THE NEED FOR INCREASED FUEL PRICES AND DIVESTITURE OF CEYLON PETROLEUM CORPORATION
by Sanjeewa Jayaweera
In a recent TV talk show “Face the Nation”, a panel of economists mostly with experience in the private sector delivered an insightful and no holds barred discussion on the recent hike in petroland diesel prices. The participants were Murtaza Jafferjee (Chair of Advocata Institute), Nishan De Mel (Executive Director Verite Research), Dr Anila Dias Bandaranaike (Former Assistant Governor of Central Bank) and Shiran Fernando (Chief Economist of the Chamber ofCommerce).
It was good to listen to a discussion where no attempt was made to cotton wool the perilous position of the Sri Lankan economy. It was pleasing that all panelists felt that the price increase was inevitable even if taken rather late in the day. Some of the key points they made were:
Murtaza Jafferjee said, “market forces are not allowed to operate due to government interference, which prolongs the issues at hand despite creating an illusion that everything is fine. The government is trying to solve a foreign currency solvency issue by using toolsintended to manage a liquidity crisis. We spend a net amount of US $ 3.5 billion in a year on fuel imports (when the average price is US $ 70 per barrel) which is the single largest import, and that it is vital to price it correctly.
“The revised pricing, unfortunately, does not still cover the cost of diesel. The government should have done price increases in stages. In New Delhi, the price of a Liter of petrol is Rs. 250/- (SEE TABLE 1). According to a World Bank study, the fuel subsidy benefits the richest 30% of households (here) with 70% of the benefit. He proposed that to ease the burden of higher fuel cost on the poorest segment of the population, there needs to be a cash transfer, like Samurdhi benefits to that segment instead of subsidizing all and sundry.”
His message was not to play politics with fuel prices, causing a huge hole in the economy. He was astounded that the single person income tax-free threshold of Rs.three million for a year introduced by the government in 2019 is 400 per cent of the country’s per capita income. This contrasts with countries like Singapore and Australia, both of whom have a much higher per capita income than Sri Lanka, but the tax-free threshold is only around 20% of per capita income.
Dr Anila Dias Bandaranaike said, “leadership need to make tough decisions and convince the public to undergo certain hardships to work towards a better future.” Those presently overseeing the management of the economy are out of their depth and drowning. Post-2015, when attending parliamentary oversight committees, she observed that most MP’s were absent and that many of the few who attended did not understand what was going on! She was critical of the private sector and referred to them as the NATO = No Action Talk Only! But unfortunately, she declined to comment about the role of the utterly inefficient and subservient public service of which she was part for several years!
Nishan de Mel said, “The present government reduced a plethora of taxes when it came to power, thereby significantly reducing government revenue—estimated to be around Rs. 600 billion. These measures were to act as an economic stimulus leading to economic growth. Unfortunately, no analysis has been done to determine whether these measures achieved the desired result.”
He lamented that there is a lack of economic data readily available in our country. This prevents proper monitoring and analysis of various actions resorted to by the government and hinders future planning. He cited an example of how the Central Bank has filed a court case to prevent access to certain data relating to the bond scam. They retained expensive lawyers from private practice as opposed to those from the Attorney Generals Department. The government is resorting to local borrowing to bridge the budget deficit, and by keeping the lending rates below inflation, the government is borrowing at zero cost. Our economy is in a precarious position.
The Need for a Formula for Pricing Fuel
Those who have some knowledge and understanding of how the government should manage the economy have been of the view for several decades that the government needs to price the supply of fuel, electricity, gas, and many other commodities and services based on a formula ofcost-plus profit. In 2018, the Yahapalana government did introduce a price formula. They were subjected to both criticism and ridicule. With an impending election, the practice was hastily withdrawn. A document prepared as far back 2003 proposed that the fuel price formula should be based on:
CIF price (FOB + freight + insurance + evaporation losses) to which the following costs be added (port + jetty charges + customs and excise duty + financial charges + storage and terminal charges + marketing and distribution charges) to arrive at the wholesale cost.
The retail price was to be arrived at by adding the following to the wholesale cost (profit margin of 5% + retailer and dealer margin of 2.5% of the wholesale price + VAT).Fuel prices should be revised monthly to reflect changes in Singapore Platts average FOB price and exchange rates.
It was a simple enough formula to have been implemented. No doubt there would have been periods when world oil prices spiked well above US 100 per barrel, the retail price would have been high. However, we all know that no commodity or service can be provided below costother than for a short period. Unfortunately, this type of logic has escaped those who have governed our country for so many decades.
Actually, it is a case of not being able to take tough decisions at the correct time. Short-term political popularity has overridden the compelling need for sound economic management. That our country has lacked visionary leaders since Independence is evident. However, we, the masses, are equally culpable for our predicament. The quotation “people get the government they deserve” is quite apt.
