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Wednesday July 24th, 2024

Minister calls out opposition hypocrisy on Sri Lanka electricity reforms

ECONOMYNEXT — The two major parties in the opposition have proposed similar amendments to energy laws, Power & Energy Minister Kanchana Wijesekara said, adding that the new electricity reform bill will result in the disappearance of utilities unions.

Wijesekara told parliament on Thursday June 06 that both the main opposition Samagi Jana Balawegaya (SJB) and the leftist National People’s Power (NPP) have formally proposed similar revisions to the laws governing the electricity sector despite their loud protests against the government’s bill.

Insisting that Sri Lanka’s power & energy sector needs the new law to move into the future, the minister said that if that were possible with the existing law, CEB restructuring would’ve been done already.

The CEB enjoys a monopoly in electricity in a way no other state-owned enterprise does on anything, he said.

Referring to the the SJB’s Economic Blueprint policy document, Wijesekara said its section on energy and utilities reform states that Sri Lanka must “restructure energy and utilities SOEs. Unbundle the CEB and introduce competition in generation and distribution.”

“What is being said here? Can state enterprises bring competition? You too are saying bring in private investment and create competition,” Wijesekara told his SJB colleagues sitting across the aisle.

There is already some competition in power generation, he went to note, adding that the SJB calls for “separating the transmission grid to allow the necessary investments.”

“This is what we’ve done. We have proposed what you have presented in your policy document,” he said.

The NPP, meanwhile, has called for “reducing electricity generation cost” and “reaching strategic electricity at least economic cost”, said Wijesekara, reading out from a policy document recently released by the NPP.

“I was attacked for weeks now claiming I’d removed ‘least cost’ and replaced it with ‘least economic cost’. That’s the same thing the NPP policy contains. I don’t know if it was a translation error,” he said.

The minister then noted that the NPP has also proposed “connecting with BIMSTEC Electrical Supergrid,” an initiative to connect Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) countries.

“We’re proposing connecting with India. Regional countries, BIMSTEC countries, and Singapore on the other side and then the Middle East connect to India. We were talking about connecting.”

“Then they came and said we were going to give it to India. What does the NPP policy say? ‘Connecting with BIMSTEC Electrical Supergrid.'” and “Entering international energy trading”.

“The NPP tells the villages here that if the international community comes in this or that will happen. But I see no difference whatsoever between the policies of the SJB and the NPP,” he said.

The minister also challenged allegations that the new bill is an attempt to sell the CEB.

“I challenge anyone to point out which part of the bill refers to selling. If you want to sell, that can be done through the existing act too. What is LECO? Lanka Electricity Company (Pvt) Ltd Is it a private company exactly? No, the government owns 100% of its stocks. That’s how these are converted to companies. This was 40 years ago. If any government wanted to sell LECO, they could’ve that in the past 40 years.”

The minister accused a union leader spearheading a campaign against the new law, claiming that though he had been a CEB employee for the past 20 years, he has not worked a day.

“But he talks like he owns the CEB. He talks like an engineer though he has no engineering expertise. Once this act comes, all these unions will also disappear. I am happy about that,” he said. (Colombo/Jun06/2024)

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Fitch confirms ‘A(lka)’ domestic rating of Sampath Bank Plc

ECONOMYNEXT – Fitch Ratings said it was confirming a national long-term A(lka) rating on Sri Lanka’s Sampath Bank Plc with a stable outlook, amid an improvement in operating environment, indicated by headline macroeconomic indicators.

The bank had stage 3 loans of nearly 17 percent at end-1Q24 (2023: 16.6 percent).

Fitch expected this ratio to decrease in the near- to medium-term alongside focused recoveries.

“We expect Sampath’s impaired (stage 3) loans ratio to decline gradually in the medium term, due to its recovery efforts, improvements in repayment capacity of borrowers from the stabilisation in economic conditions, and moderate loan book growth.”

The bank also had defaulted sovereign bonds. “Defaulted foreign-currency sovereign bonds, which accounted for 1.9% of assets, had impairments amounting to 52% of its holdings as of end-1Q24.”

