Strengthening standards

Linde Main Board Member and Asia Pacific CEO Sanjiv Lamba is committed to Sri Lanka and enthusiastic about new ventures the world’s largest industrial gas company by market share and revenue could implement in Sri Lanka through its subsidiary Ceylon Oxygen Ltd. Lamba in a candid discussion with Daily FT recently gave his views on the opportunities and challenges ahead for the country and an industry that could play a stronger role in development

By Uditha Jayasinghe 

Q: This is your first visit since significant political changes last year. What are the key reasons for your visit?

A: There are three key reasons for being here. Firstly, this is my fifth or sixth visit to Sri Lanka. My first trip was when we were looking at Ceylon Oxygen and I was very keen to make that investment. I’m happy to say that was a good decision we made and I’m pleased with the progress we have made. We also scheduled a major conference for regional business here so I’m here to be with the regional team as they work through the conference. I was also particularly keen to get here and find out what the changes really mean at the grassroots level and also to meet some stakeholders including the Finance Minister as a follow-up to their visit to Berlin a couple of weeks ago. 

Q: What are the main changes you have noticed during this visit?

A: There are three main points. Our first visit was way back in 2009, between that time and now, bearing in mind I’m talking somewhat superficially, is the continued dedication the Sri Lankan Government has shown towards infrastructure development. We see that as a key enabler to growth, and a number of other countries in the region do not show that same level of commitment or shy away from infrastructure investment, to be honest.

The second change is a greater degree of openness about discussions around the economy and the issues that the economy is faced with. I probably would be echoing other people’s views when I say this but there was always concern in the back of our minds about the governance processes within the country; certainly I think our perception is that the commitment to governance has increased dramatically and we are excited by that because it brings a level of transparency and openness to how the economy functions and enables good decisions to be made. For us that is critical for investment as well. 

Q: The President recently undertook a visit to Germany where there were reports of discussions on Linde expansion in Sri Lanka. Could you please give us more details?

A: Again there are three baskets I would categorise and in a sense put our money where our mouth is. Over the last four years we have invested about Rs. 5 billion in Sri Lanka so we have not shied away from investing in the country. I was one of the advocates for entering Sri Lanka and I am delighted we have actually gone ahead and made those investments. We are very proud of upgrading our facilities. We have a good track record. We have a large footprint within the country. At the moment my focus is to upgrade those facilities to the latest technology that is available.

We do not shy away from bringing the best to Sri Lanka and one aspect of that would be to review our current site and introduce green technology and new products. So we want to make a major investment there but I have to admit we are hampered by restrictions of landownership. In many countries we have no restrictions in some countries we have limited restrictions but when I come to a country and I’m already 80 years in the country I want to have the ability to play longer term.

I don’t want to plan for the next five years, I really want to plan for the next 80 years; I would hope my successors have that opportunity. I worry a little bit about that and I’m unhappy about that situation. It has improved with the recently regulatory intervention but it could be better. So we do need land to move to the Greenfield expansion and that is a substantial investment for us. To make that decision I need to feel comfortable by a policy framework that will not change. We have made an investment in an air separation plant, which has the highest capacity in the country, in fact it is more than current demand. So we have looked at future demand so efficiency can be built up in due course. 

The second aspect is a bit conceptual and one that we shared with the Finance Minister. As we look at Sri Lanka, we see that the healthcare market is well developed, medical tourism has been promoted; I have to be honest and say I don’t see an implementation path to medical tourism clearly defined, and we would say if you want medical tourism to happen, then Sri Lanka needs to upgrade standards in equipment and assets. 

Sri Lanka has some great people, some of the best doctors in the world come from Sri Lanka, but notwithstanding that, there is need for facility upgrade and that is where we struggle a bit. If you go to a standard tender procedure on sector, then you are asking for old assets to be redeployed but we are bringing in top technology that we have elsewhere in the world. The cylinders that are used in Germany are the ones I want to bring into Sri Lanka. They do carry a cost but they are efficient, productive and will improve treatment given to patients. The Government has to reflect a little bit on that and uplift standards. 

