YAHAPALANA AND CORRUPTION
Posted on March 3rd, 2017
Yahapalana government came to power on the promise that it would eliminate corruption. Yahapalana forgot this promise once they got elected and engaged in a whole bouquet of corrupt actions. These are regularly discussed in newspapers, websites and broadcast in TV news. The public are watching avidly. Sunday Times BT-RCB Poll did street interviews in Colombo and Galle in 2016 and found that there was high awareness of the Central Bank bond issue, coal tender, port city project and other such issues.
The respondents had much to say. ‘The government accused the previous government of being rogues but within the first 100 days came the bond scam followed by the coal tender’, said one. Yahapalana has helped the favorites of politicians earn big commissions on projects, ignoring tender procedure, said another.’ ‘The corrupt from the other side have crossed to this side’, they added. ‘Norochcholai issue is the same then and now’.
The Corruption Perception Index (CPI) for 2016, prepared by Transparency International, ranked Sri Lanka 95 out of 176 states. In 2015 Sri Lanka was ranked at 83 out of 168 countries. ‘Friday Forum’ observed that siblings were appointed to offices of high profit, friends were appointed to high offices of state and their corrupt activities were overlooked. Everyone agreed that Incompetent and corrupt persons were accommodated and a blind eye shown to malpractice. Those who opposed corruption were removed from office. Rohantha Athukorala, head of Lanka Sathosa, had taken a firm stand against alleged irregularities at Sathosa. He had opposed a move to appoint a consultant for a monthly salary of Rs. 2.5 million. He had suggested a salary of 3 lakhs instead as Lanka Sathosa was facing a grave financial crisis. He was abruptly removed from office (Sunday Island 26.2.17 p 1).
President Sirisena had appointed his brother P.G. Kumarasinghe Sirisena as Chairman of Sri Lanka Telecom. This was heavily criticized. But Kumarasinghe Sirisena stated firmly that he was a management graduate of Sri Jayewardenepura University, had considerable administrative experience and had the ability to run Sri Lanka Telecom efficiently. At the Pada Yatra of July 2016 , when Mahinda Rajapakse asked who is benefiting from the paddy issue the crowd shouted ‘Araliya’ the brand name of a rice miller who has links with the government. However, President Sirisena’s brother, a rice mill owner, stated publicly that he was not responsible for paddy shortages or paddy prices.
According to the information published in the Australian newspapers ‘The Age’ and ‘Sydney Morning Herald’ , President Maithripala Sirisena, when he was a Cabinet Minister, had, together with his Secretary, and an unnamed advisor, allegedly demanded a donation from Snowy Mountain engineering Co (SMEC), to award it a tender for a World Bank funded dam project in Sri Lanka in 2009. The contract was worth USD 1.82 million. It is alleged that SMEC manager had personally met Sirisena. The amount decided on was Rs 2.5 million and this money had been withdrawn in cash. The Age and Sydney Morning Herald belong to Fairfax group, a major Australian media company. The Australian media are well known for their doggedness in these matters, observed Chandraprema. Australian Federal Police is also involved in the investigation. (Island 26.8.16 p 1 Sunday Island 28.8.16 p 5)
The news went viral within one hour with people informing over the phone that Sirisena (and others) had solicited bribes. This is the first time that the head of state of Sri Lanka has been accused of corruption by a foreign press or named in an investigation by a foreign police force. President Sirisena has ordered the Attorney General to investigate the matter. However, no report on the investigation has yet been made public or tabled in Parliament.
The government said it would sue those who leveled bribery allegations against President Sirisena (Sunday Island 28.8.16 p5, Island 26.8.16 p 1). But this has not prevented Transparency international from using the information. Executive Director, Transparency International, Sri Lanka said ‘controversies such as the bond issue and the alleged Australian corruption scandal implicating the President have raised serious questions about the government commitment towards Yahapalana and anti corruption. ‘
The biggest corruption scandal talked about today, Is the Central Bank bond issue of February 2015. The loss to the government is placed at around Rs 1700 million. It could be higher. Till 2015 Central Bank (CB) raised money through direct bond placements which were purchased by state institutions. After Yahapalana government came in, direct placements ceased and bonds were sold by auction. They were purchased by primary dealers. State institutions were unable to compete with them.
