The government subsidises the power and energy sector with a relief program

 

The government is making further concessions to consumers of electricity who got huge bills after the lockdown ended. At their weekly meeting today, the Cabinet of Ministers considered several consumer concessions proposed by Power and Energy Minister Mahinda Amaraweera and agreed to reduce electricity bills by 25 per cent in March, April and May when electricity consumers consumed electricity units between 0-90 units.

Co-cabinet spokesman Bandula Gunawardena said they would give those consumers a three-month grace period to pay up and they will incur no disconnections or late fees. He said Amaraweera had told the cabinet that this relief package would provide a direct advantage to around 73 per cent of in-house electricity consumers.

However, he said this relief package will cause a massive loss to the Ceylon Electricity Board (CEB) but would provide relief to those affected by COVID-19. However, despite the damages to be borne by the CEB and other providers, he said the President, the Prime Minister and cabinet members discussed further on giving more relief to electricity consumers.

Gunawardena said Minister Amaraweera asked to find out any further relief that consumers could receive through this package, such as raising the 25 per cent reduction to 120 units and presenting it to the cabinet next week for approval. He said the relief measures that he has already granted would not change, but it will not be the final decision on relief for consumers of electricity.

The state regulatory body, the Sri Lankan Public Utilities Commission (PUCSL), had proposed a formula for the CEB and the other provider Lanka Electric Company Ltd. to apply to reduce bills that became inflated when meter readers were unable to operate during the lockdown.

LECO has already implemented the formula, and its subscribers were granted the concessions as of this month. It is not known whether the relief measures proposed at the cabinet meeting yesterday would also extend to LECO customers.

OSL Take:

Sri Lanka's power and energy sector have become a hotspot for business; to explore investment opportunities in the country. The expansion and extension of the country's economy have increased the demand for power in Sri Lanka. Experts have predicted a looming power crisis in the country in the event economic activities reach high capacities. Sri Lankan authorities are therefore looking at renewable energy generation options to ensure low generation costs as well. Being a tropical country, Sri Lanka has much potential for solar and wind power generation. Foreign businesses/investors exploring business/investment opportunities could, therefore, explore business/investment opportunities in Sri Lanka's power and energy sector.

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Two new hospitals to be established in Moratuwa Medical Faculty for student training

 

The Homagama Base Hospital and the Nagoda General Hospital are to established as National and Teaching Hospitals to assist in clinical training at Moratuwa University for the proposed medical faculties. Co-cabinet spokesman Bandula Gunawardena told reporters today that a significant move is needed to establish a new medical faculty as a national or teaching hospital for the students' clinical training needs, i.e. to develop another medical school.

The creation, accepted yesterday by the Cabinet of Ministers, is the culmination of a proposal made by former JVP Kalutara District MP Dr Nalinda Jayatissa as a private member to Parliament in 2018. Jayatissa argued at the time that Sri Lanka only has 50 per cent of the number of medical doctors and medical faculties available. Currently, State Universities can accommodate only 1,200 to 1,300 medical undergraduates per year. Hence, the need to create two more medical faculties to increase student intake is of significant importance.

Jayatissa moved two private member motions to set up medical faculties at the Universities of Uva-Wellassa and Moratuwa, with Badulla and Nagoda Hospitals proposed as "teaching hospitals." "To that end, it agreed to take over the Kalutara General Hospital and Homagama Base Hospital and begin the process of development to turn them into national or teaching hospitals," Gunawardena said.

The Base Hospital in Homagama is currently a care facility for patients with COVID-19. Later, the then government included in their annual budget plan the plan to create a medical faculty at Moratuwa University. Later the same year, the then government involved in their yearly budget plan, the program to develop a medical faculty at Moratuwa University.

The pharmaceutical industry in Sri Lanka is estimated at USD 400 million annually. Regulating the pricing of these medicines has a significant effect on the population's health. The revised drug price formula implemented in 2016 guarantees that essential drugs should always go for below the maximum recommended retail price. 

Due to a very ageing population, the demand for healthcare facilities is increasing in Sri Lanka. At the end of 2017, nearly 10% of the population was 65 years. Experts predict that this figure will double by 2030. The government stands clear on its policy of offering public hospitals with free health care. In 2018, government spending on the health industry amounted to about $1.3 billion. Increasing access to private health services is also a government focus, as meeting the demand for healthcare services is hard for the public sector alone.

The private sector has made significant investments in health care, particularly in Colombo and some of the main towns, which has eased some of the state's burden. With higher revenue rates and shifting preferences, demand for healthcare in the private sector has risen. Health insurance provision has also backed development in the private healthcare industry.

