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  Central Bank culpable in hedging... How ministers live at public expense


Supreme Court takes AG to task as the Tiger deal returns to haunt Govt.


Sarath N. Silva, Romesh de Silva, Shirani Thilakawardena, Tiran Alles and G.G. Arulpragasam

SC says indictment against Tiran is mala fide

Attorney General accused of
harassment by SC

Tiran indicted for dealing with
Emil during 2004-2005

'Terrorist' Emil Kanthan given new
passport by Govt. in April 2007

Emil was in and out of Sri Lanka in
2006 doing business with Govt.

By Sonali Samarasinghe

Attempting to subvert the course of justice in relentless pursuit of a past political dissident comes easy to the common or garden regime. And last Thursday it was yet again the intervention of the Supreme Court that prevented such a pass as the apex court observed it was the duty of the court to grant relief to persons who are subjected to harassment.

We said before that the Supreme Court now seemed to be the most effective opposition to a toxic government and last Thursday (4) the judiciary proved this true once again as it issued a stay order on the proceedings of the High Court in indictment filed against former Airport and Aviation Chief Tiran Alles and CBE Finance Director Dushyantha Basnayake.

The Supreme Court Bench comprising Chief Justice Sarath N. Silva, Justices Shiranee Tilakawardena and K.Sripavan in issuing the order observed that the Attorney General has filed indictment based on legal provisions that had no validity or force of law in Sri Lanka.

Motions filed

Basnayake and Alles filed motions in Fundamental Rights applications 94/2007 against their alleged arbitrary arrest and detention on May 30, 2007 for alleged financial deals with Tamil Tigers under the Suppression of Terrorism Financing Act No. 25 of 2005. The duo were released on cash and surety bail.

Following the arrests Alles and Basnayake filed Fundamental Rights Applications in the Supreme Court against their alleged arbitrary arrest and detention.

Just last month on November 10 the Supreme Court granted Alles's company Communication and Business Equipment (CBE) Ltd. interim relief to operate Dialog services in the east.

In granting relief the Bench comprising Chief Justice Silva and Justices Shiranee Tilakawardena and Saleem Marsoof came down hard on the Rajapakse cartel warning state counsel the government would be in deep trouble if CBE took up the matter in the International Court in Geneva.

Deeming the action to freeze all operations of CBE disgraceful, the SC said the Petitioner could have even gone to the Human Rights Council in Geneva.

CBE owned by former presidential confidant, chairman Airport and Aviation Services and head of RADA, Tiran Alles was the exclusive dealer for Dialog in the north and east until it was suspended following a government directive after then Foreign Minister Mangala Samaraweera and Minister Sripathi Sooriyaarachchi parted ways with the Rajapakse regime.

The Telecommunications Regulatory Commission (TRC) Director General, Kanchana Ratwatte on March 3, 2007 suspended the dealership of CBE following a directive by the Defence Ministry citing security considerations.

FR Application

Following a stoppage of their services in March 2007 CBE was to file a Fundamental Rights Application against the Director General of TRC among others claiming their action to stop their services to the north and east was ultra vires, arbitrary, capricious and violated its fundamental rights to equality and the freedom to engage in any lawful business.

Alles alleged the actions of the respondents were politically motivated and the CBE had become a victim of a political spat involving the state hierarchy.

The CBE is also part of a company that published the two newspapers, namely Mawbima and Sunday Standard which were forced to close by the government last year even as the Rajapakse government proceeded to freeze Alles' assets and bank accounts. Alles has so far been successful in releasing his assets through court intervention but his two newspapers remain silent.

Deputy Solicitor General Sanjay Rajaratnam on November 10, told court the AG would be indicting the petitioner in one month on the strength of these revelations.

Charged

Following this submission the AG had in fact filed indictment No. AC 4506/2008 in the High Court of Colombo where Tiran Alles and Dushyantha Basnayake were charged on two counts of assisting and promoting terrorism by buying a land on Epitimulla Road, Kotte for a sum of Rs. 4.4 million for the mother, namely Anthony Anna Lakshmi of one Anthony Lakshmi Emil Kanthan knowing him to be a member and/or agent of the LTTE and for building a house for the said mother on the said land for a sum of Rs. 9.9 million on or about September 1, 2004 to August 31, 2005.

The indictments stated that by these acts the accused had violated a Gazette notification issued on October 16, 2001 based on the United Nations Act of 1968.

The UN Act No 45 of 1968 provides for the Government of Sri Lanka to give effect to any decision taken by the UN Security Council. In such an event the Foreign Minister may implement these decisions by regulations including provision for the apprehension, trial and punishment of persons offending against the regulations.

According to Section 2(2) every regulation made under the preceding provisions of this section shall, forthwith after it is made, be tabled in parliament. Accordingly in order to give the force of law to Security Council Resolution 1189 adopted subsequent to the horrendous acts of terrorism that took place in Kenya and Tanzania on August 7, then foreign Minister Lakshman Kadirgamar was to sign the UN Regulation No. 1 of 2001 on October 11, 2001.

Under the regulations:

(a) no person who is a citizen of Sri Lanka or residing in Sri Lanka and no citizen of Sri Lanka living outside Sri Lanka shall do, or cause to be done any act which assists or promotes or is intended to assist or promote any act which is directly or indirectly connected with the collection of funds, for any terrorist organisation or which are intended to be used to carry out a terrorist act;

(b) Any funds or other financial assets or resources of persons who do, or cause to be done, any act which assists or promotes or is intended to assist or promote any act which is directly or indirectly connected with any terrorist organisation or a terrorist act, or participates in, or facilitates the commission of any terrorist act shall be frozen with immediate effect;

(c) No citizen or any other person or body of persons shall within the territory of Sri Lanka make available directly or indirectly for the benefit of any organisation or person who commits or attempts to commit or participates in or facilitates the commission of any terrorist act any funds, financial assets or economic resources shall be guilty of an offence under these regulations.