In addition, high fuel prices hopefully should also act as a catalyst for car owners to adopt practices such as car-pooling. The benefits extend beyond just financial to also reducing traffic jams on our roads, pollution etc.
The Losses incurred by Ceylon Petroleum Corporation (CPC)
At the outset, I must express my disappointment that the latest CPC Annual Report available is for the year ended December 31, 2018. This reflects the overall inefficiency that pervades state institutions where the work ethic is deplorable. Many companies listed on the Colombo Stock Exchange releases their Annual Reports within 90 days of the end of the financial year. An examination of the financial statements of CPC for 2018 reveals the following.
CPC posted a loss of Rs. 105 billion, of which Rs. 82.7 billion was on account of foreign exchange rate variation and a further Rs. 12.9 billion due to interest costs. Unfortunately, even at a Gross Profit Level (Revenue less direct costs), there was a loss of Rs 3 billion. TheBalance Sheet as of December 31, 2018, reflects that CPC has accumulated losses of Rs. 325.6 billion. The net assets are a negative of Rs. 281.7 billion. Borrowings were Rs. 296 billion,although there was Rs. 110.6 billion of bank deposits, investments in treasury bonds and bank balances. Other liabilities of Rs. 313 billion included foreign bills payable for imports of Rs. 245.5 billion.
CPC is insolvent, and the Auditor General has qualified his report by stating, ” The Corporation’s ability to continue as a going concern without the financial assistance from the Government is doubtful.”
I have included a table (2) detailing the eight-year history of the performance of CPC and some essential information. The absence of the financials for 2019 and 2020 prevents me from doing a 10-year analysis. As can be observed in 2011, 2012, and 2018, CPC made a loss even at Gross Profit Level and posted a loss before tax in five out of eight years. In 2011 and 2012, the average price for a barrel of Brent crude was in the region of US $ 112, and the consequences of not adjusting the fuel price are apparent. On the other hand, in 2013, despite the average cost of a barrel of Brent being US $ 109, CPC was able to post a Gross Profit of Rs. 26 billion as fuel prices were adjusted to reflect the cost.
Poor Management of CPC
Given the pivotal role that CPC plays in our economy, there is a need to ensure that people of skill, proven competence, and experience be appointed to both the Board of Directors and the key management positions. I have noted from perusing the corporation’s Annual Reports that the Executive Chairman post is like a merry go round. In the year 2017, there were three different Chairmen, whilst in 2018, there were two separate Chairmen. No organization, let alone one as large as CPC, can function effectively without continuity. In addition, the calibre of people appointed to the post of Chairman is a cause for concern.
In 2017, the Minister of Petroleum appointed his brother as the Chairman. Under any circumstances, this appointment can only be deemed as nepotism. In addition, the Chairman being a former cricketer, had no relevant experience nor proven competence and maybe the skill sets required to hold this position. The infamous hedging deal that cost the country’s taxpayers a sum over Rs. 14 billion between 2007 and 2008 occurred when another former national cricketer was the Chairman of CPC.
Do we ever learn? Another who served as Chairman in 2018 is a person whose career was in the Sri Lanka Administrative Service. With all respect, having dealt with various senior public servants in our country during my career in the private sector, I have grave reservations about their capability to hold a position that requires proven commercial acumen and expertise. A question that needs to be posed and answered by the Chairman and the Board who served the CPC in 2020 is whether they took advantage of rock bottom prices in the world market to secure our future supplies.
Auditor General’s Report On CPC
The Auditor General’s (AG) Report for 2017 and 2018 of CPC and subsidiary run into 29 and 18 pages, respectively. They are a damning indictment of maintaining poor accounting records, lax internal controls, non-adherence to Sri Lanka Accounting standards, lack of evidence for audit, non-compliance with laws, rules, regulations, poor management decisions, operating inefficiencies, and transactions of contentious nature.
Due to the constraint of space, I shall only list a few of them, although any reader interested can access the annual reports of CPC on their website www.ceypecto.gov.lk
Differences in balances payable/receivable as reflected in the accounting recordsof CPC and other parties:
A difference of Rs. 670.93 million in the inter-company balance between CPC and the Subsidiary – Ceylon Petroleum Storage Terminal Ltd., as of December 31, 2017, increased to Rs. 2.47 billion by December 31, 2018.
A balance difference of Rs. 436.78 million observed between CPC and the Department of Inland Revenue (IRD) regarding Income Tax, Economic Service Charge, and Value Added Tax payable/recoverable.
There is a balance difference of Rs. 778.3 million between CPC and the CEB as of December 31, 2018
An amount of Rs. 2.7 billion is reflected in excess as payable to Sri Lanka Customs compared with Sri Lanka Customs’ records.
