The UPFA Government appears to have taken a step backwards, at least for the time being, on its move to allow two foreign -backed casinos to operate in Sri Lanka as “strategic enterprises” enjoying a multitude of concessions including tax benefits.
Contrary to expectations, ministers did not take up for discussion at Thursday’s weekly ministerial meeting, drafts of amended Gazette notifications in this regard. At their previous week’s meeting on October 31, as revealed in these columns last week, after a lengthy discussion the ministers decided to make some amendments. It was pointedly to impose a higher levy on the two proposed casinos in Colombo. That was by making provision that they pay five per cent of the gross turnover instead of 40 per cent of their profits. Other than a few new minor limitations, the tax and other broader concessions were to stay.

The two casinos are: One by Waterfront Properties (Private) Ltd., a joint venture by John Keells with an investment of US$ 650 million at Justice Akbar Mawatha, Colombo 2. It is within a “multi/mixed use ‘ICONIC’ Integrated Resort.” The second by Lake Leisure Holdings (Private) Ltd. backed by Australian gambling magnate James Packer is at D.R. Wijewardene Mawatha in Colombo with a total investment of US$ 350 million. His local collaborator is millionaire businessman Ravi Wijeratne who runs a local casino. The Project Agreement for the former was signed on July 11 this year with the Board of Investment (BOI). A similar agreement with the latter was signed on June 27 this year also with the BOI. It is clear by hindsight that such agreements, the provisions of which were reflected in the respective Gazette Notifications, were not formally endorsed by the Cabinet of Ministers. A discussion the previous week was triggered by a protest from the Jathika Hela Urumaya (JHU) and others. That prompted President Mahinda Rajapaksa to first summon a meeting of leaders of UPFA partners and thereafter discuss issues at the ministerial meeting. Hence the tabling and debate on these Gazette notifications, scheduled to be held in parliament on October 23 and 24, were put off. 

The senior-most Government official who deals with the subject, Investment Promotion Ministry Secretary, M.M.C. Ferdinando, told our sister newspaper Daily Mirror on Wednesday (for publication on Thursday) that the amended version of the Gazette would go before the Cabinet of Ministers on Thursday. The changes to be made required only a few modifications and his remarks underscored the priority the Government has given to the subject. However, it was not listed in the official agenda. If there were plans to place it in a “supplementary agenda” or under “any other business,” it did not materialise.
Ferdinando told the Sunday Times, “The Board of Investment Chairman is in consultation with the Treasury to formulate the draft Gazette Notifications. He is yet to complete it and give it to the Minister.” In fact the Gazettes in question were to be tabled in Parliament on Tuesday (October 5) and debated thereafter. The Sunday Times has learnt that the issue is to be reviewed after the Commonwealth Heads of Government Meeting (CHOGM). Such a move would also include a fuller review on whether the UPFA Government would go ahead with the approvals in an amended format (with most concessions remaining incorporated) and thus risk a serious collision with its partners, particularly the JHU. This is at a time when plans are on the UPFA drawing boards to hold a string of elections. Also poised to vote against the Notifications if they are introduced in Parliament is the Sri Lanka Muslim Congress (SLMC). Its high command has taken a decision to this effect. Several SLMC leaders have criticised the move to establish casinos when they addressed meetings in the Eastern Province this week. Earlier, SLMC leader and Justice Minister Rauff Hakeem also told a UPFA party leaders’ meeting that when Parliament debates the Gazette Notifications granting “strategic enterprise” status to casinos his party MPs would vote against them.

Elections next year?

Significant enough President Rajapaksa told senior members of the Sri Lanka Freedom Party (SLFP) Central Committee on Thursday night to be prepared for either a Presidential or Parliamentary election next year. He said he proposed to nominate new young persons among others to contest and he planned to advise Muslim and Tamil parties in the Government to field their own candidates separately. Those remarks made clear that it would be a broader Sri Lanka Freedom Party (SLFP) that would be in the fray. In such an event, the fate of the JHU, the National Freedom Front (NFF) and the left parties remains unclear. The prospects of holding both the Southern and Western Provincial Council elections on the same day were discussed. They are likely to be held early next year. Rajapaksa wanted a branch of the SLFP opened in Jaffna and the party mechanism in the North strengthened with the appointment of more organisers. He wanted these measures taken before December 31.

The Government is also to embark on ambitious agriculture-based projects in the North next year. One is an extensive sugar cultivation project. For this purpose lands “which are not being used for any productive purpose” are to be vested in the fully state owned Lanka Sugar Company (Private) Ltd. This is to be located in the Vavuniya District. Another is the extensive cultivation of cashew in the districts of Kilinochchi and Mannar. Next year, 10,000 acres of farmer owned land are to be brought under cashew with financial assistance and other inputs being given to farmers. 

