Hedge Scam Is Not All It Seems To Be

Though benefits (if any) are yet to trickle down to the populace from the termination of CPC's oil-hedging scandal, the Supreme Court's suspension of the deal has been met with euphoria falling only just short of actually dancing in the streets. A. H. M. Fowzie and Asantha de Mel have had their comeuppance, though the former has balked at the idea of being offered up as a sacrificial lamb for what he clearly sees as the sins of others. In parliament last Wednesday, Fowzie chose to share the blame for the fiasco with Central Bank Governor, Nivard Cabraal, whose idea it had been in the first place.

Regardless of the Supreme Court's final determination, the blame game is likely to continue for some time. Asantha de Mel might have withdrawn quietly to the dressing room after having been bowled out, but Fowzie is in no mood to quit without a fight. The recalcitrant Minister, known for his plain-speak, told parliament that none of this would have happened if only Cabraal had not pushed his Ministry and stampeded the CPC into a foolish contract with a consortium of financial institutions led by Standard Chartered Bank.

For a government strapped for cash, the deal's suspension must have come as manna from heaven. It saves the exchequer a handy $400 million, every dollar of which it can ill afford to lose. Indeed, it is already being widely speculated that a wily President Mahinda Rajapakse might have orchestrated the litigation himself. After all, the CPC's antagonists were not the usual champions of human rights: they were Chairman of Laugfs, W.K.H. Wegapitiya and maverick UNP MP Ravi Karunanayake. In his petition, Wegapitiya called (among other things) for the suspension of Asantha de Mel, well known to be in the inner circle of the Rajapakse Administration.

Ponder a while upon this: How many prominent businessmen would have the courage to take such a step? After all, they know full well what happens to those who take on the might of government. A prompt raid by the income tax authorities, perhaps the seizure of a shipment or two by customs and, if they were really unlucky, a white van at the door at twenty past twelve that night.

Yet, Wegapitiya, brave-heart that he is, stuck his neck out, took on the Rajapakse administration in a full frontal assault, and won. All for no benefit whatsoever to himself. He did it for us, his fellow citizens, bless him. What is more, even as we go to press, he is still alive, well and prospering. As for Ravi Karunanayake, no doubt he had the public interest at heart to the extent that should fuel prices actually come down in the wake of this case, he can claim some of the credit, hopefully translating it into votes come the next election. He seems to have been an unwitting - if witless - pawn in a game of chess being played at a level much higher than his own.

Likewise the recent cases regarding LMSL and Water's Edge, in which Vasudeva Nanayakkara, an advisor to - and a close crony of -President Rajapakse was the petitioner. While there has been justifiable public jubilation at the Supreme Court's verdicts in both cases, which are perceived to have righted wrongs resulting from excesses of the Kumaratunga Administration, one regrets the inability of Nanayakkara to spread his efforts to more recent but arguably even more blatant excesses of government, such as Mihin Air, to name just one. Indeed, by doing so Nanayakkara could actually save the country Rs. 6 billion in this financial year alone, bearing in mind that the public stand to derive no immediate financial benefit from the LMSL and Water's Edge judgments. Come on, Vasu, what about it?

No one doubts for a moment that the Supreme Court did the right thing also in the case of CPC's hedging agreements, which were completely one-sided in favour of the banks. What is more, as details emerge of the grip Standard Chartered Bank's CEO Clive Haswell had over Asantha de Mel, public confidence in the latter's objectivity stands to be eroded yet further. As a state official doing multibillion-rupee business with a private bank, de Mel's fraternisation with the Haswell family was far from appropriate for a state official. They wined and dined and junketed together, with the bank going so far as to offer de Mel's daughter a job. Not good. And so besotted was de Mel with the Haswell charm that he even went an extra mile at his hastily-convened press conference to claim falsely that an agreement signed by him amounted to a sovereign guarantee by the state. Indeed, so much was the CPC Chairman in Haswell's clutches that the latter had even prepared the press statement de Mel circulated at the event. Of de Mel, then, we are well rid.

That said, what both de Mel and Fowzie have omitted to explain up to now is why they subscribed to a deal that was weighted so heavily in favour of the bank. If oil prices went up, the bank stood to lose a few millions at worst, whereas if they went down, CPC stood to lose hundreds of millions.

In his statement to parliament, Energy Minister Fowzie, while pointing a finger at Cabraal, also suggested that the controversy was the making of the opposition. "I can understand the opposition ... waiting to make political gain by creating a crisis situation," he said. However, what he would also do well to ponder upon is the hand of the government in placing him in the predicament in which he now finds himself. He will likely find that the petard by which he was hung came from much closer to home.

The extent to which Nivard Cabraal is culpable in the hedging scam is yet to be determined. Clearly, it was he who started the CPC off on this venture, repeatedly egging them on with word and gesture. But it is yet to be vouchsafed in the public whether Cabraal approved or even saw the final agreement, the devil of which is in the detail. Hedging is an instrument widely used in international trade, and there is nothing inherently wrong with it. He was right to urge the government to consider it. However, the CPC was clearly silly to have signed up to a deal in which it stood to lose infinitely more than the bank, should the hedge go wrong, which of course it did. Question is, did Cabraal sign off to the agreement? If he did, he needs to start packing. Even otherwise, having started the ball rolling if he did not see it through to a logical end, he is accountable for gross negligence and must be shown the door.

