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Empty
coffers and suicidal deals
By
Fredica Janz
esperate
to resolve the present power crisis, Minister for Power and
Energy, Karu Jayasuriya appears to be bent on grabbing opportunity
irrespective of whether his decision to do so will seriously
compromise not only his career as a politician but also the new
government’s pledge of transparency and accountability.
Jayasuriya’s
marriage with Agrekko Limited — the foreign based company to
sell electricity to the power — straddled Ceylon Electricity
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(CEB)
is one such example. No lesser personage than the Auditor General, S. C.
Mayadunne, in his audit of the CEB for the year 2000 which was released
in March this year, has found serious illegalities with regard to the
initial contracts signed with Agrekko.
Mayadunne
asserts that when the CEB (under the stewardship of Arjun Deraniyagala)
signed an agreement for power generation with Agrekko in the year 2000,
available documents reveal that the CEB had finalised this deal without
the knowledge of the Treasury and without Cabinet approval.
Under this
agreement, three plants having the capacity of 58MW had been hired and
Rs. 3,514 million had been paid for generating 321.843 GW hours of
electricity during the year 2000.
In
addition, another agreement was signed for 40MW capacity with this
company on January 19, 2001. The machines to be imported under this
agreement arrived in the Colombo Port on January 15, 2001 — four days
before signing the agreement.
The coup
de grace was when Karu Jayasuriya once more entered into a
contractual agreement with Agrekko this year to buy emergency power,
despite the fact that the company has broken the law, is acting in
contempt of a court decision and have helped empty CEB coffers.
That Karu
Jayasuriya is an honourable man is an undisputed fact. So was Mother
Theresa. However, the good
lady despite her saintly attributions could never have qualified to
manage and turn around a crisis of humongous proportions, as is the
power crisis in Sri Lanka. An Osma Bin Laden is a more likely candidate.
What has
now happened in reality is that Agrekko which has concluded a fraudulent
deal according to the Auditor General no less benefited by that very
fact under Karu Jayasuriya by getting a fresh award due to the advantage
it obtained by having the equipment brought fraudulently in place.
The CEB’s
agreement for 40MW of power at Kosgama not only resulted in court action
filed by the Environmental Foundation Limited (EFL), but also a
demobilisation fee of around Rs. 90 million paid by the CEB to Agrekko
despite the fact that its machines were never demobilised but remain in
the country to date.
The court
action by EFL resulted finally in a court settlement, but not before
Agrekko had promised to ship its machines at Kosgama out of the country.
A certified copy of the final plaint states clearly that Agrekko has
been asked to cease all operations and the machines should be shipped
out of the country.
To date,
this has not been done. Instead,
the UNF government has renegotiated terms and conditions with Agrekko
even after the CEB paid Rs. 90 million to the company as part of its
contractual agreement. The former agreement with Agrekko demanded that a
mobilisation fee amounting to some Rs. 90 million be paid once the said
machines have been cleared by customs and are ready for shipment out of
the country. The bottom
line is of course that the machines were never moved out of Kosgama.
Yet, the CEB coughed up the multi million-rupee dough.
Be that as
it may, we reliably learn that Suresh Subramanium the local agent for
Agrekko who was responsible for clinching the original deal with former
CEB Chairman Arjun Deraniyagala, this time around telephoned two members
on the Cabinet Appointed Negotiating Committee (CANC) and thanked them
for having once more secured a contractual agreement with Agrekko.
The fact
that the UNF government has chosen to once more deal with Agrekko is
mind-boggling. If anything,
a full probe should have been initiated to find out how this company
managed to successfully take the CEB and yes, this nation on a ride that
has bled the CEB to bankruptcy.
The
agreement with Agrekko in the year 2000 states that the CEB shall pay
rent charges in advance on a monthly basis. The company has posed a
condition not to release plants from its premises overseas till the
first month hire charges and mobilisation costs are received in their
bank account.
Additional
insurance policy for the full value of the plants also had been
committed by the Board in terms of this agreement.
Therefore, Mayadunne notes, this type of deals with such strict
conditions should have had the approval of the Treasury as required by
government approved guidelines on tender procedure.
There is
evidence to prove that the then chairman of the CEB namely, Deraniyagala
violated government tender procedure when he signed the agreement
without the knowledge of delegated authority.
Deraniyagala
and former GM, CEB, Ana Seneviratne did not even consult the General
Treasury nor the Attorney General when they blissfully signed away legal
and financial clauses which in effect did not hold Agrekko responsible
or accountable to the suicidal deal.
For
instance, under general conditions in the agreement CEB had agreed for
consequential losses. This clause states, “The company shall not in
any event be liable to the hirer for consequential losses whether or not
arising from breach of contract or any other fault on the part of the
company, its servants or agents and whether or not in the contemplation
of the company and or the hirer at or prior to commencement of the
contract.”