No basis disclosed or audit evidence provided for the provision of Rs. 142.92 million made on inventory items to be written off.
An amount of Rs. 4.59 billion payable to the People’s Bank on account of hedging transactions between 2007 and 2009 has been excluded from the financial statements of CPC. In addition, Commercial Bank of Ceylon Plc has filed a case at the Commercial High Court, Colombo, claiming US $ 8.65 million from CPC. The total estimated loss due to the hedging transactions between 2007 and 2009 is estimated to be Rs. 14 billion.
An estimated loss of Rs. 1.5 billion because of non-implementation of collecting a monthly utility fee from CPC- owned dealer operated filling stations and Treasury owned dealer operated filling stations from January 01, 2014, onwards.
CPC has borne Rs. 53.57 million and Rs. 259.9 million during 2017 and 2018 respectively as PAYE Tax of its employees without deducting it from their personal emoluments.
A sum of Rs. 307.8 million incurred in purchasing seven motor vehicles in 2017 without the approval of the Ministry, General Treasury and the Department of Public Enterprise.
An agreement has been entered into with Hyrax Oil SDN BHD to build a Lubricant Blending Plant on a BOT basis in May 2016. No comparable proposal has been obtained, which is the acceptable procedure. The AG’s report also mentions that they could not ensure that a properfeasibility study had been conducted for the project.
The list is much longer. The Auditor-General and his staff need to be commended for their work. In most countries, an audit report of this nature would result in action against officers responsible. I believe most audit reports compiled by the Auditor General on state enterprises would be equally bad or even worse.
The Impact of fuel Prices and politicization
The Minister, in justifying the price increase said, CPC has borrowed around Rs. 600 billion from People’s Bank and Bank of Ceylon, and any further borrowing might destabilize the entire banking system.
There is no doubt that an increase in fuel prices has a ripple effect that runs across from the cost of transport to goods, resulting in hardship to some population segments. It mainly impacts the poorer segment struggling to make ends meet. The popular euphonism in Sinhalese that most opposition politicians say “gahen watuna minihata gona anna” which is equivalent to the English “from the frying pan to the fire.”
In the 2018 Annual Report, it is disclosed that CPC lost Rs. 14.7 billion due to selling kerosene below cost. The loss per litre is Rs. 56.86. The annual report states, “The subsidy on kerosene is largely misused by the transport sector when the price gap between the diesel and kerosene is more.” However, as Jafferjee said, the solution to avoid this pain is to make a cash transfer to those in the poverty net and not benefit the rest of the population.
I came across a Sri Lanka review done by the World Bank in 1996 where they say “Sri Lanka’s large array of safety nets are both costly and poorly targeted. They typically have transferred resources, albeit modest, to a large fraction of the population above the poverty line and inadequate sums to the very poor.” Unfortunately, 25 years on this statement is still applicable.
It is deplorable that politicians of both the main parties try to politicize fuel prices despite being aware of the massive negative economic impact of not pricing fuel based on the cost-plus profitformula. Their job is also to educate the public and stop childish symbolic acts of riding bullock carts, cycles and three-wheelers. The decision to import expensive vehicles for MP’s needs our unreserved condemnation. One must live hoping that action will be taken against the members of the CPC Board who in 2017 ordered seven vehicles for Rs. 307 million with no covering approval.
In my view, the need to privatize the Ceylon Petroleum Corporation is compelling. The government can maybe hold a majority stake of 51%. However, the management of CPC by an independent professional team outside government interference is a must. This is equally applicable to many other state corporations like the CEB, the National Water Board and Litro Gas.
I can imagine the howls of protest this will draw from the JVP, other left-wing parties, and trade unions. The opposition by the trade unions is understandable given that the staff cost at CPC for the year was Rs. 6 billion, which increased to Rs. 12.7 billion inclusive of the subsidiary company. As to whether the Rs. 259.9 million borne by CPC as PAYE tax on behalf of its employees is included or on top of this is anybody’s guess. The cost to company (CTC) of anan employee at CPC (excluding the subsidiary company) is approximately Rs. 180,000 per month.
The government must draw upon the success of the part divestiture and independent management of Sri Lanka Telecom and Sri Lankan Airlines under Emirates to restructure all loss-making institutions. These changes should have been implemented long ago, but as the panel of experts said in the Face the Nation talk show, it is better late than never.
Where are Sri Lanka’s economists?