We see opportunity in providing new products such as lightweight fiberglass oxygen cylinders for post-op care that are critical for patient recovery and emergency response, which we do elsewhere in the world. We have a full suite of services that can cover every part of the hospital. Sri Lanka also has an ageing population and Linde is the largest provider of homecare in the world and we see an opportunity to support the Sri Lankan Government and hospital infrastructure to provide homecare. 

Q: What other areas of investment would the company consider in Sri Lanka? Please mention specific sectors/projects.

A: Exports are a fundamental requirement to get foreign investment and create revenue. One area where Sri Lanka has vast resources is food; especifically fruit, vegetables and seafood. But there isn’t enough cold chain available, enough technology; the ability to create premium products and export them is missing. 

Now we ran a pilot to get the exporters interested in cryogenic freezing. We use liquid nitrogen to freeze products. For example, the best prawns are usually the ones that come from Thailand and they are good because they are frozen by us on behalf of the customer. Typically when prawns are frozen, it is like the refrigeration process you have at home. The original flavour is lost. In cryogenic freezing there is instant quick freeze of an individual prawn so that the flavour and texture is preserved so you get premium pricing. At the moment that technology has not been introduced to Sri Lanka. We have piloted the first such effort and we have asked the Finance Minister to go have a look at it to see if there is a possibility to use that technology here. 

There is a bigger picture and we are proposing it to the Government as a bigger picture, which is to establish a tech park and invite both local and foreign investors. We will set up a central facility to build an ecosystem around cryogenic freezing and the central system can be used by everyone so it fully optimises the assets we put on the ground. We will set up a good lab to identify products for value addition. We will also set up a food academy where we will teach people to use the cryogenic processors, how to do packing, how to market their products outside.

Our view is that builds an ecosystem and the Government has to somehow find a way to attract investors who build around this, give them some incentive; at the end of the day if you are looking 10-15 years down the road, you have to make some investment upfront and I think it has to be the Government to do that; it cannot be done by the private sector, it is not feasible in that sense. 

Q: How much of an investment would need to be made? 

A: It depends because the venture has to be tested. For us, if we were doing the basic ecosystem, not the full investment, but just the freezing, food lab and academy, in the first round I would see an investment of around Euro 10-15 million. That is just phase one to test of concept and if it works them build on that. Then you would have to put in an air separation plant that would manufacture liquid nitrogen because that would be the key product. That would be an additional investment of Euro 25-30 million. That’s the vision we painted. We hope there is traction; we got traction from the Finance Minister for sure, so we will give them a concept note. We have done this successfully elsewhere, it is not that we are trialling this but we do believe we have an opportunity here. 

Another great opportunity we see is, if Sri Lanka wants to expand its manufacturing sector, it needs to use new gas technology and apply it. A simple example would be welding motor cars and bikes, we have moved to the next generation of technology where Linde offers shielding gases to reduce weld spatter and reduce defective models to increase efficiency. You have to upgrade of conventional Co2 welding to shield welding, which takes argon, Co2 and sometimes other complex gases into the mixture. There are other technologies for steel and glass that enhance productivity. The starting point of all this would be our air separation plant in Sri Lanka. 

Q: Despite the Government’s renewed interest in foreign investment, there are many major bottlenecks for foreign investors. In your view what are the main points policymakers should concentrate on to achieve the sort of ventures you have outlined?

A: I overlook investment in 20 countries so I speak to EDB in Singapore, BOI in Thailand, Invest KL in Malaysia and they all have agencies that are constantly looking at bringing investment in. These organisations are constantly talking to us; even when we don’t have an agenda I have a meetings with them because they say “let’s talk,” “where would you invest?” etc. I see that missing in Sri Lanka. I want to see a higher degree of proactive reaching out to investors. 

That will not solve the problem. The problems Sri Lanka faces in attracting foreign investment is not limited to them, many countries in Asia have them; there is an evolution that is happening locally that will hopefully get over that. So the other piece is that we need a one-stop-shop and a transparent process done digitally. If all these submissions happen on the web and approval process happens online, that usually takes away a lot of the red tape and associated issues that companies like ours struggle with and we walk away because our code of ethics does not allow us to do the things that are sometimes asked of us. We have not had that problem in Sri Lanka, I must hasten to add. 

