get longer life as directors
Central Bank revises governance rules for licensed banks
By Gamini Abeywardane
The Central Bank has amended the recently introduced corporate
governance rules for banks, stretching the tenure of the
incumbent chairmen and founder directors, by five more years,
ending a stir that has been causing concern in the banking
circles for some time.
This follows representations, made by several banks, which
alleged that, the corporate rules imposed by the Central Bank
recently were, too harsh and would disturb the smooth
functioning of the banks.
Several banks such as the Seylan Bank, the Commercial Bank and
the DFCC Bank have gone before the courts, challenging various
provisions of these corporate rules.
The new rules among others, imposed a maximum limit of eight
years, for a director to serve in a bank, which caused a major
stir in the banks, with the possibility of a sudden exodus of a
large number of experienced directors, who are closely linked up
with the operations of these banks.
They included eminent people like Deshamanya Lalith Kotelawala (Seylan
Bank), Edgar Gunatunga (Sampath Bank), Mahendra Amarasuriya
(Commercial Bank) and Rienzie Wijetilleke (Hattion National
The new corporate rules, which were issued in December 2007,
prescribed that, the term of office of a director, other than
the director, who holds the Chief Executive Officer (CEO)
position, should be four years and should be reelected, only for
another term. With regard to the current directors, the term of
office also included the period, that has been served by them,
as at the effective date of the code.
According to the amended rules, which have been just released,
in addition to the CEO, executive directors would also be
permitted, to function as directors, for more than nine years.
There are also transitional provisions for the Monetary Board,
to exempt the founding directors and incumbent chairmen, from
directions regarding maximum age, the number of companies a
director could serve, and the total period a director can serve.
Senior bankers had expressed the view that, if the proposed
rules were implemented, in the original form, most directors,
including those holding considerable stakes, would have to leave
the boards of directors, as most of them, had already served for
The new code, which came into force from January 1, 2008 and is
to be complied by June 30, 2008 is aimed at, ensuring the
stability of the banking and financial system. Among the
proposed rules, there are stringent provisions dealing with
problems, such as conflict of interest and management control.
It also seeks, to increase the role of competent independent
directors on bank directorates, taking into consideration, the
special privileges given to banks, to raise funds, through
deposits from the public. It proposes that, every bank should
have at least three independent non-executive directors, or one
third of the total number of directors, whichever is higher.
The rules are aimed at, removing the possibilities for misuse of
banking facilities by shareholders, or any related parties and
also contain provisions, with regard to composition of boards,
criteria to asses the fitness and propriety of directors,
management functions delegated by the board and related party
MAS goes greener
MAS Holdings opened its eco-friendly lingerie
factory last week. Marks & Spencer CEO, Sir Stuart Rose (far
Left) flew in from the UK for the occasion, and is seen here
beside MAS CEO Deshamanya Mahesh Amalean.
Pic by Ishara S. Kodikara
Refinery expansion to be delayed
By Santhush Fernando
Work on the proposed refinery expansion work, which results in
the development of country’s petroleum industry will be severely
curtailed, if the state oil giant- Ceylon Petroleum Corporation,
does not have supporting infrastructure in place.
The Nation Economist reliably learns that, the proposed pipeline
development project, which is vital, for keeping the refinery
sufficiently fed with crude oil, cannot take off the ground, due
to bureaucratic red tape.
“If the proposed pipelines are not laid on time, it will not
only lead to further downfall of CPC, but also to a full-blown
energy crisis, with the country’s ever increasing demand for
energy.” A Petroleum Resources and Petroleum Resources
Development Ministry official said, on grounds of anonymity.
Although Cabinet approval has been obtained, and the government
has recognised the laying of pipelines, as a national priority,
at the grass-root level, CPC faces much hardship due to
“The proposal is to link the Muthurajawala tank farm, the
harbour and the refinery plant, at Kollonnawa. The existing
pipelines are leaking so much, and outmoded that, they cannot be
repaired and have to be replaced,” the official said.
“It’s already a hassle, to supply 50,000 barrels of crude oil a
day, which the refinery needs, when it’s in operation. But to
supply another 50,000, once the refinery has been expanded, is a
nightmare for the CPC. The expanded refinery will become
operational, in another three and a half to four years, but it
will be futile, if we are not able to finish the pipelines by
then. With the country’s oil requirement projections for 2010
and beyond, we will only be able to supply half of its fuel!”
the official added.
An Environmental Impact Assessment (EIA) has been conducted ,and
a Soil Condition Test is now being carried out, by the National
Building Research Organisation (NBRO). However finalising the
route has been an obstacle, as much as 500 families have
reportedly encroached into state land, along the proposed route.
