Tuesday, October 27, 2009

those who have left SL please give your opinion - its time to think

Many people in Sri Lanka want to leave for a myriad of reasons. They rightly or wrongly believe that leaving is better than remaining. There are over 3million people born in Sri Lanka or whose parents were born in Sri Lanka who have rights of abode in Sri Lanka, but now live outside. There are at least that many who given the chance would also want to leave. What a sad state of affairs that this is the case! This very fact should be an embarrassment to all of us who remain.
The government in my opinion is doing all in its power to encourage this exodus, by legal or illegal means. They should in fact do the reverse. The legal means is by providing skills that are marketable overseas and then make bilateral agreements with countries to take them, either as immigrants or short term workers. I presume the thinking is that if they leave permanently that will lower the population and reduce the pressure of governing them! Those leaving for employment alone will fill the coffers of the state with their remittances, thereby benefitting the economy, as it currently does to the tune of more than US$3B per annum.
This safety valve is in my opinion the ruse used by all governments in the country to solve the economic problems within Sri Lanka. It absolves the responsibility of the government to create the conditions necessary for full employment and economic growth. Will anyone argue that had there been no opportunities for Sri Lankans to leave, this country would be the basket case of the world? That is because successive governments have failed to identify the resources of this country and put it to productive use within the country. This country really has not been governed during the last 60 years. The rulers have just ruled by decree misleading the people, which led to tragic civil strife, both with the JVP uprising of disaffected Sinhala and LTTE uprising of disaffected Tamils. The latter was more sinister, due to the massive overseas funding available to them.
We do not choose the country we are born in. It is the state’s responsibility, through policies to make all its citizens proud of the country of their birth. This country Sri Lanka has singularly failed to do this job. It is up to us who live here to take up the mantle and create an inclusive just society with morals instilled into our children, where individual freedoms are respected and people feel a sense of belonging. The practice and respect of the rule of law that safeguards fundamental civil liberties will automatically create a society where people want to live, do business, promote true patriotism, which will reduce if not negate all reasons for wanting to leave. Let us build a ‘paradise’ where no one wishes to leave, and be the envy of the world. “It is not just words, it is a call to action.”

"sell Sri Lanka to the Sri Lankans - that is the challenge"

The government has made a statement that it will prosecute people smugglers to the full extent of the law. This means that hitherto, this has not taken place, and thousands of Sri Lankans of all races have been able to leave the country’s shores primarily if not exclusively by sea to destinations far and wide. Of course India has been the quickest escape route to refugees fleeing the war, where over 100,000 currently reside in camps, many of which are in a far worse state than the IDP camps in Vavuniya except that they are not surrounded by barbed wire!!
There are those fleeing tyranny, and others willing to risk their lives to start a better life in a developed economy where they perceive they will have a better life. I know Sri Lankans who have taken this route all the way to Italy, and who are living there illegally hoping one day to legalize their status. Some of whom have done well for themselves in those countries and who have been able to send money home, as evidenced by the little Italy mansions in Wennapuwa.
This route to Italy is still being carried out by professionals who charge a huge fee, and some sell all their personal assets in Sri Lanka to make this journey. For their sake one hopes they get lucky, as it is a gamble! The latest incidents that have been in the news is as a result of the Australian Coast Guard alerting the authorities in Indonesia to intercept boats at their behest, with the promise that costs of holding them will be borne by Australia, while a diplomatic rumpus is created as to their fate, whatever the outcome they will not be returned to SL.
In the latter category are those who have paid handsomely for this journey, and if they just wished to flee the country they could have just hopped a fishing boat to India at very little cost. I firmly believe all those making the hazardous journey are taking a gamble that they hope will pay off, namely receiving refugee status even though for all intents and purposes they are hoping for a better life. They are economic refugees. They say they do not want to be second class citizens in Sri Lanka, but really will they be first class citizens in Australia that has treated their own native Aboriginal population as second class citizens.
It is clear from my interaction with many in Sri Lanka that they are all seeking the opportunity to go overseas. They are not necessarily thinking in the long term, just that they wish to leave for better prospects than they currently have. Some have lost fortunes to people who have duped them with the promise of either employment or visas or both and have disappeared with their money. The only way to arrest this need is to sell Sri Lanka to the Sri Lankans. That is the challenge!!!