The full statement is reproduced below:

Fitch Affirms Sampath Bank at ‘A(lka)’; Outlook Stable

Fitch Ratings – Colombo – 22 Jul 2024: Fitch Ratings has affirmed Sri Lanka-based Sampath Bank PLC’s (Sampath) National Long-Term Rating at ‘A(lka)’. The Outlook is Stable. Fitch also affirmed Sampath’s outstanding Sri Lankan rupee-denominated subordinated debt at ‘BBB+(lka)’.

KEY RATING DRIVERS

Intrinsic Profile Drives Rating: Sampath’s National Long-Term Rating reflects its own financial strength, which is highly influenced by its exposure to the sovereign’s weak credit profile (Long-Term Foreign-Currency Issuer Default Rating (IDR): RD; LongTerm Local-Currency IDR: CCC-) and the ongoing sovereign debt restructuring, which had been putting pressure on Sampath’s credit profile. The rating also reflects Sampath’s modest domestic franchise as Sri Lanka’s fifth-largest commercial bank.

Stabilising OE: Sri Lankan banks’ operating environment (OE) continues to show signs of stabilisation, as evident in sustained improvements in reported headline macroeconomic indicators, supporting the recovery in banks’ operational flexibility.

Further improvement to the bank’s OE remains contingent on successful execution of the sovereign’s external debt-restructuring exercise alongside the restoration of the sovereign’s creditworthiness, given the strong link between sovereign financial health and banks’ operating conditions.

Economic Stabilisation Aids Business Profile: We believe the gradual improvement in economic conditions should support Sampath’s ability to generate and defend business volumes, despite the vulnerabilities from the weak sovereign and economy. We expect a moderate resumption in lending alongside the gradual economic recovery, similar to peers. This should result in a higher loan book share of assets (net loans to assets of 48.0% at end-1Q24) in the medium term.

Sovereign Risk Remains: Sampath’s risk profile assessment continues to reflect its exposures to the weak sovereign and economic environment. Defaulted foreign-currency sovereign bonds, which accounted for 1.9% of assets, had impairments amounting to 52% of its holdings as of end-1Q24. In addition, local-currency-denominated treasury securities contributed to 34% of its assets at end-2023, of which 59% were treasury bonds and the remainder in treasury bills, which makes the bank susceptible to the sovereign’s repayment ability and liquidity status.

Impaired Loans Decline Gradually: We expect Sampath’s impaired (stage 3) loans ratio to decline gradually in the medium term, due to its recovery efforts, improvements in repayment capacity of borrowers from the stabilisation in economic conditions, and moderate loan book growth. Prolonged economic challenges that continued for most of 2023 led to a further impaired-loans accretion, which together with loan book contraction resulted in the bank’s impaired-loans ratio rising to 16.6% by end-2023 (end-2022: 11.6%), above the industry’s 12.8%.

Declining Risks to Profitability: We believe downside risk to profitability from the restructuring of sovereign bonds has diminished, and any incremental impairment, if necessary, will be manageable, given the existing provisions on the holdings. We expect Sampath’s operating profit/risk weighted assets ratio (1Q24: 4.8%, 4-year average 3.2%) to moderate over the medium term on account of the decline in interest rates. This will be partially offset by lower credit costs, alongside the increase in risk density from the growth in the share of loans.

Downside Risks to Capital Manageable: We believe downside risk to capital from the bank’s exposure to defaulted sovereign bonds (1.9% as of end-1Q24) is manageable, as per the announced restructuring terms – given the bank’s provisions on these instruments amounting to 52% on the exposure at end-1Q24. The regulatory common equity tier 1 (CET1) capital ratio declined marginally to 15.6% by end-1Q24 (excluding 1Q24 profit) from 16.7% at end-2023, following a cash dividend payment, but remains one of the highest among Fitch-rated large Sri Lankan banks.

Funding and Liquidity Risks Remain: We believe Sampath ‘s funding and liquidity stress has eased on both the foreign- and local-currency fronts relative to the crisis period.