OSL Take: The construction of two new hospitals indicate the upliftment of the primary healthcare sector in Sri Lanka reports the development/investment opportunities in Sri Lanka's health sector. The government of Sri Lanka has also placed importance in the country's health sector and is looking at developing the existing structure while also considering new options to be included in the system. The state has also given priority to the manufacturing of pharmaceuticals within Sri Lanka with foreign assistance.

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Sri Lanka resumes negotiations with India on the East Terminal port of Colombo

Sri Lanka is continuing talks with India on the development of a container terminal in the Port of Colombo; information minister Bandula Gunewardene said as protests continued against port workers. "The last government signed a treaty with India," said Minister Gunewardene. "Becoming emotional or excited is not the policy of the President and this nation. Talks will fix problems. Whether it's the US, China or India, matters will be discussed at the diplomatic level with friendly countries”.

The last administration of Sri Lanka signed an agreement with India and Japan to complete the development of the partially built Colombo Port East Container Terminal through an operating company, with a loan from the port. With rising debt rates, however, top officials favoured a regular building and operating transition arrangement with investors investing in equity and assuming debt obligation.

Reports said Adani Ports of India and John Keells Holdings of Sri Lanka along with the Sri Lankan Ports Authority are a contender to complete the development as a BOT contract. A senior official said there would be a majority stake in Sri Lanka through SLPA and local investors. However, bids were called upon to build the port as a BOT deal with local and international consortia responding when the project halted when Ranil Wickremesinghe was Prime Minister.

But concerns remain about Sri Lankan's distinct claims and evaluations of 'selling of national properties' when it came to the straightforward, long-term transfer of Hambantota's ownership and control to China, and now Indian's restricted involvement in ECT. President Gotabaya Rajapaksa unilaterally declared in the run-up to his election last year that he would re-negotiate the Hambantota swap agreement if elected. Nonetheless, on taking office, he said he figured out it was a 'business offer' and nothing could do about it.

It sounded familiar to Sri Lankan watchers, who saw a similarity to rival Ranil Wickremesinghe unilaterally proposing to cancel the Colombo Port City agreement with China ahead of the 2015 presidential polls. It later settled for a changed version after becoming prime minister under newly elected President Maithripala Sirisena.

Away from the media glare, the two countries are holding talks for India to reschedule Sri Lanka's 900 million-dollar Indian debt, as Prime Minister Mahinda announced during his visit to India.

According to the economist and former minister, Harsh de Silva, the regime of President Gotabaya added LKR 1,000 billion (5.38 billion) to the national debt in the first four months of the current fiscal period, starting in January. The amount as mentioned earlier is relative to the predecessor's LKR 5,700 billion ($31 billion) in five years.

OSL Take: OSL Take: Sri Lanka and India boast of strong bilateral and trade ties that have been further bolstered by the free trade agreement (FTA). Sri Lankan businesses are, therefore given preferential treatment when engaging in business ventures in India. Local companies could use this benefit to form joint ventures/partnerships with Indian companies. Foreign businesses/investors looking at doing business with India could explore the possibility of setting up base in Sri Lanka to reach out to the Indian market.

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Sri Lanka’s Central Bank guarantees Covid-19 credit facility to all SMEs

Sri Lanka’s Central Bank said it would guarantee banks loans to affected coronavirus businesses from their funds as well as 175 billion liquidity rupees generated through two reserve ratio cuts. “Under this scheme, we are allowing banks to grant loans to meet the working capital requirements of the businesses concerned,” the monetary authority said in a statement.

The Central Bank said it would operate in parallel with a refinancing (printed money) scheme of 150 billion rupees. The Central Bank reported banks could use their deposits or the liquidity released from two cuts in the reserve ratio, which amounted to nearly 180 billion rupees and offer 4 per cent of the loans.

The guarantee would preferably have come from the Treasury. However, any losses from central banks will also end up at the Treasury, analysts note. Unlike primary bank refinancing, there is no strain on the rupee or foreign reserve losses when banks donate their funds.

The Central Bank already pays 5.5% for money released from SRR cuts, which to some extent will discourage misinvestments. The Central Bank is injecting capital at 1 per cent on the 150 billion rupee refinancing, while the policy rate is 6.5 per cent.

This system, launched on 1 July 2020, will run in tandem with the Saubagya COVID-19 Recovery Facility and the new provision approved by the Monetary Board according to Section 83 of the Monetary Law Act, within the already announced Rs. 150 billion thresholds.

Below this scheme, the Central Bank will provide banks with a credit guarantee, varying from 80 per cent for less significant loans to 50 per cent for comparatively large loans, allowing banks to grant loans to meet the working capital requirements of the businesses concerned.

