Unscrupulous state officials and the plight of investors to Sri Lanka
Posted on May 7th, 2018

Rajith Keerthi Tennakoon, Executive Director CaFFE/CHR

Unscrupulous state officials and the plight of investors to Sri lanka

The arrest of President Sirisena’s Chief of Staff, Dr I.H.K. Mahanama and Chairman of the State Timber Corporation P. Dissanayake while taking a bribe from an Indian investor made headlines last week. As often the case in Sri Lanka different segments interpret this incident based on their political biases.

For some this is an indication of the growing corruption under the good governance administration while others interpret as an example of independent commissions exercising their autonomy, which was given by this government. However I think that the bigger issue here is how corrupt officials like Mahanama and  Dissanayake manage to stay on top of the administrative service and how their actions affect FDI to Sri Lanka. If we do not address these two questions, nothing we do, from depoliticizing the state sector to attracting FDI, is bound to fail. The people will lose faith in the state sector and corruption becomes more normalized than it already is.

Let’s first start with the history of  Mahanama attempting to take a bribe from the Kantale sugar investor.

A long history of attempted extortion 

 The proposal to recommence the operations of the Kantale Sugar factory is first forwarded in 2006 during the Mahinda Rajapaksa administration. In 2010, international bids are called to find a suitable investor.

One of the most powerful secretaries under the Rajapaksa administration attempted to ensure that an investor, who was the third in line when it came to suitability, was awarded the tender. Due to the controversy which arose after this was exposed, the deal was put on hold.

On February 14, 2015, a month after the Good Governance administration comes into power, the approval to the recommence the operations of the Kantale Sugar factory is given.This was to be one of the first large scale FDIs under the administration. The selected investor is green lighted by the CCEM and by the Cabinet on June 17, 2015. Thus an agreement is signed between MG Sugar and the BoI. One of the conditions of the agreement was that MG Sugar must deposit US $ 10 million with the Sri Lankan government and on August 08, 2015 the company fulfills that obligation.

 

However the Ministry of Lands keeps on delaying what it needs to do on its part and places many hurdles to prevent the investment from taking place. Dr. IK Mahanama, who is the secretary to the Ministry of Lands informs the investor, repeatedly, that he can prevent the delays from the AGs department and that nothing will do done without his approval.

The Minister of Lands at that time was M. K. A. D. S. Gunawardana, who represented Trincomalee District and he wanted to develop Kantale, which in a part of Trincomalee District, which would have strengthened his hold in that area. However the Minister passes away on January 2016 and was replaced by John Amaratunga, who had a lot on his plate. Taking advantage of the lack of interest from the Minister Dr. Mahanama runs the Ministry as he pleases and he informs the investor that he needs US $ 3 million to ensure that the deal goes through. However at this point the investor had in fact deposited US $ 10 million with the government.

 

I received information of this development in early 2016 and I had exposed this on various occasions using the platform of Anti Corruption Front and the Centre for Human Rights. The head of the BoI at that time was Upul Jayasuriya who responded by saying that although he approves investments, secretary to the ministry of Lands, Dr. Mahanama and Secretary to the Ministry of Power, Suren Batagoda places constant obstacles, which delays the investments. After this revelation Prime Minister Ranil Wickremesinghe and Minister of Development Strategies and International Trade, Malik Samarawickrama made life difficult for Jayasuriya, which eventually lead to his resignation.

On the statement the investor has given to the Bribery Commission, it is said that Dr. Mahanama again demanded US $ 3 million on May 2017. The payment was to be made at the parking lot of a restaurant in Wattala. On September 2017 Chairman of the State Timber Corporation P. Dissanayake also approaches the investor and demands a bribe during a meeting at Waters’ Edge Hotel. Between October 2017 and February 2018 Mahanama and Dissanayake demands a bribe from the investor on four separate occasions and threatens that they won’t allow the project to take place unless the bribe is paid (meeting place State Timber Cooperation Chairman’s office).

Sugar cane planting begins

On April 2017 land for the cultivation of sugar cane is given and on September 17, 2017 the cultivation begins. At this point Mahanama once again threatens the investor that unless he receives his bribe he will retake the land earmarked for sugar cane planting. By this time the investor had brought his British and South African partners to Sri Lanka.

Feeling that he has no other choice the investor approaches the Bribery Commission on February 2018. According to what has been revealed, Dr. Mahanama has told the investor that he needs to take a bribe because he wants an income after he retires. Mahanama has claimed that he plans to construct a building near the University of Kelaniya and rent it out.

Extorting money from investors

One of the tactics used by unscrupulous people like Mahanama is that they prepare cabinet papers with that make it difficult for investors to commence work, unless a bribe is paid. For example when preparing the cabinet paper regarding this investment, Mahanama states that none of the old machinery of Kantale Sugar factory can’t be given to the new company and that he proposes to sell the old machines as scrap iron. In fact he calls for a tender to sell these machines at an estimated cost of Rs 340 million after misleading the President and the Prime Minister.