Here's the thing. While this newspaper shall not make any comment on the merits or demerits of the case, or the culpability or otherwise of any of those connected to the case we are entitled to point out that the government best be wary of pointing fingers at those who at one time were high on their lists of special dinner guests.

Close confidant

Tiran Alles was a close confidant of Mahinda Rajapakse during the 2005 presidential campaign.

A close ally of former Foreign Minister Mangala Samaraweera, Alles was not only appointed Airport Chief but also the Reconstruction and Development Agency Chairman by Rajapakse following his victory and was welcomed by the President to Temple Trees on the day after the election with a bear hug in front of the television cameras, and those in the inner circle knew only too well, why.

The appointment to RADA was not without significance since it was tasked with handling tsunami reconstruction in the north-east.

In fact it was Alles who was credited with sealing the deal with the LTTE urging them to boycott the elections for Rajapakse prior to the presidential election through the facilitation of Emil Kanthan.

Early in 2007 the late Sripathi Sooriyaarachchi, a minister Rajapakse sacked along with Samaraweera, charged that Rs. 200 million was paid to the LTTE by the Rajapakse campaign team to get the boycott order issued. The LTTE and Rajapakse denied the charges. But police continued to investigate Alles' alleged business dealings with Emil Kanthan, a Tamil businessman allegedly close to the LTTE.

Not arrested

But if the government alleges Emil Kanthan is a spawn of the LTTE and a terrorist agent pray why was it that this man was not arrested on his many trips in and out of the Katunayake International Airport?

The government in order to suppress the media has been blacklisting journalists and editors and even attempting to prevent them from traveling overseas.

However it would seem the Rajapakse regime has no qualms in even escorting to the plane and lavishing travel comforts on such former LTTE members as Karuna Amman and according to the government itself a Tiger agent, Emil Kanthan.

According to documents and passenger lists in our possession Emil Kanthan whom the government now identifies as a LTTE terrorist for the purpose of indicting Alles has traveled in and out of Sri Lanka while the Immigration Department has turned a blind eye on whom the government identifies as an LTTE operative.

Mind you that is in the backdrop of the National Intelligence Bureau having a permanent presence at the airport to monitor the movement of undesirables.

Frequent traveller

On January 10, 2006 Emil Luxmi Kanthan Anthony departed the Katunayake Airport on UL Flight 123 at 7pm. He filled out Embarkation Card No. E290026 and was cleared by officer Chinthina Rathnayake. Eight days later he arrived on UL122 at 12.20am filling out Disembarkation Card No. D285593 and cleared out by Sripathi Ranji Widanapathirana.

Here's a list of his departures and arrivals between January 2006 and May 2006

Flight Departure     Arrival

UL123                    10/1/2006

UL122                    18/1/2006

SQ469                    21/1/2006

SQ468                    30/1/2006

EK349                       01/02/06

UL172                   08/02/2006

SQ469                  24/02/2006

SQ468                  03/03/2006

UL225                  04/03/2006

UL228                      22/03/06

EK559                      27/03/06

UL228                    14/4/2006

UL225                  15/04/2006

UL228                  03/05/2006

SQ469                 05/05/2006

The irony is that Alles was indicted for alleged dealings with Kanthan even before this date but at that time given the allegations of the secret deal for the presidential election, Kanthan was a VIP as far as the regime went and was free to travel to and from Sri Lanka without any hassle.

In fact this was the time Emil Kanthan was given a multi million rupee contract by the government to build houses in the north and east for services rendered during the presidential election and millions of state funds doled out to him. And all this on a Cabinet Memorandum under the signature of President Mahinda Rajapakse no less.

 More shocking is the revelation and documentary proof now in the possession of The Sunday Leader that Emil Kanthan was also issued a valid passport by the Immigration authorities on 11.4.2007.

This is well after Tiran Alles was arrested on charges of financial dealings with suspected terrorist Emil Kanthan and mind you over two years after the period mentioned in the indictment as the period in which the offenses were said to be committed - that is in 2004/2005.

Application

The application for Emil Kanthan's travel document was received by the Sri Lanka Mission in Dubai and issued to him on 2007.04.11. His passport number as of 2007 was N1887710. His address is given as B2F/21 Kotahena Flats, Colombo 13. (See box)

However Emil Kanthan traveled in 2006 on passport no. N1600130

The issue is this. Why did the Rajapakse regime countenance the application for a Sri Lankan passport in 2007 and enable this Emil Kanthan to travel freely in and out of Sri Lanka in 2006 without apprehending him forthwith if they believed him to be a LTTE operative?

Surely two citizens of Sri Lanka had already been arrested on charges of financing this very man. At the least he would have served as a prime witness to the indictment that was to follow.

Or is one to believe that like facilitating the travel for Karuna Amman on forged documents under a false name, this too may be dismissed with a shrug of the shoulders?

Funnily enough the regulations brought by Kadirgamar it is alleged were signed only a day after parliament was dissolved on October 10, 2001 and thus had no force or validity in law.

However that is a matter for the courts to decide.

AG told off

Indeed the Supreme Court was to zero in on this issue when the motions filed by Alles and Basnayake on November 28 were supported by President's Counsel Romesh De Silva instructed by G.G Arulpragasam on December 4.

Chief Justice Sarath Silva who had earlier warned the Attorney General not to file indictment for the sake of filing indictment was to tell the AG 'I gave order saying don't file indictment for the sake of filing.' Justice Tilakawardena was just as harsh. 'It's like challenging the Supreme Court order' she said. 'For almost two years you have harassed this person. Failing everything you now latched on to this Gazette which is also not valid,' she said.

