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Privatisation (Volume II) Dubious Deals In Sri Lanka What a Paradox!

This Book dramatically spotlights with real case studies, the truism and reality, that politicians aspire for high political office, campaigning vociferously, avowing commitment to combat fraud and corruption, exploiting the economic anguish of poverty stricken people, however upon assuming political power, pathetically such avowed commitment becomes hypocritical hollow rhetoric, with them appallingly getting bogged down in the quagmire of corruption, vehemently castigated and denounced ! Reality is that politicians are funded and assisted by lackeys at elections, resulting in politicians getting obligated to lackeys, blatantly seeking returns on funding and support, at the expense of the abject poor. Case studies dealt with appallingly reveal that the idealistic agenda of IMF, World Bank and ADB pushing privatization only germinates the breeding of corruption, with such institutions becoming mere spectators, compromised to be viewed, as having aided and abetted in corruption, publicly denounced by them, ironically providing poverty alleviation schemes for the upliftment of the abject poor. Fraud and corruption at the highest echelons in Government, involving international parties, are shockingly revealed, with intriguing diplomatic interventions.It is an unbelievable revelation from the stage of lofty idealism to the sublime apathy of deception, complicit with duplicity and hypocrisy, in enforcing the law unequally against opponents for political expediency, whilst those wielding power, themselves, have brazenly acted otherwise, perpetrating offences of much greater

Amazingly, the highest judiciary, castigating corruption, upholds the dire need for governance and enforcement of the rule of law, including against the highest in the country. Brilliant in-depth research into real human behaviour and wheeler-dealing in the upper echelons of Governments – an ideally invaluable Book for academics and professionals interested in political science, human behaviour, governance, public finance, commerce, rule of law, forensic accounting and privastisation, and for public interest activists.

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Click here to view Media Exposes

I had never personally met Chandrika Bandaranaike Kumaratunga, but she had requested A.S. Jayawardena, Secretary, Ministry of Finance & Secretary to the Treasury to invite me and retain my services, as an Advisor to the Ministry of Finance.

Policy Pronouncements by President Chandrika Bandaranike Kumaratunga:

  “My Government believes that political power is a trust placed in us by the people. The nation expects nothing less than this from our Government. We shall keep faith with our people.”   

We have espoused and upheld, the value of transparency and accountability in the public life. These are values which my Government and I hold sacrosanct and inviolable. One of these values, which I look upon as the sheet-anchor of public life, is unflinching probity …. and to rid our country of corruption and fraud.

In the name of privatisation, the past regime had engaged in virtual daylight robbery of valuable national assets. The award of contracts had violated all accepted norms and procedures. Many of these ventures were grossly undervalued by reducing their sale price by as mush as 2/3rd or 3/4th of the actual value. Nowhere in the entire world would you come across such brazen pillage and plunder of a people’s wealth. They have only succeeded in enriching some powerful persons close to the leadership of the last regime. Future sales will be done by open bidding, after maximum publicity, in a totally transparent manner.

In February 1995, I intimated to A.S. Jayawardena, that I wished to be relieved, as Advisor to the Ministry of Finance. Very clearly and professionally, I categorically intimated to President Chandrika Bandaranaike Kumaratunga, that in the context of some of the political appointments she was making, who in my opinion were ‘square pegs in round holes’, it was impossible for me to continue, as Advisor to the Ministry of Finance.

Indo-Lanka Free Trade Agreement

One begins to wonder, as to what love the Indian High Commissioner in Sri Lanka, Shiv Shankar Menon has so much for Sri Lanka, to have promoted a bi-lateral Agreement, that he claims is advantageous to Sri Lanka, and therefore admittedly, disadvantageous to his own country, India, that he represents !

Why and how was it that Indian High Commissioner Shiv Shankar Menon and Presidential Economic Advisor, Lal Jayawardena suppressed from the Ceylon Chamber of Commerce and from the people of Sri Lanka that the Indo-Lanka Free Trade Agreement had been signed between the Indian Prime Minister Atal Behari Vajpayee and Chandrika Bandaranaike Kumaratunga after a ‘one to one meeting’ between the two, curiously without the presence of the Official Delegations of India and Sri Lanka ?

