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July 8, 2007  Volume 14, Issue 3


Focus

Arts

Letters

Spotlight

Review

Fashion

Editorial

Spotlight

           

Shaky Mihin Lanka runs into a storm


Sajin de Vass Gunawardena and 
Abeydeera de Vass Gimawardema

Father's bank buys  shares in son's airline

Lalith wants AASL to buy Rs. 250 million 
worth of shares in Mihin

Mihin goes back on BOI conditions

Lankaputra Bank buys shares in 
Mihin without due diligence

By Sonali Samarasinghe

With details of a letter written to Airport and Aviation Services (Sri Lanka) Ltd. (AASL) by Presidential Secretary Lalith Weeratunga, calling on the company to dump Rs.250 million into Mihin Lanka surfacing last week, the controversial budget airline has again come into sharp focus.   

Weeratunga's letter dated May 8, was sent just weeks before Airport and Aviation Minister Chamal Rajapakse tabled a note informing cabinet of an arbitrary decision to form a private company, Weerawila International Airport (Sri Lanka) Ltd. as a subsidiary of AASL.

Minister Chamal's note tabled May 30, also informed cabinet the AASL - a fully Treasury owned company would transfer a sum of Rs. 1,500 million to Weerawila International Airport (Sri Lanka) Ltd. as equity capital of equivalent value.


Lalith Weeratunga's letter to 
Abeydeera de Vaas Gunawardena 

Lalith a director

Even as the Rajapakse family eyes  AASL as a cash cow to be milked dry for their own projects, what is also shocking is that Weeratunga, when he calls for infusion of funds to Rajapakse's budget airline, does so not only as the Presidential  Secretary but also as one of the directors of Mihin Lanka.

The contents of Weeratunga's letter addressed to the Chairman, AASL, Chandima Rasaputra, not only demonstrates the arrogance of the present regime run by four brothers and its officials when it comes to expending public funds, but also confirms Mihin Lanka had obtained its initial capital from Lankaputra Bank and the bank became a preferential shareholder. Lankaputra is fully owned by the Treasury.

Weeratunga refers Rasaputra to a previous conversation on the subject of infusion of capital into the private airline.

Funnily enough, despite government assertions Mihin Lanka  is a  feasible financial venture, Weeratunga states that Mihin "being the government budget airline, requires further infusion of capital funds to surmount the initial difficulties of establishing it on a firm basis."

Weeratunga then urges AASL to follow the Lankaputra Bank example as it manages the civilian airports in Sri Lanka and suggests AASL becomes a preferential shareholder of Mihin Lanka by contributing Rs. 250 million to its capital. (See copy of letter)

Board meeting

On June 19, Rasaputra held a board meeting where an unsigned board paper on the subject was distributed to the directors for perusal. When The Sunday Leader contacted Rasaputra to inquire if payment would in fact be made, we were directed to Deputy Chairman Shalitha Wijesundera. Wijesundera declined to comment stating matters discussed at board meetings were confidential.

The board members of AASL as per Form 48 of 26.04.2007 are Chandima Rasaputra - Chairman, Shalitha Wijesundera - Deputy Chairman, Nalaka Bamunusinghe - Coordinating Secretary to the President, Kosala Wickramanayake - Director of Kosala Enterprises Pvt. Ltd, Palitha Gamage - Attorney at Law and Aelian Nanayakkara - Attorney at Law.

Be that as it may, interestingly enough, Lankaputra is headed by none other than Abeydeera de Vass Gunawardena, the father of Sajin De Vass. Sajin of course is the Chief Executive Officer of Mihin Lanka and the general factotum and gopher extraordinaire to President Percival. He also draws a six figure salary from Mihin as CEO.

Lankaputra for its part has received three million shares in Mihin Lanka for the grant.

Was it Rajapakse's intention having put father and son to head both Lankaputra and Mihin respectively, to allow a dead exercise like Mihin Lanka to feed off the Lankaputra Development Bank, set up to help small and medium enterprises in the country?