Funnily enough the two senior officers of the AG's Department, Dapula De livera and Buwaneka Aluvihare were not present in court.

The AG's representative was to then make an application to court not to grant any interim relief in the case but to give a date as Dapula Livera DSG was unable to be present in court due to personal reasons.

Chief Justice Silva shot back, is it a personal problem or a legal problem?

In rejecting the date for the AG the court observed that the case was mala fides, and ultra vires the law and issued a stay order forthwith. The Chief Justice in doing so stated "I cannot understand the mindset of the AG in formulating this indictment."

The court also observed that for one and a half years the AG had not filed indictment and only did so when the Supreme Court granted relief.

The next date of hearing is January 19, 2009.


Central Bank culpable in hedging scam


Mahinda Rajapakse, A.H.M. Fowzie,
Nivard Cabraal, Asanth De Mel
and Dhammika Perera

By Sonali Samarasinghe

Amidst an unfolding picture of high stakes and relentless business interests and despite attempts to restrict blame for the disastrous oil hedging scam to Ceylon Petroleum Corporation Chairman Asantha De Mel  and to Petroleum Minister A.H.M. Fowzie an investigation by The Sunday Leader reveals that almost every top official in government including the BOI Chairman Dhammika Perera, Central Bank Governor Nivard Cabraal, Treasury officials and the entire cabinet were well aware of the hedging process during either a part or the whole of the 18 month period of hedging by the CPC since February 2007. 

Even as the Supreme Court last Friday (28) declared Minister A.H.M.Fowzie unfit to hold the post of Petroleum Minister over the hedging scam set to shrink the country's foreign reserves by well over USD 400 million, with some in the industry now warning the loss could be as high as USD900 million, Fowzie was to emerge from the melee with his gloves off.

Keeping Nivard clean

In spite of a carefully orchestrated campaign to keep Nivard Cabraal's role in the deal out of media focus, proving The Sunday Leader correct in its expose last week, Fowzie told parliament last Wednesday it was Central Bank Governor Ajith Nivard Cabraal who single-handedly foisted the oil hedging concept on the CPC.

Minister Fowzie said it was Cabraal who personally made a presentation to the cabinet on September 6, 2006 and advised the government to enter into 'hedging arrangements.' Indeed this is not denied by the Governor who in a letter to now suspended Ceylon Petroleum Corporation Chairman Asantha de Mel almost two years ago on January 10, 2007, urged the CPC to make arrangements to hedge. (The Sunday Leader exclusively reported on this letter last week.)

Be that as it may it was already clear the government had decided early in the piece not to pay the five banks involved in the hedging deals including the two foreign banks Standard Chartered and Citi Bank.

President hedges on hedge payment

At a crucial cabinet meeting two weeks ago Minister of Finance President Mahinda Rajapakse hard pressed to balance the books despite a parliamentary nod to his massive war budget told cabinet the CPC had been mislead by the two foreign banks into entering into these deals and therefore the government need not pay the banks.    

And while Asantha De Mel may now be singled out for lampooning by his former associates it would seem the country's economic aristocracy - such as it is - were not only fully and thoroughly aware of the hedging process that was going on for 18 months but also approved of the same.

In the meantime the CPC had not made many friends in the industry. The oil and gas industry is a lucrative one and from lubricants to bunkering to LP Gas, the Ceylon Petroleum Corporation was foraying into other business areas and inevitably stepping on the toes of entrepreneurs and companies in the same fields.

Big business, small CPC

It has for instance a 1/8th stake in the LMSL bunkering tanks. The CPC was also against the government renewing the lease of a 10 acre area of land due to terminate in July next year inside the CPC's Kolonnawa premises leased by Chevron Lubricants Lanka Ltd (formerly Caltex)  owned by the US oil giant Chevron-Texaco. Caltex changed its corporate identity to Chevron Lubricants Lanka Ltd., following its parent company which is the majority shareholder of the local firm.

CPC sources said the rationale was that since the CPC too was trying to get into the business of lubricants it made no sense to lease out land to their competitor in the market while the CPC moved to an outside geographical location.

Indeed the CPC intent on getting into collateral business ventures in order to ensure various sources of income perhaps to subsidise fuel ( a subsidy that had stopped since 2006) or for whatever reason on the one hand, was getting into the hair of competing companies on the other. Therefore many stake holders on the pretext of public interest ideals were really motivated either wholly or in part by personal business interests et al when hunting down personalities.

But while private business interests may now be playing a jackal like role in reaping the spoils, what is shocking is that government officials including a specially appointed study group recommended after several days of deliberation a Zero Cost Collar hedge among other guidelines CPC officials now say they followed to the letter.

BOI chief rolls in

Not only that, the likes of BOI Chairman Dhammika Perera and Deputy Governor Central Bank, Dr. Thenuwara were appointed as 'observers' to the Board of the Ceylon Petroleum Corporation and were present in that capacity all through the hedging process as and when it went to the board.

Funnily enough having sat through the process as an observer at board meetings and 18 months after the first of several hedging contracts and several accolades to the CPC on its hedging deals by none other than the Central Bank and its Governor, Dhammika Perera on November 7 was to write to the CPC Chairman Asantha de Mel the following letter of warning.

"My dear Chairman,

I am informed that there may be a few positions that the Ceylon Petroleum Corporation (CPC) has taken in relation to oil hedging which may be claimed by certain banks as a result of the price of oil decreasing substantially. I am also informed that in today's hedging scenario, some of the instruments that the CPC may have entered into are schemes for investors and are not proper hedges.

"All over the world, many banks are now being sued for misleading clients and mis selling complex products, and in that context it may be quite possible that the CPC too, has fallen victim to such a situation.

"In that context, it is better that the CPC does not make any payment towards any claims that may be made and immediately seek specialist advise in this regard, so as to avoid any unnecessary liability to the CPC.