By Uditha Devapriya
Asoka Bandarage’s Colonialism in Sri Lanka (first published in 1983) follows a long line of books on the impact of British land policies in Ceylon. The best of these books remains S. B. D. de Silva’s The Political Economy of Underdevelopment, first published by Routledge in 1982. De Silva, easily one of Sri Lanka’s finest economists – though he would have detested the genericness of such honorifics – died five years ago. His death went by almost unnoticed. But in every book that has been written and every effort that has been undertaken to appraise the country’s impoverishment at the hands of British colonialism, one notices his influence, his life’s work.
De Silva came from a generation of economists – among his contemporaries he counted were G. V. S. de Silva, H. A. de S. Gunasekara, and Gamani Corea – who remained, to their last day, profoundly concerned about the plight of their country and of the masses. They were all convinced – and none more convinced than S. B. D. – that Sri Lanka’s future lay in industrialisation, or more specifically production. Taking the famous example of the pin from Adam Smith’s The Wealth of Nations – a tract that is regurgitated in toto by Sri Lankan economists today – he contended that Sri Lanka had failed to grow: it made and sold garments, but did not even manufacture a pin. In every aspect and in every corner, Sri Lanka remained dependent on imports.
A small state located to the south of a regional hegemon, in an ocean that remains heavily contested by a wide array of superpowers and major powers, cannot thrive without industry. Contrary to those economists who offer solutions in the form of liberalising or liberating the economy – the question can be asked, liberated from whom, or what? – S. B. D. de Silva’s generation did not limit themselves to abstract theorising. They were moved, on the contrary, by practical considerations – as all thinkers and economists must – and they were convinced that before undertaking any major reform, they had to first ascertain their impact on all sectors. They did not shy away from attacking or critiquing policy orthodoxies, because they knew that before everything, policies must work. If they did not, or if they risked destabilising the country and its society, there was no point pursuing them.
Indeed, all of them questioned these orthodoxies, and none with as much zest as S. B. D. His work targeted two assumptions – that Sri Lanka’s plantation sector was modern, and that Sri Lanka’s capitalists were progressive minded – and effectively debunked both. That the country’s plantation sector is stagnating today is evident enough: the situation is so bad that when the previous regime mandated a Rs 250 hike in daily wages, no fewer than 20 companies went to courts, seeking to quash the decision. Value addition has declined in the sector since the 1980s, and much of the money spent by companies has been on marketing and advertising. Yet, instead of addressing and arresting these declines, Sri Lanka’s capitalists seem content in letting things continue. This is the gist of The Political Economy of Underdevelopment: that unless those who can reverse stagnation steps in, Sri Lanka will continue to shrink, to remain the economic basket-case it has been for a long time.
Unfortunately, for some reason – for some not entirely unknowable reason – Sri Lanka’s economic sphere has been penetrated by influential think-tanks and ideological interests which have strayed from this approach. To put it bluntly, we no longer find economic thinkers who are ready to question policy orthodoxy, who can point out the fallacies of pursuing it, who, indeed, can show just how incompatible the needs of the country are with the implementation of such orthodoxies. When the country was urged to reduce its food subsidies in the mid-1960s, Gamani Corea, then despatched to represent Sri Lanka at the World Bank, argued that given the tiny military the country possessed at the time, welfare remained an important stabilising influence: to reduce them now, he argued, would be to incur higher defence expenditures later. If it’s impossible to think of economists today, basking in their think-tank-doms, making such statements, it’s because there aren’t any.
In the foreign policy sphere, the likes of S. B. D. and Gamani belonged to that breed of intellectuals who were convinced that Sri Lanka’s future lay in the Global South. Both Corea and de Silva hailed from elite and middle-class backgrounds, yet both saw and accepted the practicality of following these principles. Their intellectual descendants today – if they can be called as such – remain, as S. B. D. himself observed, beholden to powerful interest groups, to external funding and patronage. In such a context, it is easy to understand why policies which have failed in the West, which the West is abandoning in favour of full-scale industrialisation, are still being touted, still being promoted, still being idealised, in countries like ours: because they are easier to market in places where intellectuals and policymakers, not to mention officials, accept them without question.
The solutions prescribed by these interest groups remain predictable and utterly bland: from tweaking labour laws to privatising State corporations, from floating the rupee to closing State-owned factories, these reforms have been promoted for as long as one can remember. Yet it remains intriguing, if not perplexing, as to the relevance of such policies to countries which have never, since independence, grown as much as they should have. How relevant, indeed, are they to the affluent economies of the West, which are rejecting them on the grounds that, in the words of a former US Economic Advisor, the State “had to step in” where benefits no longer flow from “the individualised decisions of those looking only at their private bottom lines”?
Or to restate the question: how relevant are these policies at all? Free market orthodoxy, or market fundamentalism, of the sort advocated by Colombo’s economic circles today, no longer holds ground. It was rightly critiqued by the likes of S. B. D. de Silva, who saw such reforms as serving the role of maintaining if not entrenching the financial establishment, with hardly any benefits at all for the key stakeholders who mattered: the people of the country.