Was it also his intention to use the bank deposits of the rural poor to infuse his pet project Mihin Lanka while the country's national airline was in dire straights due to the situation in the country created by his own myopic policies?

JVP MP Anura Kumara Dissanayake quite rightly raised an issue in parliament stating if the government had wanted a fully owned state airline it should have waited until the Emirates deal expired in March 2008 rather than start a new airline - an airline it could ill afford given the country's economic downturn and heavy defence expenditure. 

Board of directors

Recall that Mihin Lanka Pvt. Limited, was incorporated on October 27, 2006, giving its address as West Tower, World Trade Centre, and its four original subscriber shareholders/directors were the President's brother Gotabaya Rajapakse - Defence Secretary, P.B. Jayasundera, Treasury Secretary, Roshan Goonetilleke - Air Force Commander and Sajin De Vass Gunawardena -  Coordinating Secretary to Mahinda Rajapakse.

However P.B. Jayasundera who is earlier on record as having told The Sunday Leader he knew nothing about airline issues, was to resign on April 10, 2007, and Lalith Weeratunga was appointed as a director. The other directors include Surendra Ediriweera - Managing Director of Ceylon Tours Ltd., and one Ranepura Hewage Samantha Samaratunga of Saman Mawatha, Homagama.

A cabinet memorandum was tabled on December 20 as a mere formality and last year, long after Mihin Lanka had been incorporated where it was stated funds for the operation of the airline will be taken from the Foreign Employment Bureau, Employees Trust Fund and any other government agency.  

Recall also that Mihin Lanka had a nominal share capital of 500,000,000 and was granted BOI status in one of the most controversial applications for BOI status in recent times. It was none other than Sajin Vass Gunawardena giving his address as The President's Office who applied to the BOI.

BOI conditions

The approval was granted within 24 hours by the then BOI Chairman, Lakshman R. Watawala, where it was specifically noted that the investment application is approved with tax concessions on the following conditions:

(1)As stated in the investment application Mihin would invest a sum of US$ 3.616 billion.

(2)A minimum capital investment of US$ 100 million or its rupee equivalent should be invested in the project within a period of two years from the date of signing the agreement with the board.

(3)At least 70% of the income should be received in convertible foreign currency.

It also warned that if the project did not meet these criteria the BOI reserved the right to withdraw all or any of the concessions granted.

Not only has Mihin failed drastically to fulfill the conditions set by BOI but it is becoming a parasite by bleeding dry the AASL, which has since 2002, recorded an increasing profit which during last year was nearly Rs. 1 billion. However while it becomes obvious Mihin has flouted the conditions of the BOI agreement obviously no action is to be taken against the Rajapakse family enterprise.   

Monitoring mechanism

Sources at BOI said there was no effective mechanism in place to monitor default of enterprises already given approval, and granted tax concessions despite the fact that a monitoring department was in operation. 

However Chairman, BOI, Dammika Perera told The Sunday Leader there was a monitoring system in place and even such enterprises as Mihin Lanka would be monitored to check if they complied with the conditions. Perera however said Mihin was still a new and small enterprise. He however said he was not familiar with the details and would have to check with his staff and revert.

Mahinda's love for Nivard

In any event, despite the lofty protestations of Mahinda Percival of his love for the poor, especially the rural poor, his love for Central Bank Governor Nivard Cabraal knows no bounds. And Cabraal mind you does have a way of getting into the middle of everything most unexpectedly.

Lankaputra had provided credit facilities to Cabraal's family company, Capital Reach Leasing Ltd., a subsidiary of Capital Reach Holdings of which the infamous Gold Quest conglomerate holds considerable shares.

In fact when the JVP asked a question in parliament last week to whom the Lankaputra Bank had granted loans a list was submitted that did not include Mihin Lanka.