Thawakkal Deal

Foreign Minister Lakshman Kadirgamar, inter alia, opined:

  “What has occurred in the Puttalam Cement affair is a gross and calculated fraud on the Government and people of this country. “

It is beyond comprehension, as to how PERC Chairman R. N. Asirwatham, Chartered Accountant and Senior Partner, KPMG Ford, Rhodes, Thornton & Co., could ever have recommended to the Cabinet of Ministers such Proposal of Vanik as reasonable, practical and commercially acceptable. How could J.M.S. Britto, Chartered Accountant and Visiting Consultant from London to the Ministry of Finance ever have justified such transaction, on very basic elementary principles of either law or accounting – both were close confidantes of President Chandrika Bandaranaike Kumaratunga.

Subsequently, Foreign Minister Lakshman Kadirgamar, President’s Counsel, inter alia, stated:

  “This proposal by Vanik to PERC is, in my opinion, outrageous.  Vanik is proposing to PERC that the books of the Corporation and the books of the Company PCL be falsified, and the respective Auditors be directed to do so. ”

Duty Free Deal

PERC however, hastily announced to the media that the Government of Sri Lanka had entered into an agreement to sell 60% Shareholding of Orient Lanka Ltd. to Alpha Airports Group PLC, UK for the minimum reserve price of SL Rs. 1000 Mn., thereby pre-empting any further discussion with the Weitnauer of Switzerland.

With Weitnauer’s franchise proposal, the Government of Sri Lanka would have continued to have 100 % ownership of Orient Lanka Ltd., and been able to re-bid such franchise concession, again and again after 10-years, with the present franchise value  being in excess of SL Rs. 5,000 Mn.

However, just prior to the sudden early dissolution on 7th February 2004 by President Chandrika Bandaranaike Kumaratunga of the Parliament, when the term of the Parliament was to run up to December 2007, curiously a Supplementary Agreement had been entered into on 6th February 2004, by and between Orient Lanka Ltd., controlled by Alpha Airport Group PLC, UK and the Airport and Aviation Services (Sri Lanka) Ltd., to extend such Concession Period further up to 31st May 2011.

The most startling disclosure was that it was not Alpha Airports Group PLC, UK, the international duty free operator, who has been the real and actual contracting party and to whom the beneficial ownership of the majority Shareholding of Orient Lanka Ltd., had been sold. The actual and real buyer as disclosed in the Sale and Purchase Agreement is another company named Alpha Airports Holdings B.V., registered in the Netherlands, which was not pre-qualified.

Telecom Deal

The Government has guaranteed, that Sri Lanka Telecom’s tariffs for telecommunication services would be annually increased in the first 5 years by a minimum of 25%,  25% ,  20%,  15% and 15% .

Such stipulation is startlingly shocking, tantamounting to usurping and pre-empting of the effective functioning of the Telecommunications Regulator.

Had such very material concessions, that directly have a considerable impact on the profitability of Sri Lanka Telecom, have been acquiesced to and agreed upon by private treaty with one selected party, been well publicised and made known previously, would not then, a much wider spectrum of other potential parties have also been attracted to bid ?

Would this not mean that after earning a return of 18% p.a. over the projected 5 year period, the  return of capital of such 35% Shareholding of Sri Lanka Telecom, would be SL Rs. 26,665 Mn., which in effect would mean that the purchase consideration of SL Rs. 13,200 Mn., was only 50% of such valuation.

Air Lanka Deal

It is amply clear, that notwithstanding being a minority Shareholder of Air Lanka Ltd., that Emirates Airlines had been empowered and authorised, inter-alia, to make decisions to enter into Agreements including to purchase Airbus Aircraft and incur indebtedness, without any reference to and/or any approval of the Board of Directors of Air Lanka Ltd., and/or the Shareholders of Air Lanka Ltd., which was the Government of Sri Lanka.

How could the national airline of the country be handed over on a platter, that too, to a major competitor in the very region, on the basic premise that the Government of Sri Lanka is unable to strategise and fund the country’s own airline and its development and growth, that is vitally necessary to support national economic development and growth?

US Continental Airlines offered a ‘global linkage’ opportunity for the growth of Air Lanka Ltd., particularly in this region, in which Continental Airlines is not a competitor? Was not pursuing with Continental Airlines a lost opportunity for the future growth of the country ?

Ought not a Boeing Aircraft option have been technically, operationally and economically competitively examined and evaluated, prior to having made a decision on Airbus ? How is it that, such major decisions having a far reaching impact on the long-term growth strategies of the country, have been hastily made in a very prima-facie lackadaisical manner and on a superficial exclusive basis?