There is an obvious paradox here. On the one hand the world is waking up to the harsh reality that austerity will not put food on their fable, that if a country is to survive it must pursue industrialisation and ensure self-sufficiency in critical sectors, food being an obvious priority. On the other hand, multilateral agencies, even those whose mandate is to provide aid and assistance, are selectively enforcing such measures in the Global South, while not bothering to pursue them in the more affluent Global North.
In this context, it is interesting to note what US trade representative said in defence of the Biden administration’s pursuit of protectionism and of a trade war in the chips and semiconductor sector with China. When asked by Foreign Policy magazine as to whether such policies were at odds with the US’s advocacy of free and open markets elsewhere, she replied,
“There is a direct through line between the state and expression in the economy. And that is a really important aspect of another shared challenge we have with our European friends and other partners around the world in terms of a sustainable path to economic growth and development. In a version of globalization where the field is not level, we are having to figure out how to adapt.”
Countries like the US will always tweak the rules and break with orthodoxy, because it serves their interests to do so. It is questionable as to why Sri Lanka cannot do the same. To rephrase that famous adage by Munidasa Cumaratunga, a country which does not produce even a pin cannot be said to prosper, and a country which excludes production from its priorities cannot hope to prosper at all. 70 years ago, Joan Robinson pondered whether Sri Lanka’s trade unions would ever witness capitalists willing to share the fruits of their enterprises with them. 70 years later. we ponder whether Sri Lanka will ever see economists and thinkers willing to think beyond policy orthodoxy, willing to think, not of external interests, but of the country they live in, and the people they live with.
Where are these economists? Where are these thinkers? Five years after the passing of Sri Lanka’s last great economist and one of its last great thinkers, these questions remain unanswered. The writing is on the wall, but no one appears to be aware of it. Not even those foundations and think-tanks which so ubiquitously display the names of these intellectuals, which claim to speak on behalf of their legacy, yet which end up maintaining the same narratives their forbearers tried so hard and valiantly to question, reform, and make more relevant to their people. This is what it is, and it should be called out as such: it is a tragedy, a national tragedy.
The writer is an international relations analyst, researcher, and columnist who can be reached at firstname.lastname@example.org
Hoffmann gets involved in the over 100-year old Wild Life and Nature Protection Society
Excerpted from the authorized biography of Thilo Hoffmann by Douglas. B. Ranasinghe
One year in the early 1950s the Wildlife Protection Society of Ceylon held its Annual General Meeting at the Galle Face Hotel in Colombo. ‘Thilo went as a visitor, and watched the proceedings. He met the President of the Society, C. E. Norris, and intimated to him that he wished to join the society.
Norris promised to send an enrollment form, but it never came. The Society had no office in Colombo, and without an address it was almost impossible to contact it. Both President and Secretary were up-country planters who ran its affairs from their estate offices.
After years of trying Thilo eventually managed to become a member. He was soon asked to join the General Committee, which at the time included several prominent personalities such as Dr R. L. Spittel, Sam Elapata Sr., E. B. Wikramanayake QC, R. L. Poulier and D. B. Ellepola.
Thilo Hoffmann became the Treasurer of the Society in 1961, then was its Honorary Secretary for seven years from 1962, and finally its President for a record continuous period of eleven years from 1968 to 1979.
Some of the last Britishers in the Society did not like him. It seemed that they resented his ascendancy. They referred to him as ‘the little Swiss’, where the adjective did not apply to his build, which was about the same as most of them. One was the editor of the Society’s magazine, Loris. When Thilo Hoffmann was given the Conservation Award for the year 1965 – presented by the Soil Conservation Society and sponsored by Selwyn Samaraweera – this man wrote a critical editorial titled ‘Medals for the Meritorious’. That upset Dr Spittel, who put him in his place and obtained his resignation.
Later, things changed, as Thilo Hoffmann progressed with his ‘bridging’ function. On the occasion of a District Meeting in Kandy, Dr Nihal Karunaratne humorously referred to the time he joined the Society when he was often “the only black bugger there”. Thilo responded, to everyone’s amusement, “And now I am the only white bugger here!”
Developing and leading
When Thilo accepted the honorary job of Secretary, the office of the Society, and its single employee, Sam Rajendran, had to move to Colombo. A tiny cubicle was rented at the Friend-in-Need Society at No. 171 General Lake’s Road. Here, a small desk, a chair, some files and less than Rs 500 in cash – the total assets of the Society – were installed, with Rajendran as clerk-in- charge.
