By Faraz Shauketaly

Champika Ranawaka

Following on our spotlight last week when it was revealed that the Ceylon Electricity Board had called for tenders to purchase 100 Mw of stand-by / Emergency / Supplementary power for 2012 at a huge cost of  Rs. 13 Billion (13,000,000,000) Sri Lanka’s Minister of Power and Energy Champika Ranawaka has written to the Ministry Secretary questioning the need for expensive stand-by power of 100 Mw. Champika Ranawaka was under no illusions: he slated the mismanagement of the CEB managed power plants. In a striking example of how Ministers may pull rank, the Minister has openly asked the CEB whether the so-called envisaged crisis is one due to unavoidable circumstances or a crisis by design.
Champika Ranawaka points out that in 2011 the CEB made a loss of Rs. 13 Billion – much the same amount that the Minister with his team at the CEB Board considered spending on emergency power for 2012 due to predicted lower rainfall figures, reliability issues with CEB managed power plants and scheduled outages in Kukule, New Lakshapana and GT7 power plants.
Instead Sri Lanka’s Power Minister wants the Ceylon Electricity Board to concentrate on managing the power plants owned by them. Taking a cue perhaps from what has been questioned of the Minister by The Sunday Leader in the past, as to why penalty clauses are not being invoked and relied upon, the Minister has openly asked “those responsible should pay for the unserved energy”. Tongue-in-cheek the Minister goes on to say, “perhaps there is no need to hire additional power if it is possible to claim from the relevant officials for the unserved energy and use that money to purchase power.”
The Minister as an engineer himself, has his own suggestion: he has suggested that the CEB, LECO and SEA should initiate an aggressive conservation campaign to save 100 Mw of thermal power in peak hours, between 6:30 and 9:30 pm instead of hiring the supplementary 100 Mw of thermal power. However, the Minister has not addressed the issue raised in The Sunday Leader last week, of the CEB purchasing a 100 Mw power plant in any combination to be used as and when required – a measure likelyto save the consumer (eventually) at least Rs. 70 Million.
Quite apart from the Minister of Power and Energy taking to task the CEB and blaming them for the massive financial and technical mismanagement, the Minister has not given any comfort to the citizens of this country who continue to pay substantial sums of monies on their electricity bills. Last week we showed that 319 units of power consumed in South India would be at least 5 times cheaper than in Sri Lanka. Lower power bills in Sri Lanka therefore remain as elusive as peace was for thirty years.

(faraz@thesundayleader.lk)