Article  7.9 of the shareholders agreement states that

The investor/company agrees to take possession of land and premises from the GOSL described in Article 7.1.1 (other than that described in Article 7.1.1 (c) with all the infrastructure and machinery, on an as is basis and no guarantee is given that any infrastructure, machinery, buildings or implements subsisting on the land or premises are usable or suitable for any purpose. The company may do as it may deem appropriate with the infrastructure, machinery, buildings or implements at it’s own cost or use them as it may deem suitable.

Thus all the ‘infrastructure, machinery, buildings or implements subsisting on the land or premises are usable or suitable for any purpose’must be handed over to the investor for the 51% stake the government gets. Mahanama attempts to create an impression that the company is trying to sell the machinery as scrap metal and obtains an estimate to sell them, since there is no assistance from the government, the investor gets into trouble. If they go for arbitration, that committee is appointed by the Ministry Secretary. Mahanama tried to obtain US $ 3 million to release these assets to the company or around Rs 540 million. Then he later reduces his demand to Rs 100 million.

MG Sugar goes for arbitration in Singapore against the constant harassment and Mahanama retires, only to return as President’s Chief of Staff. He again approaches the investor promising to iron out all the issues he has and brings in Chairman of the State Timber Corporation P. Dissanayake to act as a mediator.

Dissanayake who was the secretary to former President Chandrika Bandaranaike is a past master of extortion. He was known as ‘Bar Piya’ among MPs in the 90s and early 00s and has amassed considerable assets including two two story houses at Gregory’s Rad, an apartment at Union Place, three bars in Gampaha, one in Matara and two houses in Battaramulla.

However the two men didn’t know that the investor had already approached the Bribery Commission and that a number of officials had been keeping an eye on this case for a while.

This incident must not be considered an isolated incident or an indication of increasing corruption under the UNFGG government. For decades the investors who come to Sri Lanka have learnt that they need to pay large bribes to get their work on track. An investor who refuses to pay a bribe has no one to turn to. The BoI, whose Chairman is the highest paid state official (Rs 1 million), takes no responsibility after the initial agreement. In fact accessing the Chairman is more difficult than reaching the President or the Prime Minister. The Kantale investor told me that the only person who listened to his grievance was former Finance Minister Ravi Karunanayaka.

He is also a businessman who has been working in Sri Lanka since 1994 and has high level connections. Any other investor would have just quit and told his collages never to invest in Sri Lanka.

The other point to consider is how Mahanama became the Chief of Staff of the President. I have repeatedly complained about Mahanama and a number of other organizations have raised concerns about his behaviour. However despite all of that he is appointed Chief of Staff of the President. I have also raised concerns about seven other state officials but there has been no investigations against them. This makes the public disillusioned about the government, which can only benefit the Rajapaksas.

(attached images of the Kantale during the early days of the project Nov. 2017 to March 2018)

Rajith Keerthi Tennakoon,

Executive Director CaFFE/CHR

3 Responses to “Unscrupulous state officials and the plight of investors to Sri Lanka”

  1. Hiranthe Says:

    Once you have a Grama Sevaka mentality you automatically submit to highly qualified officials who dictate the terms very well. When that official is a crook, he can get the maximum benefits.

    That is why we need qualified professionals in the parliament, not school drop-outs.

  2. Christie Says:

    Christie Says:
    May 7th, 2018 at 6:48 pm
    මේ ඉන්දියානු ආයෝජකය අනිත් ඉන්දියන් කාරයන්ට වඩා වෙනසක් නැත. උන් සින්හල අපිට කෙලින්නේය.
    තව අවුරුදු කීපයකින් බලමු මොකද වෙන්නේ කියල.
    ඉස්සෙල්ලම පරන යකඩ ටික විකුන ගනීවි.
    සීනි කොහොමත් සක්කර තමයි අපිට ලෙව කන්න වෙන්නේ.
    මේ පිටිපස ඉන්න කොම්පැනි වල පැඩිකිරිය කොහොමද ?
    ඔය කියන් මහ ඉන්දියානු අයෝජිකයා මමනම් ඇලුමිනියම් කාසියකටවත් ගනන් නොගනිමි.
    Christie Says:
    May 7th, 2018 at 6:59 pm
    “ප්‍ර‍ධාන ඇමති චන්ද්‍රිකා කුමාරතුංග මහත්මිය ගේ ලේකම් බවට පත්වන්නට එය සුදුසුකමක් වන්නේය. ”
    This is something I agree with.
    Chandrka’s Balapataya used to collect about 5% from what his boss got.
    Balapataya’s son was able to blow up more than $ five million in a venture in a Western country.
    I do not know what he is doing now. But he managed to get citizenship in the West.
    Any way what I am trying to tell is this is why we need foreign investors because our money get wasted.

  3. Christie Says:

    Please tell us who this Indian Investor who cale to see you.

    Be Transparent as you may had something to do with Transparency International.

    Bribes; giving or taking are both crimes.

    MG Sugar …; I am sure M G stands for Mr. Mendel Gluck the only person to be seen in this great foreign Investment.

    I am sure he is a “billionaire in some sort of currency .

    MR MENDEL GLUCK
    Active
    London, N15 6UA
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    Then this Indian Sugar Company is not within the biggest ten sugar producers of India.

    Is the 10 million dollar deposit in cash in one bag or what sort of a transaction is that?

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