Friday, October 23, 2009

Sri Lankan Entrepreneurs are control freaks and very secretive

In an earlier blog entry I was questioning why it was that the CSE was unable to get more companies to list. Apart from the obvious of realizing a sizable tax free gain they can bank or use for other purposes, they seem bent on holding onto their companies so they could do as they please. They are frightened of letting go, and with this mindset, these become one generation companies as the children usually never have the same aptitude or the inclination of the founder and forfeit the inheritance in a short space of time.

I have noticed that the vehicles are in the company name and the running costs are charged to them, including security, drivers, and domestics. Phone and electricity bills are also put to the company as well as the entertainment expenses. Going public means this practice is not permitted. They see this as a perk they cannot countenance paying themselves as they have got used to this benefit.

Money is made by some big organizations out of kickbacks and large bribes are also paid to get some of the government contracts. How does one show these if one were a listed company? I am sure some of the listed companies also engage in this and find an appropriately named diversionary slot to book that into.

Then there are sensitive business relationships that are built over the ages, which the owner feels cannot be divulged and shared, using that as another reason for not wanting to list. This too is short sighted as nothing in life is permanent, but the company takes a life of its own while the individual has no surety of life span. It is important therefore to be more open about the reality and transform the relationships into more flexible ones. The lack of delegation and trust of those that one is delegating to is part of the problem here.

Transnationals and MNC’s have grown as a result of clear procedures and policies for the hierarchy to follow. Individuals should realize that raising capital and bringing in professional managers is an important aspect of growth and longevity of corporations, as otherwise there are limits to growth and prosperity often being overtaken by events outside one’s control. Competition can be tackled head-on.

In summary the Capital Market structures should enable a gradual transition to full listings for such people showing the real benefits in the long run of such a move, which far outweighs the costs that are more perceived that real. The ability to convince the naysayer is at the heart of the real deal. So go for it take no prisoners!

A nation of gamblers – lets try and turn it into a positive force

Efficient capital markets require a broader based share-ownership structure, liquid shares and a wide choice of companies to invest in, along with regulation that safeguards shareholder rights especially small shareholders if they are to be encouraged to enter the market.

The SEC in Sri Lanka seem to forget this responsibility and instead of enabling wider ownership of shares, ensuring companies conform to regulations, within practical boundaries bearing in mind the size and capacity, they tend to concentrate on administration, compliance and housekeeping, that is laughable in this tiny market that is manipulated brazenly by high net worth individuals which the Regulator dare not cross swords with as they are too influential and powerful.

Let us get out of this small mindedness and try and stretch out to the nation at large and try and attract the gambler in the psyche of the people and put terminals at betting shops to allow people to day trade at low transaction cost. All they have to do is to sign a deal with two or three large betting business owners, and at a stroke 5000 betting shops all across the island are brought into the fold as investors. Some of the money that goes into betting on Horses can then be channeled into the stock market. One would say the immense profits that the Betting shops earn would be compromised by this less profitable avenue for them. All one has to do is to suggest that this franchise is given to another body to bring them to heal if they perceive a diversion of the pool of funds available to them.

I am not sure if the betting shops are regulated, but this will be a golden opportunity to legitimize this business and turn it into another revenue generating activity for the government whilst at the same time enabling that class of shareholder to own shares in Sri Lankan companies. I was distressed when a senior official at the CSE once told me that that they did not want such people, unaware of the risks, to invest in the market. However I would counter that these people will be betting (I know that is not the operative word that should be used) on shares knowing that the risk of losing is lower than the English Horses, but for a professional gambler, would actually hold a greater degree of certainty.