With the Central Bank attracting a significantly higher percentage of credit risk, banks can extend their lending to vulnerable businesses focusing on such businesses’ viability and cash flows, rather than collateral. Banks will have to use their funds, in particular the additional liquidity of close to rupees one hundred eighty billion provided by the Central Bank through a cumulative reduction in the statutory reserve ratio (SRR) of 300 basis points so far during the pandemic period, to grant companies loans of 4 per cent.

The Central Bank must offer a 5 per cent interest subsidy to cover the sum of bank deposits. Operating guidelines for this scheme will be given to banks in due course immediately.

OSL Take: The government of Sri Lanka has not left any stones unturned in the path to bring the country’s economy back to normalcy following the post-COVID 19 pandemic situation. Given Sri Lanka’s terrestrial positioning in the Indian Ocean, the ease of doing business environment and the many trade accords, as well as trade discounts enjoyed by the country, all will undoubtedly expedite the country’s economic revival. Foreign businesses/investors could, therefore, explore business/investment opportunities in Sri Lanka with confidence.

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Sri Lanka is cutting policy rates by 100bp during the slowdown of Coronavirus

Sri Lanka has slashed the policy rate by 100 basis points. The action means that one can inject money into the banking system at 5.50 per cent and withdraw excess money at 4.5 per cent.

"The Board arrived at this decision to induce a further reduction in market lending rates, thereby encouraging the financial system to aggressively improve lending to productive sectors of the economy, which would reinforce support for COVID-19 hit businesses as well as the wider economy, given the conditions of subdued inflation."

"While recovery expected in the second half of the year with the help of monetary and fiscal stimulus measures, the implementation of growth and confidence-building structural reforms is necessary for fostering strong and sustainable economic growth in the medium term."

Money market rates drifted around the earlier floor policy rate of 5.50 per cent amid excess liquidity injected in March and April through domestic asset purchases, which caused currency pressure and hit businesses and the economy in general.

Nonetheless, private credit was also low, which tends to hold rates close to the floor rate. As analysts have shown, Sri Lanka's Central Bank typically triggers monetary uncertainty by injecting massive amounts of money to keep the price below the maximum rate or in the middle of the corridor as the market regains from the last balance of expenses crisis and borrowing picks up.

Credit to the private sector was around 30 billion rupees in May, data shows, although there is a pickup in government credit as the deficit spreads. The Central Bank has also reduced the legal reserve ratio, with Sri Lanka's interest rates being one of the factors being higher than other countries with more excellent monetary stability.

Excess liquidity from purchases of domestic assets ultimately leads to foreign exchange shortages (and reserve losses when liquidity is mopped up by dollar sales) in a fixed exchange rate system when credit picks up. The Central Bank has withdrawn some excess cash from the system over the past week. Further money is also to provide through the ref-financing of bank loans by central banks and the discounting of contractors bills.

OSL Take: The government of Sri Lanka has made all arrangements to ensure a hassle-free and safe visit for tourists planning to make a trip to the island. With international airlines all geared to recommence flights to Sri Lanka, the country is now geared for foreign travellers looking at leisure/business/investment opportunities. The World Health Organization has recommended Sri Lanka as one of the safe countries concerning COVID 19. Hence, Sri Lanka’s tourism industry shows signs of picking up from where things stopped before the COVID 19 lockdown. Foreign businesses/investors looking at opportunities could explore business/investment opportunities in Sri Lanka’s tourism industry.

Many large scale real estate development plans that were on hold during the COVID 19 lockdown have now recommenced operations. Given Sri Lanka’s resumption of economic activities much faster than other countries in the region, business opportunities in Sri Lanka are expected to open up more quickly than anticipated. Also, Sri Lanka’s geographical positioning in the Indian Ocean, the ease of doing business environment, the many trade accords as well as trade reductions enjoyed by the country will undoubtedly help Sri Lanka regain its position as a business hub in the South Asian region. Hence, this will create many business/investment opportunities in Sri Lanka’s real estate development as well as construction sectors.

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Sri Lanka calls for foreign bids to purchase four helicopters

Sri Lanka will call for international tenders to buy four used Sri Lankan Air Force (SLAF) helicopters to prepare pilots for Peacekeeping Missions. Co-Cabinet spokesman Romesh Pathirana told reporters today July 9th President Gotabaya Rajapaksa on behalf of the Defense Ministry had sought approval from the Cabinet to make the purchase.

Pathirana said the SLAF currently trains Pilot Officers using two 1981 helicopters. “Currently, units of Sri Lankan Air Force are on peacekeeping missions in Sudan and Central Africa. It has been identified as a prime necessity to train and assign new pilots to those units“, Pathirana said.