In response to last week’s article entitled ‘Sri Lanka’s Multi Billion Rupee Commitment-Courtesy China’, many activists have criticised the projects highlighted by illustrating the lack of prior feasibility studies carried out. Jagath Gunawardena, environmental lawyer, stated that no environmental feasibility study had been carried out prior  to the expansion of the Colombo port.
Apart from the heavy economic costs of these projects, all of which totalled an astonishing Rs. 391.7 billion, there are numerous environmental and social costs that have accompanied the ventures.
Gunawardena, speaking to The Sunday Leader, explained that the government had strayed from the norm and did not carry out any environmental feasibility study prior to the expansion of the Colombo Port. He explained that such a study was vital as it would identify any changes that would occur to the surrounding environment. Gunawardena added that many people have criticised this project claiming that it was responsible for the current coastal erosion being seen at the Bambalpitiya and Wellawatta beaches. He said that for this to be confirmed an environmental study needs to be carried out. ‘With the changing global weather patterns, a project such as this can have a lasting impact on the environment. In what capacity we will not know unless a study is carried out,’ Gunawardena added.
Gunawardena drew attention to a study carried out back in 1995 which stated that such a project would have adverse effects on the coastal belts in the region. Following this study the project was halted, however, on this occasion the government has restarted the project without doing any environmental study. He called upon the Coastal Conservation Department to implement a study and identify the dangers of this development of the port. He denied that a study was being carried out even now. Coastal Conservation Department Director General, Anil Premarathne, denied that this project was having an effect on erosion, explaining that the changing weather patterns have increased the level of erosion.
Not only are the activists concerned about the growing problems caused by the port expansion. Charith Senanayake, a local living near the Wellawatta beach, expressed  his disappointment with the current state of the coastline. ‘I have lived almost all my life near the sea, the beach has never looked as small as it does now,’ he said. He added that he does not know the reason behind this, but stated that these changes were noticed only after the work on the port began. ‘Sri Lanka is known for its beaches, if we lose that just to build a bigger port than we have really lost out on a far bigger investment,’ Senanayake said.
Of course the problems are not isolated with the expansion of the Colombo Port, in Puttlam numerous social issues have arisen due to the construction of the Norochcholai power plant. The power plant has come  under heavy scrutiny by media organisations due to the environmental cost a coal power plant would have.
However, women activists have also called on the government for better protection of women who are living in the region. Dr. Sunila Perera, an advocate for women’s rights, explained that many Chinese workers who were living in the area during the construction had impregnated local women. She argued that these workers having relationships is not an issue, however, most of these workers returned to China leaving  these women to bring up the children on their own. ‘Many of these women comes from the lowest rungs of society, they barely have enough  money to feed themselves. It is irresponsible of both the government  and the Chinese firms to have allowed this to occur,’ she explained.
Sugath Premajayantha, Ministry of Child Development  and Women’s Empowerment, denied that this was the case in Puttlam. He explained that if there has been such a case it would be an isolated incident. Premajayantha stated that locals had spread these stories to discredit the involvement of the Chinese.
On a smaller capacity many people have criticised the Nelum Pokuna Theatre calling it a ‘White Elephant’. At a hiring cost of Rs. 800,000 most local groups have found  it impossible to afford the use of such a facility. A member of a leading  dance group, who requested anonymity, explained that they will continue to use the Lionel  Wendt as the cost is well within their reach.She further added that many of the facilities  in the theatre are of no use to the local dance or theatre groups. ‘We only need a sizeable changing room, adequate backstage space and a stage.
This theatre has a lot more which we will not make use of,’ she said.  With  the growing costs economically, socially and environmentally; the government needs to ask the question of whether or not the people even want these projects.

Nivaard Cabraal-Central Bank Governor Picture courtesy : www.centralbanking.com

On the January 30, Sri Lanka’s Central Bank announced that it would not draw down the withheld 800 million US dollars (USD) of its International Monetary Fund (IMF) standby facility citing its high interest rate.
In a world starved of capital, disbursing the withheld tranches would have posed a simple conundrum to the IMFs board and shareholders. Unique to such loans, all major shareholders of the IMF abstained from voting for it, not for economic reasons, but to press Sri Lanka to investigate alleged war crimes  and crimes against humanity committed during its conduct of the war with the separatist Liberation Tigers of Tamil Eelam.
On the face of it, Sri Lanka has not fulfilled the terms of the facility. It continues  to use borrowed money to defend the rupee at a level which the IMF deems 20 percent above fair value. Its current account deficit is 20 percent of gross domestic product (GDP). There has been no visible reform of its public sector utilities. The Ceylon Electricity Board and Ceylon Petroleum Corporation (CEYPETCO) -both state monopolies- are projected to incur losses of hundreds of millions of dollars. The former is set to lose USD 118 million in 2011. CEYPETCO lost USD 259 million in 2010 and forecast to incur similar losses in 2011. Defaulting counterparties to CEYPETCO include state owned enterprises such as its airlines and railways. And, Sri Lanka’s public debt to GDP ratio stood at 78 percent at the end of 2011; one of the highest in the Asia-Pacific region and well above the median for its single-B and double-BB rated peers at 41 and 40 percent respectively. Fiscal consolidation has been difficult to achieve due its defence expenditure, in excess of 4 percent of GDP, hitting record highs.
Sri Lanka has also borrowed heavily to invest in infrastructure projects where economic and social internal rates of return remain well below its cost of capital. Development has been concentrated in its Southern Province. The government has spent over USD 1 billion on developing a port and air port close to the Southern town of Hambantota –its president’s hometown. Unfortunately, Hambantota does not have the economic resources to make such projects viable. It also lacks connectivity to Sri Lanka’s economic hub in its Western Province. A motorway built to link both suffers from chronic choke points and is expensive to use.
The IMF board’s choices were to support Sri Lanka’s costly soft-peg of the rupee, non-compliance of the terms of the standby facility and low-yielding infrastructure projects; or, channel funds to countries which have made the policy adjustments to satisfy its conditions. With shareholders confronting their own economic challenges and under pressure  from taxpayers to curb payments to multilateral organisations; this time, there existed a non-trivial probability that Sri Lanka would not have been given the benefit of the doubt.
By choosing not to draw down the outstanding USD 800 million citing higher borrowing costs, i.e. 3.1 percent -a rate lower than countries rated 12 notches higher pay to borrow; Sri Lanka’s policy makers may be content with lower foreign exchange reserves. Although, with a balance of payments deficit of 10 percent of GDP it is difficult to see how. Note, Sri Lanka has borrowed in capital markets at much higher rates through 2010 and 2011. On the other hand, its policy makers may have found the compliance with the standby facility’s terms politically onerous. Either way Sri Lanka has missed out on a very cheap source of funds.
On the 1st of February, the Central Bank announced that it would seek to launch a new USD 1 billion sovereign bond to refinance maturing debt. Yields in the secondary market for Sri Lanka’s USD sovereign bond maturing in 2021 imply that its cost of new funds raised through capital markets will not be less than 6.28 percent for 10 year money -significantly higher than 3.1 percent. Therefore, it is baffling why Sri Lanka’s policy makers would chose not to borrow at the lowest levels available to them.
The writer was formerly a Director at Barclays Capital, the UKs largest investment bank and French bank Societe Generale. He has extensive experience trading corporate and sovereign bonds and credit derivatives. He also holds a PhD and Masters in economics from the University of Glasgow.