“From Kollonnawa up to Muthurajawela, there’s abundance of state
land and we won’t have to go through private properties. But the
main obstacle has been to acquire land, which although is a part
of the Sri Lanka Railway reserve, has been given to illegal
encroachers, by successive governments. So, it is up to the
government, to relocate families who are living here. Railway
department is yet to take any action, he added.
Another 500 families are said to have encroached onto land,
along existing pipeline from the Colombo Port, which has posed a
security threat as well.
“The cost of the project is estimated to be, nearly 65 million
US Dollars, which itself, is a huge amount for already ailing
CPC, and there’s no allocation, set apart to pay ‘compensation’.
But the government does not need to pay compensation, as this is
state land anyway.”
“In most countries, oil terminals are built close to the harbour,
or close to the sea, away from human habitation. But in Sri
Lanka, due to political consideration, fuel facilities are set
up close to the capital, and that’s why, we have to re-build
refineries, with a huge cost and also expensive pipelines.”
“However, now we can’t even think of building a new refinery
somewhere else, as it would cost about two or three billion
dollars, and have to expand our existing one, and that too
costing nearly one billion dollars of borrowed funds”, he
Rice for animal feed caused the shortage
By Indika Sakalasooriya
The present shortage of rice in the local market is totally due
to a blatant selling of 350, 000 metric tons of rice fit for
human consumption as animal feed by a handful of millers and
traders, claims the Non-Cabinet Minister of Agriculture,
Meanwhile The Nation Economist learns that three multi-national
companies operating in the country were the main purchasers of
these rice. According to highly placed sources, these companies
have purchased a kilo of rice at an average price of Rs.26 to
However, the trading sources further said that the government is
trying to cook up the number as 350, 000 metric tons though the
exact amount was around 75, 000 metric tons, to show that the
present rice shortage was solely caused by it.
“This selling happened last year and it is not rational to say
that the present rice shortage is due to that” they argued.
The reason for this sale is that from a kilo of paddy only 65
percent of rice can be produced, while when it comes to animal
feed, the percentage rises up to 95 percent.
“This is the reason why some of the millers and traders were
very much excited in selling rice to these companies for animal
feed. These companies also gained from the deal as the
ingredients for animal feed like corn and maize had gone up in
price by four times, during 2007” the minister pointed out.
“Let’s assume that the present shortage of rice is not caused by
this selling of rice of which the volume is not certain. But the
question is whether it is ethical to do that in the face of a
global food crisis”, he queried
(See the interview on page 3)
Sovereign bond issues set to continue
By Samantha Whybrow
Despite the controversy surrounding their issue last year,
international sovereign bonds are set to play an increasing role
in managing government debt in the future, according to the
“International sovereign bonds will be an important debt
instrument to mobilize foreign funds in the international
markets,” writes the Central Bank in its latest annual report.
The Bank cites difficulties in gaining access to concessionary
loans as the major reason though argues that bond issues have
the added benefit of coming without strings attached, unlike
typical concessionary loans.
It adds that sovereign bond issues are a good opportunity for
Sri Lanka to convey its international credit story to the
international investor community.
Last year the Sri Lankan government undertook its first
international bond issue of a benchmark size of USD500 million.
However, in its report, the Central Bank points out the recent
bond issue did not increase the overall debt burden above the
desirable level since it was used to settle more expensive
domestic debt that was raised to finance infrastructure during
And although the bank anticipates the government’s repayment
capacity will be enhanced through greater tax revenues generated
from increased economic activities that will take place as a
result of the infrastructure developments, others are more
At a recent public forum, Dr Saman Kelegama, from the Institute
of Policy Studies, pointed out that Sri Lanka can manage to
escape a debt trap, but only if the country maintains a high
economic growth rate and manages the budget deficit.
“The bulk of the debt is maturing after ten years, so we can
manage by getting short-term commercial debt as long as it is
not excessive and as long as we have a plan to reduce debt and
grow the economy,” said Kelegama.
Kelegama stressed the need to bring down the budget deficit by
reducing government subsidies and wastage, particularly amongst
state owned enterprises.
However, in what have been dubbed ‘loss-making institutions’,
state owned organizations such as the CEB, CPC, and CTB
continued to record phenomenal losses in 2007 according to the
Meanwhile, the Asian Development Bank, in February, released a
report confirming the Central Bank’s position on the need to
seek finance through international sovereign bonds in the
future, although stressed the government must be cautious.
“It is likely that the Government will have to issue another
sovereign bond, or take up a syndicated loan, in 2008,” said the