This new class of shareholder will make it more difficult for the Colombo based stock manipulator/investor to influence the market with a little money. More money chases stocks which grow, which helps more new and rights issues, which in turn directs the small man’s money into the Sri Lankan capital market instead of the bookie. The bookie in turn legitimizes his business and earns a commission.

The Stock Exchange. A structural weakness and a path to correction

There are some 250+ companies that are quoted on the CSE, which now (October 2009) has a market capitalization of Rs1000Billion or one Trillion! However this hides some important facts. The cross ownership of many companies in the exchange gives rise to an incredible amount of double counting. The true capitalization is nearer Rs400B a considerable drop. This when added to the fact that a further chunk of shares are closely held by founders or major shareholders, both local and foreign that are hardly traded (change hands once every 5 to 10 years as strategic investments where in this market they are known as crossings) the shares usually referred to as free float amount to less than Rs100B. This is only a tenth of the market capitalization. This makes the Sri Lanka market tiny with the government not having anything to crow about.Increase of this free float by more tradeable shares should be the goal.

I am afraid the SEC which is the capital market regulator, and CSE which should promote both a larger number of companies to list and even a larger number of investors to invest do not appear to take their respective tasks seriously. In short they are derelict in their duties, which are both a disservice to the investing public and to expanding the equity market in Sri Lanka. An increased participation indirectly results in more investment, which results in greater economic growth.

Now that the war is over and sense has prevailed, a concerted effort should be made to encourage more companies to list their shares. If need be they can begin in a secondary market and migrate to a full listing as is often done in foreign countries. The junior market will usually have closely held shares and only a small proportion in public hands, with a greater proportion being listed once the company graduates to the main market. The main market should have at least 25% of its shares in public hands to gain any sort of credibility. Existing companies should be encouraged to sell more shares to get to this level. It should also be a way of encouraging subsidiaries of overseas listed companies such as Nestle, Chevron and Tobacco to have more shares in the hands of other shareholders.

None of these objectives can be achieved overnight, but unless it is done without delay according to a plan with targets, the credibility and volatility of this market is called into question. Just look at the fact that 80% of the current trades in value take place amongst no more than 50 companies of the exchange. That means that the balance companies account for very little share movement, adding to the volatility of those shares. Such volatility is open to market manipulation that cannot be proved, as anyone with a few million rupees can manipulate shares in the CSE for their personal gain at the expense of the unwary investor.

Wednesday, October 21, 2009

Taxation Policy – a more equitable route to raise revenue for Government

Way back in ancient history, when I was an undergraduate at the University of Bristol, I did a treatise on the most equitable tax policy that a country should adopt. Sadly in the case of Sri Lanka our taxes are highly regressive (it means that the least well off share a disproportionate tax burden) A committee of notables have been appointed by the President of Sri Lanka to advise him on how best to restructure our taxation system to achieve the revenue targets. The Country is woefully short of the current targets, so much so that they seem to be prepared by wishful thinkers and not professionals. (I mean the targets!)

I presume these new appointees’ brief is to present a more equitable, progressive and workable proposal. This should however not discourage private investment that is an essential engine for growth. I have my doubts that the committee has the will, the intellectual mastery of the complexity of taxation law, or the understanding of their brief, let alone the commitment in time, to avail themselves of this opportunity to put their stamp on the future growth of this country.

A good taxation structure is essential for accelerated growth of an economy like Sri Lanka, as well as for raising funds for Government Expenditure in a more equitable fashion. It must be simple to enact, understand, implement and enforce in order to minimize avoidance and ensure compliance across income streams.

To quote an example from my studies, I came out with a flat tax, on all forms of income (excluding sin taxes that are easy to collect) at a rate of 15%, which would have raised the necessary funds. This rate was considered low enough to reduce evasion, and ensure compliance and collection, increasing the net while eliminating distortions, but collecting the necessary revenue for the government.