At least in the conduct of Presidential and Parliamentary elections, the Government would have to address some key issues. In terms of the Constitution, a President can seek re-election when he completes four years in office. Though Rajapaksa was elected for his second term in office on January 26, 2010, he took oaths later on November 19, 2010. Which date would be taken into consideration in determining the four-year tenure will no doubt be a question. However, he could always seek an interpretation from the Supreme Court. In respect of Parliamentary elections, most of the present MPs, who were elected in April 2010, would have to serve until April 2015, if they are to qualify for a pension. An early dissolution would thus disqualify them.

These notwithstanding, there are indications that the UPFA Government is going into election mode. A ‘people friendly’ budget is due on November 21. As our front page news report today reveals, President Rajapaksa has already won approval of his ministerial colleagues for a new bonus scheme for public corporations and companies fully owned by the Government. This is until a permanent scheme is worked out. A note for circulation among all Secretaries to Ministries, Corporations and fully owned Government companies by Treasury Secretary P.B. Jayasundera, will set out the guidelines for these bonus payments. This payment will not apply to ventures which pay salaries and other allowances under collective agreements. 

Cash-strapped ministries

The move comes amidst complaints from some ministers that their ministries are cash strapped. Similar complaints have also been made by those who supply goods or services to various state institutions. In one service arm, a supplier complained that Rs. 2.9 billion was owed to him while another had been issued a cheque for Rs. 400,000 as part payment. It had bounced when presented to the bank. Even the Armed Forces are facing some payment issues. 

On the other hand, Ministers have declined to provide details of how much expenditure would be incurred by Sri Lanka for hosting CHOGM. That the amounts are colossal can be gauged from money spent for different purposes. One is the procurement of a fleet of 54 S Class Mercedes Benz cars costing Rs. 754 million. Each car is priced at US$ 113,960 or around Rs. 14.8 million without duty. They are for use by Commonwealth heads of government. In addition, a fleet of 90 Nissan Teana cars are also being imported from Japan for use of Foreign Ministers and top officials. A two-wheel drive car is priced in Japan at US$ 32,900 or around Rs 4.2 million without duty. The price would be higher when freight costs are added.
It is in this backdrop that the controversies over the setting up of the two new casinos have assumed greater political importance. Some sections of the Government believe the casinos may not become a reality perhaps until the impending elections are over. Others, however, argue the Government would be compelled to go ahead since it has entered into a deal particularly with Australian casino mogul James Packer. They claim that the Government reneging now on its contract to deliver would send a bad signal to would-be investors. Yet, others said that UPFA partners who disagreed would be allowed to vote in accordance with their conscience.

An indication of the UPFA Government’s handling of the issue was reflected by Minister Wimal Weerawansa. He told the Sunday Times yesterday, “There would be no casinos but the hotel projects would go ahead.” He was confirming remarks made at a temple ceremony in Athurugiriya on Friday. He said at the ceremony that the Government has not given approval for any casino in Sri Lanka. He added that President Rajapaksa had told his ministers casinos would be banned for locals and no new licences issued. However, he did not make clear why “it would be banned for locals” if indeed there were no casinos. Then, he added that it was that of late President Ranasinghe Premadasa’s administration that had introduced casinos to Sri Lanka. In reality, the draft Gazette notifications that were not tabled in Parliament do say that the projects, among other matters, would cover “gaming activities.” So does a full page advertisement in the local media inserted by Packer’s Crown conglomerate which says there would be “gaming and entertainment facilities.”

Whichever direction the issue may take, causing the unexpected delay or the absence of a discussion at Thursday’s ministerial meeting is a factor which is of serious concern to the UPFA. The JHU has taken a strong stand against the move. Its representative in the Cabinet, Patali Champika Ranawaka, circulated to his ministerial colleagues a five-page note dated October 28, 2013. It articulates the JHU position. The note, a copy of which was seen by the Sunday Times calls upon the Government to introduce legislation “to severely regularise or cancel the casino project being implemented” with four casinos already in operation in Sri Lanka. It has also dropped a political bombshell with the assertion that Sri Lanka’s “loan burden and repayment of loans have reached the state where it exceeds the Government’s income.” Ranawaka has also voiced fears that the casinos “could help to build a black market economy, a shadow finance market and give rise to money laundering activities. Besides calling upon the Government to regularise or cancel casino projects, Ranawaka has also listed five other points.