A 30 year Bond was advertised by the Central Bank for a value of Rs.1 Billion at the rate of 9.5% , for the auction to be held on 27th February 2015. On February 26th the sum was increased to Rs 10 billion and the rate to 12.5 %. The original increase was to be Rs 20 billion but Central Bank officers had objected. They had also made a minute in their records that the new figure of Rs 10 billion was made on the order of the Governor, Arjuna Mahendran. The Superintendent of the Public Debt Department had made a spirited attempt to stop the matter, but failed. The decision to call an auction lay exclusively with the Monetary Board, not Governor. But in this case Mahendran had informed the Monetary Board only after carrying out the bond sale.
While the other bidders were bidding at 9.5% Perpetual Treasuries, owned by Mahendran’s son in law, Arjun Aloysius, made a successful offer for Rs 5 billion at 12.5%. It is argued that Aloysius obviously had inside information. The auction was to end at 11 am but was extended to 11.05 to entertain the Perpetual Treasuries bid. Usually, the first seven bidders were entitled to the bonds. Perpetual was no 16. While the auction was going on, Governor Mahendran had come in twice and inspected the bidders list. Central Bank governors never attended bond auctions. They kept aloof from such proceedings, said bank officials. The Central Bank had never experienced such a thing before.
Perpetual Treasuries did not have the money to pay for their offer and had obtained a low interest loan from the Central bank itself to buy some of it. Bank of Ceylon had paid up the remaining money. For the first time one primary dealer, BOC had bid on behalf of another primary dealer. Perpetual then sold its bonds to Employees Provident Fund and made a profit of Rs 10 billion. This has raised the question as to why EPF did not buy in the primary market and instead bought in the secondary market. The EPF said later, that the fund had incurred a loss of over Rs. 14,000 million by buying from Perpetual Treasuries without buying direct at the auction.
Perpetual Treasuries thereafter declared a phenomenal post tax profit of over Rs 5 billion, while other companies were struggling. The next highest profit was Rs 57 million. This bond deal had caused heavy losses to the other primary dealers and investors. Perpetual’s assets went up from Rs 11.8 billion in 2015 to over Rs 23 billion. Perpetual thereafter started buying into shares in finance and banking companies and land in Colombo. Perpetual’s success in the bond scam did not shock to the investment sector. They knew the company.
Arjuna Mahendran is a citizen of Singapore and was head of a division in HSBC Singapore. He was Chairman BOI, Sri Lanka from 2001-2004. In January 2015, as soon as the new government came in, Mahendran was appointed Governor of the Central Bank of Sri Lanka. The appointment was clearly planned earlier. It is said that Mahendran and his son in law Arjun were very close to PM Ranil Wickremasinghe. ‘They have too strong an influence with the Yahapalana to be shaken easily.’ Mahendran’s main promoter was Ranil said ‘Don Manu.’
When the bond scandal broke, the Prime Minister , under whom the Central Bank came was not prepared to remove Mahendran. Mahendran was removed on the order of the President. ‘It was a reluctant and belated response to overwhelming external pressure.’ Mahendran, it is alleged, was then taken into the PM’s Office. He was part of official delegations that travelled abroad with the PM and he was introduced to heads of state. He attended decision making meetings at Finance ministry. The government however denied this. It said Arjuna Mahendra is not an advisor to PM. He is not in any government position either. He is not in prison either. Perpetual Treasuries continues to be listed as a primary dealer. No action has been taken against it.
There was a strong reaction from the public when they got to know of this matter. COPE (Committee on Public Enterprises) was asked to investigate. COPE issued a 13 volume report on the subject in November 2016. COPE report stated that Mahendran was directly responsible for the bond scandal. COPE recommended legal action agonist Mahendran and all officers of the CB involved in the matter. The state should reclaim all monies. Auditor General stated in his report that the bond auctions were not held according to the regulations of the IMF handbook on Bond markets which is used by the CB and that Mahendran should be held responsible for the irregularities.
Yahapalana government tried to hush up the issue. The loss from CB bond scam was imaginary, said one minister. Nothing illegal happened in the bond sale. The opposition had been given false information. Instead of arresting the culprits who are responsible for the Central Bank bond fraud, arrangements have been made to arrest those who provided the details of the fraud to the relevant institutions, observed the Opposition. Island editorial pointed out that the government wanted a very weak case filed against the Central Bank officials, treating it as a civil offence and not criminal one, so that the accused ‘can go scot free’.