This was due to favourable external sector flows and the bank’s focus on liquidity preservation, as reflected in its high liquidity coverage ratio. We believe these developments have reduced the risk of bank failure. However, its funding and liquidity profile – particularly in foreign currency – remains susceptible to sudden changes in creditor sentiment driven by adverse changes to the sovereign’s credit profile, similar to peers.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The bank’s National Rating is sensitive to a change in its creditworthiness relative to other Sri Lankan issuers.

A deterioration in Sampath’s key credit metrics beyond our base-case expectations relative to peers would also lead to increased pressure on the rating, which is driven by its intrinsic financial strength.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Positive rating action on the sovereign may lead to an upgrade. A sustained improvement in key credit metrics beyond our base-case expectations relative to peers, could also lead to an upgrade.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS SUBORDINATED DEBT

Sampath’s Sri Lankan rupee-denominated outstanding subordinated debt is rated two notches below the National Long-Term Rating anchor. This reflects Fitch’s baseline notching for loss severity for this type of debt, and our expectations of poor recoveries.

There is no additional notching for non-performance risks, as the notes do not incorporate going-concern loss-absorption features.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

The subordinated debt ratings will move in tandem with the bank’s National Long-Term Rating.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Additional information is available on www.fitchratings.com (Colombo/Jul24/2024)

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Sri Lanka presidential candidate cash deposits not updated in 43 years: MP

MP Dullas Alahapperuma

ECONOMYNEXT — The cash deposits Sri Lanka’s presidential candidates are required to pay have not been revised in 43 years, opposition MP Dullas Alahapperuma said, calling for a significant increase in order to save money and to prevent proxy candidates.

Alahapperuma told parliament on Wednesday July 24 that, as per the Presidential Elections Act No. 15 of 1981, a candidate nominated by a recognised political party has to deposit only 50,000 rupees while an independent candidate, or a candidate nominated by any other party or by an elector, must pay only 75,000 rupees.

The MP said the cabinet of former president Gotabaya Rajapaksa had approved an amendment to the act to increase these amounts.

“The election commission proposed that this be increased to 2.5 million rupees for political parties and 3 million for independent candidates. This was a pertinent proposal. There were 35 candidates who contested the last election,” he said.

The Act notes that “Where the number of votes polled by any candidate does not exceed one-eighth of the total number of votes polled at the election, the deposit made in respect of such candidate shall be declared forfeit and shall be transferred by the Commissioner from the deposit account to the Consolidated Fund, and in every other case the deposit shall be returned to the person who made the deposit, as soon as may be after the result of the election is declared.”

At the 2019 presidential election, said Alahapperuma, the deposits made by all candidates besides the top two contenders were transferred to the Consolidated fund.

“The number of candidates might be 80 or 85 this election. Many candidates have no basis for contesting, and it costs a vast sum of money to print ballots and other expenses, not to mention the time consumed for counting votes. This is not just to prevent proxy parties from contesting but also to save a lot of national wealth,” he said.

Leader of the House Susil Premajayantha responding to Alahapperuma said, however, that it would not be possible to pass the proposed amendment in time for the 2024 presidential election.

“The election commission made this proposal some time ago. But we know that to gazette a bill, we need to first draft the bill, the cabinet has to decide on it, send it back to the Legal Draftsman, and receive clearance from the Attorney General. So there is no time to bring this amendment for the upcoming presidential election. You can propose it at the next one,” he said. (Colombo/Jul24/2024)

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Sri Lanka deaf driver license project to be expanded islandwide

ECONOMYNEXT – A pilot project that allowed hearing-impaired persons to obtain light-vehicle driving licenses has been successful and will be rolled out island-wide, Sri Lanka’s Motor Traffic Department said.

The project was implemented in the Gampaha District initially where 50 licenses were provided to drivers who qualified.

The project was expanded to the Kurunegala District, where 150 drivers obtained licences. The drivers were given a probation period.

“Actually, this was a very successful project. It has been almost a year and we haven’t received a single complaint yet,” Motor Traffic Department Commissioner – Driving Licence Wasantha Ariyarathna told reporters on Wednesday.

“We plan to roll it out to all 25 districts islandwide.”

The issuance of driver’s licenses to hearing impaired persons will be done on a bi-annual renewal basis.
(Colombo/Jul24/2024)

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