT’s fixed-line business is able to maintain stable EBITDA margins due to the recent tariff hike and the FTTH segment’s higher revenue per user.

Leverage to Stabilise: We expect SLT’s EBITDA net leverage to remain around 1.3x in 2023 (2021: 0.9x, 2022: 1.3x) amid falling profitability. However, its leverage is strong for the rating. We expect capex of around LKR25.0 billion annually over 2023-2024 on network upgrades and expanding its fibre infrastructure.

Interest-Rate Hikes, Currency Depreciation Manageable: We expect SLT to maintain its EBITDA interest coverage closer to 4.0x over 2023-2024 (2022: 4.4x) despite interest rates rising almost threefold. Most of SLT’s debt is on variable interest rates, which will raise costs. SLT’s foreign-currency revenue, which accounts for 10%-12% of group revenue, is more than sufficient to meet the group’s foreign-currency operating expenses and interest costs. SLT had around USD10 million in foreign-currency debt at end-
December 2022, compared with USD40 million in foreign-currency cash deposits.

Sector Outlook Deteriorating: Fitch expects the average 2023 net debt/EBITDA ratio for SLT and mobile leader Dialog Axiata PLC (AAA(lka)/Stable) to remain around 1.3x (2022: 1.3x) amid weak margins and high capex. We expect sector revenue growth to slow to 8% in 2023 (2022: 15%), while the average 2023 EBITDA margin for SLT and Dialog should narrow to 31% (2022: 32%) amid low usage and high costs.

DERIVATION SUMMARY
SLT’s SCP benefits from market leadership in fixed-line services and the second-largest position in mobile, along with ownership of an extensive optical fibre network. SLT has lower exposure to the crowded mobile market and has more diverse service platforms than Dialog. However, Dialog has a larger revenue base, lower forecast EBITDA net leverage and a better free cash flow (FCF) profile than SLT. Dialog is rated at ‘AAA(lka)’, while SLT’s rating is under pressure because of the state’s weak credit profile.

SLT has a larger operating scale than leading alcoholic-beverage manufacturer Melstacorp PLC (AAA(lka)/Stable), which distributes spirits in Sri Lanka through its subsidiary, Distilleries Company of Sri Lanka PLC (AAA(lka)/Stable). Melstacorp is exposed to more regulatory risk in its spirits business because of increases in the excise tax, but this is counterbalanced by its entrenched market position and high entry barriers.

Consequently, the company can pass on cost inflation and maintain its operating EBITDA margin, supporting substantially stronger FCF generation than SLT.

KEY ASSUMPTIONS

Fitch’s Key Assumptions within Our Rating Case for the Issuer:

– Revenue growth to slow to 4% in 2023 amid falling subscriber numbers and lower usage due to weakening consumer spending;

– Operating EBITDA margin to narrow by 150bp to 34% in 2023 due to higher costs and lower volume;

– SLT to continue capex on expanding its fibre and 4G network with LKR25 billion spent annually in 2023 and 2024;

– Effective tax rate of 28% from 2023;

– Dividend payout of 33% of net income over 2024-2025

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

– Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which may take more than six months, and once Fitch has sufficient information on the new majority shareholder’s credit profile and linkages with SLT and the proposed funding structure.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

– Fitch would remove the RWP and affirm the National Long-Term Rating at ‘A(lka)’ with a Stable Outlook if the proposed disposal does not proceed and the linkages with the state remain intact.

LIQUIDITY AND DEBT STRUCTURE

Manageable Liquidity: SLT’s unrestricted cash balance of LKR14 billion at end- December 2022 was sufficient to redeem its contractual maturities of around LKR11 billion. SLT’s short-term working-capital debt amounted to another LKR10.0 billion and we expect the company to roll over the facilities given its solid access to local banks.

Liquidity is further enhanced by about LKR15 billion in undrawn bank credit facilities, although these are uncommitted. SLT typically does not pay commitment fees on its undrawn lines, although we believe most banks will allow the company to draw down the funds because of its healthy credit profile.

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