Yours Sincerely
Dhammika Perera"

It is obvious that Perera having arisen from some slumber is now trying to give the government a helping hand in its quest to wriggle out of the contracts - especially those contracts with foreign banks.

Perera one recalls is a man made for such a job. Last year he single handedly hounded out the former CEO of SriLankan Airlines Peter Hill as the government wriggled out of its obligations to ensure a stabilised national carrier and took back control of the airline.

Dangerous game

But the government burdened though it economically is plays a dangerous game. Standard Chartered Bank and Citibank had hedged these instruments with the New York Mercantile Exchange (NYMEX) which is usual practice. The banks will claim to be making only a small profit on the instrument as it had re-hedged the instrument with a third party. Therefore any default by the government will be perceived as default of sovereign debt - a claim some analysts say is poppy cock. There is enough evidence to prove the deals were mis-sold, they say. The government must stand firm.

Be that as it may, last week the Head of Fitch Credit Rating Agency, Chanaka Wickramasuriya told the Business Section of The Sunday Leader, Sri Lanka's existing international credit lines may be suspended or be given at a premium due to the interim  order by the Supreme Court last Friday that suspended making any hedge payments to the banks. Foreigners were pulling out of the bourse already and the hedging disaster will only make matters worse sources had said.

On the same day however Asantha De Mel replies Dhammika Perera stating that the CPC had taken hedge positions based on Zero Cost Collars as directed by the cabinet decision. He also promises to forward the hedge contract agreements (ISDA agreements) to the Attorney General for further perusal as suggested by Perera.

Back in time

But let's go back to 2006. In fact as far back as August 30, 2006.

Dr. H.N.Thenuwara, Director Economic Research, Central Bank writes to the then CPC Chairman, Jaliya Medagama on hedging of oil prices.

Thenuwara refers to a discussion the governor of the bank had with Medagama on the subject of hedging on oil prices and states it would be useful if a mechanism is discussed as to how it could be done. A paper developed by the CB is also attached and a specimen letter which can be used to call for quotations on prices of different instruments.

The Central Bank suggests that the CPC Chairman of the day Medagama arrange a discussion between the board members of the CPC and the CB, obtain cabinet approval, apprise the relevant institutions and persons of the benefit of entering into hedging arrangements, and conduct an awareness programme among members of the general public. (Please see elsewhere on this page for a copy of this letter.)

Recall it was on September 6 that year that Central Bank wonder-boy Nivard Cabraal made his presentation titled "Maintaining stability in a volatile global oil market" which urged hedging, to the President and to the cabinet of ministers. It was only in October of that same year that de Mel was made chairman of the Ceylon Petroleum Corporation (CPC). A  man coming in from the private sector no sooner than he arrived almost, it was Cabraal who prevailed upon him over coffee and over tea that it was hedging that must be had or else. And for this there is ample proof.

Cabraal declines to talk

The Sunday Leader contacted Cabraal to obtain his response on several matters raised by us but he declined his right of reply stating that the hedging matter was now before Supreme Court and he could therefore not comment.

Nonetheless the cabinet decided that the subject should be further studied by a group of officials from the Central Bank, Ministry of Finance and Planning, Ministry of Petroleum and Petroleum Resources Development, Minister of Power and Energy, and any other agencies concerned.

Accordingly the following were appointed to the study group that included two senior Central Bank officials by the Former Treasury Secretary P.B. Jayasundera by letter dated October 19, 2006.  Ironically Jayasundera's projects never seem to go away. Those appointed were,

(1) Y.M.W.B. Weerasekera, Assistant Governor, Central Bank of Sri Lanka

(2) Dr. H.N. Thenuwara, Assistant Governor, Central Bank of Sri Lanka

(3) Saliya Rajakaruna, Chief Financial Officer, Bank of Ceylon

(4) Kapila Ariyarathne, Head of Corporate and Institutional Banking, People's Bank

(5) Kanthi Wijethunge, Additional Secretary, Ministry of Petroleum and Petroleum Resources Development

(6) Lalith Karunarathna, Deputy General Manager (Finance) CPC

(7) V. Kanagasabapathy, Financial Management Advisor, Ministry of Finance and Planning

Study group appointed

On November 16, 2006 this study group was to submit its report to P.B.Jayasundera which would be presented to the Cabinet of Ministers for a decision to be taken on the alternatives suggested in Cabraal's presentation.

The study group made five recommendations and stated in the body of its report that there is a cost involved in hedging. It went on to say "This cost could either be direct cost of hedging such as premium or from lost profit due to rapid movement of market prices on the reverse direction (E.g: significant drop in oil prices). However the benefits of protection from high oil prices are greater than the cost of hedging."

Therefore the report was more concerned about the upper band prices than the lower band prices.

 It also states:

"The main objective of engaging in hedging instruments with banks is to protect from high volatility in oil prices thereby maintaining stability in domestic prices. The cap involves a payment of a premium, while the Zero Cost Collar does not involve any payment if the market price falls within the agreed range of prices. Thus the Zero Cost Collar is the better alternative."

Zero Cost Collar recommended

The group therefore made five recommendations.      

(1) CPC to hedge purchase of petroleum products, both crude oil and refined products, in the international market

(2) Use Zero Cost Collar as the hedging instrument with the upper bound based on market developments

(3) Commence hedging with smaller quantities for a shorter period and gradually increase the quantity and the duration

(4) Grant authority to the CPC to call for quotations for oil hedging, decide on future prices and purchase hedging instruments from reputed banks

(5) Grant authority to CPC to change the instrument based on the developments in the market.