When the investigation began there was resistance from the Central Bank to queries by Auditor General and COPE. UNP ministers tried to protect Mahendran at COPE discussions. One UNP member (name withheld) only came for COPE discussions on the bond scam, he did not come for any other discussions. Semasinghe and Perera had openly faulted COPE chairman and Auditor General at a meeting in a threatening manner demanding that they amended their finding (Island 22.10.16 p 1). The UNP members of the COPE investigation including Harsha de Silva, Ajit Perera and Sujeewa Semasinghe wanted to submit an alternative report. However, instead of a dissenting report, they were allowed to provide ‘footnotes’ giving their position. These showed who was for and who was against the scam.
The government heavily criticized the Auditor General in Parliament regarding this matter. The comments are very revealing and the debate is described here at length. The Auditor General had sent his report, inter alia, to the COPE Chairman, Sunil Handunnetti. The government objected to this. Auditor General shouldn’t to have revealed sensitive details of the Treasury bond issue to anybody other than those entitled said Prime Minister, Ranil Wickremasinghe. Attorney General had instructed Auditor General in writing not to do so to anybody other than the Central Bank Governor.
Legal action should be taken against the Auditor General and his staff for leaking a sensitive report pertaining to the Treasury Bond issue to JVP Parliamentarian Bimal Ratnayake and not giving the same to him, said Finance Minister Ravi Karunanayake. “It was a report that I had asked for”. The Auditor General has given the report to an MP. “He has done so even without putting it in an envelope.” It is a sensitive report, containing secret information and was intended only for the eyes of Prime Minister, Finance Minister and the President. Only they are permitted to access such sensitive information.
This is very sensitive information relating to the financial markets and revealing such information would be detrimental to the Bond Market . This had been done without my approval. AG has also made the report public through the media and further, he has not signed it. The Auditor General has acted in an unprofessional manner. No other Auditor General had acted in such a manner before. It was not up to the public servants to act in this manner. Action should be taken against all officials who involved in this act, said Minister Karunanayake.
The Auditor General, unperturbed, said he had signed the report and submitted it according to proper procedures. Report was then put on the AGs official website. The report had been made available to Minister Karunanayake and a receipt received from the Ministry. There couldn’t be any information pertaining to the Central Bank bond scams which couldn’t be shared with Chairman, COPE The AG’s Department is answerable to Parliament. Auditor General added that he also prepared a report on the bond placements of 2008-2016. But adequate time could not be spent on the investigation ‘due to the impatience and the unethical reminders of the Minister of Finance’. There were more than 2000 TB transaction between 2008 and 2016 to get through.
MP Bimal Ratnayake said, the report tabled by me was not a copy that was given to me by the Auditor General but the report that was given to the COPE chairman Sunil Handunnetti”. Sunil Handunnetti had instructed me to study the report on his behalf as he was abroad. I clearly stated in Parliament that I was tabling the report on the instruction of MP Handunnetti. This was recorded in the unedited copy of the Hansard.
The Central Bank bond scam is still a burning issue. Ven. Bellanwila Wimalaratne made a strong speech about it in January 2017. This is robbery, this is fraud, even a child is aware of this scam. Is this going to be covered up? he asked. A ‘group of professionals’ led by Retired Rear Admiral Sarath Weerasekera protested opposite the Commission to Investigate allegations of Bribery and Corruption (CIABOC) in January 2017,against its failure to look into a petition handed over by them three months ago demanding a proper inquiry into the matter. They have handed over another letter.
In January 2017, under pressure, a Presidential commission of inquiry was appointed. This commission can only “investigate and inquire’, they cannot probe violations of the law. The words used “irregularities,” “proper procedures,” ‘malpractice” all come within the ambit of civil and not criminal law. The commission has commenced sittings. Monetary Board was asked to inquire into the EPF purchases. Why did the President wait for two years to probe the bond scam, asked the Opposition. “There have been issues over bond transactions since 2007/2008 period. Nobody spoke of them,” President Sirisena countered.