They are:

• Introducing a set of well-defined criteria (in addition to investment exceeding $ 250 million) in naming a strategic Development Project.
• Refraining from the inclusion of business of gambling, betting, liquor and other such businesses that should be discouraged in terms of social ethics, in the Strategic Development Project.
• Forwarding a list of priorities identified in relation to the Strategic Development Project, subsequent to a discussion. Example: Converting our oil refinery into a complex with the capability of refining oil that contains medium and heavy organic components. Enhancing the oil pipeline system, port facilities and storing facilities.
• Introducing liquefied natural gas to the Sri Lankan energy sector. Example: Establishing a science park enabling local and foreign experts to perform research in relation to the enhancing of National Economy. Establishing industrial complexes with a view to adding value to the sectors of renewable energy and transportation services etc.
• We do not oppose any strategic concessions being granted to projects such as Integrated Resorts, and office facilities, International banking or commercial centres. Even so, setting up a casino complex within a hotel and granting it the tax concession entitled to a hotel, is an act which I strongly oppose.

Minister Ranawaka’s observations revolve around a four-point criteria made by Lakshman Yapa Abeywardena, Minister of Investment Promotion, whilst seeking ministerial approval for the two new casinos. The four which were approved are:

1. The direct foreign investment to be made into each project for constructing Integrated Luxury Resorts with the potential to attract international level high end tourists should exceed $ 250 million.
2. The citizens of Sri Lanka to be banned from making use of the entertainment facilities available at these resorts.
3. Each of these companies to maintain a separate foreign exchange account/accounts specially reserved for their foreign exchange transactions ensuring that these foreign transactions are carried out efficiently and systematically.
4. The construction and the designing of the premises of such resorts to be carried out in conformity with the relevant international standards to maintain the relevant security levels and conforming to the regulations and standards to ensure national security.

Here are highlights of Minister Ranawaka’s note last week:

“In terms of the Section 06 of the Strategic Development Project Act No: 14 of 2008, ‘Strategic Development Project” means a project which is likely to bring economic and social benefit to the country and which is also likely to change the landscape of the country, primarily through, the strategic importance attached to the proposed provision of goods and services, which will be of benefit to the public, the substantial inflow of foreign exchange to the country, the substantial employment which will be generated and the enhancement of the income earning opportunities, and the envisaged transformation in terms of technology.

“Even though the characteristics of a Strategic Development Project have been extensively defined, thus a regulation is yet to be identified with regard to a scale which measures the economic and social benefits that will change the landscape of the country. Also, by the schedule of the previous Act of 2008, tax concessions in relation to the Inland Revenue Act No: 10 of 2006, the Value Added Tax Act No: 14 of 2002, the Finance Act No: 11 of 2002, the Finance Act No: 5 of 2005, the Excise (Special Provision) Act No: 13 of 1989, the Economic Service Charge Act No: 13 of 2006, the Debits Tax Act No: 16 of 2002, the Customs Ordinance (Chapter 235), have been granted to Strategic Development Project. 

“However, by the new amendments made on 23rd April 2013, Betting and Gaming Levy Act, and Export Development Act have been incorporated into this list, making it obvious that the purpose of this amendment has been to prepare the background for naming the business of betting and gaming as Strategic Development Projects. This may lead to dispute since this is in direct contradiction to the envisaged social benefits, which has been cited as “to bring economic and social benefits to the country” and indirectly poses negative impact on the economy. Under no circumstances can designating betting and gambling as Strategic Development Project for the purpose of granting tax concessions be approved.

“Even though at present the businesses of liquor, horse racing and casino are lawfully in operation within Sri Lanka they have not been identified as businesses that should be expanded, or encouraged as Strategic Development Projects by granting tax concessions. Therefore no comparisons could be made between the liquor and betting businesses prevailing in the country and the above said Casino Hotel Project since neither has been granted tax concessions or any other incentives thus far. On the whole, liquor consumption and gambling are acts that contradict Buddhist and other religious ideologies and I wish to emphasise my stance of being supportive of any policy aimed at totally eradicating or suppressing these businesses legally and financially, with the exception of any that encourages them. 

“I have observed that, tax concessions have been granted in different guises directly or indirectly under Strategic Projects for the setting up and running of the business of casino, by the Gazette Notification of 23rd September 2013 issued in relation to the above said two projects. I have further noticed that by locating casinos of two tax paying companies already in the business of gambling and betting within those complexes, the Government will be deprived of those taxes hitherto paid by these companies.