Not two months later so keen was Cabraal to implement hedging, he was to call De Mel on January 9, 2007 and extol to him the virtues of hedging. He did not stop there. Even before cabinet approval had been granted for the hedging deals Cabraal would write a letter marked 'URGENT' to De Mel on January 10, 2007. De Mel was barely three months in office having taken over as chairman CPC only in October of 2006.

Nivard congratulates Asantha

Cabraal was to refer to their conversation the day before and writes to the brand new Chairman, "As you are aware, the Central Bank of Sri Lanka was instrumental in promoting hedging as a means of purchasing petroleum and made a presentation to His Excellency the President and the Cabinet of Ministers on 6th September 2006. The Central Bank has also made available to the Ceylon Petroleum Corporation (CPC), certain technical details and options for hedging. However we note that the CPC has so far not been able to enter into any form of hedging or other acceptable financing arrangement to ensure that Sri Lanka's petroleum bill will be at manageable levels in 2007.

"As you may agree, petroleum prices have now reduced to about US $ 55 per barrel, this may appear to be the opportune time to enter into suitable arrangements to hedge at least a part of our country's total requirements. Hence, in the interest of the national economy, I would urge you to take the necessary steps to ensure that expenditure on fuel prices will not cause undesirable effects on the macro economy in 2007.

Yours sincerely

Sgd

Ajith Cabraal."

A copy of this letter was sent to Secretary Ministry of Finance at that time, P.B. Jayasundera.

It was only three days after this letter was sent to the CPC Chairman that the Cabinet Memorandum titled 'Introduction Of Oil Hedging For Maintaining Stability In A Volatile Global Oil Market' dated January 13, 2007 was tabled. The memorandum was approved on January 24. Secretary, Petroleum Ministry, A.P.A.Gunasekera on January 26 received the draft cabinet decision which stated that the January 13 memorandum was considered along with the observations of the Finance Ministry and approval granted to the proposals which were to be implemented without delay as suggested by the Central Bank of Sri Lanka.   

Asantha de Mel was to reply this letter on January 11 stating,

"Dear Sir,

Reference your letter dated 10 January 2007 contents of which are duly noted; I wish to inform you that I am in the process of working out necessary details in getting the hedging process expedited as quickly as possible."

Cabraal on January 16 in congratulatory tones was to pat Asantha on the back for his fervour.

"We are pleased that you are working out the necessary details in relation to implementing the hedging processes as quickly as possible,

Yours sincerely

Sgd

Ajith N. Cabraal" (See elsewhere ion this page for copy of letter)

Evidently then the Central Bank Governor was well aware of the contracts being entered into. He was even patting the CPC Chairman on the back for a job well done. In any event as the foremost regulator in the country Cabraal cannot sit back and blame others like he did in the Sakvithi scam, in the GoldQuest fiasco and now this.

He cannot get away by merely warning the public through advertisements in the media. He must do his job. Sakvithi Ranasinghe advertised big time too. One wonders why it missed the hawk eye of the Central Bank Investigative Unit.

CB just as culpable

The Central Bank having engaged in a range of Machiavellian tactics to shield GoldQuest on the one hand while pretending to warn the public about pyramid schemes on the other is content while an occasional operative from a poor village is arrested by the CID. However it was the CB that closed down the investigative unit that handled the pyramid scams and sent packing the crack three member CID team specially appointed for the purpose.

Now the Central Bank of Sri Lanka again seeks to wash its hands off the biggest gamble perpetrated on the public of this country by attempting to wriggle out of all responsibility.            

On January 23, 2007 the Central Bank was to engage in more correspondence with the CPC.

Mrs. P. Liyanage, its Director International Operations now wrote a letter to De Mel requesting for a report on the status on the implementation of hedging strategy proposed by the CB to face the risk of oil price fluctuation. The letter also referred to discussions held on the settlement of CPC import bills and hedging with both the Central Bank and the Secretary to the Treasury at the time, P.B.Jayasundera.

This obviously indicates that both the CB and the Treasury were fully part of discussions being held. This newspaper is in no way attempting to diminish the culpability that may lie with both the CPC Chairman and the Minister in charge but surely the rest of the officials - ostensibly learned men and women with degrees and experience to boot cannot allow a man whom the Supreme Court seems to denigrate due to the fact he has more private sector experience than he has letters behind his name, to take the fall for a project that went far beyond the tiny purview of the chairman of the CPC.

Observers galore at CPC

Besides from documents in our possession it becomes clear that the Treasury Secretary himself had appointed as observers at CPC board meetings the assistant governor of the CB, the financial advisor to the Treasury, the director general of investment and trade, the director general of treasury operations and a staff member of SEMA.

In fact at a board of directors meeting on November 2, 2006 there was a presentation by the Standard Chartered Bank with regard to crude oil hedging. At this presentation the CPC board of directors, the Financial Advisor to the Treasury V. Kanagasabapathy and the Assistant Governor of the Central Bank, Dr. Thenuwara were present.

Sequence of events

Be that as it may on January 29, 2007 the said cabinet decision was communicated to the Chairman CPC by the Petroleum Ministry for necessary action.

Mind you earlier on January 17, the cabinet had deferred its decision for the next meeting awaiting the observations of the Finance Ministry. It was then on January 24, 2007 the cabinet decided that oil hedging be implemented without delay as suggested by the Central Bank.

Anyway a few days later on February 8, 2007 a board paper was submitted to the CPC by its Chairman seeking approval to take the hedge position of 0.05% Sing Gas oil on Zero Cost Collar method for a quantity of 450,000 barrels for a period of three or six months.

This was approved on February 9, with a Central Bank Deputy Director K.D.Ranasinghe in attendance as an observer on financial matters. 

On March 14, 2007 the Secretary to the Petroleum Ministry writes to the CPC Chairman stating that at a progress review meeting held on February 23, 2007 it was decided to submit a Cabinet Memorandum informing the cabinet about the implementation of the hedging proposal.

