How privatization of public assets takes place in Sri Lanka : Lanka Marine Services to JKH in 2002
Posted on April 24th, 2022

Shenali D Waduge

There are many who claim that the only solution to Sri Lanka’s economic problem is to privatize public assets. These are promoted by western monetary bodies & local corporates take advantage of the corruptions that exist in the bureaucracy. In essence, what needs to be accepted is that it is not only the politicians who are corrupt but the Secretaries, the corporate bigwigs in Sri Lanka as well as the foreign investors. Privatization of Lanka Marine Service to JKH.

Case filed by Vasudeva Nanayakkara FR 158/2007

https://whistleblower.org/wp-content/uploads/2018/12/SLIC_SC_Judgment.pdf

President – Chandrika Bandaranaike Kumaratunga

Prime Minister – Ranil Wickremasinghe

Minister of Economic Reform, Science & Technology – Milinda Moragoda

Secretary to Economic Reform Ministry – P B Jayasundera

Finance Minister – K N Choksy

Minister of Justice Constitutional Affairs – G L Pieris

UNP ruled from 2001 to 2004

UNP promoted neo-liberal economic policy & as such privatizing state-owned enterprises was a fiscal condition imposed upon UNP by World Bank/ADB and IMF.

The Supreme Court of Sri Lanka reversed both share sales & denounced the corruptions that took place.

On 21 July 2008 – the Supreme Court of Sri Lanka reversed the privatization of Lanka Marine Services which was a wholly-owned subsidiary of the Ceylon Petroleum Corporation.

On 4th  June 2009, the Supreme Court of Sri Lanka reversed the privatization of the Sri Lanka Insurance Company (SLIC) after determining that the company’s sale had been improperly concluded.

Lanka Marine Services privatized to JKH

In August 2002, Ranil-led UNP through the Treasury & PERC (under Moragoda) sold a majority stake in Lanka Marine Services (subsidiary of Ceylon Petroleum Corporation) 

Supreme Court on LMS Privatization

The Supreme Court decisions showed how corruption & fraud favored private interests vis a vis sale of state owned enterprises (a policy promoted by IMF/WB and ADB)

The fraudulent privatization that benefitted JKH was reversed by the SC. The SC reversed 2 major privatization transactions effected in 2002 by former Minister of Economic Reform- Milinda Moragoda, Science & Technology. PERC was under Moragoda.

The SC claimed the privatization subverted public interest in both judgements. This sale also highlighted corrupt senior public officers. The Courts jurisdiction could not charge the Minister or his deputy P B Jayasundera. Both Moragoda & PBJ were alleged to have fraudulently divested the State of its revenue producing assets. PBJ resigned in September 2008 after the 1st SC decision that implicated him in financial misconduct.

People demand resignation of Moragoda

The People demanded Moragoda’s resignation as Minister & demand for investigation was filed with the IGP and the CID only with AG’s approval. The Ranil Wickremasinghe government however made Moragoda the Minister of Justice & Judicial Reforms under whom the AG was governed. 

The judges described the LMS transaction as done without lawful authority” to benefit a private holding company (JKH)

Supreme Court on P B Jayasundera

The Court found P B Jayasundera (Chairman Public Enterprise Reform Commission) who reported to Minister Moragoda had worked in collusion with the buy John Keells Holdings to secure illegal advantage for JKH.

JKH is a UN Global Company Company, publicly & rhetorically committed to combating corruption (Nihal S. Amarasekera)

After artificially undervaluing LMS, a clause was granted giving JKH monopoly on the services it was to provide. After the sale, the then President awarded LMS a substantial property in land for which JKH did not compensate the government. LMS was also awarded tax-free status which it was ineligible.

PERC was established in 1996 to promote a reform agenda in the public sector. The Court held that the objectives of PERC should be to benefit the people of Sri Lanka & provide financial support to the public sector. 