Indian Oil Deal

As per the ‘Share Sale & Purchase Agreement for 100 Filling Stations’, the Government of Sri Lanka and CPC were not to preclude LIOC from entering into arrangements for developing and operating ‘Dealer Owned – Dealer Operated’ Filling Stations, operated by the franchise Agents of CPC. Notwithstanding Ernst & Young, Chartered Accountants, Advisors to Government of Sri Lanka, having placed a valuation of US $ 30 Mn., on such ‘right to access’ ‘Dealer Owned – Dealer Operated’ Filling Stations, no consideration, whatsoever, had been charged and such ‘right’ had been ‘freely’ granted !

Subsequently, a further payment of Rs. 250,000,000/- had been paid in April 2006 by the Government of Sri Lanka, with a further ‘Subsidy Claim’ of SL Rs. 225,144,900/- made by LIOC from the Government of Sri Lanka; thereby making the total ‘Subsidy Claims’ amount to a staggering (then US $ 94.1 Mn.) SL Rs. 9,619,974,113/- for the 28 Month period up to 30th April 2006; which ought be compared with the total purchase consideration of only US $ 75 Mn., of which US $ 35 Mn. had been borrowed locally contravening Cabinet Decision.

Golf Course Deal

The Supreme Court Judgment at Appendix IV, inter-alia, made the following findings, orders and directions, which included an order directing former President Chandrika Bandaranaike Kumaratunga to pay SL Rs. 3 Mn., to the State, as compensation by way of a deposit to be made in the Supreme Court, stating that this was a token payment of the real loss to the State of several hundreds of millions, and will serve to “remind” present and future state actors and agencies (i) of their paramount duty to further the Public Trust and (ii) that their actions are subject to the Rule of Law; inter-alia observing:

   “Reviews of the several trust agreements  which were executed by Siva Selvaratnam,  Suwaneetha Selvaratnam and Shantha Wljesinghe to provide for the above arrangement reveal that Ronnie Peiris (a close confidante of President Chandrika Bandaranaike Kumaratunga) was a beneficial owner of 600,020 Rs. 10 par value shares of Asia Pacific, having an amount at sale of Rs. 57,200,000 Million according to the Inland Revenue department. This amount represents the profit Ronnie Peiris derived from the sale of the company to Access Holdings and for which he was ultimately held liable by the Inland Revenue Department to pay tax “

The shocking characteristic feature in these two legal instruments executed in respect of the said 20 perch Blocks of Land was that, the UDA was transferring its own Land to a Purchaser, who does not pay the consideration to the UDA, but on the contrary, pays the consideration for the said Land to another party, in this instance, Asia Pacific Golf Courses Ltd., for it to have made unconscionable  profits, as aforesaid, and thereby gaining unjust enrichment on the Sale of such State Land, which is public property.

President’s Retirement Benefits – vide Supreme Court Judgment

Issues

A freehold grant to President Chandrika Bandaranaike Kumaratunga for a Residence of 1½ Acres of Land in the vicinity of the Parliament of Sri Lanka and on the development of which Land, a sum of SL Rs. 800 Mn., had already been expended.

Allocation of Premises No. 27, Independence Avenue, Colombo 7, as a Residence, which had been used  by the Rana Viru Seva Authority and the Disaster Management Center.

A new Division ‘Retired Presidential Security Division IV’ comprising of Police and Army personnel, totaling 198.

Staff Cadre of 63 for an Office at 27, Independence Avenue, Colombo 7.

Observations

   “In official matters the general rule is that a person would refrain from participating in any process where the decision relates to his entitlement or in a matter where he has a personal interest. ”Nemo debet sua judex” is a principle of natural justice which has now permeated the area of corporate governance as well.

“This salient aspect of good governance has been thrown to the winds by the 1st Respondent (President Chandrika Bandaranaike Kumaratunga) in initiating several Cabinet Memoranda during her tenure of Office and securing for herself purported entitlements that would if at all enure only after she lays down the reigns of Office and acquire the eligible status of a former President. ”

“I am in agreement with the basic submission that only the entitlements in the Presidents Retirement Benefits Act apply only to a former President.

   “It is the judiciary which is entrusted with the task of keeping every organ of the State within the limits of the law and thereby making the rule of law meaningful and effective.”

Conclusion

Ought not these dubious deals be compared with the Policy Pronouncements and PERC’s own criticisms, on the Nylon 6 Plant prepared by part-time Visiting Consultant from UK, J.M.S. Brito, who is now Deputy Chairman & Managing Director, Aitken Spence & Co. Ltd., which was a constituent party of the Distilleries Consortium, which had acquired Sri Lanka Insurance Corporation Ltd., also in a dubious privatisation, subsequently annulled by the Supreme Court, as wrongful, unlawful and illegal.