The current very complex structure is full of loopholes and tax holidays, with a large proportion of the very wealthy simply outside its catchment, making a mockery of the whole system. With no capital gains taxes, wealth taxes or inheritance taxes Sri Lanka can rightfully claim to be a tax haven for the wealthy.

There are the sin taxes such as on Tobacco, Alcohol and Gaming which are generally easy to collect and yield the greatest revenue, but are extremely regressive, and then there are the import duties mainly on food and fuel that raise another huge chunk for the government. This again is also very regressive in a country addicted to imported food. Import duties on cars have suddenly ground to a halt due to the oversupply in the local market affecting Govt. coffers.
The level of corporate taxation is very unreasonable as there is a two tier tax structure where small companies are taxed at 15% and the moment taxable profits increase to Rs5M the rate increases to 35% creating effective tax rates of over 1000% at the margin.(5M tax 750K, 5.1M tax 1785K effective rate on additional 100K profit is 1035%) or over 10 times the extra profit!! This tax is easy to collect. The banks are highly taxed, a means of gaining more revenue for the government, but this has effectively been as a result of a high discrepancy in borrowing and lending rates. So this tax has been paid by the borrower, and not the bank. You could argue the lender to the bank, the depositor also is effectively taxed by the same logic. It is a no brainer to reduce bank tax rates to the same as other corporate and force them to reduce the margin between lending and borrowing to no more than 200 basis points or 2%. This fact alone should stimulate investment by borrowing by the Private Sector and encourage Savings by individuals.

It is the individuals that are hard to track, document and collect. There are many individuals especially in the provinces that are outside the tax radar. They live in large houses, have a fleet of cars and own numerous unincorporated businesses with hardware stores and tipper lorries. They appear to be very profitable. These individuals have few records that are auditable for taxation purposes.

Including these people with few records but noticeable increases in wealth annually, is going to be a challenge. They generate the money to send their kids to international schools educate them overseas, and remain without a tax file. How can this income get into the tax net to make the system equitable? Government servants should be netted as they are not taxed and vehicle duty concessions for them withdrawn. There should be no incentive other than income to encourage people to join government service. Other fringe benefits, like inefficiency and early retirement at 55 are all benefits that do not need to be made more inefficient by giving duty concessions for their personal vehicles and tax free income.

There is enough fodder for the committee to look at in my analysis above. I go for an across the board corporate and income tax rate of 15% on income both earned and unearned like interest income. As long as everyone is included in the net with an individual allowance be it for a company, single person, married or family of the first Rs500,000, the tax yield will be double what the government currently gets from Income and Corporate taxes at present. I suggest a flat rate of 10% on all non food and medicine sales in the form or a type of VAT as is now implemented.

So guys please brain storm, think outside the box and have the courage to come up with a revolutionary proposal. I am waiting!!

Quango Executives- please do your job, not other’s. If you can't just resign

My thoughts in this area were prompted by remarks attributed to the Chairman of the Securities and Exchange Commission of Sri Lanka and its Director General. There were inferences that the recent events in the United States of America, where the Sri Lankan born Mr Raj Rajaratnam, the Hedge Fund Manager of the US$3B GalleonFund was arrested on charges of ‘insider trading’, had even the remotest connection to similar activity in the Sri Lankan stock market.

There were categorical statements that said that all RR Sri Lankan share transactions would be investigated for possible insider trading. Additionally the SEC chief has said that they would cooperate with the US authorities if necessary.

These two statements if it is limited to just that is unwarranted, uncalled for and not necessary. If I were an overseas investor in the Sri Lankan market, and I read that enforcement chiefs in Sri Lanka make such statements, I would have no respect for their integrity or professionalism, nor would I want to invest in Sri Lanka as my transactions in Sri Lanka would potentially be subjected to investigation if I was involved in any action that resulted in my arrest in the country of my residence.

