National carrier under Sajin's brother takes
Chamal Rajapakse, Manoj Vaas,
and Ravi Karunanayake
SriLankan nosedives with Rs. 5
billion loss in three months
By Ruan Pethiyagoda
The news from the state aviation industry
only continues to go from bad to worse.
Aviation officials from Minister Chamal
Rajapakse, outgoing Mihin Lanka CEO Sajin
Vaas Gunawardena and his replacement Anura
Bandara insist that the situation is
improving. But it is not.
The latest blow for the industry's
reputation came last Wednesday in parliament
when UNP MP Ravi Karunanayake sparked an
adjournment debate that revealed the
dilapidated state of SriLankan Airlines,
just three months after its management was
taken over by the government from Emirates.
Speaking on behalf of the government,
Engineering and Construction Services
Minister Rajitha Senaratne admitted that the
flight operations of SriLankan Airlines had
in the past three months lost an
unprecedented sum of Rs. 5.67 billion
rupees. He claimed however that the catering
services, ground handling and duty free
sections of the company had made profits in
the same period, leaving the total 'group
loss' at "only Rs.4.885 billion."
Double the loss
This was more than double the loss sustained
by the airline last year during the same
period under Emirates management, which was
Rs.2.3 billion; a loss that the government
attributes primarily to the increased fuel
cost over the last year.
The Minister also did not deny that the
national carrier was suffering from a lack
of pilots, and that it was mishandling its
casual staff by firing and re-hiring them
every six months to prevent being drawn into
an employment contract.
The national carrier's Communications
Manager, Ruwini Jayasinghe confirmed the
financial statistics presented in
parliament, but was not able to comment on
the casual staff policy since it was not
formally raised in parliament.
Speaking to The Sunday Leader, Karunanayake
alleged that all of SriLankan Airline's woes
began with the privatisation and handover of
management to Emirates. "This is something
the UNP was against from the very
beginning," he said. "The SLFP went ahead
with this without heeding our concerns. Then
this government started Mihin Lanka, which
has lost over Rs.3 billion. And now just
months after taking over SriLankan Airlines
from Emirates, they have posted an
The MP also rebuffed the government's
explanation of skyrocketing fuel costs as
the reason for SriLankan Airline's turning a
loss. "Fuel costs have been steadily rising
for over a year, but this loss is sudden.
They cannot possibly expect anyone to
believe that only on the day they take over
the airline, it starts making thumping
losses, and that it's someone else's fault."
A senior SriLankan Airlines official who did
not wish to be named also said that the
board is of the view that the downturn in
tourist arrivals in recent months has also
contributed to the carrier's poor
performance over the last few months.
This cannot however be a significant factor.
Although tourist arrivals for April 2008
were 10% lower than those for the same month
in 2007, and arrivals in June similarly
dropped 9.3%, there was an increase of 18.4%
in tourist arrivals in May, and the net drop
in arrivals for this period was thus just
What is more likely is that tourists have
begun flying on alternate routes due to
SriLankan Airlines' uncompetitive fares. Due
to a recently added fuel surcharge, travel
on SriLankan Airlines is more expensive than
competing airlines such as Emirates on
several key routes - even though Emirates is
renowned for better service and aircraft
condition. Both the base fare and tax
components of SriLankan Airlines flights are
higher than the corresponding rates on
We chose Emirates to compare with for two
reasons. Firstly it is in the same prestige
category as SriLankan Airlines and secondly
due to its former relationship with our
The total SriLankan Airlines internet return
fare from Colombo to London in August is
Rs.144,100; yet the corresponding price for
an Emirates ticket during the same period is
Rs.133,800; over Rs.10,000 cheaper.
Similarly, return flights to Male in August
are Rs.37,000 on SriLankan Airlines and
Rs.31,500 on Emirates.
