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CB official says Mahendran’s presence at auction was unprecedented
View(s):TC.M.D.N.K. Seneviratne, the CBSL’s former Public Debt Department (PDD) superintendent — now Director of the Information Technology Department of the CBSL — and PDD’s present superintendent T.H.B. Sarathchandra have been called to testify.
The three member COI headed by Supreme Court Justice K.T. Chitrasiri includes Justice Prasanna Jayawardana and retired Deputy Auditor General Kandasamy Velupillai. They visited the Central Bank on Wednesday as part of the ongoing investigation. They watched a bond auction in progress and were briefed on the procedures adopted in the sale of government securities.
Giving evidence before the COI last week was the CBSL’s Statistics Department Additional Director M.Z.M. Aazim, who was the PDD’s Additional Superintendent when the controversial bond issue of February 2015 took place.
Dr. Aazim said he along with Ms. Seneviratne and Ms. U.L. Muthugala (now Additional Director, Bank Supervision Department) were attached to the PDD at the time of the controversial bond issue.
He confirmed that the then CBSL Governor Arjuna Mahendran had visited the PDD on the day of the auction and to his knowledge, this was the first time a Governor had turned up at the Department when an auction was in progress.
He told the Commission Mr. Mahendran visited the office of the head of the Public Debt Department and sought information about the auction. He left the auction around 11.05 a.m. but returned accompanied by Deputy Governor P. Samarasiri having spoken with Ms. Seneviratne and two others on the way.
Dr. Aazim said the former Governor had made inquiries about the bids and had taken a look at the documents which were in his hand. He said Mr. Mahendran instructed them to select the bid for Rs. 10 billion although the officials were planning to accept the bid for Rs 2.6 billion.
Subsequently Mr. Samarasiri summoned a meeting in the auditorium where issue was discussed and all directors took up the position that the Rs 2.6 billion bid should be selected. In view of the position taken, attempts were made to contact Mr. Mahendran. As they had failed the meeting was suspended and Mr Samarasiri left.
Dr. Aazim said 45 minutes later Mr. Samarasiri returned and conveyed that Mr. Mahendran had advised to select the Rs 10 billion bid.
Justice Jayewardene asked whether the relevant documents were presented to the Parliamentary Committee on Public Enterprises (COPE) or at the inquiry by the Auditor General.
Dr. Aazim said that though the officials had the possibility of submitting the documents, this was not done.
In response to a question whether the February 27, 2015 bond issue was advertised in the newspapers, Dr Aazim said it was advertised and the auction took place between 8.30 a.m and 11 a.m, but had been extended on the request of the Hong Kong and Shanghai Banking Corporation (HSBC) for five minutes.
He said usually the time was extended only if the request was seen to be reasonable.
Dr Aazim said he was in his room at the time of the auction and had seen Mr. Mahendran coming to the Public Debt Department around 10.45 a.m. on his own. He said when he noticed Mr. Mahendran walking towards the Superintendent’s office he too went there.
Justice Chitrasiri asked Dr Aazim whether during his service period since 2013 at this Department he had seen a Governor coming there during an auction. He said he had not seen a Governor in the PDD before. He said Mr. Mahendran entered Ms. Seneviratne’s room and inquired about three areas. They were about the auction, about funds and another about the Road Development Authority.
In response to a question whether he was aware of the bid made for Rs. 13.58 billion through the Bank of Ceylon, Dr. Aazmi said he was aware that it was made on behalf of Perpetual Treasuries. He said there were 36 bids from 16 primary dealers.
The lowest bid was Rs 62 for a share of Rs 100 while the highest was Rs 199.35.
In response to a question from Justice Jayawardena, he said the EPF too made two bids amounting to Rs 1.5 billion.
Dr Aazim also explained to the Commission the funding modalities adopted in terms of meeting the gross domestic borrowings under the Appropriation Act. He said this was done either through direct placements or auctions. He said Treasury Bonds were issued for periods ranging from two to 30 years, Treasury Bills for one year and Development Bonds for foreigners. He said Treasury Bonds had been issued from 1997 onwards.
The official said Treasury Bonds could be bought by the public only from the secondary market and for the primary market only primary dealers and the EPF could take part.
Dr Aazim said that in 2015 there were 16 primary dealers but there were only 15 currently to his knowledge.
On Monday, Acting Government Printer Gangani Kalpana Dombagoda Liyanage was also questioned regarding a gazette dated 1.1.2015 issued under the name of former President Mahinda Rajapaksa who also served as the Finance Minister at the time.
Though in December 2014 a date was reserved by the Public Debt Department of the Central Bank to issue a gazette notification in January 2015, the information pertaining to the Gazette was sent to her Department only on November 18, 2016, she said.