Two years later, with the Society growing, more space was needed for’ its office. A shop in Bogala Building at Upper Chatham Street close to Baurs building was taken on rent. This was used for a short period. In 1964 the office was moved to Chaitya Road, opposite the new lighthouse. This was done on Thilo’s initiative. The premises were secured for the Society by him.
The small, unoccupied structure there had been used during the last World War by an Army dhoby and belonged to the Army. The only other building along the newly constructed road, then named Marine Drive, was the Ceylon Light Infantry Headquarters, which is now part of the Navy Headquarters.
The structure was improved and enlarged from time to time, and a wall built around the premises. An article by Sam Elapata Jr. in Loris, reproduced as Appendix III, describes Thilo’s involvement in this.
For the first time, the Society had a regular place to work in, and to hold the monthly committee meetings, even the general meetings, and to house its library – started by Thilo – and files, thus serving as a central rallying point for all members. It remained the headquarters of the Society for 34 years. Recalling his early days Thilo says:
“I was young, inexperienced in public speaking and shy. I attended my first half-yearly meeting (at Kurunegala, I think) as Hony. Secretary in the role as I saw it: organizer and recorder but not active participant. The President, ‘Ted’ Norris was discussing a possibly controversial subject (I cannot remember what). When he had finished there was silence, and so he just ordered me to speak. I was, of course, not prepared, and it was the first time I spoke before a public audience, not in my mother tongue, and with a strong Swiss accent. But it did not go too badly and that gave me confidence.”
He continues: “In the course of time I learnt to speak freely in public, and occasionally I even enjoyed it. But generally I had to give myself a push. This was also the case when I had to meet powerful VIPs, such as Ministers, Prime Ministers and Presidents. My basic shyness never left me, although most people have perceived me quite differently.
“Of political and other VIPs I got to know very many in the course of my work for conservation, and a few became friends, such as Ministers Edwin Hurulle and Nissanka Wijeyeratne, Lalith Athulathmudali and also D. B. Wijetunge, who became President of Sri Lanka.”
Gradually, through purposeful and relentless work, Thilo Hoffmann built up and furthered the Society, as no one before or after him. Similarly he served its cause. Knowledge, understanding, enthusiasm and self-discipline are some of the characteristics which have made him a successful conservationist. But mainly it was his perseverance, his tenacity, which brought results. As long as there was a glimmer of hope, he would put forward again and again his ideas and proposals, never letting up, with memos, reminders and personal meetings with anyone from the Prime Minister or President downward, who would be in a position to bring a project to a successful end.
His style of work was entirely based on his own involvement. He would himself do all the hard work, investigations and field work, write reports and memos, push and cajole. Any memo from the Society submitted to any authority during the period he was Secretary or President was written by him. The fact that he knew what he was speaking and writing about, based on his intimate and detailed knowledge of the country, was a prerequisite to his success.
The Society and its General Committee would provide the necessary backing and background. He found that there were few others who could be relied upon to perform major tasks with the personal involvement, discipline and perseverance required. Hoffmann never took up extreme positions, always keeping a balanced mind and advocating reasonable and realistic solutions. He could readily see and understand contrary viewpoints as well as external constraints, e.g. political though not personal. In this he is notably different from present day `super-activists’ and ‘greens’, who in his opinion “polarize to extreme positions and exaggeration, often based on ignorance, even ill-will and mischief”.
Day-to-day problems were dealt with by correspondence or direct intervention. Thilo’s application and promptness in such matters are described in the last Chapter. There were many cases of poaching, not only by villagers but by well-to-do hunters. There was illegal timber felling, and clearing.
Complaints and reports from members had to be looked into. This often led to unpleasantness and frustration, such as in cases of drunken engine drivers ploughing their trains into elephant herds crossing the railway line at night in the Polonnaruwa area.
Once, two student members, a local and a German, verbally reported a serious case of misbehaviour and shooting by an Air Force training group in the Lahugala Sanctuary. Thilo wrote a letter. An ‘inquiry’ was held by a senior officer. The incident was denied, and Thilo was asked to apologize. When he requested the two members to confirm their report in writing both refused! The foreigner is today a professor, and organizes seminars and writes papers about Sri Lanka – like so many others, says Thilo, who use the island for easy pickings.
The institution of District Representative (“DR”) had been created in 1962, when Thilo was Secretary. The DR had to have at least two meetings per year in his District. There were DRs in many areas, including Jaffna, Ampara, Ratnapura, Kandy, Kurunegala, Puttalam, and Udawalawe. They were sent the minutes of the monthly committee meetings. Thus the members in the Districts were informed of the activities of the Society. At Udawalawe the DR was Gamini Punchihewa, and at Ratnapura it was Bennie Abeyratne, a close friend of the Hoffmanns.