With several other airlines also available
to fly the majority of SriLankan's routes,
Kuwait Airways and Austrian Air, the carrier
will be hard-pressed to compete with its
higher prices and its recently blemished
It was by chance only that a potential
catastrophe for SriLankan Airlines at
Heathrow Airport was avoided some weeks ago.
A UL flight bound for Heathrow had taken off
carrying a piece of luggage belonging to a
passenger who had been off-loaded, of all
reasons, for 'security' reasons!
It was only when the aircraft was soaring
over the Middle East that the mistake was
realised and the plane was forced to make an
emergency landing in Dubai that cost the
carrier over Rs.40 million in fuel alone.
Should the mistake not have been detected,
and the plane had carried on to Heathrow and
unloaded the unaccompanied bag, the
potential reaction of the terror-paranoid
British authorities would have left little
to the imagination. This near disaster came
in succession to the collision of another
SriLankan Airlines flight with a stationary
British Airways craft on the Heathrow tarmac
last October, and President Rajapakse's
temper tantrum last December which led to
the booting of Emirates in the first place.
It said an awful lot for the President's
patriotism when all it took for him to cause
the expulsion of Emirates-appointed CEO
Peter Hill was for the latter to hurt his
feelings by not kicking off passengers from
a fully booked flight to accommodate his
entourage, after many months of
grandstanding on 'real' issues between the
government and the UAE giant.
What matters now is not the mess that the
government has gotten SriLankan Airlines
into over the last three months, but how it
plans to extricate the carrier from this
mess and prevent it from becoming yet
another dreaded Mihin Lanka.
Aviation Minister Chamal Rajapakse told
parliament on Wednesday that his Ministry
was taking several measures to cut costs at
SriLankan Airlines, which we can only hope
will find its way out of this most recent
The stakes are high, and it is incumbent
upon the Minister to ensure that SriLankan
Airlines' new CEO, Manoj Vaas Gunawardena
does not get prematurely labelled as his
"brother's brother" taking SriLankan down
the same path that Sajin took Mihin Lanka.
Manoj Vaas counts many years of experience
both at SriLankan and in the aviation
industry as a whole, yet his reputation and
position have been made precarious by
brother Sajin's pooping of Rs. 3 billion at
Mihin Lanka. Efforts to contact Gunawardena
for comment however failed as his office
said that he was unavailable.
What complicates the situation further is a
tacit clause in the SriLankan Airlines'
lease agreements with the owners of its
aircraft. According to Parliamentarian Ravi
Karunanayake, should the cash flow or bank
balance of SriLankan drop below a certain
fixed amount, the lessor retains the right
to repossess all the aircraft.
"They had Rs.14 billion in the bank when
they took over from Emirates, and now they
are down to just over Rs.7 billion," said
Karunanayake. "If they don't get their act
together soon, this will become another
disaster for the people at the hands of this
It is in the best interests of the Minister,
the CEO and the public that a plan to bring
SriLankan out of its current position is
laid out on the table and thrashed out. The
country can scarcely afford the kind of
money that the state aviation industry has
been costing it in losses and debts over the
PB made to bite the dust
P.B. Jayasundera and Sarath Silva
PB has no moral authority to continue
as Treasury Sec.
SC says LMSL deal was a questionable fix
All impugned decisions made entirely by PB
PB arrogated to himself authority of
Judgment will boost investor confidence
says BOI Chief
By Sonali Samarasinghe
Last week the business world stood shaken as
a Supreme Court Order rocked its environs
and shattered its peace, holding the
controversial Lanka Marine Services Ltd (LMSL)
privatisation and sale of shares to John
Keells Holdings illegal, in excess of lawful
authority and biased in favour of the
More importantly the 69 page judgment
brushed aside ministerial and presidential
involvement in the privatisation deal that
also magnanimously gifted to JKH a valuable
land of over eight acres in the heart of the
Colombo Port, while focusing in almost
astounding detail on the actions of Treasury
Secretary and then Chairman of the Public
Enterprise Reform Commission (PERC), P.B.
