|To beat volatile oil
Hedging mechanism mooted
CPC to take lead, with Standard Chartered, Deutsche Bank or
Citibank; LIOC likely to follow
By Gamini Abeywardane
The Government is likely to give permission soon to the Ceylon
Petroleum Corporation to establish a hedging mechanism with some
of the leading international banks operating in Colombo, to
minimize losses arising from volatile petroleum prices, highly
placed sources said.
The Central Bank which has taken initiative in this regard has
already held several seminars on this matter that were addressed
by resource personnel from some of the leading foreign Banks
operating in Colombo such as Standard Chartered Bank and
Deutsche Bank, they said. Several other banks including Citibank
have shown interest in this matter.
Once the Cabinet gives the formal nod the Ministry of Petroleum
and Petroleum resources is expected to seek Cabinet approval for
a specific proposal giving details of the agreement with a hedge
provider which is likely to be an international bank with right
Meanwhile the Central Bank in a press release said that if
international oil prices were to increase to (say) US dollars
100 per barrel, Sri Lanka’s oil import bill would reach around
US dollars 3,000 million, causing severe macroeconomic
imbalances through the deterioration of the Balance of Payments,
thereby destabilising the exchange market and depleting
country’s foreign reserves.
It should be noted that oil prices have risen with high demand
from China, India and USA, capacity limitations in refineries,
supply disruptions in some oil exporting countries and general
geopolitical unrest, the Central Bank news release pointed out.
With the easing of certain pockets of geopolitical unrest, oil
prices seem to have declined but several other factors, which
could raise oil prices, are still present.
In that background, it would be prudent for Sri Lanka to
contract for oil at a reasonable price with a protection from
future increases, as that would lead to greater economic
Earlier UNP MP Bandula Gunawardena criticized the Central Bank’s
making a proposal to the Cabinet as being contrary to the usual
practice and said that world oil prices are expected to reach a
low of US$ 40 within the next twelve months.
However analysts pointed out that hedging is a standard practice
profitably used by many countries and companies in the airline
industry and Sri Lanka should gradually get into using modern
market mechanisms such as forward contracts to protect itself
from fluctuating future oil prices.
Meanwhile LIOC CEO K. Ramakrishnan said that his company is
studying the proposal made by the Central Bank and would
certainly be going for hedging if it is commercially viable at
He said that LIOC will be drawing from the experience of its
parent company IOC which is already using hedging in a limited
Sharp increase in revenue from liquor,
By Nandana Talagune
The revenue generation from excise duty on alcohol has shown a
sharp increase with department of excise collecting over Rs.13
billion from liquor manufactures up to August this year with
Distilleries Company of Sri Lanka and Lion Brewery contributing
nearly Rs.10 billion.
The Commissioner General of Excise Parakrama Ekanayake Bandara
told The Nation Economist that this year’s total revenue from
alcohol is estimated to be over Rs. 21 billion representing a
sharp increase from last year’s revenue of Rs.16 billion.
Of the 21 licensed companies engaged in hard liquor
manufacturing nearly 75 per cent of industry is controlled by
the Distilleries Company of Sri Lanka Limited (DCSL) which has
paid Rs.8.5 billion on 21 billion litres of liquor it
manufactured from January to August this year, the statistics of
the Excise Department revealed. Meanwhile Periceyl (Pvt) Ltd, a
subsidiary of DCSL engaged primarily in import and distribution
of liquor has paid about Rs. 260 million during this period.
Commissioner General said that the Department collects only the
production tax as revenue from the local manufactures of both
hard and soft liquor and over the years they have been able to
increase the collection remarkably
The annual production of hard liquor has recorded 26 billion
litres under different brands while the production of soft
liquor during this period has recoded over 31 billion litres.
Soft liqour industry has already brought a revenue of over 1.5
billion from the three companies presently in operation - Lion
Beer Company, United Beer Company and McCallum Breweries Ceylon
The Lion Brewery has an 80 per cent share of the market with a
production of over 27 billion litres over the eight month period
of the year and has so far paid Rs 1.2 billion as taxes out of
the total Rs 13.3 billion collected as production tax.
In addition to this the Department of Customs also collects
revenue under excise duty on sales of foreign liquor and
tobacco/cigarettes. In 2005 the Government though this earned
over Rs.40 billion and the government may collect more than Rs
50 billion by end of the year. However this goes direct to the
Treasury and thus not part of the revenue collection of the
Department of Excise, he added.
Ceylon Tobacco Company (CTC)is the only licensed manufacturer of
cigarettes in Sri Lanka The tax paid to the government by the
tobacco industry over the years has increased and the Department
of Excise has collected Rs 23 million up to August this year.
The production tax is Rs 10 per kilo of tobacco.
This is due to illicit cigarettes in the black market of the
country which are low priced. The lack of taxes is the main
reason behind the low price range.
Ceylon Glass awards Rs. 1 b Horana factory
contract to Maga
By Ravi Ladduwahetty
Ceylon Glass Co. Ltd on Wednesday awarded the Rs. 1 billion
civil contract for the construction of its new Horana factory to
Maga Engineering Co. Ltd.
Maga Engineering Company, one of the best in the construction
industry, won the civil contract for this project worth over Rs.
1 billion against all odds after competing with several local
and international civil contractors Ceylon Glass Chairman Vijay
Shah told ‘The Nation Economist’ after exchanging the Memorandum
of Understanding with Maga Engineering Chairman Capt M.G.
Kularatne at the Cinnamon Grand.
The company proposes to build a state-of-the-art Glass Plant by
doubling its present capacity to 205 Metric tonnes of glass per
day. Ceylon Glass company recently gained BoI status under the
President’s 300 factory Program.
The Horana factory will be housed on a 26 acre block of land and
the production area will cover 60% of the extent, Ceylon Glass
Co. Ltd President/CEO Sanjay Tiwari said. He said that the
company would be shifting all three production lines at
Ratmalana to Horana while purchasing the fourth from a European
Maga Engineering is a highly reputed Engineering company in Sri
Lanka and has been rated amongst the top 50 highly respected
companies in the country. They were the only Construction
company to be selected in this category.
Capt. M G Kularatne, thanked the management of Ceylon Glass and
said that the construction work would start with immediate
effect and also assured that they would complete the project of
building a state-of-the-art glass plant at Horana within
stipulated agreed time frame. The ceremony of awarding the
contract was concluded in the presence of the consortium of
bankers participating in the funding, BoI Chairman Lakshman
Watawala and the Directors of Ceylon Glass.