CID to probe massive fraud at Canwill Holdings in proposed Hyatt hotels in Kollupitiya, Hambantota
The Criminal Investigation Department (CID) is to investigate a massive financial fraud and misappropriation of public money running into millions of rupees during the previous Rajapaksa regime in a state-owned public enterprise which is building the Hyat hotel in Kollupitiya (previously Celestial Residencies of failed Ceylinco group) and another hotel in Hambantota, officials say.
The issues at this state enterprise were frequently reported by the Business Times over the past 2-3- years.
A forensic audit into the Hyatt hotel projects in the two locations being carried out by subsidiaries of Canwill Holdings Ltd has detected details of a massive fraud of overspending and irregular tenders for construction and procurement as well as waste and corruption in the two hotel projects.
This has resulted in more than doubling the initial estimated cost to around Rs.27 billion from Rs. 13 billion, new directors of the company told a media conference in Colombo on Tuesday. The new management has already saved about Rs.150 million by cancelling and renegotiating contracts. This work will continue and we hope to save an additional Rs. 100 million.
Canwill Holdings Ltd is a state-owned public enterprise set up by the former Rajapaksa regime with Rs. 18.5 billion in equity secured from its major shareholders Sri Lanka Insurance Corporation which has put Rs. 8.5 billion, and Litro Gas and the Employees Provident Fund (EPF) with Rs. 5 billion each.
Forty-six per cent of the shares were held by Sri Lanka Insurance (SLI) and the balance shared by Litro Gas and EPF.
Canwill Holdings formed two subsidiaries, Sinolanka Hotel and Spa, which was implementing the Hyatt hotel project in Kollupitiya and Helanco Hotels and Spa to carry out the proposed Hyatt hotel in Hambantota.
The Business Times revealing details of the deal in several articles published in the months of June and July 2012 reported that Sinolanka Hotels and Spa (Pvt) Ltd was formed with an initial capital of just Rs. 40 by four top officials of the then government with close connections to former President Mahinda Rajapaksa.
The re-construction work of the partly build Celestial Residencies building of the failed Ceylinco was then transformed, during the past three years, to build the Hyatt hotel in Colombo. Outlining the findings of the audit, new Chairman of the company Hemaka Amarasuriya, who is also SLI chairman, said that three additional properties were acquired for the project by paying over Rs. 1 bsssillion, much higher than the estimated value of the Government Valuer.
In one case a land had been valued at Rs.191 million in January 9, 2013; Rs. 253 million rupees on October 27 and Rs. 260 million on November 22 and it was bought by paying Rs. 270 million, he added.
The main land was leased for 99 years from the Urban Development Authority (UDA) after the former Ceylinco property was expropriated by the previous government in 2011 in terms of the provisions in the Revival of Underperforming Enterprises and Underutilised Assets Act No.43 of 2011.
He disclosed that no proper board meetings were held to take decisions and directives were issued via e-mail by the previous management. Among the irregularities detected by the audit were payments of Rs. 10 million to a lawyer with no agreement, Rs. 16 million losses in steel purchases, fittings supplier given Rs. 80 million without board approval, international tender for US$37 million signed with an international contractor the day before the (2015) presidential elections and Rs. 12.8 million spent on a signing ceremony.
Another sum of Rs. 300 million had been spent from Rs. 5 billion earmarked for the Hambantota Hyatt without even the foundation stone being laid for the project. The new board of directors will complete the Kollupitiya Hyatt but cancel the Hambantota project.
Several foreign consultants were appointed to carry out the interior design, restaurants, food services, laundry, lighting, lifts, landscape and façade. Their services have been reviewed by the new board and cancelled. Action has been taken terminate the services of a foreign engineering consultant who was getting a salary of Rs. 16 million a month, Mr. Amarasuriya said. A corporate credit card with a limit of Rs.1.5 million was issued to the former managing director and both his children were employed by Canwill Holdings with special perks, he alleged.
Former Managing Director Piyadasa Kudabalage had drawn multiple salaries from SLIC and its subsidiaries totalling Rs. 3.4 million, Litro Gas Executive Chairman Shalila Moonasinghe said. Mr. Kudabalage had drawn Rs. 1.19 million a month for SLI where he had been its Executive Director, Rs. 1.3 million from Litro Gas, Rs. 450,000 from Litro Gas Terminals and Rs. 500,000 from Canwill Holdings, he disclosed.
Former Chief of Staff, Presidential Secretariat Gamini Senarath, SLI former Managing Director and CEO Mohan de Alwis and H.K.D.W. Neel Bandara Hapuhinna were the other former directors of the company.