Republican  Presidential hopeful Mitt Romney in a recent speech  spoke of the times when the White House was occupied by the best of America. Although he did not elaborate , obviously Rommney was referring to men who represented the values that Americans have traditionally looked upto.As generally accepted these include hard work, a  rugged individualism, honesty ,love of freedom , a sense of democracy and a spirit of optimism. Like any human enterprise, there are surely many instances where Americans have failed to live up to their own values. In human affairs there is always a gap, sometimes very huge, between the ideals adopted by anyone and the actual living up to those ideals. This gap, if we were to take a realistic view of our own Sri Lankan society, maybe too large for contemplation.
Nevertheless, it is also a truism that  the ideals or the values adopted by a group of people tell us something very important about them. All those values if embodied in a person is what they aspire to be as an individual. Of course like the proverbial average man, we are very unlikely to come across that ideal man .But by adopting certain values as guiding stars, however dim or hazy , we set guidelines for the evolution of that society and maybe our conduct as individuals. Not every society follows American values. For instance the Japanese, another very successful race of hard workers, have very different values in certain areas of social behavior, age and hierarchy playing a big role in their chain of decision making. Obviously the value system of Iraq is quite different to the Americans. Without an authoritarian strong man at the helm the Iraqis seem  unable to steer their ship.
No one can deny that the Americans have created a very successful country. Its riches attract millions of people every year from poorer countries desperately looking for a better life. The freedom of its culture has offered refuge to successive waves of hopefuls  fleeing oppression and even religious persecutions in their home countries. America’s universities , many of which are world leaders, annually  draw thousands of alien students eager for a good education .In research and registering of patents America is again unrivalled. It has also repeatedly  come, with its resources and impressive technology, to the aid of countries in dire need, like we observed during the tsunami in 2004.
Now coming  to  the exciting Sri Lankan  scene, can it be said that these American values have any relevance in relation to our unique evolution ? If we were to look at the various leaders who have occupied the top seats in this country through the years can we confidently claim  that they represent the best that we have? On the whole one has to look at  this in the context of  our post independence history where we have only achieved a mediocre score card. If we take out the remittances of the mostly blue collar Sri Lankan workers overseas, our economic  stability would be in a  perilous situation. At a social level almost all public institutions have lost the trust and confidence of the public, whose expectations in such things in any event, can be taken as minimal. These institutions are all taken as politicised and corruptible.  There are no rules for them , only the word of the ruling politician matters. Since independence we have had several youth insurrections both in the South as well as the North, the insurgents’ by and large preferring death to living under the system, which they viewed as hopeless, oppressive and corrupt.
It is a historical fact that D. S. Senanayake our very first Prime Minister  arranged the succession to his office by his own son, setting a political norm which is very unlike the Western democracies from whom we inherited the system of representative governments.  It is now almost an accepted thing in this country for elective offices to go on family lines. This is now happening even in social institutions. No democratic system can work unless its participants have self respect, value their freedom and enjoy a sense of autonomy .Like the English game of cricket, there is more in the spirit of the game than on its rules book. When we even look at the manner in which matters are conducted in sporting bodies and even public companies in this country it is clear that the democratic spirit is wanting although they go through the motions of adhering to it.
Unlike, in the Western democracies, in our country all institutions have been made into supine instruments  in the hands of a few elected. In the traditional democracies although the elected govern, they do so according to the laws and in consonance with accepted standards of public ethics. Even the most powerful man in the world, the President of the United States, is  subject to the laws and high ethical expectations. We saw this in the case of Watergate and President Nixon in the 1970s and recently in the very personal matter of Monica Lewinsky and Bill Clinton. The public service, law enforcement and the judiciary are not pliant tools of the President. When we do not have such  standards what we end up with is a parody of democratic principles.
Why  have we failed to attract the best in this society to public life? Why do we have people like Mervyn Silvas and Duminda Silvas and a lot of other half baked careerists walking the streets in absolute contempt of all systems while posing off as do-gooders? These are questions to which every voter in this country must find an answer according to his own conscience.
Leo Tolstoy once wrote of his very talented brother Sergei Tolstoy that he lacked only a few small defects to make him a great artist. Maybe most of us lack a few defects that we cannot be parliamentarians in this country.