However The Sunday Leader is in possession of a list of 167 names of individuals and enterprises given credit facilities by Lankaputra which includes The Finance Co. Ltd., Lankem Ceylon Ltd., Nawaloka Industries Ltd., Nawaloka Polysacks Ltd., Tri Star Apparel Exports Pvt. Ltd., and Saman Saban. The rates of interest too were not fixed with some getting credit facilities on interest as low as 8 % while others paid 17 %.

The fact is Mihin Lanka did not obtain credit facilities but rather Lankaputra dumped a large sum of money into Mihin Lanka by way of a grant in exchange for shares of little or no value. 

Loan criteria

Banking sources say Lankaputra Bank had provided credit facilities under a programme of new and relocation of 300 factories. The bank would also look into such criteria as benefit to society, benefit to environment, job opportunities for people of the area and so on.

Sources also said that under banking laws a single borrower could not be granted a loan over a specified amount and Lankaputra Bank could not give one venture a grant more than the total amount of assets.

Did Lankaputra Bank do a feasibility study of Mihin Lanka? Is it permitted under its memoranda to give grants in exchange for shares, and can it as a viable bank, blindly invest in a venture without doing proper due diligence and financial research in order to ascertain the viability of the venture?

The Sunday Leader attempted to speak to Chairman, Lankaputra, A. de Vass Gunawardena, but his staff on ascertaining the call was from The Sunday Leader, took several minutes to confer before they decided he had gone out and would not be in the whole day. 

Nonetheless Vass Gunawardena senior, in an interview to the media on June 23, 2006, had stated reportedly that lending rates at the bank would be 10% per annum, a considerable deviation from the fluctuating interest seen in the document in our possession.

The primary aim of Lankaputra he is reported to have said, was to create economic activity and narrow the disparity in rural and other areas. He had also stated the bank will be totally funded by the government with a capital of Rs.1500 million, and with the funds of the Private Sector Infrastructure Development Fund of which Gunawardena senior is the chairman as well.

 Worm that turned 

In fact President Rajapakse in his 2007 budget speech delivered in parliament on November 16 last year, was to propose a consolidation of the Lankaputra Development Bank with all regional development banks and the SME banks, to ensure that the bank will have a capital in excess of Rs. 5 billion.

Not only that. He told parliament he wanted to raise its capital by Rs. 10 billion within the next five years and he would absorb the existing branch networks of the SME banks and the Regional Development Banks and their employees into the Lankaputra Bank. He also stated that credit facilities provided by the national budget to government agencies will be channelled to beneficiaries through this bank network.

It was only last month (on June 15) that the projected earth worm and son of the soil, President Percival, was to address the 96th Session of the International Labour Conference in Geneva. There he ironically urged the international forum to bring about a decent work agenda. A decent work agenda said Rajapakse was important because it was central to peoples' lives.

Geneva speech

Work he said was also at the heart of politics. "As a politician, these are some of the issues that I have seen which people vote on. It has been said that elections are won or lost on promises, successes, and failures to deliver opportunities for work."

However the son of the soil was not above using a bank specifically set up under his Mahinda Chinthana to help the rural poor, to help the first family of Medamulane instead.

This is despite the fact that the Mahinda Chinthana stated that the  new banking scheme named "Lankaputra" would be set up to make available financial facilities to local, small and medium entrepreneurs, to become internationally competitive through this new window of finance.

Lankaputra Development Bank was incorporated on February 24, 2006 giving its address also as West Tower, World Trade Centre. However it was launched on June 27 and moved to a swank  new building at No.34, Maitland Crescent, Colombo 7.

In the final analysis  this tendency to exploit public property for personal gain President Rajapakse was to demonstrate early in his presidential campaign, even as he held election parties at public expense and unashamedly misused state vehicles and the state media for his private campaign. 

While both Mihin Lanka and the Weerawila airport are special private projects of the Rajapakse family the two controversial enterprises have come under heavy fire from the public and the media not only due to a lack of transparency in its dealings but also because the financial feasibility of the projects have been seriously in question.  

 

 


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