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Friday December 9th, 2022

Privatization gulf between Sri Lanka, Vietnam exposed by Bimal Ratnayake, opposition

ECONOMYNEXT – Sri Lanka’s Marxist Janatha Vimukthi Peramuna and opposition legislators launched an attack on an amendment to a governing law of state-run People’s Bank aimed allowing it to raise debt capital and increase authorized capital exposing stark differences between the island and fast-growing Vietnam.

State Minister for Finance Eran Wickremeratne said the change was needed to boost the capital of People’s Bank. The Auditor General had queried its inadequate capital of a billion rupees.

Allowing People’s Bank to tap debt markets through bonds would bring it in line with other state banks like Bank of Ceylon, which could already to it, he said.

"People’s Bank could not tap debt capital like other similar state banks," Wickremeratne explained. "After this amendment, they can do it without a Treasury guarantee."

Covertible Assurance

JVP’s Bimal Ratnayake sought an assurance that debentures would not be converted into equity in the future.

Wickremeratne said section 13 of the People’s Bank prohibited anyone other than the Treasury or Co-operatives from holding shares and such convertible debentures will not be possible.

"Can you bring an amendment to assure that," he was asked.

Opposition legislator Bandula Gunewardene asked whether increasing authorized capital would involve issuing fresh shares.

Wickremeratnes said shares would be issued in by future governments as and when required and when funds were allocated to do so.

"The Joint opposition and Mahinda Rajapaksa administrations had always maintained that they will not support privatization in any way (thun hithakinwath madihathwennay ne)," Gunewardene said.

"This is because Sri Lanka’s banks were stated by British colonials to help plantations owners. But Phillip Gunewardene made a revolutionary change by promoting the concept of consolidating then exiting Co-operative Federal Banks into People’s Bank through an act of law.

"T B Illangarante brought it to parliament."

Sri Lanka’s largest commercial lender, the Bank of Ceylon was set up after the legislators passed a law, after gaining self-determination from the British, expropriating the first bank set up by native capitalists.

Ratnayake also questioned the ending of a clause which required the approval of the Monetary Board (central bank) for debenture issues.  He said it was preliminary to put the banks on the stock market.

Wickremeratne said other state bank were not subject to such rules and the board would now be allowed to set the rates and tenors as required.

Legislators charged that People’s Bank reforms were part of a ‘neo-liberal’ agenda form a government that was hand-in-glove with the IMF.

In Sri Lanka IMF and World Bank are demonized as ‘neo-liberal’, a word that has different meanings to different people.

State Minister for Economic Reforms Harsha de Silva said there was no hidden agenda (kolay wahalar gahannay nae) behind the reforms, it was done openly and opposition legislators were trying to mislead the nation.


The clamour against privatization in Sri Lanka is in sharp contrast to fast growing countries like Vietnam which abandoned a planned economy, self-sufficiency and import substitution under its ‘Doi Moi’ reform program in 1984.

Sri Lanka’s legislators on both sides of the house regularly hold up Vietnam as an example for its unusually fast economic progress.

Yawming Gulf

But they do not go too deeply into how removing state controls and restoring economic freedoms of private citizens including free trade helped collapse poverty, raise the height and nutrition of a generation, reduced inflation and triggered a dynamic and competitive non-traded sector.

Vietnam has not one stock exchange like Sri Lanka but two, in Hanoi (HNX) and Ho Chi Minh City (HSX)  (as well UPCOM, a second tier market)  where several state banks are listed or ‘equitized’ (cổ phần hóa) in domestic nomenclature.

The Communist Party of Vietnam has been piloting privatization or equitization from 1992 and now has gained much expertise. Prime Minister Nguyen Xuan Phuc, who was appointed in 2016 has taken the process further.

In 2017 the Prime Minister issued Decision No. 1232/QD-TTg and Letter 991 approving the equitization of over 40 state enterprises. Over 500 SOE are in various stages or equitization. The government’s Decree 126 further updated the process.

Vietnam SOEs could now go to an IPO through an auction, uderwriting or book building. Equitization could also start wtih a private placement. The lock-in period for such stragic investors were cut to three years from five. In May 2017, at the 5th plenum of the Communist Party of Vietnam a resolution was passed to accelerate equitization (SOE equitization tardy).

In sharp contrast to Sri Lanka, which is struggling to allow a state bank to issue bonds amids opposition from Marxists and statists, shares of state banks in Vietnam are not only owned by Vietnamese citizens but also foreign investors.

Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), is one of several banks that were de-linked from the State Bank of Vietnam (central bank) in 1988 as part of reforms that eventually helped stop chronic falls of the Vietnam Dong and high inflation, laying the foundation for explosive 1990/2000s growth.

In 2011, a 10 percent stake in VietinBank was sold to the International Finance Corporation, a unit of the ‘neo-liberal’ World Bank.
   
In 2014, a 20 percent stake in VietinBank was sold to Japan’s MUFG Bank making it "the number one state-owned commercial  bank with the strongest shareholder structure in Vietnam" according to its annual report.

As Bimal Ratnayake and Bandula Gunewardene sought assurances that People’s Bank debentures would not be converted into equity, shares of VietinBank closed at 20,600, down 150 dong on the Ho Chi Minh Stock Exchange, known affectionately known among newly created millionaires and small punters alike as the ‘HOSE market’. 

Share of another state bank, Joint Stock Bank for Investment and Development of Vietnam  (BIDV) closed at 37,600 dong, down 250.

Shares of Military and Commercial Joint Stock Bank closed at 22,550, up 50 dong.

Shares of Vietnam Technological and Commercial Joint Stock Bank (TechcomBank) closed at 21,650 dong unchanged in the HoSE market.