Over 1,000 World War II veterans have been ignored by the state despite several appeals for help, President of the Ceylon War Veterans’ Association of World War II (CWVA), H. G. P. Jayasekara said.
The members of the CWVA are all over the age of eighty, and are finding it very difficult to get by, Jayasekara explained.
“As senior citizens, the Government has to help us. We have never received any grants. We are undergoing a lot of miseries, and we are not recognised by anybody,” Jayasekara, who is now ninety-one, said.
Although a small number of them, who had held Government positions, were entitled to pensions, the rest of them received very little in the form of an income, he said.
Jayasekara claimed that Second World War veterans like himself in other commonwealth countries were being looked after, while they were unacknowledged in Sri Lanka. “We also fought in the same war, but no one is caring for these people,” he said.
“We only get a small donation of Rs. 1,000 a month,” he said, explaining that, at present, the Commonwealth Ex-services League provided a sum of Rs. 500 a month, to which the Sri Lanka Ex-servicemen’s Association added another Rs. 500 for the war veterans.
Jayasekara said that he has even written to President Rajapaksa on several occasions, explaining their needs, and requesting an audience with him.
“I do not know if these letters reach the President. I did receive a response from the Presidential Secretariat, saying that it will be looked into, but nothing after that. If this information reached the President he would help. Even the veddahs were allowed to meet with the President, but not us,” he said.
He added that he had tried bringing this to the attention of the Defence Ministry, and had written more than thirteen letters to President Rajapaksa, but was still waiting for some recognition of their plight.

Southern Expressway, Nelum Pokuna Mahinda Rajapaksa Theatre and Hambantota Port Development Program

