News

An estimated Rs. 100 million in the form of Customs duty has been deprived to the state by a Stassen group company, which made use of Board of Investment (BOI) concessions provided to new companies, without entering into the formal agreement with the board for more than eight months, preliminary inquiries by the Board have revealed. The BOI is yet to carryout a formal investigation into these allegations.

The controversy dates back to late last year. Stassen group chairman Harry Jayawardena was a director of the BOI then and as Consul for the Danish government he had obtained a loan from the Danish government. The loan provided for dairy development had amounted to two million Euros (Rs 200 million).

The loan was meant for small term dairy/agriculture projects located within areas populated by farmers.

In December last year, Lanka Milk Foods (CWE) Ltd., a subsidiary of the Stassen group had submitted an application to the BOI to set up a company known as Ambewela Livestock Company to breed cattle, produce milk and milk allied products for the local market. The BOI decided to grant approval for the project subject to terms.

One of the conditions is that the project should be an entirely new enterprise and did not involve the reconstitution of an existing business or the transfer of assets of any description from an existing enterprise within the country. However, in this case the facilities had been used for the extension of an existing company.

Thereafter, as early as January, Lanka Milk Foods (CWE) Ltd, started importing machinery and spare parts for the proposed project. The BOI’s Director (Investor Services) Ms. N. Weerasekara issued a letter to the Customs seeking permission for the company to release the goods imported without delay with an assurance that once the new company is incorporated Lanka Milk Foods would be informed to transfer the goods to the newly formed BOI enterprise.

The company’s application for BOI approval was made on December 9, 2005 and the invoice for the items sent was dated December 16, 2005.

In January this year, permission was granted to import another consignment from Denmark for which the invoice was dated December 27, 2005. Duty free concessions were granted for these items as well. On February 16, this year the BOI gave permission to import more items for the project on duty free concessions for items which was invoiced even before the new company’s application was submitted in December. One of the invoices was dated November 30, 2005.

However the BOI in its letter in February informed Lanka Milk Foods that no more approvals would be granted for the importation of items on Bank guarantees and that necessary arrangements should be made to enter into the agreement with the BOI to obtain duty free clearance to import items. But, despite the warning in February the practice continued until July, when the BOI eventually signed the agreement. The Sunday Times learns that usually the practice is that within three months the agreement should be signed.

BOI spokesman, Dilip Samarasinghe, however defended the move by saying there are instances that duty free concessions are provided for longer periods.
Mr. Samarasinghe who refused to discuss the particular issue concerning Lanka Milk Foods said that the Board does not discuss individual contracts.

“If we feel that the investment is good the facility to import the items on a bank guarantee is provided,” he said.

A spokesman for the company said the delay in entering an agreement with the BOI was due to delays in obtaining permission from various authorities concerned. He claimed that the company has been importing on Bank guarantees and that the equipment would be transferred to the new company.
As the question about the prolonged period about the signing of the agreement continues questions have now risen about the transfer of the cargo from Lanka Milk foods to the new company Ambewela Livestock company as the Bank guarantees submitted against the shipments have expired. But, the spokesman said that the Bank guarantees have been extended.

The Sunday Times learns about 44 containers in three shipments had arrived for Lanka Milk Foods between January to July and cleared under Bank guarantees before the agreement had been signed. No permission had been sought from the minister concerned although that is the practice, The Sunday Times further learns.

Two units of slurry bowsers valued at Euro 12,150 and Grass Mower Parts valued at Euro 5,202 had arrived from Hamburg as project cargo though they were not part of the project cargo and the project cargo should have been imported from Denmark as it was part of the conditions.

The spokesman for the company however claims that part of the component could be imported from other countries.

The developments come in the wake of another controversy of a Subsidiary company of the Stassen group. The company, Lanka Dairies (Pvt) Ltd formed as a BOI company had imported motor cycles on duty free concessionary terms.

Last year the Customs opened an inquiry into the imported motor cycles in the 1996/97 period and the company was directed to produce among other documents the BOI agreement. Six motor cycles had been imported on duty free basis. However the company had sought a letter from the then Chairman/Director General Saliya Wickramasuriya sating that there was no objections for the vehicles being retained by the company.

“We observe that the company is still in its original business and has made a substantial contribution to the country’s economy by substituting otherwise necessary imports thereby saving valuable foreign exchange. In view of the age of these vehicles, and the fact that they are fully depreciated, the BOI has no objection to this company retaining the use of these few vehicles on the original terms under which they were imported, the letter from Mr. Wickramasuriya said.

However, under the BOI conditions the motorcycles imported should be sold to the Procurement and Advisory unit of the Ministry of Finance or in the local market on payment of customs duty and other levies as decided by the Customs.