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Horana tyre factory: Land clearing suspended on President’s orders
View(s):The clearing of land in Horana for the setting up of businessman Nandana Lokuwithana’s tyre factory was suspended by the Board of Investment (BOI) this week.
Security officers were sent to the 100-acre site in Wagawatta on President Mathripala Sirisena’s instructions after he learnt the tycoon was levelling the earth before signing the lease with the BOI. The activity had started despite President Sirisena sending a note via the Prime Minister’s office to the Cabinet Committee on Economic Management (CCEM), flagging concerns regarding the project.
Among other things, the note warned about the loss to the BOI in leasing out 100 acres to Mr. Lokuwithana’s Rigid Tyre Corporation (Pvt) Ltd at a fraction of the investment agency’s floor price for the land. It also observed that other investors had been granted land at higher prices and underscored the importance of a level-playing field.
In a bizarre twist, Cabinet Spokesman Rajitha Senaratne told journalists on Wednesday that Prime Minister Ranil Wickremesinghe was unaware who the investor was till the morning of January 5 — when the foundation stone for the tyre factory was laid under his auspices and with the participation of senior ministers.
“The Prime Minister knew only that morning who this person was,” he said, convincingly. “I know the discussion that took place. He knew only that morning and was considering whether or not to go for it. But by then the plaque was up, there were decorations and notices welcoming the Prime Minister. The Prime Minister finally decided it would not be right for him not to attend.”
The respective ministers must take responsibility for what happened, Minister Senaratne continued. The very next day, Development Strategies Minister Malik Samarawickrama — who has been pushing for generous concessions for Mr. Lokuwithana — issued a statement denying his Cabinet colleague’s assertions.
“Both the President and the Prime Minister were aware of the investor since I myself informed them well in advance,” he said. “Furthermore, two Cabinet papers, i.e., initially one proposing the land and then giving details of the incentives and other terms were submitted on this project and in addition the project was discussed and endorsed at several meeting of Cabinet Committee on Economic Management.”
The Development Strategies Minister’s statement said it was incorrect to say the land was given out to Rigid Tyres at Rs. 100 an acre. He said the Government’s Chief Valuer had placed the land at Rs. 170,825,000 which the investor has agreed to pay upfront. “The Chief Valuer has also indicated that a further Rs. 10,000 be charged as an annual nominal fee,” he affirms.
Official papers seen by the Sunday Times confirm that the upfront lease premium is Rs 170,825,000. The documents also state that the “nominal annual rental” is Rs 10,000 per year–which does work out to Rs 100 per acre. By contrast, the BOI charges a premium of US$ 40,000 (Rs. 6 million) per acre for a 50-year lease of WIZ land, papers presented to Cabinet reveal. The BOI’s annual rental per acre of WIZ land is US$ 3,850 (around Rs 578,000) per acre.
While the tyre factory project is still in the pipeline, the land deal is now being re-evaluated, Cabinet sources confirmed. One of the aspects being negotiated is for the investor to meet the cost of water, electricity and roadways being provided up to the site by Government agencies.
Minister Samarawickrama has justified the property being leased out at below the BOI’s floor rates saying it was “a bare undeveloped land undulating in most areas”. “Based on the technical investigations done by Central Engineering and Consultancy Bureau (CECB), it is noted that the investor has to incur a sum of about Rs 300 to 400Mn as per the estimate to bring the land to a usable state,” his statement said. “The investor claims that around 3m layer of weak soil has to be removed throughout 25 acres of this land.”
The BOI is not providing any infrastructure facilities like in other zones; even a waste disposal treatment plant and internal roads will be constructed by the investor, it continues. The total investment is US$ 75 million and the project will employ “around 3,000 people” (papers presented to Cabinet categorically say “around 1,000”). It also predicts that annual export earnings will be above US$ 125Mn.
The Minister states that the investor applied in March 2016 to set up the tyre plant, when he was still eligible for BOI tax concessions. (The investment promotion agencies powers to grant tax concessions were suspended in April 2016).
The communiqué does not disclose the tax incentives Rigid Tyres will receive — namely, a corporate income tax holiday of 12 years after which a preferential rate of 15 percent will be levied. This is significant as Mr. Lokuwithana has also gained permission to sell a massive 40 percent of output in the local market, thereby scoring a significant competitive edge domestically. Other manufacturing industries are granted only 10 percent local sales, extended to 20 percent under exceptional circumstances.