Sri Lanka has spent an astounding Rs. 391.7 billion on investment projects in the country in the last four years. This enormous amount of money has been spread over five projects, of which only two have been completed but are still to serve any real purpose.
All of these projects have been undertaken by Chinese firms, and have been funded by loans obtained from the Chinese state-owned Export-Import bank. Many of these loans have been taken with interest rates for long term borrowing (20 years) varying from 3% to 6%, and short term loans at an interest of 2%.
According to highly placed sources in the Finance Ministry, however, loans from the World Bank and Asian Development Bank for short term loans would have varied between 0.25% and 2%, while the interest rates for the long term loans are the same. It is believed that these loans would have come with stricter guidelines than what is being currently enforced by the Chinese.
Projects such as the Hambantota port, which sees the construction being undertaken by the China Harbour Engineering Company, have cost an astonishing Rs. 149.2 billion. This massive amount of money was spread across the completed first phase, the second phase and additional costs.
The first phase of the Hambantota port cost Rs. 41 billion. Following the ‘successful’ completion of the port, the Ports Authority found that the engineers had missed a large rock which was blocking the entrance to the multi-billion rupee port. Removing this rock saw the cost factor increase substantially. The Sri Lankan government was forced to fork out another Rs. 15.9 billion for the blasting of the rock.
Despite this obvious high cost and questionable knowledge on such projects by China Harbour Engineering Company, it now claims that it has secured the contract for the second phase which is to cost Rs 92.2 billion. What is more concerning is that if this is true, it is believed that no tenders had been called for. The Ports Authority refused to comment on this.
Dr. Harsha de Silva, UNP MP, in a release drew attention to the fact that when China Harbour produced a bid to construct the breakwater of the Colombo South port it was 70% more than the lowest bid. He added that due to the transparent bidding conditions of the Asian Development Bank, the Chinese firm was unsuccessful in securing the contract.
However, in an attempt to soothe the hurt feelings of the Chinese company, Ports Authority recently stated that they had been awarded the contract to reclaim the sea adjoining the Colombo South port at a cost of Rs. 85.4 billion. The reclaiming of this land is to make way for the eventual construction of a port city.
Of course China’s work south is not over having also been awarded the contract to construct the Mattala airport at a cost of Rs. 22.7 billion. The airport is to be the second international airport in the country and is designed to facilitate 1000 passengers at peak time, with an estimated total of one million passengers annually.
This means,  Mattala will have to compete with the existing international airport, the Bandaranaike International Airport. Mattala has been chosen as the site of the new airport due to its close proximity to the Hambantota port. Chairman of the Airport and Aviation Sri Lanka Limited, Prasanna Wickramsooriya, told media that the new airport is expected to accommodate 40% of passenger services and 60% of air cargo services.
All of these projects carried out by China Harbour have been funded by the Exim Bank in China at interest rates between 3% and 6%; the Chinese have also provided the labour force. In effect the Sri Lankan government has paid the Chinese a sum far in excess of what was originally agreed upon. The cost of the Hambantota harbour is estimated at more than 100% the original amount.
Despite these heavy costs for the harbour, Sri Lanka and its people are still to see any benefits from the port.
Further North West in Puttlam the Chinese have also staked a claim in the dysfunctional and highly controversial Norochcholai power plant. China Machinery Engineering Corporation undertook the project at a cost of over Rs. 51.2 billion.
However, the power plant has been inactive for 35 days in the last year (2011). According to Power and Energy Minister, Champika Ranawaka, every non-operational day has cost the Ceylon Electricity Board Rs. 80 million. In total the non-use of the plant has seen the CEB incur losses in excess of Rs. 2,800 million.
According to an Engineering Union official at the CEB, P. R. Wijeratane, these disruptions to the power station have been due to the poor training the staff underwent at the hands of the Chinese company. Wijeratane explained that the Chinese company has been vying for a long term maintenance contract. These efforts to date have been met with little success.
CEB spokesperson, Mahinda Jinadasa, denied these accusations claiming that the Chinese company had been nothing bud ‘helpful in training the engineers’.
Despite the apparent inefficiencies on the part of the Chinese companies involved in these projects, the Rajapaksa government continues to hand out contracts to our Far East neighbours. The newly opened Southern Expressway (connecting Colombo to Galle) was also handled by the China Harbour Engineering Company. The road cost Rs. 68.3 billion, and plans are underway to extend it to Matara and eventually Hambantota.
Once again China Harbour was faulted with an unacceptable job as the opening of the expressway was delayed by a week due to the existence of potholes along several stretches of the road.
The Ministry of Highways claimed that the expressway earned revenue in excess of Rs.1 million in its first 12 hours of operation. It was estimated that nearly 5000 vehicles had travelled up and down the Southern Expressway on the first day.
However, in recent months fewer vehicles have been seen on the highway. An anonymous source in the Ministry of Highways claimed that since the initial rush the number of vehicles travelling on the road has diminished. He explained that it is now estimated that only 150 cars travel on the road per day. At the average cost of Rs. 350 per car, it is believed that the expressway earns only Rs. 52,500 per day. A substantial difference from the initial Rs. 1 million earned on the first day.
The Nelum Pokuna theatre in Colombo provided Sri Lanka with its first ever state of the art concert hall. Once again the cost was a staggering Rs. 3.08 billion and the funding came from the Chinese government. Of which 60% of the loan was financed as a grant by the Chinese government, while the remaining 40% they had agreed to gift.
Following the grand opening of the multi-billion rupee theatre last month there has only been one show carried out to date; that having been organised by the Royal College Old Boys Union. According to Cultural Affairs Minister T. B Ekanayake it will cost the people Rs. 800,000 to book per show. Little wonder that this complex has remained unused since its opening.
With all the supposed success and heavy earning from previous projects, Sri Lanka is now embarking on a project to construct the largest tower in Asia. The exact purpose of this tower is unknown, apart from telecommunication facilities, a hotel and fine dining. The project is expected to cost Rs. 11.9 billion and of course has been provided to our Chinese friends. The construction will be shared between China National Electronics Import and Export Corporation and Aerospace Long-March International Trade Col. Ltd. However, the plans for the tower will be provided by the Faculty of Architecture at the University of Moratuwa.
With this enormous cost on the country, currently standing at Rs. 391.7 billion, many people will have to question where the money will be coming from to fund these projects and will the benefits over-ride the costs. With the apparent failure of the Norochcholai power plant, confidence in these ventures is at an all-time low.
Twitter-@dinoukc