These people clearly don’t know who they are and what they are about. This is an Emerging Market Economy and Stock Market Investors have to be attracted to invest in this market because the rewards are perceived to be high bearing in mind the relative level of risk attached to the market. Investors initially will not be the bluest of blue blood in Western Countries, but money from various legitimate or illegitimate sources could be channeled into this market via the Nominee accounts of reputed banks. It is not the job of the Sri Lankan authorities to question the source of funds, as it has come into the country legitimately. The investing bank through which the funds come have that responsibility.

Is one going to imply that if a Saudi Prince invests money in Sri Lanka, the SL government is going to investigate if his funds are legitimate? We have no idea how those funds were obtained. There could be kickbacks, commissions, drug deals all rolled into one, but it is out of the sphere of influence and investigation of the Sri Lanka authorities. If one takes the case of the considerable undeclared assets of resident Sri Lankans overseas, who then invest in the SL market through a nominee account of a foreign bank, have the Sri Lankan authorities the right to look behind to have the beneficial owner disclosed? Look at potential manipulation closer to home and not come up with knee-jerk reactions to outside forces.
Lets not forget, Mr Rajaratnam invested money in his own name, and in the name of the Fund where it was on behalf of his clients. It was open transparent. If there was insider trading, that is an internal matter for the Sri Lankan authorities and nothing whatsoever to do with an investigation in an overseas country. These comments therefore have a detrimental affect on investor sentiment in Sri Lanka and to this extent these gentlemen if I can call them such are accountable for their actions that cast doubt on efficiency and efficacy of the Sri Lankan Stock Exchange. Their job is to inspire confidence that they have everything under control.

Their statements should have read as follows: “We are watching with interest the news that a significant investor in the Sri Lankan market is faced with insider trading charges in the US. As far as the Sri Lankan Stock Market is concerned we have no reason to believe that there were any wrongdoings. We monitor our market very carefully for unusual trading activity and call for explanation in such cases and investigate them if we have sufficient grounds for so doing.

Mr Rajaratnam, personally, does not have any significant stakes in any of the companies in the stock market and we do not expect any adverse reaction if he has to dispose of these stakes. It is unlikely that there will be a sudden disposal of his shares arising from his problems in the US. There are even lesser stakes, held by the Galleon Fund in Sri Lanka, and any substantial redemption in the US will not have a significant effect in the Sri Lankan companies where the Fund holds investments. We would like to reassure investors of the integrity of the Stock Market in Sri Lanka and that we monitor the market closely to ensure compliance.”

NB His personal stake in JKH of 8% is not considered significant bearing in mind the high market capitalization and the fact that the shares are both widely held and extensively traded, being one of the most liquid shares in the Sri Lanka market. Anyway all his shares are placed and not dumped as he is a strategic investor.

These two officials must realize that their primary job is to give potential and existing investors in the Capital Markets of Sri Lanka, the confidence that they are well regulated to protect their interests from market manipulation and illegal activity. They should be careful in the use of words not to scare potential investors to Sri Lanka, as the government is doing that job well, and reply to any enquiry from the Press, only to what is relevant and to the point. I attribute some of the blame to the short term market turmoil to these irresponsible statements. If I was their boss, I would fire them or at least publicly reprimand them, so that they cease to shoot from the hip in future. Any comments readers?

Tuesday, October 20, 2009

The case for and against Mega Multinationals such as Unilever

This blog is devoted to the thinking mind, and I am trying to encourage thought on the pros and cons of the operations of large companies like Unilever that have both positive and negative contributions to the economy and the long-term prosperity of the people of this resplendent land, today and for the future.

This company, as an example with its sheer size and extent of brands it owns and markets is just mind boggling. Most consumers are unaware that some competing brands of soap powder are part of the same organization, and different brand managers compete to improve their brand share within this organization.

Their ability to raise capital at lower costs by borrowing from the parent, and their ability to use human resources from a worldwide pool, as well as its ability to recruit people of high caliber due to both prestige, as well as proven career development paths for them is the envy of struggling local FMCG companies. They are also able to use adverts across national boundaries sometimes at lower cost as one can see on Sri Lanka TV where Indian ads are dubbed into to the local languages. Additionally whole factories that are mothballed in other countries can be shipped to SL to set up new manufacturing plants producing low cost products that can seriously undermine the local manufacturers that do not have the same access.