“This is a phenomenon that had taken place, is taking place and could take place even in countries with large economies, not just in a country like ours with a relatively small economy. This is why many casinos are run even at a loss. Since the emergence of the black market economy gives rise to prostitution, human smuggling, illicit circulation of small arms, illicit drug deals on a large scale, these businesses are positioned beyond geographical or legal constraints. Also, as these black marketers could attempt at controlling a country’s politics and media, some countries run these ventures in exclusive immigration zones, out of the legal framework of those states and away from key political locations. The idea behind the Act brought forward in 2011 for the regulation of casino had been to restrict casino to such geographically and legally isolated zones. A similar discussion took place at the time this Act was passed in Parliament and also at the group meeting where the consensus to restrict these to an area like Kalpitiya Islands was reached. Under no circumstances can the area of Slave Island and Wijewardene Mawatha be designated as fitting to set up such a venture.

“Even though five strategic hubs had been identified in the 2010 Presidential Declaration that earned our Government its mandate, no mention had been made in it with regard to the promotion of a casino hub. The promotion of tourism had been identified to be accomplished through the promotion of environmental and cultural aspects, but not through the promotion of casinos.

“The Government’s income which made up 29 per cent of the Gross National Product (GNP) in 1978 has decreased to 12 per cent during the past three decades owing to various tax concessions. This in turn has caused the budget deficit to soar. The loan burden and repayment of loans have reached the state where it exceeds the Government’s income. Under such circumstances, the example set for entrepreneurs engaged in lawful businesses and for VAT paying customers, by granting VAT and other tax concessions to casino complexes is highly damaging.

“The relaxing of the country’s capital account to foreign black marketers and to a shadow economy and the withdrawal of laws imposed against bringing dollars into the country have severely affected Sri Lanka’s economy. The destructive outcomes of this will be felt in the future.

This is a process similar to that of releasing the capital account, which ensures brief and rapid outcomes, without resorting to strategies such as lowering the export costs, manufacturing import substitutes, increasing exports and diverting the export markets towards non-western countries. As a consequence of this decision to set up casino complexes with a view to increasing investment and employment opportunities, an irreversible negative social transformation could take shape. The country freed from separatist terrorism, fighting hard to stay clear of the tentacles of western forces, could fall prey to economic terrorists in Sydney, Mumbai, Macau and Karachi.

“Therefore a good discussion should be held between the academics in the cabinet and parties, with a view to a finding sustainable and long term solution to shape the future of our economy, without restricting the process to the several who put forward short -term resolutions.

It is obvious that it is due to the several who make decisions with regard to the economy, disregarding the powers vested in the Cabinet of Ministers, that a Gazette Notification is issued dated 23rd September 2013 granting tax relief to betting and gambling industries, at a time the Cabinet has reached the decision to remove the business of gambling and betting from the above project as per my Cabinet observation.”

UPFA lacks strategy

The casino issue is one more instance which makes abundantly clear that the UPFA Government lacks a clear cut strategy when it comes to important issues. At first Investment Promotion Minister Lakshman Yapa Abeywardena tried to parry the issue by making remarks that there would be no casinos. Progressively he took up the position that no new licences would be issued for casinos. His two draft Gazette notifications granting “strategic enterprise” status followed. Quite clearly, the Government’s hesitance to call a spade a spade, despite its turbo charged urgency to go ahead becomes clear.

The site for Australian billionaire James Packer’s multi-storey casino resort at D.R. Wijewardene Mawatha

As his ministerial colleague Wimal Weerawansa points out, casinos have been in operation since President Premadasa held office. As Minister Ranawaka points out, four casinos are already in operation. Why then is the UPFA Government thus unable to be transparent and state its case instead of resorting to inanities?

That the Government’s catalogue in this regard is lengthy is too well known. 

Not so long ago, it wanted to rush an “Urgent Bill” in Parliament to amend the Constitution to delete Police powers from the 13th Amendment. Weeks later, the move was abandoned. Just this week, the Sri Lanka Government was being severely bashed by the Australian national media, including television networks. They charged that the Government was known for human rights violations.

It was over a raid by officials of the Department of Immigration and Emigration at a seminar where two Australian based officials of the International Federation of Journalists (IFJ) were present. It was alleged that they had come on tourist visas which forbade them from taking part. One of the problems with Sri Lanka’s entry procedures is that there is no category called Conference visas. Some are issued Tourist visas saying they cannot engage in Business of Trade. Others get Tourist visas for Projects. Business visas are different, but there’s no visa category for workshops or conferences.

Australian Foreign Minister Julie Bishop was quoted on television networks as saying she had spoken to her counterpart, G.L. Peiris over the issue. This is with just days to go for the Commonwealth Heads of Government Meeting (CHOGM) in Colombo. The Government appears to be shooting itself in the foot quite unnecessarily and getting more paranoid.