Fitch on Friday said JKH's ratings may be
negatively affected going forward if short
term cash assets are deployed into
longer-term investments yielding lower rates
of return, significantly higher risks or
long gestation periods. The credit rating
company also noted the elevated level of
concentration risk on the company's free
cash flows resulting from the possible
elimination of LMS as a key contributor.
Nonetheless Fitch also ruled that JKH
National Long-term Rating of 'AAA(lka)' with
Stable Outlook and 'AAA(lka)' rating for its
senior unsecured notes were not immediately
affected by the judgment.
Be that as it may the three judge Supreme
Court bench comprising Chief Justice Sarath
N. Silva, Justice Amaratunge and Justice
Balapatabendi held the impugned deal to be
the responsibility of the former PERC
chairman and last Monday's order by the apex
court of the land was to serve as a severe
personal indictment on incumbent Treasury
Secretary - Punchi Banda Jayasundera.
The Treasury bigwig was accused of acting in
collusion with JKH to effect the illegal
deal and ordered to pay Rs.500,000 as
compensation to the state for his yielding
Vasudeva Nanayakkara in June 2007 filed a
fundamental rights petition in the public
interest impugning the executive action of
Jayasundera as PERC chairman alleging he
caused the sale of shares of LMSL - a wholly
owned company of the Ceylon Petroleum
Corporation (CPC) which was a profit making,
debt free, tax paying company, to JKH,
without prior approval of the cabinet, in a
process which lacked transparency and was
biased in favour of JKH.
Ironically LMSL, wholly owned by the Ceylon
Petroleum Corporation in the year 2000/2001
made a profit of Rs.318 million and paid Rs.
163 million as income tax. After
privatisation following a sweet, tax free
agreement with the Board of Investment (BOI)
it paid no tax at all.
It was also alleged that Jayasundera did not
obtain a valuation for LMSL from the
government valuer but relied only on a
valuation secured at his discretion from the
private DFCC Bank. LMSL was valued at Rs.1.2
billion when its profits alone for four
years including the year of sale was Rs.2.4
billion - double that amount.
Illegal state grant
It was also alleged that an illegal state
grant of Sri Lanka Ports Authority prime
land in extent of approximately eight and a
half acres at Bloemendhal Road was gifted to
JKH for no consideration by then President
Kumaratunga - some two and a half years
after the sale of shares.
In a collateral proceeding JKH also obtained
tax free status for its investment in LMSL
from the BOI by amending a regulation. Thus
the privatisation did not adhere to the
spirit of PERC policy as it merely converted
a tax paying, public enterprise into a tax
free, private enterprise which also claimed
a monopoly in the business.
The court last Monday held with the
petitioner and declared null and void the
state grant of approximately 8.64 acres
belonging to the Sri Lanka Port Authority to
LMSL on which the assets of LMSL resided,
the granting of tax free concessions by the
Board of Investment (BOI), and the Common
User Facility (CUF) agreements entered into
between LMSL and Sri Lanka Ports Authority.
However the share transfer was left intact
and JKH retained the ownership of assets.
LMSL is thus still 99.4% - owned by JKH.
While P.B. Jayasundera as a public official
has a greater level of responsibility to
protect public property and act in the
public interest JKH was not able to win over
the court with its submission that it merely
asked for concessions from an already
And it is in this context that this
newspaper now assesses the judgment. The
court very early in its lengthy judgment,
sees fit to quote the concluding paragraph
of the Committee on Public Enterprises
(COPE) report as follows:
"This transaction has been executed
blatantly without cabinet approval with
several flaws causing loss and detriment to
the government and demonstrating it to be a
questionable 'fix' and is therefore ab
initio - bad in law, null and void."
Indictments and censures
Monday's judgment which is liberally
peppered right through with various
indictments and censures of the Treasury
Secretary Punchi Banda Jayasundera, also
makes the following damaging statements.