Deep pockets allow them to cut their losses and move on as was the case with the Walls Ice Cream plant in Sri Lanka which failed despite an investment of Rs 3Billion, which was sold to Cargills at a huge loss. This was be a gain to the buyer who is now able to profitably produce Ice Cream, with a low cost base of manufacturing plant which they otherwise would have not been able to achieve.

We have also seen the recent marketing efforts by them for Fair & Lovely and Vaseline creams, with ads aimed at persuading the viewer that both these products are essentials for ones future happiness and well being. I shall not go into the individual necessary attributes of either of these products except to say that all this time our people have maintained healthy skin without them, and I have no reason to believe their skin will be more healthy by their use. I would like comments from the users of either of these products to comment on their particular use, but from my limited knowledge, an employee of mine who began using Fair & Lovely, now has no choice but to use it. If he stops it, his face is a sea of pimples which he never had before he began using it. Granted that each individual’s skin is unique and anecdotal evidence should not damn the product, but I hope I make the point.
There is no question that some of the working conditions at these organizations are far superior to the locally owned businesses, as they have to conform to stricter practices set by the parent company as well as adhere to standards across the globe that they try to meet. Then there are a series of Corporate Social Responsibility Projects they get into to enhance their goodwill with the local community.

They generally have a highly developed and sophisticated marketing system to ensure their customers, mainly the retailers of their products, that their shelves are always full of their products. This is something the local competitors struggle to emulate, and seem to fail, possibly for lack of the economies of scale.

There is the ability to cross subsidize products, so that some products can be loss leaders, and those loss leaders then drown out local competition, as a smaller local company not having this ability is not able to sustain a period of losses that Unilever can on selected products for this exercise which is sometimes a predatory pricing system aimed at dominating the market, especially when a threat from a competitor is seen. Even if the threat of a new competitor is on the horizon, this method can prevent them entering the market for obvious reasons.

On the taxation front, these companies have sophisticated pricing and accounting systems that even some of the local professionals within the organization do not understand but merely follow. It is possible to shift a large amount of profits out by such methods of pricing of products purchased from overseas. It is very easy to do, and anyone who has handled international transactions knows of its frequent use to avoid the tax burden. Often the ignorance of the host country to such actions makes it easy for such practices to be overlooked as there are no local plants(as in humans) to bring this matter to the authorities for investigation. Local politicians are easily bought in very subtle ways by these organizations, usually with relatives of highly placed government personnel or bureaucrats also working for the multinational, a way of diffusing a potential powder keg or even an investigation.

One case in point, unrelated to Unilever, was the recent melamine scare where fingers were pointed at a local company, quite frivolously, and hence hurting its future and prospects, and the finger pointer happened to be a multinational with an agenda.

I have lived most of life overseas and I am not trying to ban these companies, it is just that I believe a level playing field is essential to protect local industry, not tariffs to bar these companies and it is the duty of the Government to level it!!

Foreign Investment and Ownership in Sri Lanka - Think about the realities

There just does not seem to be a proper assessment of what type of foreign participation Sri Lanka needs, wants or should attract. As a result there is a very disjointed and somewhat fragmented approach to foreign ownership and investment in Sri Lanka. The powers running the country just don’t seem to have any sense of what direction they should approach this very important and politically sensitive topic, nor do they understand the pros and cons.

I will gloss over some of the areas and will in future take one at a time to try and give an opinion of the positives and negatives of each type of investment. We must first realize that the world is becoming a smaller place and with the ever increasing migration of Sri Lankans to pasture overseas, there is inevitably a desire of people from other countries wanting invest and/or live in Sri Lanka.