Just as the hedging scandal broke only when it led to massive public losses, Cabraal's custodianship of the economy too, is likely to come under closer scrutiny when the rupee hits the fan, which it is now poised to do. Quite apart from the Rajapakse Administration's amateurish grasp of economics (not improved by Cabraal, who is an accountant by trade, not an economist), Sri Lanka's traditional foreign-exchange earners have been ground into the dust thanks to the Central Bank's ineptitude. The loss of GSP+, which Cabraal had the audacity to state was dispensable in a BBC interview, is set to lose the country 200,000 jobs. Add to this the thousands of unemployed now languishing in the tea and rubber industries and the failed tourism sector. The corporate sector too, is pruning back on all fronts, having been taxed to the bone to fund Rajapakse's war. Most government ministries are bankrupt, with creditors queuing up in droves. Cabraal is now left with no escape but to pay for his ineptitude by devaluing big time and printing more money with which to keep the government afloat. Devaluation and Inflation will be the words by which this Governor of the Central Bank will come to be remembered. Thanks to him, no Christmas bonuses this year. For that matter, no Christmas, either. And no one even wants to think about next year.

The underlying message from the hedging scandal, however, is that it is a single instance of mismanagement that has caught the people's imagination simply because the public feel the pinch of high fuel prices. The waste and inefficiency of CPC, however, is typical of government-owned businesses in general, all of which make colossal losses that eventually have to be paid for by the public through increased taxes. By and large their boards of directors comprise of parasitic political hangers on, individuals of little or no proven competence, and in many cases people of demonstrable incompetence.

Put in charge of multi-billion rupee budgets, like the proverbial fox in the chicken coop, it is not surprising that they run amok. Yet, any move by government to divest itself of such assets has unions and many members of the public - not least the Vasudeva Nanayakkaras -shrieking in protest. Somehow, it seems to agitate against the failed communist dogma they wish to see institutionalised in Sri Lanka. Parasites, after all, are people, too, and one has to find them jobs somewhere.

There is no earthly reason - other than patronage - why businesses should be owned by the government. The plethora of corporations that continue to operate inefficiently, eating up public resources is endless. The Petroleum Corporation is only one of these. What about SriLankan Airlines, the Cement Corporation, the Ayurvedic Drugs Corporation, the Ceramics Corporation, the State Engineering Corporation, the Rubber Manufacturing Corporation, the Printing Corporation, the State Engineering Corporation, the State Development & Construction Corporation, the Pharmaceuticals Manufacturing Corporation... the list goes on and on. In the few instances in which the state has divested itself of such assets, they have gone on to reach the highest heights, as Sri Lanka Telecom did for the brief space in which it was rid of government control. Even when the state has no stake, as in the case of mobile telecommunications, we enjoy some of the lowest rates and best services in the world, thanks to private companies competing with each other.

While it is only to be expected that a pseudo-socialist of the ilk of Mahinda Rajapakse would balk at the idea of privatisation, the allegedly business-friendly UNP does not have a track record that is worth speaking of. Indeed, in his last spell in office, Ranil Wickremesinghe did little to divest government of entities such as Lake House and ITN, decisions that must haunt him now. Continuing with government corporations only creates fresh avenues for the long queue of Asantha de Mels knocking at the door of President's House, rejects and failures with their begging-bowls at the ready. De Mel would come in handy if one were short of a fourth for a rubber of bridge (at which he is an adept player) of a Sunday afternoon, but when you've said that, you've said everything.

Thus it is that Mahinda Rajapakse had the audacity to demand six billion taxpayer rupees this year to re-start his eponymous airline which has already crashed once. One newspaper praised him recently as having "graciously" reduced the price of fuel, albeit by a pittance. What they didn't mention is that if Mihin were put on ice, fuel prices could be slashed by 20% more. For Rajapakse it is the ego trip of a lifetime. And for that, every Sri Lankan taxpayer must cough up Rs 20,000 this year. Everyone knows Mihin is yet another state enterprise doomed to failure, but it is the President's wish that there be an airline named after him, and for that we must all foot the bill. And Rajapakse, remember, does not pay taxes.

Among the more insidious claims and counter-claims thrown around in the wake of the CPC hedging scandal was A. H. M. Fowzie's allegation that "Certain elements within the private media at the instance of vested interests, are seeking to... engage in character assassination." Coming as it does on Opposition Leader Ranil Wickremesinghe's somewhat petulant attack on a private newspaper last week (one owned by his uncle, to boot), the independence of private media has come to be widely questioned.

While the media rather extravagantly like to call themselves the Fourth Estate, they are not required to adhere to the standards of accountability and transparency we demand from the other three estates, viz., the executive, the legislature and the judiciary. Indeed, anyone glancing at the English papers this Sunday morning could well wonder what became of their so-called independence. Of the Lake House papers, of course, nothing is expected, so not one is disappointed. But in most cases, even the private media have become puppets of the state, blindly toeing the government line and supporting the private agendas of political sponsors.

Sri Lanka's media czars are not called upon to disclose their potential conflicts of interest. How much objectivity in reporting the hedging scandal can be expected of a newspaper proprietor who is also, for example, a member of the Central Bank's Monetary Board? Could objective reporting of content potentially damaging to the Bank's Governor, Nivard Cabraal, be expected to reach its pages? What of a newspaper whose press accepts large government contracts, whether for printing exercise books for schools or chequebooks for banks? What of newspapers whose owners were in the arms trade, anxious for gravy from the defence bandwagon?