Talks, film shows and discussions were regularly organized. Members and friends got together in this manner, which was a great help to Thilo in the promotion of the objects and ideas of the Society, the enrolment of new members, and to obtain support for Society activities. Thilo attended most of these meetings, which were often held in planters’ clubs, and were followed by social gatherings of members, office-bearers and guests. Mae Hoffmann’s 16 mm wildlife movie was a big attraction. A gift to the Society’s membership drive, it was shown in public over and over again, even in distant places such as Embilipitiya (Udawalawe), Passara and Inginiyagala (Gal Oya).
Jungle bungalows owned and run by the Society for members, an old proposal, were promoted. As a matter of principle, these had to be outside National Parks. Dr Uragoda in his book (see Chapter III, above) says: “In the mid 1950s the first attempts to obtain leases of crown land for building bungalows were made. After much difficulty and plenty of spade work especially by the Honorary Secretary, Mr. T. W. Hoffmann, the Society managed to obtain leases of crown land near Wilpattu and Yala.”
Thilo and the Assistant Secretary, Lalith Senanayake chose the two locations after several visits to the areas. Money was collected for putting up the buildings. The Volkart Foundation of Switzerland, no doubt on Thilo’s persuasion, made a handsome contribution of Rs 5,000 to the fund. The Wilpattu bungalow was opened to members on December 1, 1967 and the Yala bungalow on December 31, 1969. Much later, a Society bungalow was built by the boundary of the Udawalawe National Park.
At Lahugala the unused Irrigation Department circuit bungalow was managed for some time by the Society for the benefit of visiting members and guests. It was situated on the bund of the large, picturesque tank, where visitors are sure to see elephants at almost any time of the year. The area, formerly a Sanctuary, is now a National Park.
When Hoffmann took over as Secretary the number of members was less than 500, and the Society’s total assets, as mentioned, amounted to a few hundred rupees. There was no library and no proper office. Most of the members were planters, with a few of the urban elite thrown in. The Society was just ticking over, although it had in the course of time had some remarkable individuals as members and office-bearers: see the paper by Thilo in Loris titled ‘The WNPS of Ceylon: Some Historical Reflections on the Occasion of its 75th Anniversary.”
.At the end of his time as President the Society had over 5,000 members, assets worth many lakhs, and had become a force to be reckoned with.
An autobigraphy of a remarkable self-made billionaire
The story of Ceylon Teamaker: MERRIL. J. FERNANDO
by Manik de Silva
Merril J. Fernando’s recently published autobiography would be considered by many to be best story of its kind coming out in recent times, if not all time, of the life and times of a business leader in Sri Lanka. Similar volumes published in recent years that come readily to mind are the life and career stories of C.P. (Chari) de Silva of Aitken Spence, Ken Balendra of John Keells, Hemaka Amarasuriya of Singer and Rienzie Weeraratne of Unilever.
Undoubtedly many more resources have been poured into this production than to its predecessors. The result is spectacular both in appearance and substance. Over 200 interesting photographs scattered throughout the well-designed volume, makes reading its 400+ pages easy. The reader cannot but be impressed about MJF’s meticulous record keeping that is a feature of the book; also the author’s deliberate decision not to pull back his punches aimed at some prominent figures in the country, many of them now dead.
Merril Fernando, undoubtedly, is the best known face in Sri Lanka’s tea industry. He’s not the biggest producer or exporter of tea in the country. But his Dilmah brand, coined from the names of his two sons, Dilhan and Malik, is also the best known Sri Lankan-owned brand worldwide. Few would know until they read the book that the original brand name was Dilma, The ‘h’ was added later to give it added punch as recommended by advertising professionals in Australia; nor would many know that Fernando served four years as a seminarian at St. Aloysius Seminary in Borella (“I was very unhappy and frequently reduced to tears”). Training a youth who had his sights on the legal profession to be a catholic priest was forced on him by his parents to whom he couldn’t say “No” at that point of time in his life and the prevailing culture.
Also that very early in his working life when he was training as a tea taster at Heath and Co., a hard to get opportunity then when that work was largely a preserve on the British, that he broke away to take up a job offer in the U.S. multinational, Mobil Oil. Fernando says the terms offered were “quite attractive,” and the offer too good to turn down at age 22-years with about Rs. 1,500 monthly on the table. He admits a “distressing lack of responsibility in suddenly abandoning my trainee tea taster programme.” Although he enjoyed the work the work at Mobil and was good at it, he says “the business was open to and driven by bribery” and he returned to tea at AF Jones, a small firm run by a British father and his two sons.