(1) "Whilst purporting to act under the said
cabinet decision PERC embarked on a course
of action devised by itself"
(2) "Jayasundera has conveniently sought to
explain the failure to appoint a Cabinet
Appointed Tender Board (CATB) on the basis
that it is not a practice to appoint such a
board in respect of the sale of government
shares. If it is so his practice is contrary
to his own circular. ."
".the appointment of a CATB would have
afforded a mechanism to redress the bitter
grievances such as. lack of transparency and
of unfavourable treatment. ensured the
cabinet was apprised of the process of
valuation of bids and a decision being made
by the cabinet as to the manner in which the
sale should be effected, without Jayasundera
on his own accord purporting to 'clinch the
deal' with JKH."
(3) "I conclude .that the steps taken by
Jayasundera and PERC .is not in any way
mandated by the decision of the cabinet of
ministers and is manifestly contrary to the
process that has been authorised. The
procedure adopted is also contrary to the
Public Finance Circular issued by
(4) "The only reason given by Jayasundera
for not pursuing the matter with the chief
valuer is that 'it would not have been
feasible to have expected a business
valuation to be done by the chief valuer
within a short period of time.'"
"....Even the DFCC Bank appears to have been
rushed through by PERC to furnish the
valuation. Question looms large as to whose
deadline Jayasundera was trying to keep."
"..having successfully stalled the process
he selected a private bank on his own and
paid the full fee that was sought. This is
completely contrary to the basic tenets of
public sector procurement..Jayasundera's
conduct in the matter of obtaining the
valuation is basically not authorised by the
cabinet, is characterised by inexplicable
haste; erratic, apparently designed to suit
his own objectives, contrary to all accepted
procedures and furthest removed from a
lawful exercise of power under the PERC Act
of tendering a well considered
recommendation to the cabinet."
(5) "Jayasundera's action was adverse to the
interests of the state in securing a better
price; he failed to take into account the
specific decision of the cabinet that the
monopoly would at the least continue to the
Port of Colombo for one year."
On the inclusion of Clause 8.2 into the
agreement granting a monopoly on the Common
User Facility the judgment had this to say:
(6) "Jayasundera has.in his affidavit
admitted the subsequent inclusion of Clause
8.2 and seeks to justify his action on the
basis that it was done, 'in order to
maintain a level playing field among all
bunker operators.' I have to observe in
respect of this quaint defence that his
perception of a level playing field appears
to be with one single player."
On the matter of the transfer of the land to
JKH for summa the court states:
(7) "Although the covering letter has been
signed by the Director General (PERC) it is
clear that it has been sent on Jayasundera's
instructions because he has subsequently
acted on this representation that there
would be no separate payment for the eight
acre land within the Port of Colombo.
Jayasundera has no mandate whatsoever from
the cabinet or anyone else to make an
astounding representation that title to
eight acres of state land would be
transferred without any payment in such a
casual manner on a sheet of paper that does
not bear even a signature."
It further states, damningly, "In normal
circumstances a false statement as to a
payment to the government could not be made
since it has to be verified by the Treasury.
But regrettably that check is not there
since by now the same Jayasundera who was
responsible for the creation of the fiction
in favour of JKH that there would be no
additional payment in respect of the land,
is now ensconced as the Secretary to the
The court makes other damning statements
regarding the Treasury Secretary.
"Thus documents clearly establish that all
impugned decisions have been made entirely
by Jayasundera at his discretion."
"He not only acted contrary to law but
purported to arrogate himself the authority
of the executive government. His action is
not only illegal and in excess of lawful
authority but also biased in favour of JKH."