A draft Cabinet Memorandum was to be therefore prepared by March 20 by CPC which included several details including the name of the bank selected as the hedge provider, the hedge period, benefits so far accrued, indicative prices etc.

This Draft Memorandum prepared by the CPC on March 19, 2006 while giving several details of prices, dates and periods as requested stated that the CPC had hedged 900,000 barrels of Singapore Gas Oil 0.05% (300,000 Barrels per month) with effect from March 1, 2007.

Cabinet updated on progress

It also indicated that as at March 15, 2007 CPC was in a favorable possession of USD 300,000.

These details were accordingly tabled in cabinet by Minister Fowzie in March 2007. This effectively meant therefore that the cabinet of ministers was in fact being kept abreast of the hedging agreements being contracted with the banks including the names of the banks and the terms on which they were being signed.

It was really in February 2007 that hedging began in earnest and had been going on for 18 months since. So pleased was the Central Bank Governor with the progress of the hedge, a concept Canadian based economist Upul Anurajith claims was an idea the Central Bank stole from him, that in its Annual Report 2007 the CB states thus rather proudly at page 58:

"The CPC has implemented several measures to reduce the cost of its oil purchases. The hedging of oil purchases against price volatility was continued in 2007. CPC entered into six hedging agreements during the year and has gained Rs. 209 million as risk mitigating income during the year.."

In fact another Cabinet Memorandum tabled by Fowzie on November 17, 2008 was to suggest to the cabinet of ministers that due to the unexpected downturn in world oil prices experienced in August 2008 the government should consider whether the CPC should continue with oil hedging in keeping with the decision taken by the cabinet on January 24, 2007 based on the observations of the Central Bank.

In seeking approval the Minister also listed out a terms of reference (TOR) for the committee which included negotiating with present hedge providers to restructure hedge positions in order to minimise possible hedge losses.

It was nine days later that the two Fundamental Rights applications regarding the hedging contracts were filed in the Supreme Court. The rest as they say is history. However as far as we are concerned this is not the last word or even the next to last word on the subject. Watch this space next week.


How ministers live at public expense


Ranaweera Pathirana, Janaka Bandara
Tennekoon, Piyasena Gamage
and Dulles Alahapperuma

By Dilrukshi Handunnetti

The glare of publicity the ministers began receiving due to the repeated oral questions raised in parliament on the official residences, house rents, who pays the electricity and water bills and more importantly the amounts paid for by the state appear to be causing much ministerial discontent at present.

In fact, Chief Government Whip, Dinesh Gunawardena dubbed the persistently questioning JVP Parliamentarian, Ranaweera Pathirana as "commissioner of rented premises" in parliament just last week. According to Public Administration Circular 10/2007 issued on May 9, 2007 by Secretary, Public Administration and Home Affairs, D. Dissanayake to all Ministry Secretaries, all Ministers of Cabinet, Non Cabinet and Deputy ranks who are eligible for a Colombo official residence but has not been provided with such is paid a rent allowance of Rs. 100,000 as per cabinet decision taken on April 4, 2007.

The said allowance was to cover not just the rent but also the electricity and water bills of the said household.

Given the global recession and increased defence expenditure and the increase in the prices of essentials, the cabinet on November 5, 2008 decided to curb expenditure to the maximum.

This decision was given expression to by the Finance Ministry through Budget Circular 141 (My Ref: BDA965/1/508) dated November 11, 2008 wherein it was stated that four measures would be taken to effectively curb expenditure during a period of economic difficulty. 

What comes to light during oral question time in parliament during the budget season is anything but effective implementation of the said Budget Circular or frugal living by some of the ministers.

Either the homes that are provided to the ministers are in such bad shape or, there is a habitual need to effect improvements by the occupants that the state appears to have annually spent varying amounts on house repairs on most of the official homes provided to ministers.

Let's take the case of Minister of Local Government and Provincial Councils, Janaka Bandara Tennakoon, recorded in the Hansard of October 22, 2008.

While no improvements have been made in 2005, Rs. 237,442.00 and Rs. 1,781,676.27 have been spent in 2006 and 2007 on house repairs.

Furniture too had been purchased for the residence at state expense during the last preceding three years. The amounts spent were, Rs. 50,320.00, Rs.167,692.50 and Rs. 121,795.00 respectively. Tennakoon's monthly electricity bills have ranged from Rs. 9,044.40 to Rs. 49,787.52.

As opposed to the above, Minister of Mass Media and Information, Anura Priyadarshana Yapa has managed to keep his repairs at more affordable levels.

For the same three years, the state had spent Rs. 14,275.00, Rs.36, 997.50 and Rs.173, 247.00 on repairs while in 2006, furniture had been purchased for Minister Yapa's official residence for Rs. 202,436.00

In 2006 and 2007, Minister Yapa's annual electricity bills were Rs.195, 596.97 and Rs. 252,457.56 while the annual payments for water supply had been Rs. 73,317.63 and Rs. 78,124.66 respectively.

If Yapa appears to give the impression of a frugal politician going by the usual standards, the same does not apply to Minister of Transport, Dulles Alahapperuma who was provided with an official residence from September 1, 2007.

The Ministry of Public administration has incurred Rs. 1,395,416.63 for the repair of the Alahapperuma official abode.

His electricity bills from September to December 2007 were Rs. 36,862.08, Rs. 26,484.24, Rs.28, 292.64 and Rs. 13,212.96 respectively totaling to Rs.104, 851.92 for just four months. No electricity bills were cleared that year.   

Minister of Water Supply and Drainage, A.L.M. Athaullah too has had his official residence renovated annually since 2005. The cost incurred on these repairs were Rs.100, 000.00, Rs. 893, 632.00 and Rs. 485,392.50 respectively.