The Departments of Government and the Armed Forces are to keep vehicles unclaimed and held by Customs, the Minister’s Cabinet has agreed. Co-Cabinet spokesperson, Minister Romesh Pathirana said, these vehicles, referred to as escheat vehicles, would be provided to meet State authorities’ demand for cars.

Prime Minister Mahinda Rajapaksa presented the cabinet proposal for that move. Pathirana said government organisations had requested vehicles for the respective organisations including the Armed Forces.

OSL Take: The Sri Lankan is in the process of making necessary arrangements to reopen the country to foreign visitors from August 1st. The country’s economic activities have already restarted, and the tourism industry will kick start from August 1st.

Given Sri Lanka’s geological positioning in the Indian Ocean, the ease of doing business environment, the many trade deals, as well as trade reductions enjoyed by the country, it will be easy for the island to become a business hub in the South Asian region. Foreign businesses/investors could, therefore, confidently explore opportunities in Sri Lanka.

International airlines have already made arrangements to resume flights to Colombo, expressing confidence in the manner in which Sri Lanka has contained the spread of COVID 19. Foreign businesses/investors interested in exploring opportunities in Sri Lanka could confidently make arrangements to visit the island soon.

Also, Sri Lanka’s geographical positioning in the Indian Ocean, the ease of doing business environment, the many trade contracts as well as trade reductions enjoyed by the country will help Sri Lanka regain its position as a business hub in the South Asian region. Business/investment interest in Sri Lanka would, therefore, see an increase shortly. Foreign businesses/investors could, therefore, explore business/investment opportunities in Sri Lanka’s real estate sector.

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South Korea's third-largest conglomerate committed to investing more in Sri Lanka

Dr A. Saj U. Mendis, Sri Lankan Ambassador to the Republic of Korea, met with the top management of SK Group, South Korea's third-largest conglomerate (Chaebol), to discuss investment and FDI in Sri Lanka. Dr Mendis has met with the President and CEO of SK E&S Co Ltd. for the same, including Jeong Joon Yu as well as the Board of Directors at the head office of the company.

With regards to sales and market capitalisation, the SK Group is one of the biggest companies in the world. SK Group's income was $220 billion in 2019, and the market value was close to $280 billion, making SK Group one of the world's 25 biggest companies. The business has 95 branches and employs more than 70,000 people worldwide. Among other things, the SK Group has a stellar global reputation in companies such as chemical, petroleum, oil, wireless mobile services, financial services, telecommunications, manufacturing, shipping and semiconductors.

The discussion with SK E&S' CEO and Board of Directors focused on, among other things, an LNG project to be set up on Build-Own-Operate-Transfer (BOOT) in Sri Lanka for a total cost of $600 million in LNG delivery. The technical experts claimed, during the discussion with Ambassador Dr Mendis, that the proposed project would be able to supply 930 MW of LNG power plants in Sri Lanka. The proposed megaproject will create semi-skilled and skilled jobs for nearly 1,000 nationals of Sri Lanka. The proposal mentioned above has been discussed and deliberated with the appropriate Sri Lankan authorities and is pending final clearance.

SK E&S' CEO and Board of Directors also told D. Mendis that the SK Group is keen and eager to invest more in Sri Lanka, particularly in sectors such as IT and ITES, construction and telecommunications, among others. Ambassador Dr Mendis said a clear and compelling presentation of a company in the SK Group calibre in Sri Lanka would emanate a positive perception and message of Sri Lanka's potential to foreign corporations and investors.

Dr Mendis also pointed out that Sri Lanka's equity (stock) market, also known as the Colombo Stock Exchange (CSE), is highly attractive to woo foreign institutional investments (FII) since the CSE's price earning ratio is 10.8. Any stock market with a P/E ratio of less than 15 with a vibrant and diversified economy will be highly desirable and financially sanguine for any large-scale institutional investor, especially foreign investors and private equity (PE) firms.

SK E&S' top management paid due attention to Sri Lanka's economic and investment views and added that they would look positively and favourably at Sri Lanka. On a separate note, Dr Mendis reported that KB Financial Group of Kookmin Bank, the Republic of Korea's largest commercial bank, recently committed a mega-investment in the highly reputed and diversified LOLC Group, the Sri Lankan "Blue Chip" corporate.

OSL Take: The higher education sector in Sri Lanka is fast becoming a hotbed for foreign investments, given the potential for the development in the industry. Sri Lankan authorities are paying particular attention to the development of technical and vocational education in the country. There have also been many foreign universities that have opened up affiliate colleges in Sri Lanka targeting local as well as the regional student population. Foreign businesses/investors could, therefore, explore business/investment opportunities in Sri Lanka's higher education sector.

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