There had been another Central Bank bond scam in March 2016. Treasury bonds to the tune of Rs. 80 billion were issued on March 29, 2016, though Central Bank had originally stated that bonds will be issued for Rs. 40 billion. Anti-Corruption Front noted that the manner in which this had taken place was ‘extremely suspicious’ even though the Central Bank had claimed that they had to double the issuing of the bonds due to the increased demands for the Treasury bonds. The Front also expressed concern over the failure by the Central Bank to reveal details of the primary dealers who had purchased the bonds.
In February 2017 Ramanathan Kannan a lawyer practicing in the private bar in Batticaloa was appointed as a High Court Judge of Civil Appellate Court, Jaffna G.L. Peiris, Emeritus professor of law, drew immediate attention to this appointment and called on the government to explain this controversial appointment. High court judges were usually appointed from the lower judiciary or the Attorney General’s Department.
President Sirisena announced at the ‘National Law Conference 2017’ that the Bar Association had written to him about this appointment. He had initially turned it down, but a Bar Association delegation had met him personally and he had given in to their request. However, he had obtained the approval of the Judicial Service Commission and Attorney General. President Sirisena’s statement ‘sent shock waves through the judiciary’. Those who had pushed for the appointment never thought the President would spill the beans at the inauguration of the National Law Week.
Then it transpired that it was not the Bar Association but the President of the Bar Association acting alone, without the sanction of the Bar Association who had recommended the appointment of Kannan. Geoffrey Alagaratnam, President of the Bar Association explained that he had received a letter from the President of the Batticaloa Bar Association, requesting that Kannan be appointed a High Court judge. Alagaratnam did not know Kannan. He made inquiries and was told that Kannan was competent, possessed integrity, was trilingual, had over seventeen years experience at the bar, and had a successful practice at the Batticaloa Bar. Alagaratnam forwarded the letter to President Sirisena, Chief Justice and the Minister of Justice in September 2016. He said he did so because of the shortage of Tamil speaking judges in the north.
The Judicial Services Association (JSC), it appears, knew nothing about this. They met the Chief Justice, Kanagasabapathy Sripavan, who told them the appointment had been made at the request of President Sirisena. JSC observed that this appointment should have been made only from the 66 serving judges awaiting for promotions. The JSC, mindful of the concerns of the minor judiciary wanted the appointment withdrawn since it was based on the misrepresentation of facts.
The Judicial Services Commission further pointed out that this appointment of a lawyer practicing at the unofficial bar over the heads of many senior judges, affected the entire subordinate judiciary. 39 members of the JSA had been deprived of promotions. Further, Kannan had in 2004 applied for the position of Magistrate but had failed the interview and was not appointed as a Magistrate. Kannan now ranked above both magistrates and district court judges. This is a ‘thing that has not happened in recent history’.
The JSC went on to point out that Kannan was to function as a High Court judge in the area he served as a lawyer. The prime mover for his appointment was the President of the Batticaloa Bar Association, who is a lawyer engaged in private practice. This President has recommended another lawyer engaged in private practice at the Batticaloa bar for appointment as a High Court judge. This means that the President of the Batticaloa bar now has a tame High Court judge who is under obligation to him. If all Presidents of the Bar Associations across the country were allowed to recommend their buddies for appointment as judges in this manner and If the judges of this country are going to be dependent on the lawyers appearing before them for their promotions, they will be compelled to keep those lawyers happy by giving them the verdicts that they want and this will lead to unimaginable corruption in the judiciary.
The Bar Association also made it clear that they knew nothing of this matter. Neither the Bar Council and nor the Executive Committee of the BASL had been asked to consider the appointment of Ramanathan Kannan for the position of High Court Judge. The Association stated that there has never been a practice of either the Bar Council or the Executive Committee of the Bar Association or Branch Associations approving persons that are to be recommended for appointment to the judiciary though there have been several appointments to the judiciary from the Unofficial Bar in the past. Alagaratnam had violated the BASL Constitution by sending the recommendation letter without the approval of the Bar Council or Executive Committee”.
Lastly, Mahinda Rajapakse said in a statement that when he was President, he had appointed only one Supreme Court judge from the private bar and not a single member of the private bar had been appointed to either the Court of Appeal or the High Court by his government.