In order to
ensure transparency in relation to public accountability and guidelines
on government tender procedure, a copy of the award letter is required
by law to be sent to the Auditor General. This requirement had not been
complied with in this instance.
Stamp duty
in regard to this agreement had not been charged as required and
therefore statutory requirements as regards the payment of stamp duty
had not been complied with causing a loss to the government.
Total
rental, mobilisation and demobilisation expenditure incurred on these
plants up to December 31, 2000 was Rs. 2,336.635 million. In view of this heavy expenditure it appears that it would
have been more economical for the Board to purchase plants, which would
have become the Board’s property even after overcoming the power
crisis, by spending a sum of around Rs. 1,700 million.
The
revealing report by Mayadunne has also noted the uneconomic transactions
of the CEB.
A contract
agreement involving a sum of Rs. 841,500,000 had been signed with a
company on October 14, 1993 to manufacture and supply 250,000
pre-stressed concrete poles within a period of five consecutive years.
As per the agreement, the supply should have been completed at
least before the end of the year 1999.
But only 139,317 poles, nearly 56% of the total quantity
required, had been supplied by the contractor as December 31, 2000.
No
liquidated damages were recovered for the delay, the contractor was
unable to supply the poles as per the standard specifications in the
agreement and subsequently these standards had been lowered by a special
committee appointed by the CEB chairman.
Due to
non-availability of an index for the calculation of price of
high-tension wire, the contractor had claimed nearly 70% of the FOB
value for price escalation.
Finally,
the CEB had agreed to pay the exchange difference at Rs. 85,156 million
of the FOB value as price escalation on the decision given by an
arbitrating panel on July 31, 2000.
Separately,
the CEB entered into a lease agreement with a foreign company in
Scotland in February 1997, to have two mobile power generator units on
lease, with a capacity of 20 MW for a one year period from May 15, 1997
to May 14, 1998 to overcome the power crisis experienced during
1996/1997.
The CEB
opened two security bonds in favour of the lessor for US $ 7,700,000 and
US $ 3,590,400 to cover the value of the machines and rental payable for
one year respectively.
The company
however had failed to supply electricity in line with the agreement, but
they had claimed the full monthly rental for each month stating that
failures occurred were due to the type of fuel provided by the CEB,
which was not in conformity with required quality standards. As a
result, the CEB suffered a loss amounting to Rs. 95,952,025.
Mayadunne
maintains that significant overstatements and understatements in the CEB
accounts also surfaced during the audit.
For
instance, although fuel tanks at the Chunnakam power station were
completely destroyed by terrorists in 1990, a sum of Rs. 1,804,333 had
been continuously showing as value of stocks at the power station, which
did not exist.
Audit test
checks further revealed that other income account and other debtors
account had been overstated by Rs. 161,888,791 and Rs. 28,048,111
respectively, due to erroneous credits and debits detected at the annual
physical verification.
Although
the ownership of the land of the Pettah power station had been vested in
the UDA, the value of the land amounting to Rs. 1,029 million had been
continuously shown as assets of the CEB.
According
to the dividend warrant dated January 18, 2001, Lanka Transformers
Limited has declared a dividend to the CEB at Rs. 38.5 million for the
periods of 1998 and 1999 and 1999/2000.
However, in the CEB accounts for the year ended December 31,
2000, the dividend receivable has been shown at Rs. 62.3 million and
thereby an overstatement of Rs. 23.8 million is shown.
Although
13.235 hectares of land acquired from Piliyandala Town Council in 1983
and valued at Rs. 2,201,035 for accounting in the fixed assets account
at December 31, 1999, neither the payment had been made nor the
liability had been created in the books of account.
Withholding
tax for dividend received from LECO at Rs. 89.16 million had not been
brought to account as receivable from the department of Inland Revenue.
A large
number of discrepancies have been observed between the register of land
and buildings and assets verified, had not been investigated and
adjusted in the accounts. Further reference to survey plans and title
deeds for most of the lands had not been included in the register of
assets and title deeds and other title documents in respect of certain
land and buildings were also not available at the time of the audit.
Some
advances paid amounting to Rs. 26,537,049 for obtaining supplies and
services, and some other advances paid for various other purposes had
been outstanding for over three months.
The damages
or losses amounting to Rs. 49,396,781 had not been accounted for during
the year 2000 and as and when they were replaced, the cost involved had
been charged to income.
Accordingly,
no proper accounting entries have been made in the books of account to
enable to monitor the recovery part of these losses or damages. As a
result, in view of the above practice, no appropriate adjustments seem
to have been made to the provision for depreciation of the assets
replaced in that manner.
