YAHAPALANA AND THE ECONOMY Part 12
Posted on August 12th, 2019

KAMALIKA PIERIS

Section 1. SERVICES.

SHIPPING

New regulations are to be introduced soon to open up Sri Lanka’s shipping sector to transform the country into a Singapore-style shipping hub, Finance Minister Mangala Samaraweera announced in March 2019. This sector is at present controlled by five local companies.   They control the agencies of shipping lines that account for 74 percent of the global shipping market.

Budget 2019 will lift Restrictions on the foreign ownership on the shipping and the freight forwarding agencies, under these new regulations,” he said adding that it will enable major international shipping lines and logistics operators to base their operations in Sri Lanka.

According to the present law, a foreign entity cannot own more than 40 percent of a shipping company in Sri Lanka. By introducing new regulations the country would be able to attract major global shipping companies like Maersk to make an anchor investment in the country. Companies like Amazon could be attracted to warehousing for e-commerce in the region. Support services such as financial services, legal services, and other professional services can flourish in this environment, he said.

The Ceylon Association of Shipping Agents (CASA) and Sri Lanka Logistics and Freight Forwarders Association (SLFFA) vehemently protested against this move, saying it will not bring in any additional investments or benefits to the country. All aspects of the shipping industry except for agency including terminals, warehouse and depot infrastructure, ancillary service infrastructure, etc are already liberalized.

If this change goes through, all profits of a shipping agency will be repatriated and not retained and reinvested within the country, as done at present by local agents. Also, shipping lines will charge all owners’ costs to the agency and make it a cost center, depriving the government of tax revenue.

There are currently 130 shipping agents handling 35000 container vessels and 6000 non-container vessels. They employ 12,000 people. These shipping agents will lose their livelihood by the government’s move to liberalize the shipping sector. Foreign investors from countries in the region will set up small agency offices for caller’s vessels and reduce business available to local small agents.

PETROL (1)

The National Movement for Consumer Rights Protection (NMCRP) complained in July 2019 that the fuel stations across the country were selling substandard 92 octane petrol. This had been proved by a test conducted by a Ceylon Petroleum Corporation (CPC) lab on samples collected from all parts of the country.”We lodged a complaint with the Consumer Affairs Authority (CAA) that the 92 octane petrol was of inferior quality. The CAA tested samples at the CPC lab and the test results show that 92 octane petrol is actually similar to 90 octane petrol. Some time back the CPC stopped selling 90 octane petrol due to its low quality. But it seems that we still buy 90 octane petrol.”

PETROL (2)

The government had incurred a loss of Rs. 11.3 million when Ceylon Petroleum Storage Terminals Ltd ( CPSTL) bought five 13,200-litre oil bowsers from a bidder who had quoted the highest price, the Presidential Commission of Inquiry investigating corruption in the current administration was told. The Commission was also told that four out of the five trucks were being operated in Kandy and the drivers of those trucks had complained about various issues regarding the performance and facilities.

The tender board had not selected the second-lowest bidder, Senok, citing the exhaust system in the vehicle it offered was different. General Manager of Senok said: “In Sri Lanka, we usually use Euro 1 and Euro 2 standard. So when these vehicles are brought in, our mechanics make some changes to the exhaust system to improve vehicle emissions. That’s what the tender document had mentioned. However, we explained in our tender document that the engine in the vehicle we had quoted adhered to Euro 3 standard. So we didn’t have to make that change to the exhaust system. Senok had been supplying UD Trucks to the CPSTL since 1990 and over 140 such vehicles had been sold to them.

RAJAGIRIYA – ATURUGIRIYA HIGHWAY PROJECT

The Elevated Highway Project from Rajagiriya to Athurugiriya has hit a snag over its proposed route.  The initial proposal of the RDA was to have an elevated highway over the recently constructed Averihena Lake, which serves as a flood retention area, and surrounding paddy fields. The selected area was a part of the Thalangama wetland which was declared an Environmental Protection Area under the National Environmental Act in 2007.

  However  Central Environment Authority (CEA)objected to the project. CEA said, There is a tank constructed by the Irrigation Department, some paddy fields and a flood retention area. This area is important in terms of hydrology and it has rich ecology. The wetland is also the habitat of a large number of bird species. The entire area is rich in scenic beauty. We fear that the proposed elevated highway may damage this sensitive eco-system.”