Yahapalana has made political appointments to the Foreign Service. 27 political appointees of the Rajapakse period were called back and replaced with Yahapalana’s own political appointees. The Heads of Mission in 33 countries did not come from the Foreign Service. The countries are: Afghanistan, Canberra and Sydney in Australia, Austria, Brazil, China, Egypt, France, Germany, India, Iran, Iraq, Italy, Japan, Nairobi, Malaysia, Myanmar, Norway, Pakistan, Poland, Palestine, Qatar , Russia, Saudi Arabia, Seychelles, Singapore, South Africa, UAE, Britain, Washington DC and Los Angeles in USA, and the UN in New York.
The second tier appointments, such as Counselor, First Secretary, too were political ones in 14 missions, Australia, Austria, Belgium, Ottawa in Canada, Israel, Kuala Lumpur, Poland, Qatar, South Africa, two in Britain, UN, and two in Washington DC. Minister for Foreign affairs had nominated a junior member of the Foreign Service over a senior one to head the mission in Berlin (Sunday Times 15.1.17 p 6). The President’s office has always maintained list of senior members of the Foreign Service. This practice has been stopped after Yahapalana took over.
Next we come to lucrative tenders for energy purchases. The three year contract for procurement of coal for the Norochcholai power plant is by far the biggest regular tender awarded by the Sri Lankan government Noble Resources Ltd of Singapore, a Fortune 500 company had been providing coal to Norochcholai for over four years, during Rajapakse government, at best possible price. It had repeatedly waived conditions of contract In order to assist Sri Lanka, had reduced prices, shipped without letter of credit or guarantees, shipped without payment of freight, released bill of lading without receiving full payment, adjusted delivery schedules, waived penal interest due to late payments and in general shown great commitment to its customers in Sri Lanka .
When the tender came up again in 2015, the Yahapalana cabinet excluded Noble and gave the tender to Swiss Singapore. The bidding criteria had been changed after the tenders were opened. The granular size of the coal was reduced .This permitted the import of substandard coal with a higher content of coal powder. Noble Resources went to court and Supreme Court heard the case as a matter of national interest. Supreme Court ruled that the tender had been granted in a manner which was against all known rules and regulations. It was invalid in the ‘eyes of the law’. The government wanted to keep Swiss Singapore Ltd as the main supplier of coal despite the Supreme Court ruling. The Cabinet consulted the Attorney General and re-awarded the tender to Swiss Singapore.
Minister of Power of Renewable energy thereafter appointed a three member committee led by K. K.Y. W. Perera to see whether the government has suffered any monetary loss due to the way coal was purchased after the present government came into power. This committee observed that the quality of each coal shipment differed and that Swiss Singapore had delivered 18 coal shipments after the removal of the penalties for granular size and the amounts actually paid after negotiation had been different to the originally agreed amounts. In the case of nine shipments the amount actually paid had been less than the original amounts and in the case of the remaining nine, it had been more than the originally tendered amounts. After balancing out the losses against the gains, the committee calculated that a sum of USD 287,029 had been gained by the Sri Lankan government.
However, the committee went further. It observed that the amount of fine particles in the coal supplies should be limited. Powdery coal dust had a serious environmental impact which was ‘not quantifiable’ . It was indirectly saying, that the decision that the Yahapalana government took to disregard the granular size of the coal in order to award the contract to Swiss Singapore Ltd was wrong. Critics observed that one dangerous consequent of this import of substandard coal was its appalling impact on the environment in the area surrounding the coal power plant Chairman of Lanka Coal Company (LCC) Maithri Gunaratne, who objected to the deal, was asked to quit.
Liberty Commodities Ltd was awarded the tender to supply 165 metric tons of coal in May 2015 by a Cabinet appointed procurement committee. The sulphur and ash content of coal had been altered to Liberty’s benefit after the tender had been awarded to it. The contract signed was not the one approved by the Tender board but what LCC had passed off as an amendment to a previous tender. In January 2016 LCC again altered the document to benefit Liberty. The Ceylon Electricity Board incurred huge losses through these transactions.
An Iranian company has offered a US$ 1.8 billion interest-free loan for the Sapugaskanda Oil Refinery Expansion Project. This offer was a zero commission instrument so Tender board was trying to scuttle the deal. There was no chance of a commission. Ceylon Petroleum Corporation officials said “this is a very advantageous offer. We can pay back the loan in 20 years without any interest. The PFN of Iran likes to establish a rupee company in Sri Lanka. We can pay back our loan in rupees. We can earn about US $ 350 – 400 by way of profits after modernization of the Sapugaskanda oil refinery, but the government is dragging its feet, offering several excuses”.