First there is property ownership. Technically the foreigner who wants to purchase property, be it just land or homes on the Island has to pay a 100% tax on the purchase price to the government. One way this is avoided, is in under-pricing the purchase where an element of the purchase is paid to the seller in foreign currency into an account nominated by the seller. Only the value used for the deed on which stamp duty is paid is used to calculate this tax. Other ways this can be avoided is by the purchase of companies with exchange control permission, and these companies which are Sri Lankan can then purchase, build or develop property free of any additional taxes. I am sure a smart mind can come up with more novel schemes, and often foreigners buy in the names of locals to avoid paying the tax.

There is the BOI route which is highly publicized, but in reality unbelievably complicated, and fraught with pot holes along the way. The idea of the BOI is to pave the way for foreign investment, to make it easy and give these investors considerable tax concessions that are not available to local companies engaged in the same business. This enrages and disadvantages local companies. The duty concessions of these companies receive makes it very hard for local companies to compete as there is no level playing field especially when it comes to import duty concessions, unless the local party also forms a new BOI company to obtain these same concessions. BOI investments are also available to 100% local businesses which fall under certain parameters as set out under the Board of Investment rules. The taxation concessions, in my view are significant enough to put existing companies out of business, and is a significant area that requires a complete tax overhaul to make it more equitable to the investor, be they local or foreign, irrespective of them being old or new.

Tuesday, October 6, 2009

“Felling a Tree” Its more sensible to break the law than abide by it

This blog is devoted to thinking out what we do and why and to encourage rational thought to improve our lives, and the environment. I would like to report on a current event, where we do our best to do abide by the law, and are obstructed in our endeavor, by the system that is in favor of the law breaker.

My sister purchased a property over a year ago, and wanted to use the wood from some of the Teak trees that had been planted on her property in Minneriya, to make the doors of her house she is building in Battaramulla. I note below the sequence of events in order to get the necessary paperwork to cut and haul the logs to the building site from the property.

Due the land not having freehold title, as very little land in the Polonnaruwa district have such titles, she had to obtain the assistance of the person who sold her the property. It is not yet registered in her name due to various Jayaboomi land holding laws that make it exceedingly difficult and bureaucratic to transfer property, which effectively is at the discretion of the Divisional Secretary (Pradeshiya Lekam) I will elaborate on the ridiculously restrictive land ownership issues in a different entry in the future as it digresses from the issue at hand.

We met the Grama Sevaka, the local government representative for the village and consulted him on how to go about the process, and we followed his advice. It is the same whether it is to cut one tree or a 100, the quantity is not the issue.

To get a letter from the registered owner of the property, addressed to the divisional secretary giving the property identification, and our identification, requesting permission to cut some trees on your property was the first step. Once that was handed over, the Divisional Secretary authorizes the staff to hand over the forms necessary to fell timber. Before this is handed over, one has to convince the Secretary that it is a reasonable request, such as the purpose for this felling and that the trees were in fact planted and less than 10% of the planted trees will be cut.

Once received, the form is completed. We note each tree, height, girth and location on a map as well as marking the tree for felling. We take the completed form to the Grama Sevaka who then agrees on a time to visit the property to go through the request. He arrives the next morning and goes through the trees that require to be cut. The girth has to be at least 3ft, and no trees can be on the river reservation part of the property, where most of the Teak trees have been planted! Additionally no tree can be cut if they are within 11ft of the canal that brings the water to the property from the Minneriya tank. Both these rules were not known to us till this moment, as all the trees were actually planted so that they could be felled once the time and need arose. Under this ruling 6 of the 16 trees earmarked for felling by the carpenter who had to come from the building site to choose the trees, had to be excluded, so a further 5 had to be found and earmarked to make it economical to transport, and the need for the doors would be fulfilled.

Once the revised number of trees were authorized and certified by him, a further trip to the Divisional Secretariat to obtain their seal of approval for felling had to be obtained before the next layer of authorization, the Forest Department. The next day a trip to Habarana, 35km away had to be made to the Forest Department who now have to approve that these trees can be cut, as only they know type of tree that is permissible for felling. Upon arrival they had gone on a raid (a ruse to profit personally from catching a person who is felling and where the information would have been received by an envious neighbor, rather than a concerned citizen.) Once they returned they said it was too late for them that day and requested to return on Monday morning to pick an officer. That was Friday after a days hanging around waiting for the officers to return from the raid.