Fuel cost
amounting to Rs. 53,348,764, power purchase cost amounting to Rs.
503,282,385 and self generation cost amounting to Rs. 405,827,600 had
been included in the transmission and distribution cost instead of
showing then under appropriate cost categories.
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No political appointees please!
Another CEB
board decision is also being challenged. This time around by a
recently formed staff union at Lanka Transformers Limited (LTL),
who are protesting against the appointment of senior attorney-at
-law Upul Jayasuriya, who has several years of experience in the
public sector and management fields, as its new chairman.
LTL is a
subsidiary of the CEB. The latter owns a 70% stake of LTL shares.
As such, the CEB has a majority control of the LTL board of
directors. The
chairmanship of the company over the last 22 years has since its
inception traditionally been held by the CEB Chairman.
Dhamikka
Nanayakkara, President, Staff Officer’s Union, Lanka
Transformers Limited said, “Our main concern is that with the
appointment of a person like Upul Jayasuriya, whose appointment is
political, he will as full time chairman interfere with the day to
day operations of LTL,” he said.
“This
will be the beginning of the collapse of daily operations at LTL,”
he charged, adding, that over the last 22 years it is the
dedicated and untiring efforts of the staff at LTL, which has
brought the company to reach such high standards of productivity.
Nanayakkara
added that the chairman of the CEB has at all times in the past
been involved only in making policy decisions at LTL.
He has never interfered with the day to day operations,
Nanayakkara asserted.
He
explained that even though the appointment of the CEB Chairman by
the Minister for Power and Energy is also a political appointment,
“we want the CEB chairman as our chairman,” he said,
maintaining, “that such a person would not serve full time at
LTL.”
Nanayakkara
admitted that the staff officers union at LTL was formed recently
“in order to fight the appointment of Upul Jayasuriya as
Chairman.”
Originally
incorporated on July 4, 1980, the two subscribers to LTL are the
CEB and Low & Bonar International (Holdings) Limited of
Dundee, Scotland.
Presently,
LTL has four directors appointed by the CEB, the General Manager,
U. D. Jayawardena and two Norwegian directors from ABB Kraft.
The latter
has a 30% stake in LTL following the transfer of the stated share
issue from Low & Bonar International (Holdings) Limited of
Scotland.
In 1996, a
new company was incorporated in the name of Lakdhanavi, which is
fully owned by LTL. Surprisingly, none of the representatives of
the CEB were appointed to the Board of Directors of the new
venture. Its present
directors are, R. D. Abeywardene and U. G. Sarath who are both
bank representatives and Oivind Lund and Olehillestad from ABB
Kraft. The fifth director and Chairman is Jayawardena who is also
GM for LTL.
Nividhu was
another company incorporated by Jayawardena without the approval
or concurrence of either the CEB or the Norwegian directors on the
board of LTL.
Nividhu was
incorporated on September 1, 1999 with the primary objective of
producing independent hydro or thermal power to feed the national
grid. The Sunday Leader reliably learns that the accounts
of Nividhu have never been tabled before the Board of Directors of
LTL.
Jayawardena
meantime invested a further sum of Rs. 32 million in Nividhu and
gave a corporate guarantee to Nividhu up to Rs. 115 million. Another Rs. 5 million was invested in another subsidiary
called Lanka Broadband Networks, which is a cable TV operation.
Whilst expanding their business ventures, LTL were forced to seek
an additional overdraft facility of Rs. 25 million.
Jayawardena
also convinced the board at LTL to invest another Rs. 15 million
in a computer information technology company by the name of Lanka
Online (Pvt) Ltd. This too was done in complete violation of LTL
and its Articles.
Lanka
Broadband Networks Limited (LBNL) was a private company
incorporated by former Chairman CEB, Dr. Leslie Herath on November
18, 1999. Twenty million rupees was invested in this company through
LTL projects.
It is LBNL
that was issued an illegal license via Gamini Rajanayake,
Assistant Accountant to President Kumaratunga to operate a private
TV channel (Channel 9).
Both LTL
and Lanka Electricity Company (Private) Limited (LECO) which is
also a subsidiary of the CEB, funded LBNL.
LTL invested Rs. 20 million in this company while LECO
funded another Rs. 20 million.
Jayawardena,
General Manager for LTL said LTL was paid Rs. 20 million for
completing a turnkey project on behalf of LBNL.
He added that LECO have been allocated shares for their
investment of another Rs. 20 million to LBNL.
Dr. Leslie
Herath is chairman of this company and a stakeholder with a 30%
share ownership. Jayawardena is a Director on the board. The LTL GM denied allegations that Herath has one hundred
percent management control of this company.
