SEVANAGALA: Tailor-Made For UNP Financier?
- Strange bedfellows: Fonseka, Sarath Silva and Daya Gamage
- “Gamage Effectively got it for free”
- 5-Member TEC had 3 Political Appointees
By Faraz Shauketaly
A perfectly profitable state owned and managed enterprise was handed over on a platter breaking established norms and robbing the people – was the claim made by government Minister and MP for Moneragala, Jagath Pushpa Kumara.
An examination of the figures would indicate that despite being comfortable financially the management of Sevenagala Sugar had plenty to desire.
However grandiose the plans of the Ranil Wickremesinghe may have been in 2002 the entire privatization process was flawed: the TEC comprised of a majority of political appointees and none with any specialist knowledge of the industry. To add to the woes, the valuation used was one obtained from a private bank which valued the business controversially lower.
The bidding process saw four offers: in order of values received, Seasongrow Holdings Ltd. Rs 762.3 Million; Daya Apparel Exports / Xiangnan Luo Rs 550 Million; Distilleries Company of Sri Lanka Ltd. Rs 451.2 Million and Master Divers Pvt Ltd. Rs 78.1 Million.
Seasongrow Holdings was disqualified as their bid bond proposal did not conform to the Request For Proposal (RFP), Distilleries and Master Divers being discounted as they were lower than the Daya Apparels / Xiangnan Luo combine who promised to pay the full price on implementation – all Rs 550 Million.
The Technical Evaluation Committee comprised three political appointees – Deepal Gunaratna as Chairman of the TEC, Irwin Weerakkody, Suddhantha Amaratunga – with the Additional Secretary and the Treasury Representative completing the Committee of five. None of the political appointees had any specialist expertise of the industry and certainly no one from the Sugar cane Research sector.
A closer examination of the books reveal that at the time Daya Apparels made their successful bid, the Sevenagala Sugar Company had a sum of Rs 307 Million on fixed deposit and a stock of Sugar and Spirits of around Rs 150 Million plus various creditors of Rs 120 Million. In essence the Daya Apparel Xiangnan Luo combine walked into a financial bonanza of Rs 577 Million as opposed to their offer of Rs 550 Million. They in fact, netted Rs 27 Million! In parlance used in the Hotel Developers / Hilton Colombo matter, a “windfall profit” of Rs 27 Million on the day of completion. All they probably needed was probably a “bridging finance” facility to complete the transaction. Sources connected to this government claimed that this was at a time when companies and individuals connected to Daya Apparel were noted as ‘defaulters’ by the banking authorities. This claim however has been dismissed as untrue.
The Sunday Leader was unable to independently verify the accuracy of this claim due to rules on banking confidentiality. The fact remains however that with the help of Seylan Bank and Sampath Bank the Daya Apparel / Xiannan Luo combine completed the transaction. If the claim of being a defaulter has any truth it raises the question as to how the Daya Apparel application for funding passed through the Risk Assessment Committee within the banks.
The Government valuer had placed a value of Rs 1.2 Billion on the business – using what was later called the fixed assets basis of valuation – whilst the private bank had placed a value of Rs 481 Million – using yet another methodology. Clearly if the arithmetic was done in this manner, Daya Apparel and their partners generated a so-called windfall profit of not just Rs 27 Million but more in the region of Rs 470 – 500 Million. A case study for genuine public interest litigators indeed.
Compounding matters is the production figures for a company whose primary aim was to at the least maintain the output to collectively generate a production of sugar to reflect at least 12% of Sri Lanka’s consumption of sugar. Again the plan failed to materialize: in 2000, it showed a profit of Rs 115 Million and was responsible for 12% of the sugar consumed. In 2011 between the two sugar companies – Sevenagala and Pelwatte Sugar – the figure was a disappointing and vexatious 4 percent of Sri Lanka’s consumption. Government sources say this was definitely ‘under-performance.’
In addition to the financial bonanza that the new owners of Sevenagala received was a large and valuable fleet of vehicles – both heavy equipment and light vehicles. It really does lead one to wonder why the government did not merely call for a proposal from ‘Expert Managers’ as opposed to divesting 90 percent of what is arguably a very sweet essential item for the public.
The conundrum that is “Sevenagala Sugar” is further intoxicated when one considers the production of Spirits and Molasses over the period that Daya Apparel operated the factory as majority shareholders:
The income from the production of sugar continued to remain rather static within a band of Rs 347 – 652 Million, almost as though the company existed in the main to produce Spirits. Income from Spirits displayed strong growth starting with Rs 112.2 Million and ending up in Year 2008 with Rs 701.9 Million.
Daya Gamage is acknowledged by all – and he would be the first to admit it – as being a dominant force when it comes to financing the United National Party. He certainly fell out of favour with President Mahinda Rajapaksa. One viewing the other as suspect personified and the other piqued by Gamage’s support of the UNP leadership especially after all the contracts that were awarded to the Daya Group during the period Mahinda Rajapaksa was in charge of the Highways Ministry. Perhaps his most controversial moment came during the 2010 Presidential Elections. At a meeting in Ampara, Daya Gamage was seen hob-nobbing with Sarath Fonseka, Sarath N. Silva and Ranil Wickremasinghe and photographed acknowledging the crowds from a stage.
Daya Gamage has maintained that the ‘Expropriation Bill 2011” is unreasonable and draconian. He has indicated that he may go to an international tribunal to seek redress and assured the media that ‘no Minister can make me a beggar’.
As forceful as Daya Gamage is in his belief of his rights is the belief of the Minister of Economic Development who also maintains that the business was under performing and was engaged in other businesses ignoring the core business. Therefore, “not in the national interest”.
Daya Gamage’s Response
“ I do not wish to go into too many specifics as there are various matters pending. However I would like to state that Sevanagala Sugar was a loss making institution when we took over and we have proudly turned it around and today as a privately held company is worth at least Rs 4.5 Billion.
If we had taken it to the Stock Market and obtained a listing, the company would be worth at least Rs 10 Billion. The accounts of Sevanagala Sugar confirms the profitability.
Additionally I would like to say that both my wife and I are tax payers and have created plenty of opportunities for others. I would like to ask of the Ministers who speak about me even using parliamentary privilege, how many of these Ministers are tax payers?
I can guess that I may well be amongst the top 100 tax payers in this country. If the company did not pay income tax what was the Income Tax department doing? Whether we produced mainly sugar or a combination of Sugar and Spirits, the company created opportunities for the government to collect a significant amount of taxes and duties, which they did. I do not agree that in any way, Sevanagala Sugar was ‘under performing’. Actually it was profitable. Further as a Buddhist I did not cause the production of liquor at any time.”
Questions posed to Gamage
We asked the face behind Daya Apparel Exports for his comments on the following specific areas.
On the composition of the TEC…
“was it fair that the TEC had 3-members who were political appointees?”
On the allegations that Rs 307 Million in Fixed Deposits and other Creditors meant there was a Rs 577 Million bonanza to walk into?
That you had a ‘windfall’ profit of anything between Rs 27 Million and Rs 500 Million.
That Sugar revenue remained rather staid whilst the contentious Spirits maintained strong growth.
On the (non) payment of Income Tax as opposed to excise duties on alcohol.