Meanwhile Minister Wickremeratne assured Bimal Ratnayake that under section 13 of the People’s Bank Act no shares could be owned by anyone other than the state or co-operatives and that his fears were groundless. (Colombo/Aug23/2019 – Updated with legal provisions)

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Sri Lanka president slams power regulator chief after conflicting with minister

ECONOMYNET – The powers to change the electricity tariff in Sri Lanka is vested with the Minister of Power and not the Public Utilities Commission (PUCSL), President Ranil Wickremesinghe told the Parliament.

The minister of Power and Energy, Kanchana Wijesekara has requested an upward price revision to be implemented in two phases both in January and July next year, saying the recent tariff hike was not enough for the state-run utility provider Ceylon Electricity Board (CEB) to continue uninterrupted power supply.

However, Jaynaka Ratnayake, the Chairman of the PUCSL had said  the recent tariff hike is enough for the CEB to cover the cost of production and it will not allow another price hike. However, he has said a twice a year price revision is necessary though it should be in April and October instead of January and July.

President Wickremesinghe said the PUCSL chief was opposing the tariff hike due to his personal reasons.

“The power is vested with the Minister and me. I am the one who made the PUCSL act and I know what is in it,” Wickremesinghe told the parliament on Thursday. quoting a letter from the Attorney General which mentioned provisions in the island nation’s Electricity Act.

Accordingly the Act, the PUCSL would be statutorily obliged to give effect to such policy. It is observed that neither the Act nor the PUCSL Act contains any provisions that empowers the PUCSL to change or act invariant of such policy guidelines.

“The Chairman of the PUCSL is misguiding the general public. I have to meet him and see,” Wickremesinghe said.

WIckremesinghe said the Chairman does not want the tariff hike because he owns one of the highest electricity consuming companies.

“He is the Chairman of the Trillium corporation. It is the firm that takes up the most energy”, he said.

The Trillium group is managed by Janaka Ratnayake and he also holds positions as the chairman and CEO of Trillium Property Management & Services Ltd., City Housing and Real Estate PLC, Trillium Residencies Ltd., Computer Care (Pvt) Ltd., and Rent a Comp Services (Pvt) Ltd., and JR Management Consultants (Pvt) Ltd.

“It means when the electricity bill increases, his expenses increase as well”

He said the CEB still has a loss of 300 billion rupees since 2013 and it needs to be covered.

The CEB issue can be solved only in three ways, either printing more money, increasing value added tax or increasing the tariffm, he said. (Colombo/Dec08/2022)

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Sri Lanka President bemoans over inconsistent LNG deals

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe bemoaned over successive governments’ liquefied natural gas (LNG) deal that has brought in all the world powers into the discussion.

Wickremesinghe’s center-right United National Party (UNP) had discussions with India and Japan between 2002-2004 for an LNG project.

“Following dialogues with India and Japan, the UNP government could come to agreements to get two LNG power plants. After we were defeated the successor government, without cancelling those agreements granted it to New Fortress company in USA,” Wickremesinghe told the parliament.

“Thereafter, as they did not like New Fortress, they gave it back to Pakistan and China. So within the same premises, there were China, Pakistan, India, USA, Japan and only Russia was not there.”

“It was wonderful that a world war did not ignited there as there were five main powers in the world.”

“Now there is no LNG or anything here and now they ask me to solve this issue.”

Wickremesighe’s outburst comes as his government is forced to raise tariffs on power prices after successive governments failed to implement cheap and renewable power generation projects.

He said a total loss for the state-run Ceylon Electricity Board since 2013 was 300 billion rupees and a possible drought next year could increase the 2023 electricity cost to 420 billion rupees.

“If it rained, we need Rs. 352 billion while Rs. 295 is required if rained so much to have floods. How are we going to find this money? We would have to print money, but Rupee would depreciate. We would have to increase VAT but it would increase the price of all commodities or to charge it direct.” (Colombo/Dec08/2022)

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Air quality drop forces Sri Lanka to close schools; public warned

ECONOMYNEXT – A rapid drop in air quality in Sri Lanka has forced the Colombo government to close all schools across the country after a deep depression over Southeast Bay of Bengal, officials said.

The Education Ministry, issuing a special notice on Thursday said, it has decided to close all government schools for Friday, after discussing with the officials in Meteorology Department and Disaster Management Center.

An official said the drop was due to the deep depression over Southeast Bay of Bengal carrying the air from India.

Due to the depression over South east Bay of Bengal (370 km east of Trincomalee) has concentrated into a cyclonic storm “Mandous” by Wednesday night.

“Cyclone in the Bay of Bengal that is the prime reason for the increase in the pollution load as we receive more wind from India,” H.D.S.Premasiri, Senior Scientist, Coordinator-Air Quality, noise and vibrations at National Building Research Organization (NBRO) told EconomyNext on Thursday.

Officials said there is a likelihood of the cyclone moving west-northwestwards and further intensify into a severe cyclonic storm tonight and cross North Tamil-Nadu, Puducherry and South Andhra Pradesh coast around midnight of 09 th December and the maximum wind speeds will be 70-90 km per hour and can increase up to 90 in sea areas.

“Hopefully, today we can expect normalization in the environment and the effects of the fog will disappear”.

According to the NBRO’s real time Air Quality Index Indicator, the quality of air in northwestern coastal district of Puttalam has dropped drastically and indicated a particular matter (PM) 132, while Kegalle (85) and Mannar (84) were the districts which had next worst air quality.

According to NBRO, Battaramulla, Polonnaruwa, Dambulla, Kegalle, Mannar and Puttalam indicate a poor quality of air due to higher PM.

“The fog will lead to lung and breathing issues,” Premasiri said.

“So the public is warned to wear a mask when they travel outside. The pollution highly prevails in city areas and has a less impact on the other parts of the areas.” (Colombo/ Dec08/2022)

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