 The RDA told us that the elevated highway would not cause much environmental harm since it is constructed over pillars, but it is our opinion that there will be significant damage to the wetland when the construction starts,”  CEA said. We are unable to approve such a proposal. True, it is not a natural eco-system, but over the years, it has gradually acquired the same status,”

RDA thereafter proposed an alternative route from Pothuarawa. For this, the government will have to acquire 750 land lots. It requires the resettlement of 1,010 families and the demolishing of about 34 shops, 42 shophouses, and 42 self-employed business places. The land acquisition will leave 106 structures partially affected and 634 fully affected.  residents objected. They asked why the RDA chose a highly residential area for this highway. Many families would lose their properties if the proposed elevated highway goes through Pothuarawa.

We cannot understand the rationale of choosing a highly residential area for the project, shedding the initial proposal which would have caused the least social impact, residents said. RDA’s initial proposal to have the elevated highway over the Thalangama wetland  will not cause much environmental harm as claimed by the CEA.It is a man-made environment with uncultivated paddy fields, a flood retention area, and even jogging tracks. The lands belong to the Sri Lanka Land Reclamation and Development Corporation (SLLRDC). No private property will be affected if the RDA goes ahead with that plan. Any development project must be designed to cause minimal impact on the people’ they said.

GARBAGE DISPOSAL (1)

The garbage collection process in Colombo city was abruptly stopped in August 2019, after the CMC was advised not to send garbage to Kerawalapitiya as it had reached the maximum limit of garbage intake per day.  CMC was told to send it to Arawakkalu hereafter.  There were a delay and garbage started piling up on the streets of Colombo. Derana news of 7.8.19 showed piles of garbage in many places in Colombo, with people complaining loudly and angrily about it. Eventually, after several days, the necessary agreement was signed, payments made and the garbage went to Aruwakkalu. It was taken by a  private transportation company and  CMC complained that the operation was costing a mint of money.  However, Derana news of 11.8.19 showed the residents of Aruwakkalu strongly objecting to Colombo garbage coming there.

GARBAGE DISPOSAL (2)

Prior to the inception of the Fairway Karadiyana Waste Management project, the landfill consisted of two disposal sites; A and B. A plot of land in extent of 10 acres was allocated adjacent to Site B, which was being used to dispose of waste. With the project initiation, the old closed landfill, Site A, was re-opened by the Waste Management Authority as a temporary measure, for the project to progress unimpeded. At present, the re-opened site accepts approximately 60%-70% of the 500 tons per day from 8 local authorities that are legally allowed to dispose of waste at Karadiyana.

As a result of an extended delay in the implementation of the  Fairway Karadiyana Waste Processing Project the temporary disposal site continues to grow in size and at a rate that is not sustainable. The slopes of this landfill are becoming dangerously steep, echoing the memory of the catastrophe that took place at Meethotamulla two years ago.

The National Building Research Organization (NBRO) recently issued a report highlighting the precarious situation of the landfill and the danger of a possible collapse if garbage disposal continues at this site at the current rate. The report highlights the current situation, the dangers (steepness of the slopes, geophysical characteristics of the landfill, potential for gas collection and explosion) and the possible consequences and a set of recommendations to the WMA that can lead to the full closure of the largest landfill in Colombo district.

The community in the area continues to bear the brunt of the consequences arising from the landfill and the inaction of the government. The ground and surface water pollution continues unabated and will only get worse with the rains. There are dangerous levels of gas build up as more and more garbage is piled on top. Leachate from the landfill continues to flow into the surface water bodies around the landfill, namely Weras Ganga that feeds into the Bolgoda River.

GARBAGE DISPOSAL (3)

In April 2019, the media reported that the Fairway Waste Management Project at Karadiyana was at a standstill. The project has been delayed due to various issues raised by the CEB, followed by the Ministry of Finance, the Ministry of Power & Renewable Energy, and by the Treasury, while the importance and urgency of the issue had been pointed out repeatedly by the concerned authorities.

The developer has spent a total of LKR 1,312 million on the project from site preparation, engineering design, advanced payments and civil works (has completed 90% of the piling work), was forced to stop work and demobilize from the site.