Mrs. Liyanage said that though dates were also reserved for the issue of five more Bonds in 2015 by the former President Mahinda Rajapaksa, the gazette notifications have not been issued so far.
She noted that as a result the legality of the gazette notification was compromised.
The Acting Government Printer said the Central Bank Public Debt Department’s Senior Manager M.S.M.P. Fernando had addressed a letter dated 24.12.2014 seeking the reservation of a Gazette date to be issued on 01.01.2015 regarding issue of Treasury Bonds and raising rupee loans.
She said the request was received by fax and accordingly the number 1859/19 was reserved for the Gazette by the relevant officer in charge.
Ms Liyanage said the content of the Gazette notification was not received in 2015, but only on 18.11.2016. It was signed by the CBSL’s Public Debt Department head N.G.Y.C. Weerasinghe.
In response to a question whether she noted any defect in it, she said the Finance Minister’s name was mentioned as former president Mahinda Rajapaksa where as Ravi Karunanayake was the Finance Minister by November 2016.
She said additional Chief Reader R.J.de Mel had detected the mistake and a clarification was sought from the Central Bank’s Public Debt Department. They were advised that since former President Rajapaksa was the Finance Minister during the period of the Gazette, his name should be mentioned.
She said the Gazette notification had 31 notices covering period from 01.01.2011 to 2015 and according to her Readers section officials there had been similar Gazette notifications.
She said the particular Gazette notification was printed on 23.12.2016 and 10 copies were sent to the Central Bank.
Ms Liyanage said the Central Bank’s PDD Deputy Director N.D.Y.C. Weerasinghe had made a request to reserve a date for a Gazette on 01.01.2016 and accordingly number 1947/44 was reserved. The contents of the Gazette included the issue of Bonds of 15.03.2015 amounting to Rs. 74.5 billion. It also included details of issue of Bonds of Rs 60.8 b (01.05.2015), Rs 27.4 b (15.5.2015), Rs 51.9 b (01.08.2015) and Rs 53.4 b (15.12.2015).
She said the legality of the Gazette notification was compromised due to the process followed.
Justice Jayawardena questioned whether the COPE had looked into the matter and Additional Solicitor General Yasantha Kodagoda PC said it had not been done.
On Tuesday, Finance Ministry Secretary R.S.H. Samaratunga in his evidence said that it was the Registered Stock and Security Ordinance which governed the issue of Treasury Bonds and the Ordinance had been amended at various times until 2004.
He said that according to the Ordinance, it was a requirement to issue a Gazette notification on the time frame the Bond issue would take place.
He said that in the event a person was found guilty of the violation of the Ordinance, he or she could be imprisoned for a term not exceeding five years and could be liable for a fine of Rs 10 million.
He said he could recall there was necessity of raising Rs 13.5 billion.
Dr Samaratunga said he did not remember a February 26, 2015 meeting in which the Finance Minister, the Highways Ministry and the then Central Bank Governor Arjuna Mahendran took part as there were several similar meetings held.
Dr. Samaratuga’s attention was drawn to a report in the Hansard of March 17, 2015 and questioned whether Rs 10 million was raised on the grounds that money was urgently required.
He said it was mentioned that the money was required to make payments for work completed.
In response to a question whether he was aware that it was the Prime Minister who had said that Rs 15 billion should be raised, Dr Samaratunga said he was not aware and could not remember whether he took part in any of the discussions in this regard.
In response to a question whether Director Research S. Gunaratna submitted a report on important economic factors at a research meeting on February 23, 2015, he said it was a summary that was submitted and it mentioned that Bonds should be issued for a 30-year period. It was on the economy and balancing of the Budget and an analytical report.
Dr Samaratunga said that at a Central Bank Monetary Board meeting of March 6, 2015 the then Central Bank Governor Mahendran had mentioned that there should be issue of bonds for a 30- year period for amounts of Rs 20 billion and 10 billion.
He said he was aware that Bonds were being issued for a 30 year period from March 6, 2015 onwards.
Additional Solicitor General, Yasantha Kodagoda, PC led evidence of Dr Samaratung.
Dr Samaratunga said a media statement was issued regarding the January 15, 2015 Gazette notification by the Finance Ministry’s Media Secretary, Sisira Wijesinghe
Dr Samaratunga said it was contrary to the Ordinance to issue such media statements.
The Treasury Secretary in evidence led by Additional Solicitor General Dappula de Livera, PC said that the Central Bank which was under the Finance Ministry in 2015 was brought under the Ministry of National Policies and Economic Affairs and in view of the change the Finance Ministry did not act in the implementation of the Stock and Security Ordinance.
Sittings will resume  tomorrow.
(See additional coverage in Business Times today)