Not only that, the state had spent Rs. 384,680.22 on purchasing furniture for his residence in 2007.

Among those who incurred high cost repairs to the official residences we find Minister of Power and Energy, John Seneviratne. The relevant expenses were divulged to the House on November 25, 2008 in answer to oral question 0241/08.

It was then revealed that his official residence had been renovated twice, in 2006 and 2007 -  the first repair being a costly one. The repair in 2006 cost Rs. 1,938,475.00 and in 2007, it was Rs. 541,82.00.

On furniture and other equipment for the household, Rs. 5,200.00 had been spent in 2006 and another Rs. 80,868.00 in the year 2007.

Minister Seneviratne's total annual water bills for 2006 and 2007 were Rs. 25,610.00 and Rs. 36,283.63 respectively. His electricity bills for the same years were Rs. 295,357.82 and Rs. 429,769.62 respectively. 

According to replies provided to parliamentary oral query No 0228/08 contained in the Hansard of November 13, 2008, a repair of Rs. 326,458.56 had been effected on the official residence of Minister of Livestock Development, C.B. Ratnayake in 2007. To provide furniture to the Ratnayake residence, Rs. 23,725.65 was spent in 2006 and Rs. 86,239.84 in 2007.

Ratnayake's electricity bills too have ranged from Rs.50, 578.10 in January to Rs. 35,13.04 in 2007 while water bills have ranged between Rs. 32,090.00 to Rs. 15,683.13

An interesting phenomena about Minister of Foreign Employment Promotion and Welfare, Keheliya Rambukwella's bill settlement is not the amount, but the fact that the Presidential Secretariat had settled bills up to July 2007. This house was occupied by former President D.B. Wijetunga until requested to leave in order to house Rambukwella in May 2007.

In 2007, Rs. 13,495.00 had been spent on furniture for Rambukwella's official residence though a telecommunication system at a cost of Rs. 372,220.37 had been installed the same year.

Then there are those who buy their bedding also at state expense, such as Non Cabinet Minister of Home Affairs, Chandrasiri Gajadheera.  With regard to his official residence of CD 90, Gregory's Avenue, the breakdown of expenses submitted to parliament shows that among the purchased items in 2006 totaling to Rs. 53,710.00 include curtains for Rs. 30,400.00, mattresses for Rs. 17,600.00 and mattresses again for Rs. 5,710.00.

According to the details submitted on water an electricity consumption, a total of Rs. 158,586.35 had been spent on electricity while Rs. 38,702.75 was spent on water consumption from August 2006 to November 2007. The house has been repaired in 2007 for Rs. 346,848.51

Then there are the high cost Nation Building Ministers, six in all. An interesting aspect about the Nation Building portfolio is that it appears to be given to anyone who has no portfolio with specific functions. As such the numbers have grown and now there are six ministers holding the same portfolio and according to figures submitted to parliament, five of the said portfolio holders share No 29, Galle Face Terrace, Colombo 3 as their office premises.

The state spends Rs.1, 200,000.00 as monthly rent and the monthly VAT payment is another Rs. 180,000.00. The annual rent is a massive Rs. 14,400,000.00 and the annual VAT payment is Rs.2,160,000.00, by no means cheap.

While Minister Susantha Punchinilame, one out of the said six, runs his office at is official residence, the government does not settle water and electricity bills of Minister Rohitha Abeygunawardene.

Out of the six Nation Building Ministers, Gunaratne Weerakoon and S.M. Chandrasena also receive the Rs. 100,000 rent allowance.

Petroleum and Petroleum Resources Minister A.H.M. Fowzie, now entangled in the hedging controversy occupies an official residence since 2005. This home had been repaired in 2007 to the value of Rs. 262,298.00 

In 2006, the cost of furniture purchased was Rs.224, 965.00 and in 2007, it was Rs. 47,724.00

Like most others, Fowzie's electricity and water bills are a bit shocking. In 2006 and 2007, the annual total payment for electricity was Rs. 470,168.38 and Rs.504, 554.43 whereas the water bills stood at Rs.341,436.00 and Rs.148,498.01 for the respective years.

Again a house that had been repaired at state expense is the one occupied by Cabinet Minister of Justice and Law Reforms, Amarasiri Dodangoda. The cost involved for the 2007 repair was Rs.543, 168.75.

Among the household goods purchased in 2006 and 2007 are 20 CFL bulbs, a wheelbarrow, Fresco designed sofa settee, a rubber hose, a water filter and a boiler, and 12 porcelain cups and saucers at a total cost of Rs. 66,672.50

It transpires that Minister of Vocational and Technical Training Piyasena Gamage's electricity bills have regularly been on the high side and often in the range of Rs. 40,000 each month last year.

It appears that the expenditure incurred with regard to Gamage's household are mostly to do with security considerations, an aspect Defence Spokesman Keheliya Rambukwella has not spent on, despite the perceived threat to his life.

Minister Gamage had spent Rs. 823,000.00 in 2005 for colour washing and repair of four security posts and in 2007, another Rs. 382,386.50 was spent on raising the walls with Amano sheets. The same year, Rs. 74,635.00 was spent on the repair and maintenance of the air conditioner.

Interestingly, the ministerial household has also spent Rs. 40,130.00 in the same three years under review to purchase two 250 W 250 V sodium vapour lamps, a vacuum cleaner and a Dialog Cable TV connection.

Non-cabinet Minister of Water Supply and Drainage Mahinda Amaraweera's incurred expenditure since this government came into office was also laid bare last Monday in parliament.

In the year 2005, Amaraweera's official residence had been repaired at a total cost of Rs. 397,115.22 and each year, there had been some household items/furniture added to the home at state expense.