LMS as a subsidiary of CPC was providing marine fuel to ships in Colombo Port or offshore (bunkering) which offered foreign exchange revenue. LMS operated 12 tanks & a network of interconnecting pipes linked to shipping berths & a jetty in the port (Common User Facility)

PBJ is accused of granting a private company holding majority shares in LMS monopoly on limited bunkering services through existing CUF. PBJ amended the CUF Agreement at the behest of JKH. Moragoda & Jayasundera allowed JKH to monopolize supply of bunkers post-privatization in violation of the stated intentions given by the Cabinet. (Nihal Sri Amarasekera) The Cabinet Memorandum  declared that approval was given to increase volume of bunkering & increase the foreign exchange revenue to the State, however what happened was the transforming of a public monopoly into a private one resulting in complete loss of tax revenue  due to a fraudulent exemption.

PBJ did not use Government’s Chief Valuer but a private bank to value LMS public enterprise. When banks auditors informed about LMSL monopoly on the bunkering services LMSL was revalued & its worth was double to what was earlier submitted.

PBJ had then Treasury Secretary appoint a Technical Evaluation Committee to assess the viability of the incoming bids. JKH was chosen as winning bidder. JKH then fraudulently applies to the BOI for tax-exemption which was granted (Nihal Sri Amarasekera).

The Supreme Court held this as a ‘tailor made’ special gazette notification by Minister G L Pieiris former Minister of Justice for Constitutional Affairs. 

Role of K N Choksy / WB / IMF

K N Choksy, President’s Counsel & former Minister of Finance had also been Governor of the World Bank & IMF for Sri Lanka in 2003.

K N Choksy was appointed Finance Minister in 2001 despite his role in the Hilton Hotel Colombo’ case which caused the treasury enormous financial losses & deemed fraudulent by a Special Presidential Commission.

Faiz Mohideen former Deputy Secretary to the Treasury had been the Alternate Governor of the IMF & World Bank for Sri Lanka in 2000 & was counterpart for Sri Lanka on the World Bank’s Economic Reform & Technical Assistance Project which set out the privatization goals in 2002.

Who else are pro-IMF/WB in the Central Bank of Sri Lanka presently?

How were these privatizations done?

·      By first artificially undervaluing these public assets which lost the govt tax-paying revenue but transferred public wealth to private hands. 

·      The privatization was justified by promoting notion that only privatizing Sri Lanka could promote efficiency & economic growth

In SC (FR) Application No. 158/2007 Justice N.G. Amaratunga, with then Chief Justice Sarath N. Silva and Justice K. Sripavan agreeing, reiterated as follows:

The ruler’s trusteeship of the resources of the State which belong to the people is a part of the legal heritage of Sri Lanka dating back at least to the third century BC as pointed out by Justice Weeramantry in his separate opinion in the International Court of Justice in the Danube Case, by quoting the sermon of Arahath Mahinda to King Devanampiya Tissa as recorded in the Great Chronicle – Mahawansa. (See Bulankulama case – 2000 (3) SLR 243 at 254-255.) This concept of the public trust which curtailed the absolute power of the monarch is in perfect harmony with the doctrine of public trust developed by the Supreme Court on the basis of the sovereignty of the people set out in Articles 3 and 4 of the Constitution, Article 12(1) and the principle of the Rule of Law, which is the basis of our Constitution. The Rule of Law is the principle which keeps all organs of the State within the limits of the law and the public trust doctrine operates as a check to ensure that the powers delegated to the organs of the government are held in trust and properly exercised to the benefit of the people and not to their detriment. When the Executive which is the custodian of the People’s Executive Power “act ultra vires and in derogation of the law and procedures that are intended to safeguard the resources of the State, it is in the public interest to implead such action before Court.”

How can corporates accuse politicians of corruption, when they themselves have engaged in underhand transactions. How can we trust the public sector, when senior officials are not acting straight.

How do we deal with such a scenario of corruption embedded into society.

Shenali D Waduge

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