In April 2019, the media reported that Fairway was still waiting for the Ministry of Power & Renewable Energy to act on the cabinet decision requesting the CEB to sign a PPA with Fairway Waste management. The government is yet to sign the PPA even after obtaining cabinet approval. The project remains a standstill, as of now. The developer is still hopeful that good sense will prevail and that it will be able to continue albeit the losses that it has incurred.

If the Fairway Waste to Energy project was allowed to proceed as planned, the facility would have been accepting a limited quantity of waste by July 2019  and the full 500 tons/day by not later than November 2019. The project would have provided for the safe disposal of all Colombo South waste.

The landfill could have been reclaimed as a public space in a short span of 4 years allowing its use for recreational activities (walking path, biking and hiking, etc.), as have been achieved with many closed landfills around the world. The inert byproducts from the facility would have been used as a landfill cover as a primary step.

The project would have addressed two critical issues that the country is facing today, sustainable waste disposal and electricity generation. The waste processing facility would have provided enough electricity to power approximately 40,000 households (based on World Bank statistics of average energy use in Sri Lanka), by supplying approximately 83,000,000 kWh/year to the grid. The plant would have been considered a base-load facility as it is designed to operate approximately 8000 hours/year. It would have produced power at a rate significantly cheaper than what is considered to be paid for emergency power today.

The Karadiyana waste Processing Project would have been the most advanced Waste processing plant with integrated biological and thermo-physical treatment. It is already recognized as a landmark project and is cited in international industry publications. The project has met the most stringent environmental, social and Health requirements required by the World Bank to receive USD 6.7 million through its private financing arm, the International Finance Corporation (IFC). It is the only waste project to receive IFC funding.

SECTION 2 INDUSTRIES

COIR INDUSTRY

Sri Lanka’s coir industry, once a flourishing business that provided a major income to thousands of people is now in difficulties, the industry said in March 2019. The small, medium and traditional coir and coir-based industrialists in the country complain that they are now compelled to close down their businesses owing to foreign company invasion in joint ventures with local partners.

Foreign companies engaged in the lucrative coir-based product exports with local partners are enjoying unlimited business freedom granted to them by Sri Lanka government authorities including the line ministries and the Board of Investment (BOI), they alleged. The local companies cannot survive in the stiff competition of foreign firms with modern machinery and resources.

A combination of factors has brought about a steady decline in the business of local entrepreneurs, including non-availability of raw material, the subsequent surge in input prices, the lack of modern machinery, and failure to mechanize their manufacturing process. Foreign companies in Sri Lanka have moved ahead with pre-crushing machines. All necessary facilities and approvals have been given to them by the North Western Provincial Council authorities.

A stock of over 2000 metric tons of calcium nitrate chemical fertilizer is being imported to the country yearly and 90 percent of it is used for coco peat washing process. These multinational companies operating in Sri Lanka wash raw coco peat with water first and calcium nitrate with water thereafter and discharge effluence to the environment causing severe water pollution in the area.

The wastewater produced in the process of removing unwanted elements in the coir substrate manufacturing process should be managed properly to prevent environmental pollution. Some companies are maintaining wastewater treatment plants in their coir factories. However, a Norwegian multinational firm was dumping wastewater to some pits near the river contaminating groundwater at the Deduru Oya area in Kobeigane. All these complaints against such companies have fallen on deaf ears, coir manufacturers complained.

CANNED FISH INDUSTRY

Canned Fish Manufacturing Association of Sri Lanka complained that it has not received support from the present government or the previous government. Mahinda Rajapaksa government had agreed to purchase their products and sell them through the Lak Sathosa network granting a Rs 20 concession for each can. However, neither Lak Sathosa nor the Treasury has settled the arrears accumulating to Rs. 26 million. This has severely hampered their production ability.

Then in February 2015, the Yahapalana government reduced the import duty levied on canned fish by more than 50 percent. This had a negative impact on locally produced canned fish. The Association urged the government to reinforce the duty on imported canned fish to at least the level that existed before February 2015.

Four companies were engaged in canned fish production in Sri Lanka currently and the country’s capacities were thoroughly under-utilized due to large stocks being imported from countries such as China, Chili and Thailand. The local canned fish industry has purchased over Rs 100 million worth fish from the local fishing community for the past seven months.