Strangely enough, details pertaining to Minister of Social Services and Social Welfare Douglas Devananda's household expenses were not divulged to the House due to purported security reasons. It is unexplained as to why the details of his water and electricity consumption patterns and basic house repairs cannot be furnished, as the question was not about the strength of his security.

In 2005, the said cost was Rs. 114,087.00 and in 2006, it was Rs.55, 917.00 while in 2007 it was Rs. 401,427.00 according to the information furnished to the legislature.

According to the information submitted to parliament, there are 40 Cabinet, Non Cabinet and Deputy Ministers who are granted the Rs. 100,000 allowance for obtaining houses on rent basis.

According to the Hansard of October 24, 2008, the facility of obtaining houses on a rent basis was granted to ministers for the first time on April 4, 2007. The total amount of money spent from 01.06.2004 to 31.12.2007 for obtaining houses for the ministers on rent basis was a staggering Rs. 24,646,410.98 (approximately Rs. 24.6 million).

According to the MP who has been raising the series of questions relating to house rents and utility bills settlement by the state, JVP MP Ranaweera Pathirana, a certain trend had been observed with regard to spending as well as replies given in the House.

Earlier, an authentic breakdown of expenditure was given with regard to purchased furniture or household items. That's a trend that is waning, with only a few ministers doing so now, he notes.

The MP argues that at a time when the armed forces were making immense sacrifices, the replies offered in parliament hardly shows an occasion where ministers have sought to lead by example.

"There is obviously no frugal living. Where's the example set by the rulers? This is why I am compelled to raise these questions," adds Pathirana.

The MP adds that the questions are raised in the public interest, as citizens are not just expected to foot these bills but that they also have the right to know.

"The ministers often conceal information. Some don't like to answer. Often the mood is to table instead of read out answers for that could lead to interim questions and adverse publicity," he notes.

Meanwhile, Minister of Industrial Development, Kumar Welgama had responded to the inclusion of his name in the list of 40 ministers drawing the house rent of Rs. 100,000.

A member of parliament is offered a period of one week to check the information that appears in the Hansard and to correct the same in the event of information being wrong.

If the Minister indeed does not draw the rent allowance as he claims, then it is up to parliament to take up the issue of being provided with false information by the relevant ministries..

The other side

There are other tragedies about the Colombo houses provided to the ministers, as it transpired in relation to Non Cabinet Minister of Power, Mahindananda Aluthgamage.

The Minister does not dabble in luxury going by his bills, but when an oral question was raised about his official residence on Thursday, he had a question to be raised in return.

"Who is going to ensure that these houses are all right for people to live in?"

Replying a question raised by MP Ranaweera Pathirana, Minister Aluthgamage bemoaned the fact that his Wijerama residence went under water during the recent heavy downpours and added that "all of Colombo's shit" was found within the premises of several ministers who are given official quarters down the same road.

"Please get the Ministry of Public Administration to not just to maintain these houses but to first come for an inspection. They are in poor shape and some are inhabitable," said Aluthgamage, claiming that instead of luxurious living, some of them were compelled to suffer.


D.E.W. and Felix set the record straight

Ref: our lead story and the special report on ministerial expenditure published in The Sunday Leader issue of November 30, 2008, two cabinet ministers have sent clarifications with regard to the figures contained in the original reports.

Minister of Constitutional Affairs and National Integration, D.E.W. Gunasekera making a ministerial statement in this regard on Tuesday (2) stated that there was a gross mistake in the cost of the installed generator. He said the actual amount was Rs. 175,000.00 which was misreported by the newspaper.

He tabled the Hansard of October 21, 2008 that contained the answer to the oral query raised with regard to the expenditure incurred on his official residence and the electricity and water bills.

Further, he said that the generator was not installed to enhance comforts but for security purposes at the insistence of the security staff. "I do not have my comforts increased, in fact it is a discomfort when it functions," he said.

Referring to the rent allowance drawn by him, he said that too was erroneously reported, and stated that he had no official residence in Colombo and after being provided one, he had not drawn a red cent.

He said he only drew Rs. 45,000 as rent allowance prior to being provided with a house and for that period of three and a half years, had drawn only Rs. 925,000.

"Had I drawn the stipulated amount, hypothetically speaking, still I would have drawn only Rs. 4. 3 million and not the amount reported," he told parliament.

Minister Gunasekera said he wished to raise the matter in parliament as the report was purportedly based on parliamentary records.

Meanwhile, Minister of Fisheries and Aquatic Resources Felix Perera too has sent us a written clarification with regard to the maintenance expenses of his official residence.

"Maintenance expenses for the year 2006 and 2007, which are Rs. 161,837.19 and Rs. 242,107.93 respectively has been multiplied by 10 (ten) to show them as Rs.1.6 million and Rs. 2.4 million by the writer. The total electricity expense for the year 2007, which was Rs.139, 119.80 too has been distorted in the same manner to show as Rs. 1.39 million," his letter seeking a clarification stated.

Reporters Note:

We deeply regret the bona fide mistakes committed when reporting on the expenses incurred by the two ministers. The mistakes were committed due to the commas after each set of numbers when converting the figures into millions, which is deeply regretted, and an unqualified apology is herein extended to both the ministers.

Further, the total amount spent on the rent allowance of ministers appeared inadvertently as an amount paid to Minister Gunasekera, which is genuinely regretted.

The mistakes were genuine and were not intentional or mischievous or calculated to bring anyone to disrepute. The reports were in no way 'an organised attempt to discredit the government' as claimed by the Leader of the House, Nimal Siripala de Silva.

Whilst extending an unqualified apology to both the ministers, it remains a matter of surprise that no efforts were made to correct another national newspaper with regard to similar mistakes regarding the same ministers' incurred expenses though some quarters of the government moved swiftly to attribute motive to this newspaper for a bona fide mistake.


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