The tender for construction of a new aircraft refueling facility at the Bandaranaike International Airport (BIA), Katunayake was cancelled by Presidential Secretariat, following complaints of irregularities. Bidders objected to the tender being awarded to a Greek company, saying the company had no experience in such work and didn’t meet the prescribed criteria set out in the tender announcement. This work should be carried out by a company with considerable experience and technical expertise, since an unintended spark can ignite the fuel vapor, causing a major fire. The bidder had to submit proof that he had carried out fuel terminal construction to the magnitude of US$ 25 million.
Bidders who participated in the tender alleged that, members of the Cabinet Approved Procurement Committee (CAPC) and the Technical Evaluation Committee (TEC) had not properly scrutinized the bid documents and had little knowledge of handling US$ 25 million-size projects. Trade unions noted that the same tender had been called twice, on June 18, 2015 and on April 29, 2016.The first tender was cancelled by the same CAPC and TEC without any valid reasons.
The costly third section of the Central Highway was awarded to Japanese firm Taisei Corporation which has been charged with bid rigging in Japan. Cabinet has instructed that instead of transparent competition bidding, tenders be called only from Japanese companies as the finance came from Bank of Tokyo Mitsubishi Ltd. Japanese Embassy was asked to send in three names, the first bid went wrong and the government then restarted the tenders to allow the same three companies to bid again this time with the bid bonds too. Officials say that this makes a mockery of the procurement process.
Vehicle Lanka (Pvt) Ltd. has been engaged in assembly of vehicles with used spare parts since 2005. A Cabinet sub-committee appointed in 2015, decided to give a three year concession to the company. Eight containers of spare parts belonging to Vehicles Lanka (Pvt) were released from the Customs with reduced customs charges . Ravi Karunanayake, Minister of Finance said this was done in accordance with the Cabinet decision, supported by legal advice by the Attorney General. He had no personal interest in the company. The loss to the country from this customs waiver is Rs 656 million said Udaya Gammanpila.
The government has given eight acres of land in Slave Island, Colombo to a private company, One Colombo Project , to construct a multi-storied building complex as a re-development and mixed development project. It has been granted an income tax holiday for 10 years and a tax exemption for six years. The company was also exempted from paying Withholding Tax for interest on foreign loans, management fees , royalty payments, marketing fees, and incentive management fees provided that the total of such fees did not exceed 1.5 percent of the gross operating revenue. Imports and local purchases for the project were exempt from VAT for eight years. The company was exempted from the payment of Ports and Airports Development Levy (PAL), Construction Industry Guarantee Fund Levy and Customs duty for eight years on importation of project related items. The expatriate staff of the project company, not exceeding 15 at a time, were exempted from the payment of Pay As You Earn tax.
Here is a list of some other controversial activities of the Yahapalana government. Agriculture ministry rented a house for Rs 2.5 million, amidst much opposition. Lanka Thriposha moved to procure one million kilos of soya and three million of maize at the cost of Rs 271 million outside tender procedure from a single supplier, other players were left out. Customs was ordered to suspend a probe into 800 undervalued super luxury vehicles. The country lost 40 million by this. 212 Prado vehicles were released from Customs allowing those who had imported them to pay paltry sums as duty. This too had caused a colossal loss to the government. A writ application was filed in court against a gazette notification giving tax relief up to Rs 600 million to ‘Ceylon Breweries’ and three other companies to import beer. Notice was issued on Ravi Karunanayake, Minister of Finance. A Cabinet appointed procurement committee decided to reinstate Singapore based Vitol Company as a registered supplier of fuel. It has previously been blacklisted for allegations of supplying substandard fuel stock.
To conclude, here is an entertaining Yahapalana attempt at eliminating corruption. In 2016, the Commission to investigate Allegations of Bribery (CIABOC) told the private sector that if they sent gifts, such as free air tickets and gift vouchers, to public servants at Christmas time and the public servants accepted the gifts, both parties could be tried under the Bribery Act. Soliciting gifts, especially Christmas hampers, was also a crime.