If the government supports the local canned fish industry it could be self-sufficient,  said the Association. With some relief, we could develop the industry and save the country US$ 64 million annually which is spent on the import of canned fish from overseas. The canned fish consumption is approximately 175,000 cans per day in Sri Lanka and we have the capacity to provide 75 percent of the total requirement.

FISHING NET INDUSTRY

Northsea Ltd, a government-owned fishing net manufacturer, had taken over the fishing net project of the Cey-Nor Foundation. CeyNor had made fishing nets from material from Toray Industries, Japan. “Toray is well known throughout the industry and Cey-Nor had asked Northsea to keep using Toray.

Northsea had purchased substantial amounts of material from J.P. Fernando and Sons, between 2014 and 2017. We were approached, in 2014, because we worked extensively with Toray Industries, Japan. The management that took over after August 2015, following the change of government, started reducing the purchases. “Towards the end, the purchase order was at retail levels. Still, we delivered the stocks to Northsea fishnet factories in Jaffna, Weerawila, and Lunuwila. However, they stopped working with us from May 2017 and instead of importing Toray products directly Northsea started material importing from India.”

Fishnet suppliers told the Presidential Commission of Inquiry investigating corruption in the current administration that Northsea then systematically got rid of suppliers of high-quality material used in fishnets and started importing low-quality material from India. The owner of Delly Enterprises stated that the Chairperson of Northsea, S.T. Parameswaran threatened him in July 2017 after he had taken part in the bidding process to supply material to Northsea that year. “He told me that he was the brother of a Jaffna politician and that I should not mess with him. And I didn’t want to continue for obvious reasons. ( Island 4.7.19 p 3)

MINERAL SANDS INDUSTRY

Lanka Mineral Sands Ltd (LMSL) will be restructured under a public-private partnership with a leading Japanese conglomerate, to take over strategic mineral production, especially ilmenite at the Pulmoddai deposit, reported the media in January 2019. This firm will manufacture Titanium dioxide from ilmenite. This deal was a major outcome of President Sirisena’s visit to Japan.

LMSL is not in a position to enter into value-added products such as making Titanium dioxide, as it has neither the financial and human resources or the necessary expertise. The only option is to enter into a joint venture with local or foreign investors to produce value-added mineral products.

The LMSL sells its main mineral products such as Ilmenite, Rutile, Zircon, ilmenite, etc through an international competitive bidding procedure. LMSL currently exports mineral sand to Russia, Japan, the US, and the UK.  The present production is limited to 90,000 tons of ilmenite, 9,000 tons of Rutile and 5,500 tons of Zircon annually. LMSL has already mined a massive stock of mineral sands over the past 50 years along the beach from Pulmoddai-Kokilai exhausting mineral sands and therefore the company is not making much money at present, it is currently running at a loss and salaries are paid jointly with Treasury.

Employees of the company are up in arms against this attempt to divest the mineral resources at Pulmoddai. They say the agreement with the Japanese company was through an unsolicited bid.  They said that modification and upgrading of the present plant in Pulmoddai has been completed, and the company is contributing large sums of money to the national coffers but it cannot carry out its functions with maximum productivity due to lack of human resources and other facilities.

They point out that these mineral sands are public assets. They contain strategic Rare Earth Elements. Minerals and deposits are found along the eastern coastal belt from Mullaitivu to Pulmoddai and from there to Kotuwakambi. This is one of the most treasured natural resources of Sri Lanka.

GARBAGE RECYCLING INDUSTRY

In July 2019  it was discovered that a consignment of 102 container loads of garbage consisting of ‘clinical waste’ had been imported from the United Kingdom.   Some loads had been dumped on high ground at Katunayake and the rest was held at the Colombo Port. They had remained uncleared for more than 15 months.

On examination, Sri Lanka customs found that the waste had been imported as used mattresses, but contained bio and clinical waste, in contravention of international laws on the transport of waste material. Extremely hazardous” materials were mixed in with mattresses, plastics, and clinical waste. There was a gas emanating which could be harmful   and the stench is unbearable.” This is a well-organized racket that has been going on since 2017,” said Customs.  It is violating environment laws including the international treaty which prevents the import of hazardous waste.