A condition of that employment was that he had to train in London at his own expense. In arranging his training slot, the head of a British firm here wrote to a friend in London recommending MJF (letter reproduced in the book) raising an interesting points about Merril (1) ” His general appearance and ways of doing business have always struck me as displaying a certain amount of integrity, which is more than I can say for most of his brethren” The second was “I have made it perfectly plain to him that in the UK there are no bottle washers or Tea Boys to wait on learners and practically all the messy work has to be done by the learners themselves.”
Fernando started at AF Jones, a company he was to later acquire, as an Assistant Tea Taster at Rs. 750 a month in May 1955. His UK experiences makes good reading including the story that he brought back pounds 325 when he returned to Ceylon at the end of five months. His landlady in London, Mrs. Butler, had tried to persuade him to buy her terraced house for pounds 750 and offered to arrange a mortgage. “I didn’t even consider it,” says Fernando. “That apartment was worth four million pounds in 2019.”
What comes out strongest in the book is Merril Fernando’s passion for “pure Ceylon tea” and his determination that this product be offered globally to discerning consumers worldwide. When strong lobbies were hard at work saying that Sri Lanka should be made an International Tea Hub like Dubai and Rotterdam by permitting the import of cheaper teas for blending, packaging and exporting, he battled unrelentingly against a move he considered would be disastrous making many enemies in the process.
Equally strong is the projection of Dilmah as a family business with his two sons figuring in both text and pictures. Merril promoted his tea using his own photo widely and with homely messages to consumers of a product coming from “us to you.” His own avuncular appearance and the excellence of the photography, perhaps an offshoot of Dilhan’s passion for the camera, played a major role in promoting Dilmah, evident in many of the photographs included in the book. Fernando’s faith in God and belief in divine intervention is a continuing thread through the publication.
There is no doubt that Merril Fernando has made a major contribution towards preserving the authenticity of Ceylon tea which had over the long period when it succeeded coffee in this country had built the reputation for unique flavour and quality that made tea drinkers worldwide recognize the product as the best available. His early training exposed him to the harsh realities of international tea export trade and he says he learned many important lessons he would never forget. These helped him to chart his business course over the next few decades. This experience and the absence of severe work pressure gave him time as a trainee in London for reflection, absorbing new impressions, acquiring new tastes and inculcate in him a lifelong passion for travel and new cultural experiences.
Attacks directed at him over the years included accusations that he was getting favours from his former father-in-law, Major Motague Jayawickreme, onetime Minister of Plantation Industries, although his marriage to Devika Jayawickreme had long ended by then. The fact that President J.R. Jayewardene made Jayawickreme dispose a small shareholding in MJF’s listed Ceylon Tea Services Ltd. (the predecessor to Dilmah Ceylon Tea Compny PLC) on a conflict of interest argument is duly recorded in the book. But Fernando makes the telling point that Jayawickreme bought the shares three years before he became minister. He also says he once refused to speak to Jayawickreme for three months when the latter called for a vote on an appointment to the new Tea Centre in New York with Fernando’s the only dissenting vote against the proposal.
The reader must not be misled by what’s written above to think that Merril Fernando has made his autobiography a platform to merely hit out at those who opposed him. On the contrary, he has been lavish in his praise of many including senior bureaucrats and political authorities that include one time Plantation Industries Minister, Dr. Colvin. R. de Silva and his former teacher and later Trade Minister Hugh Fernando. But there is another side to that coin when he discusses estrangements with business partners at AF Jones and later in his own companies.
I have known Merril Fernando for over 50 years and reported on his journey through the tea industry. One anecdote I will relate here is an occasion he took me to his home on Gower Street in Havelock Town for a string hopper dinner. That was the first time I had eaten a seer fish kiri hodda with pol sambol. I was so impressed about the meal that I mentioned it to his neighbour, my friend Mrs. Bertha Samarasinghe, the wife of the then Judge-Advocate of the Navy. A fine cook herself, Bertha responded: “Merril understands fish. I see him buying his fish from vendors at his gate.” This came to mind when I read a reference in the book to the “ever-faithful Alice, the best chef I have ever known apart from my mother.” She probably cooked the meal I enjoyed.
He could have found no better writer than Anura Gunasekera, a retired tea planter who worked for Dilmah for 10 years after he quit planting to collaborate in the writing which took all of three years to finish. With Merril Fernando completing his 92nd birthday days before the book was launched in May, there were constant challenges including covid, MJF’s hospitalization off and on during the writing and many more. But an excellent production of a compelling read has been the result.
The book is priced at Rs. 10,000 with all proceeds of sales going to MJF supported charities. But it looks as though it would have cost more to produce if all costs are factored. However that be, it’s a compelling read on the life of a remarkable man, a self-made billionaire who’s fond of saying that “business is a matter of public service” – his many charities testifying to this. It’s the history of a battle to preserve the integrity of Ceylon Tea which Merril Fernando says ought to be marketed like wine and champagne.
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