BY Cassendra Doole Courtesy Ceylon Today

On 5 January 2017, the foundation stone for what was then said to be the largest tyre-manufacturing factory in the country was laid under the auspices of Prime Minister Ranil Wickremesinghe. An investment of Rs 11.25 billion was made for the factory which is based in the Wagawatthe Board of Investment Industrial Zone in Horana. However, information later revealed that the tyre-factory is owned by business tycoon Nandana Lokuwithana, a very close ally of the Rajapaksa family.

Rajitha claims PM
was unaware

Co-Cabinet spokesperson Rajitha Senaratne said Prime Minister Wickremesinghe was not aware that the businessman behind the tyre factory in Horana was Lokuwithana until the morning of the opening ceremony.

Responding to a question on why the Prime Minister attended the opening of the tyre factory, which is owned by a pro-Rajapaksa businessman with a controversial past, Senaratne said, “The Prime Minister did not know who owned the factory until the morning of the opening ceremony. He decided to go, after long deliberation, because the announcement that he would be there had already been made.”

Senaratne said he blames certain ministers for misleading the Prime Minister and added that the tyre factory cannot be built until the agreement is renegotiated.

“He [Lokuwithana] has got 100 acres of land, in the Wagawatte Industrial Zone (WIZ), on a 99-year lease for an annual rent of just Rs 100 an acre. That is not done, there are regulations regarding how sale and lease of land can take place in the country.

No one can violate them, not even the President. The BOI usually charges US $ 40,000 (Rs. 6 million) an acre for a 50-year lease of WIZ land. That is the rate Lokuwithana has to pay,” he said.

Reasons

Senaratne said one of the reasons for such incidents is the fact that the Cabinet Committee on Economic Management (CCEM) has been allowed to go above the line minister. “The President has now stated that everything has to come from the line minister, who now has the power to override the Cabinet Committee on Economic Management (CCEM).

Lokuwithana was awarded a 100-acre block of land at the Wagawatte Industrial Zone on a 99-year lease, at an annual rent of just Rs 100 an acre, to build Rigid Tyre Corporation (Pvt) Ltd. The foundation stone was laid on 5 January. The annual rent for an acre of WIZ land is US$ 3,850. At Rs 100, Lokuwithana gets a discount of 99.98 per cent on each acre.

Malik‘s
contradiction

Rejecting claims made by Minister Rajitha Senaratne with regard to the Horana Tyre factory, Development Strategies and International Trade Minister Malik Samarawickrama said he had informed both the President and the Prime Minister about the investor of the factory well in advance.

The statement made by Rajitha Senaratne on the issue is also incorrect, he said.

“It is necessary to emphasize the fact that, both the President and the Prime Minister were aware of the investor since I, myself informed them well in advance.

“Furthermore, two Cabinet papers i.e. initially one proposing the land and then giving details of the incentives and other terms were submitted on the project and in addition, the project was discussed and endorsed at several meetings of the Cabinet Committee on Economic Management.

Incorrect
statement

The statement that the land was given for Rs 100 per acre is incorrect. In fact, the government Chief Valuer had valued the land at Rs 170, 825, 000 and the investor has agreed to pay the total amount upfront. The Chief Valuer has also indicated that a further

Rs 10, 000 be charged as an annual nominal fee.

Further details pertaining to the project are given below:

The 100-acre land at Horana, Wagawaththa Industrial Zone is a bare undeveloped land undulating in most areas. Based on the technical investigations done by Central Engineering and Consultancy Bureau (CECB), it is noted that the investor has to incur a sum of about Rs 300 to 400 million as per the estimate to bring the land to a usable state. The investor claims that around 3 million layer of weak soil has to be removed throughout 25 acres of the land.

BOI is not providing any infrastructure facilities like in other zones- e.g. even the waste disposal treatment plant will be constructed by the investor. Similarly, all internal roads will have to be constructed by the investor.

Based on the valuation of land by the government Chief Valuer an upfront payment of Rs 170 million is to be paid by the investor. Since the project requires a large extent of land, the investor requested the land be leased to him based on the valuation determined by the Chief Valuer on the basis that infrastructure will be provided by him. The request by the investor was accommodated by us in view of the high value of the investment of the project and the significant contribution expected to the economy particularly linked with the rubber industry.

Promoting
investment

BOI should promote investment and if necessary, regulations and rules need to be changed to attract investments as the current regulations have failed to bring in investors. The (Foreign Direct investments) FDIs in 2015 was USD 970 million and in 2016 it will be around USD 450 million, which is extremely low by any standard.

The total investment of the project is USD 75 million

(Rs 11.25 billion). The project will employ around 3, 000 workers. It will add value to the rubber produced in Sri Lanka and convert raw rubber to radial and solid tyres. The annual export earnings will be above USD 125 million.

There will also be an inward transfer of technology as the Italian company Marangoni is expected to provide the technical know-how to produce tyres and other rubber based products.

There are similar BOI projects, on BOI owned properties, which have been given on long-term lease with an upfront payment and an annual fee is not charged from such projects – e.g. MAS Group was given 47 acres on a 50-year lease and upfront payment is to be received and no annual fee is charged. This was a well-developed property with buildings and other infrastructure, although major repairs/renovations will have to be undertaken by the investor (former Kabool Lace property).

Furthermore, a land vested in BOI in Kuliyapitiya was given on a freehold basis to Western Automobile Assembly for a proposed vehicle assembly plant. The BOI has also granted 357 acres in the same area on a 99-year lease for 1 USD per acre per annum to Merbok, in settlement of a dispute arising from a contract signed in 2000.

All expenses in developing the land, including constructing a treatment plant, internal roadways and obtaining transformers will be done by the investor. Therefore, the project should be considered on the same basis as the MAS project. The investor applied to set up the plant in March 2016 when they were eligible for the tax concessions under BOI.

Initially, BOI took steps to acquire a private land in Horana, but as the owners of the land were unwilling to sell the property, BOI was instructed not to acquire that land as per the President’s observation on Cabinet paper No MODSIT/3/CAB/16/8 dated 2 June 2016.

We believe the investor should not be penalized for the delay on the part of BOI to make the land available. Accordingly a Cabinet memorandum was submitted on 3 October 2016 identifying the BOI owned land at Wagawaththa and explaining the position.

Accordingly approval and tax concessions were granted by the Cabinet on the rates prevailing at the time of the application. In different countries promoting investment projects, various mechanisms exist for lease of land and providing infrastructure on case by case basis, based on evaluation of salient features of the project, level of infrastructure required, and extent of land. In India, in certain State land is given for one Indian rupee per acre per year to attract investors.

When proposals for investments are received, we do not look at the political affiliations of the investor, and projects are evaluated and approved on the basis of economic and social benefits to the country.”