Minister of Finance, Mangala Samaraweera told Parliament that these imports had begun in September 2017. From September 2017 until March 2018, 241 waste containers had been imported to Sri Lanka. The waste included used metal consignments, used mattresses, used carpets, bird feathers, worms and glass scrap.   “Of these containers, 111  were detained at Colombo Port. 130 containers were released by Hayley’s Free Zone Limited. Hayleys has re-exported 17 of them in 2017 and 2018 to India and Dubai.

Hayleys Free Zone Ltd, an integrated logistics and entrepot trading company operating within the Katunayake Export Processing Zone, was reported as the importer of the consignment of clinical waste.  The company firmly denied this.  Hayleys said this consignment was sent from the UK by a company named Vanguard Ltd  to be received here by  Ceylon Metals  Co. Hayleys said that Muthurama Shri Sashikumaran who was the head of Ceylon Metals, had  got into financial difficulties,  his business operation got stalled and the consignment had been left unclaimed for the past seven months. Sasikumaran denied that the containers he had imported contained biowaste.

Sri Lankan authorities said they were going to send the consignment back to the UK. The British government looked into the matter and announced that it was willing to take back the containers.  The public was told that Indonesia and the Philippines had also returned shipments of foreign rubbish to their ports of origin. Indonesia was sending more than 210 tonnes of garbage back to Australia and Canada has agreed to accept 69 containers of rubbish it had shipped to the Philippines between 2013 and 2014. 

Gomi Senadhira, the former Trade Commissioner, had previously warned the government of dire consequences of importing of garbage of all sorts in accordance with the Sri Lanka-Singapore Free Trade Agreement.

The Centre for Environmental Justice (CEJ)  filed a writ of Certiorari and Mandamus in the Court of Appeal over the two consignments. The petitioners said that some importers have brought in consignments of waste material including clinical waste, used cushions and mattresses, plant parts, plastic waste and other uncategorized and hazardous waste into country from United Kingdom in the guise of importing permitted consignments with the intention of disposing such waste within the country and such action may cause severe damage to the environment and serious threats to public health.

The petitioners pointed out that if any such consignments containing chemical waste are permitted to be buried here or sent to open dumps, the underground water table and the surrounding environment will be severely affected. They have said that such waste imports have been done without adhering to the terms of the BASEL Convention on the Control of Trans-boundary Movements of Hazardous Wastes and Their Disposal for which Sri Lanka is a signatory and had ratified the said convention in 1992.

Petitioners seek a Writ of Certiorari quashing the validity of all documents/permits granted by any authority to import waste in violation of the provisions of the NEA.  Also, a Writ of Mandamus, directing the Customs Department to act under and in terms of the customs Ordinance No. 17 of 1869 as amended in taking measures to punish the offenders. They also seek the court to direct the respondents to take steps to re-export the waste containers back to the United Kingdom, the country of origin.

Foreign garbage is reported to have been brought here for the last several years thanks to an amendment passed in 2013 to the Finance Act. This amendment had removed certain strict restrictions which enabled the Customs to monitor such imports. This was done to facilitate imports for BOI ventures.

Under Gazette notification No. 1818-30 of 2013, any new enterprise where at least 65 percent of its total investment has been from foreign sources of which the total turnover is from the export of goods and services were exempted from certain provisions of the Customs Ordinance, Exchange Control Act and the Imports and Exports (control) Act.  This meant that Sri Lanka  Customs has no right to inquire into these illegal imports or at least to check those containers. This is, in turn, meant that no investigation can be carried out into illegal imports of this nature.

BOI Chairman disagreed. This extraordinary gazette notification facilitated trade activities such as entrepot trade, offshore business, front-end services, operations of the headquarters of leading buyers and logistic services. Certain goods have been limited or prohibited from being imported into the country as per the Custom’s Ordinance. If someone has violated these regulations, legal action can be taken against them.

He said that the Regulations to this Act provides for the operational guidelines and the BOI Agreement too stipulates the conditions the Hub Operator has to fulfill. The Act enables electronic monitoring of all CUSDECS by Sri Lanka Customs (SLC) and with the adoption of synchronized procedures by the SLC and the BOI and monitoring of the cargo movement using GPS there is no room to smuggle anything, leave alone waste material,” he said. The government did not see any valid reason to cancel the said extraordinary gazette notification. ( Continued)

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