BoI allays fears over licences

The Board of Investment (BoI) will continue to issue licences during the run-up to the upcoming Budget-2011 despite rumoured otherwise.

It is highly speculated that following the budget, concessions under BoI Act will be strictly limited for thrust sectors or other strategic investments over RS. 500 million.

However, under the provisions of the BoI Act, the government is restricted in retracting concessions already awarded, high ranking official told The Bottom line.

“A crucial meeting was held on Thursday, where it was informed that under regulations relating to BoI, it cannot withdraw concessions nor hold back approvals. The Act is designed to protect investors and their investments from ad-hoc policy decisions. Investors can take legal action if the BoI contravenes these regulations,” he said.

Foreign investments in the country are safeguarded by Investment Protection Agreements (IPAs) signed with 20 odd countries. Sri Lanka’s constitution guarantees the safety of FDIs through these IPAs while Sri Lanka is a founder member of the Multilateral Investment Guarantee Agency (MIGA).

Furthermore, according to Article 157 of the 1978 Constitution, BoI agreements enjoy the force of law while no legislative, executive or administrative action can be taken to contravene the provisions of a bilateral investment agreement otherwise than in the interests of national security, it is leant.

“It was also mentioned that BoI was the only other than the Mahaweli Authority Act, powerful enough to safeguard such contractual interests,”

Asked how budget proposals will be applicable, he said that BoI cannot hold back projects once approved.

“If an investor starts a project either under Section 16 or 17 of the BoI Act, he has to be accorded terms and conditions which are effective on that particular date,”

Recently, issuing a statement, it refuted the notion that the “Board of Investment (BoI) had suspended the acceptance of investment applications for new projects pending the 2011 Budget” and scoffed at “speculation surrounding the continuance of BoI concessions granted”.

“BoI continues to entertain and accept new applications for investments. Priority has however, been given to the processing of investment applications to the thrust sectors that have been identified, namely tourism, agriculture, fisheries and dairy, education and training, IT & BPO, infrastructure and port and aviation related development.”

Reaffirming The Bottom Line lead story carried a fortnight ago, BoI said that the “current emphasis has also been on attracting high value investments in keeping in line with the evolving strategy for investment promotion arising from the newer opportunities of the country with the return of peace and stability.”

“The BoI reassures all investors that all contractual obligations entered with the Board of Investment will continue to be honoured.”

Economic Development Minister Basil Rajapaksa has meanwhile, ordered a complete revamp of BoI and the updating of the country’s investment laws and regulations, starting with the BoI Act.

Many from the Presidential Commission on Tax to Asian Development Bank (ADB), have been calling for the rationalisation of BoI’s concessions regime while the investor community at large had been advocating a ‘one-stop-shop’ for investors.

Although Sri Lanka had an ambitious target of US $1 billion FDIs for 2010, BoI saw only US $ 208 million flowing into the country during the first six months of 2010. (SF)

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CPC to insist on Rs20bn payback

Subsidised fuels: Furnace oil alone incurs Rs780m loss monthly

State-run Ceylon Petroleum Corporation (CPC) is to request the Treasury to pay back fuel oil subsidy dues running into over rupees twenty billion incurred during the last 24 months.

The Bottom Line learns that a memorandum of cabinet is in the process of being formulated by the Petroleum Resources and Petroleum Resources Development Ministry, appealing either to reimburse losses incurred since November 2008, due to non-payment of subsidy by the Treasury or to set off against taxes due from the CPC.



“The ministry is in the process of calculating the exact amount of losses for the period from 2008 November to 2010 December. In November 2008 the subsidy was withdrawn, and so we have been importing fuel oil at a cost of Rs 52 per litre and selling it to Ceylon Electricity Board (CEB) plus other Independent Power Producers (IPPs) for Rs26. Due to this, the CPC made a loss of Rs12bn during 2009,” a high ranking ministry official said.

Following vehement protests by CPC in the wake of global oil prices going up, it received the government green light to increase the price to Rs40, though still short of Rs15. From furnace (fuel) oil sales, CPC lost a staggering Rs780m each month, he added.

“At present, CPC is importing nearly 30m litres (30,000 tonnes) of low-sulphur fuel oil at an average cost of Rs68 and selling it to Kerawalapitya Combined Cycle Power Plant for Rs52. Losing Rs16 a litre we are incurring a staggering Rs480m loss a month. For other thermal power plants, (CEB and IPPs) we are bringing down nearly 20 million litres (20,000 tonnes) of high-sulphur fuel oil at Rs55 and selling at Rs40 a litre. Losing Rs15 a litre, the CPC is burdened with a nearly Rs300m loss each month,” this official said.

Currently, CPC is making a marginal profit from petrol sales while incurring a marginal loss from both kerosene and diesel fuels.