And the specific wording and findings in the
judgment are lethal to Jayasundera's
survival as Treasury Secretary. As quoted
above the court alludes to a cover up of his
earlier actions as PERC Chairman by him
later as Treasury Secretary. This not only
casts a cloud upon his performance in PERC
but also his present performance in the
The judgment specifically alludes to illegal
procurements, to contrivance, to
manipulation, misrepresentation to cabinet
and misleading the government. These are
formidable allegations and it is only fair
by the rest of the public service and the
people of this country that Jayasundera's
appointing authority President Rajapakse
immediately calls for his resignation.
Be that as it may a copy of the judgment was
ordered to be sent to the Inland Revenue
Department as well.
But what is even more damning is the last
sentence of the judgment which states that
"all parties to the proceedings will take
necessary action on the basis of the
findings stated above." This is a telling
sentence given that of the 31 respondents
some were more crucial than others as far as
Punchi Banda Jayasundera was concerned.
The Bribery Commissioner, the BOI Chairman
Dammika Perera, Director General Securities
Exchange Commission, the Criminal
Investigations Department, COPE Chairman ,
the Attorney General and most importantly
Secretary to the President, Lalith
Weeratunga are named as respondents. As
respondents in the fundamental rights
petition filed by Vasudeva Nanayakkara and
according to the mandatory wording of the
last sentence the parties are duty bound to
take necessary action based on the judgment
according to one school of argument.
Certainly President Rajapakse as the
appointing authority must be notified of the
findings. Already Rajapakse has called for
Jayasundera's explanation (See page 1) even
though his thinking earlier was that public
officials cannot be held accountable for the
actions of politicians. (See page 11)
Legal experts comment that a failure on the
part of these respondents to take action may
even tantamount to contempt of court but the
point is debatable. Bribery Commissioner
Justice Ameer Ismail told this newspaper
Friday the commission had already obtained a
copy of the judgment and would be studying
the judgment carefully.
Speaking in general terms he said that even
if a case had been closed due to lack of
sufficient evidence it could be reopened for
investigation at a later date if new
evidence surfaced. Justice Ismail also said
the commission would normally investigate
any complaint even if it is anonymously
Be that as it may sources said Petitioner
Vasudeva Nanayakkara, through his lawyers
would be sending out letters to the
respondents tomorrow or Tuesday as per the
last line of the judgment putting the
respondents on notice to take necessary
action according to the findings.
It is learnt the letters to be sent through
his lawyers will give the parties a period
of four weeks to respond before the
petitioner takes up the matter before the
Supreme Court for possible contempt.
Legal experts told this newspaper that
according to the judgment charges may be
formulated under the Public Property Act for
the loss caused to the state and to public
property. Charges if any may also be framed
under the Bribery Act and the Penal Code.
Meanwhile some civil rights groups were set
to meet a cross section of the business
community last Friday evening to ascertain
their views after the landmark judgment that
sent Sri Lanka into shock, and to decide
whether the business community should call
for the resignation of the country's most
important public official.
BOI Chairman Dammika Perera reacted with
satisfaction over the judgment and rejected
wholesale the idea that investor confidence
would weaken if agreements made could be
shot down at a later date under another
regime. "Not at all," he said. "If anything,
investor confidence would be strengthened by
such landmark judgments. It would send a
message to investors that there is law in
"At one time if Podi Singho went against
Bandaranaike there may not have been
justice. This shows that even if it is a
multi-million dollar conglomerate there is a
law. This will not only give confidence to
foreign investors but also to the poor man
on the street," Perera said.
"If not for The Sunday Leader this country
would have been teeming with crooks. But for
the more subtle, professional crooks we need
the courts," the BOI Chairman opined.
Executive Director, Transparency
International Sri Lanka - Lawyer J.C.
Weliamuna was equally determined that such a
judgment was good for the investor climate.
"After the Eppawela case people thought
investor confidence would wane but it did
not. For investor confidence there must be a
level playing field," he said.
However some economists are of the view that
such judgments would send a negative message
to potential investors who would think twice
before entering into an agreement with the
government if the agreement could be
nullified at a later date. In this case,
even after the legal time period for
instituting action had lapsed.