There are quite a number of countries that have had success with this approach; India, Thailand, Malaysia and Singapore are countries that extensively canvass and build relationships with investors and I see them every time I visit the country because they are interested. These are some of the measures that could be promoted by the Sri Lankan Government to encourage investors. One of the reasons I actively pushed for Linde to invest in Sri Lanka is because you have really solid human capital, highly educated, very dedicated, hardworking people with the hunger to succeed and I think sometimes that doesn’t get enough visibility and I think as a country and as a Government not enough is done to make the point that Sri Lanka has amazing human capital and that is one of the reasons foreign investors should come here and I think that gets missed out often. I think it’s a remarkable advantage. 

Q: Sri Lanka recently had its rating downgraded. Does this worry you?

A: It would be wrong to say I am not concerned. There is a slightly heightened level of concern because as the rating downgrade happens it’s usually a signal to the market and the signal is not positive and that would leave us concerned. I saw how the Budget process went this year; it was a difficult process, the world is in a difficult time and I know the Finance Minister had a really tough time managing everything. It is a challenge for the State when the Government wants to raise revenue and increase investment. So my view is there is a slight amount of concern around the downgrade; we are hoping fiscal prudence and a degree of fiscal responsibility will be exhibited by the Government over the next two or three years so that they can return to a more sound rating. We are here for the long term so we are not going to panic. There is no sense of panic at all, just a slight concern. 

Q: Do you think international investors would be reassured if the Government went ahead with an IMF plan? 

A: The obvious answer is Western investors would be. Yes, absolutely. An IMF plan carries with it lots of other local challenges, which the Government needs to sort, so I don’t think it’s necessarily an easy answer. I think fiscal prudence is the long-term answer but that is always challenging and requires some tough decisions. 

Q: Ceylon Oxygen’s biggest competitor has a tax advantage, resulting in a lopsided playing field. How do you view this situation and have you appealed to the Government to change it?

A: I will be honest. We operate in many geographies and we do not have a level playing field everywhere. We understand the realities. The situation in Sri Lanka is exacerbated for several reasons; one is the tax issue, the other is the way we do business and how some of the other players do business… There are some differences that we have to be upfront about.

There is an unfair playing field and I think particularly if I’m to raise the issue around standard tenders that come out in the healthcare space, if you don’t compare the quality of what you are getting and you want to assess it only on one metric then I think, we will, in the long term, suffer. There is no doubt in my mind. We think the Ministry has found some balance on understanding the quality aspect so we are grateful for that.

There is a bigger issue here aside from taxes. My view is that if Sri Lanka is to have a long-term strategy for industrial growth, including medical, then it has to make sure it has solid standards in the country, and it enforces those standards actively. If anything I would argue we follow standards that are above the local regulatory requirement framework and we do that because it is the right thing for patient care and safety. So when our prices are compared against someone who might be taking an industrial grade product and selling it to the medical sector, then it creates an unfair advantage. So enforcement of standards is an equally important issue when we are talking about a level playing field for the long term. 

Q: Ceylon Oxygen does business with the public sector, especially State hospitals. How would you perceive the transparency of the tender process, payments and honouring of contracts?

A: We do a lot of work with Government hospitals and we are seeing a strong tender process being applied. We don’t see anything that contradicts the commitment to governance. We don’t see that the tender process is efficient in its entirety; we think there are better ways to do it.

Q: You already spoke about strict regulations on land ownership being a deterrent to foreign investment. But what kind of framework should Sri Lanka have in place? 

A: We consider ourselves to be a local company. We are fully managed by Sri Lankans; we have no expats in the business. So we feel a little bit uncomfortable that we are being penalised under the guise of being a foreign company. We are actively investing so even if we take dividends we bring it back. So the models we would like to have is a long-term commitment on land because that is core to setting up a facility.

We put in billions of rupees and I am told we don’t own the land, which means after 20 years we could be asked to vacate that facility. How do I build a sustainable business for the next 50-60 years if I have uncertainty? I understand that there are concerns but these need to be managed well. If I can’t have ownership of land, then it should be a longer lease of land for about 200 years so there is certainty. If I don’t need it I can vacate and sell and land to someone else; it’s a free market process.

Pix by Lasantha Kumara