“If this goes on we will never be able to turnaround CPC and it will soon go bankrupt. What’s more, this is not due to our fault but due to the fault of CEB. What they want is to make profits on their part at the cost of CPC.”

Many had been advocating a cost-reflective pricing mechanism devoid of political interference if the country was to make state entities like the CPC viable to contribute to the growth of the country and move towards a global energy hub.

“Except for the Kerawalapitiya agreement, all other contracts with CEB and IPPs have the clause that CPC will sell fuel at ‘CPC’s retail price or government-decided price’. This is where all troubles begin. Sri Lanka can never become an energy hub if you don’t make CPC profitable. Privatisation is unnecessary, but you need to have an unwavering cost-based pricing system,” this official added.

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Gold climbs to all-time highs above $1,400/oz

Gold powered to an all-time high above $1,400 an ounce on Monday, despite a bounce in the dollar, as investors sought an inflation hedge from the Federal Reserve's massive bond-buying programme.



Gold has risen almost 6 percent since just before the Federal Reserve detailed its plans last Wednesday to buy $600 billion worth of Treasuries to revive the economy.

Palladium rose 3 percent to break above $700 an ounce for the first time since April 2001, and silver also gained 3 percent to its third consecutive 30-year high on the back of speculative buying after gold's midday rally.



"As long as (investors) feel like there is no other recourse except buying precious metals, gold is going to keep going up," said Miguel Perez-Santalla, vice president of sales at Heraeus Precious Metals Management.



In early trade, gold looked set to drop following its largest two-day gain in a year at the end of last week, but remained near record highs even as the dollar rallied against the euro on renewed budget problems in Ireland.



Spot gold rose 0.8 percent to $1,406.10 an ounce at 12:31 p.m. EST (1731 GMT), after setting a record at $1,407. U.S. December gold futures climbed $7.30 an ounce at $1,405.



Underlying support helped lift the metal after comments from World Bank president Robert Zoellick in the Financial Times calling for leading economies to consider readopting a modified global gold standard to guide currency movements, although most analysts deemed it unrealistic.



"Gold could potentially play a small role in the overall framework, but I don't think we are in a position to go back to a gold standard," said commodities strategist Nic Brown of Natixis.



"The world economy has moved too far from there and it would need to be one that was built around a more inclusive range of currencies," he said.



Zoellick called for a system that "is likely to need to involve the dollar, the euro, the yen, the pound and (yuan) that moves towards internationalization and then an open capital account."



"I can imagine what he meant was asset inflation as measured by the gold price should be an indicator that should be considered by the central banks when they make their interest-rate decisions," said LBBW analyst Thorsten Proettel. The consensus among precious metals analysts was that the gold market is also simply too small to absorb such demand.



"Unlike the World Bank, we do not believe that a form of the gold standard will return. Very simply, there is not enough gold supply in the world for the metal to perform in this role," said Edel Tully, precious metals strategist at UBS.



Evidence of a cooling in investor interest in gold put the price under pressure earlier in the session, with holdings of gold in the SPRD Gold Trust falling.



Silver hit a fresh 30-year peak at $27.63 an ounce and traded up 3.2 percent at $27.47 an ounce, and palladium surged 3.4 percent to $710.72, up for a fourth day in a row, while platinum eased 0.1 percent at $1,764.49 an ounce, marking a second successive day of declines. (Reuters)

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Ailing IFL to be recapitalised

The troubled Industrial Finance Limited will be re-capitalised within the next three months, thereby redeeming the nearly 50-year-old institution in danger of going bust, Central Bank Governor Ajith Nivard Cabraal said. He also said the Central Bank was holding regular meetings with the management the IFL and they are hopeful that the finance house can be taken out of danger.
“The management agent we’ve appointed to help the IFL for a turnaround, People’s Leasing Company is still very much involved in the matter and slowly IFL is expected to come out of trouble,” Cabraal said.

 
With the run on deposits of the Golden Key Credit Card Company, IFL also felt the heat as depositors started to pull out their deposits despite it being a registered finance company, regulated by the Central Bank. Unable to manage the institution with the looming threat of defaulting depositors, the owners of IFL at that time, the CIFL Group sold their ownership to a company called Rock Millennium (Pvt) Ltd, run by UK based Sri Lankan investor, Upul De Zoysa.

 
With the acquisition, the new management of the IFL promised the depositors to bring Rs700 million by mobilising foreign funds and restructuring the company.
However, the depositors currently claim that although they have surrendered their matured FD certificates they’ve been unable to obtain the due payments.
Even though the Central Bank appointed People’s Leasing as the management agent, sensing the crisis, the depositors say that the management agent also has failed and currently everything is in the doldrums.

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