On Monday the Forest Ranger was brought, approved, and then had to be returned back to Habarana, making it two round trips. Then the tree cutters had to be commissioned, and they would not give an estimate on the cost of cutting, until after cutting as they need to know the extent of the work and in order to engage transport, the number and length of cut logs had to be worked out. This meant that we were at the mercy of the chainsaw man and the transport man in terms of their charges with little room for negotiation.

Once felled and cut and hauled to a central location using a tractor, we have to go through the whole process of getting the Forest Ranger to put his stamp on each log, and the two round trips to Habarana, for that authorization, and then over to the Grama Sevaka certifying this was all in order, before going back to the Divisional Secretariat to obtain the permit to transport the logs, where one has to give the license plate of the truck, and one is given a window of a day time to put the logs on a truck and haul them to the destination by 6pm at the latest. Along the way despite the correct paperwork, checkpoints require palms to be greased as they can delay the release of trucks. If the truck has not reached the destination by 6pm, it is held and the logs removed and asked to go back to the point of origination to get another permit to take them on another day during daylight hours, something no rational human being can comprehend.

These procedures can be delayed at the discretion of the bureaucrat as he has no reason to speed it up if it interferes with his tea break and any bloody minded reason for delay, so palms have to be greased for them just to do their job and not to cut any corners as this seems to be expected by these people as a right. If one does not wish to bribe this one may have to wait weeks for the relevant permissions and authorizations. Each day of delay incurs lodging costs and meals to say nothing of the long distances to travel, and the attendant vehicle costs. Remember that a Teak tree in this area can be purchased before cutting for Rs4000. So in retrospect it may have been cheaper to arrange to buy someone else’s trees and get them to do all the paperwork of arranging the aforesaid and have them delivered to the destination, instead of coming and doing it yourself. All the time and costs associated above would be avoided.

When one mentions this to the locals, they say they do not get permission to cut, as they just do it illegally as it just makes no sense to go through the paperwork which can cost more than the value of the trees. Small wonder that 90% of the tree felling is illegal, as it is just too time consuming and fraught with too many impediments to do it the legal way.

Most trees are grown on reservation lands as one cannot use this land for housing or agriculture, or along the property boundaries, so if most of those trees cannot be legally felled, then one can either assume that the planter had no knowledge of the felling rules, or if he did he was assuming the person in the future cutting them would just do it illegally. Such is the chaos governing tree felling. The reason this does not get publicity is that no one actually tries to do it legally, and so everyone fells trees that should not or would not obtain permission, thereby making a mockery of the law.

It is important that the law be changed to allow one to three trees a year to be cut on your property without all the paperwork, excluding prohibited trees. We are constantly planting trees with the future in mind and not our personal profit, but do not get any credit for doing so either. Additionally one ought to be permitted to cut a certain number of trees for use on one’s own property for the purposes of building one’s own premises. It is people without means who have property with such trees, and the law seems to help the wealthy, making it harder for the people and leaving them to be exploited by unscrupulous traders and politicians who are able to profit immensely from the huge disparity between market price of trees at source and the value of the logs in Colombo once they have been transported. It is sheer highway robbery that is taking place now, with no safeguarding of trees which is the object of the rules in place.

Update as at 9th Oct 2009: The paperwork was presented to the Hingurakgoda Divisional Secretary to authorize. She after a lot of explanation, passed the matter on to a junior to go to the site and file a report. This assistant had gone through the whole land, looking for non existent boundary stone markings of the last century. A whole day was spent waiting for his report as he was out most of the day at an event- quite unnecessary to his functions, and as yet has not submitted his report before the divisional secretary, for her to be convinced to authorise the request before one tree is cut. No wonder no one goes through all this to cut. They just do it and hope no one notices!!