Teledasun
Private Limited and LTL Energy Private Limited have also been
incorporated as subsidiaries of LTL.
We learn that the Ministry of Power and Energy are totally
unaware that these two companies even exist.
To date,
Jayawardena is the Chairman of Nividhu, Lakdanavi, LTL projects,
Teledasun Pvt. Ltd., and Lanka Online (Pvt) Ltd.
Meanwhile, LTL projects have incurred a loss of Rs. 2.45
million for the year 2000.
We also
learn that an investigation is underway to find evidence that will
prove a sum of Rs. 240,000 had been spent daily during Gen.
Anuruddha Ratwatte’s election campaign last year to pay for
meals to feed Ratwatte loyalists.
Jayawardena
categorically denied this charge. “We never got involved in any
politics. So this is not true. Whether some people from LTL
personally worked for Ratwatte, I do not know. But as a company we
never got involved,” he said.
Jayawardena
reiterated that he personally has no objection to Jayasuriya’s
appointment as Chairman for LTL.
He asserted however that “the employees of LTL are
objecting on the basis that the CEB chairman over the last 22
years has served as chairman to LTL.”
LTL
employees, Jayawardena said, are afraid that if “an outsider
like Jayasuriya is to take over, he will interfere with the
running of the company. After all, we have made this one of the
most successful companies in Sri Lanka and a political appointment
like Jayasuriya may upset the balance,” he explained.
Jayawardena
refuted allegations that there exists any violation of Articles
pertaining to LTL with regard to the opening of its subsidiaries. He confirmed that all the subsidiary companies are one
hundred percent owned by LTL. He said ABB Kraft is also consulted
and it is LTL that appoints members to the Board of its subsidiary
firms.
Why the CEB
board is left out of these consultations, Jayawardena could not
explain comprehensively.
Denying
allegations that the LTL board has not met for the last ten
months, Jayawardena said the board had met in “September or
October last year but could not meet after the new administration
took office as directors to the CEB board were appointed only in
mid March this year.”
It is of
course clear given the facts that it is the former confidantes of
Anuruddha Ratwatte who are still running the show in these
subsidiaries and would not want an ‘outsider’ coming in as
Chairman and querying their deals.
Hence, the
decision to activate the unions to oppose Jayasuriya’s
appointmen
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Unions stand firm
Karu
Jayasuriya’s respect of the Mafia style unions at the CEB knows
no bounds. Before the first board meeting at the CEB took place on
February 1, this year, following the appointment of Karu
Jayasuriya as Minister, he had summoned an informal meeting of the
board directors and chairman and appealed for their support to try
and help businessmen involved in the mini hydro projects.
As a result, at the CEB
board meeting on 1.2.2002, a tariff was presented to pay 10% more
to all owners of mini hydro generating plants.
Ranjith Fernando,
Director on the Board of the CEB suggested that the tariff be
increased to 15% in order to help the mini hydro generators. The
increase duly received board approval.
At the next board
meeting Moksevi Prelis voiced concern saying the unions were
protesting against the increase and that the board would need to
reconsider its decision.
Fernando was angry.
“Why should we change our decision because the unions are
objecting?” he asked.
Prelis replied that he
was worried as the strident engineers union at the CEB have proved
they are a force to reckon with.
“Let’s call the
union leader and ask him why he is objecting,” Fernando
suggested.
Dr. Susantha Perera,
President of the CEB Engineers Union had then been summoned.
Perera had explained
that the union was objecting to giving the present operators the
added 15% incentive as by doing so it was not going to secure for
the country an additional single unit of electricity.
“It simply does not
make commercial sense,” Dr. Perera told Prelis. The union leader however asserted that the unions had no
objection to the increase being given to new developers.
“There is some justification in that context,” he
pointed out, asserting that new sites may cost more to develop.
The question also arose
as to how the CEB could carry the additional cost of Rs. 80
million per annum if the 15% increase came into play given that
the cash straddled institution is struggling to float a 16 billion
rupee deficit and a loss of over Rs. 300 million for the purchase
of electricity meters.
Nevertheless, the board
decided not to change their decision. Subsequently, the CEB
directors were summoned for an emergency meeting at the Treasury.
The issue at stake was the 15% increased tariff to be paid to all
mini hydro-generating businessmen.
Fernando continued to
stand firm asserting the increase must be paid. The unions too
however stood their ground.
Afraid to bang his head
against the unrelenting force of the CEB unions, Karu Jayasuriya
subsequently differed, the board decision
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Prof.
K. K. Y. W. Perera reportedly told Karu Jayasuriya recently that
if Sumi Moonesinghe takes over as Chairperson of the embattled CEB
he would resign from his post as Secretary to the Ministry for
Power and Energy.
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