Investments Outweigh Education
To put the amount spent on the investments in perspective, the government stated in the 2012 budget that they would be spending Rs. 33.25 billion on education. The yearly repayment for the construction of the Hambantota port, assuming it is repaid with a 5% interest over a 20 year period, is Rs. 7.8 billion. This means that currently the yearly cost of the Hambantota project is 23% of the total amount which is to be spent on education in 2012.

A Pakistani trade delegation of fruit and vegetable producers and exporters is visiting Sri Lanka to explore possibilities of enhancing bilateral trade between the two countries.
The participants of the delegation specialise in production and export of various fruits and vegetables including guava, mango, potato and dry dates.
Eager to obtain the maximum benefits from the Free Trade Agreement (FTA) between Pakistan and Sri Lanka, the delegation will explore the opportunities in the tea sector. They will also visit Kandy where it will meet with the local Chamber of Commerce and the Tea Research Board.
The meetings would offer a good opportunity to the local businessmen to gain awareness and knowledge about the prospects for expansion of the two-way trade between Pakistan and Sri Lanka in the fruit and vegetable sector.
Sri Lanka was the first country to sign a FTA with Pakistan. Following the FTA coming into operation in June 2005, bilateral trade between both the countries has been strengthened. Pakistan is now the second largest trade partner for Sri Lanka in the South Asian region.
Under FTA, Sri Lanka and Pakistan have agreed to offer preferential market access to each other’s exports by way of granting tariff concessions. Sri Lanka is enabled to enjoy duty free market access on 206 products in the Pakistani market, while Pakistan, gained duty free access on 102 products in the Sri Lankan market.
The two Boards of Investment also practice sharing of information on investment polices and projects and encourage exchange of expertise.

By Mandana Ismail Abeywickrema

Keheliya Rambukwella Picture Courtesy: nerudal.com

The government says that consideration is given to all areas, including economic and political implications if any, when handing development projects to various countries.
Government Spokesperson Minister Keheliya Rambukwella said there was no truth to the claim that the current administration was selling the country to the Chinese by way of handing all key development projects to the Chinese.
“When we look at development we are ready to work with any country that gives us the most competitive offer,” he said.
However, he added that the government considers a package of issues that include possible economic and political implications by allocating development projects to various countries.
“We not only have the Chinese government handling projects, but the Indians are also involved in the country’s development work,” he said.
Rambukwella made these comments in reference to a claim made by UNP MP and Economist, Dr. Harsha de Silva that the Mahinda Rajapaksa administration was systematically selling the country to the Chinese.
He said that the present government is not interested in genuine foreign direct investments but instead are more than keen to go with commission based Chinese funded projects to be undertaken at high costs by Chinese contractors.
Dr. de Silva noted that the Rajapaksa government is making way for the Chinese to firmly take control of the Sri Lankan economy.
“This goes to show the absolute failure of the regime to attract genuine investors for the post war development phase of Sri Lanka in the background of the Expropriation Act and other confidence eroding policy prescriptions,” he stated. He further noted that the repercussions of this short-term strategy to pull out all stops for the Chinese without any concerns for the geopolitics or the regional economic integration will be seen in the not so distant future.