Shocking plunder of public funds

• Massive frauds in privatisation of Insurance Corporation and Lanka Marine Services, Mercantile Credit owes Rs. 5 billion to Central Bank

By Chathuri Dissanayake and Natasha Gunaratne

Some shocking disclosures on alleged multi-million rupee illegal transactions in the privatisation of Sri Lanka Insurance Corporation and Lanka Marine Services Ltd., have been made in the report by the Parliamentary Committee on Public Enterprises (COPE), its chairman said.

COPE chairman Wijedasa Rajapakse expects to submit his report and recommendations to Parliament on the COPE sub-committee inquiries into the privatisation of Sri Lanka Insurance Corporation (SLIC) and Lanka Marine Services Limited (LMSL).
He said he was still awaiting the sub-committee reports as it required more time to complete inquiries.

According to the COPE report presented to Parliament last week, one issue being investigated by the sub-committee was the privatisation of SLIC.

The report said that the then Economic Reforms Minister Milinda Moragoda who appointed a steering committee on January 21, 2002 to handle the sale of 90% of shares of SLIC, also appointed PriceWaterhouseCooper (PwC) as the consultant to the Government of Sri Lanka for a fee of US$1.6 million, without Cabinet approval.

Subsequent Cabinet approval was granted on April 18, 2002 to appoint a Technical Evaluation Committee (TEC) but by this time, PwC had already been selected.

The report said that after the evaluation of the bids, “the TEC recommended the sale of 90% of shares to the consortium comprising of Distilleries Company of Sri Lanka (DCSL), Aitken Spence Insurance (Pvt) Limited together with Technical Parties ING. Institutional and Government Advisory Service BV (Holland) on March 25, 2003.”

However, the report said shares were sold and the purchase agreement signed with Milford Holdings (Pvt) Limited, an offshore company as well as Greenfield Pacific EM Holdings (Pvt) Ltd., incorporated in Gibraltar on March 28, 2003.

The report said “these companies were not in existence when the Cabinet approved it on March 27, 2003. They were not bidders but were strangers.”

According to the COPE report, the sale had taken place on unaudited accounts and thereby it was not possible to enter into any kind of shared transaction.

The report also said the accounts appeared to have been surreptitiously and intentionally adjusted.

Furthermore, it said that auditors Ernst & Young and consultants PwC were directly involved in the said fraudulent conduct.

It said that PwC Senior Partner Deva Rodrigo had been a member of the steering committee selecting PwC as consultants to the Government and continued thereafter as a steering committee member supervising the work of PwC and approving payments to PwC.

The report said former PERC Chairman Dr. P.B. Jayasundera who later became Treasury Secretary, handled the SLIC transaction. He had been a Senior Policy Advisor to Ernst & Young and had failed and neglected to act in the Government’s interest in the matter.

The report also said that PERC Director and Steering Committee Secretary Aneela de Soysa who handled the transaction for PERC, joined PwC as a partner in March 2003.

“We are looking at past PERC Chairman P.B. Jayasundera and the partners. The deal was made on interim account statements. There is a lot of conflict of interest. Deva Rodrigo was on the steering committee as well as on PwC. They got a large sum of money and they are not even lawyers. They drafted an agreement and charged about Rs.76 million. It’s a joke. If they were charging for legal fees, that’s okay but this they charged for drafting the legal document,” Mr. Rajapakse said.

The COPE report said that Ernst & Young who had been auditors of SLIC when the Government was a 100% share holder, continued as SLIC auditors after the sale to the illegal buyers and had been compromised by them not to discharge its responsibilities to the Government.

It also said the Ethics Committee of the Institute of Chartered Accountants had established a prima facie case and has decided that a Disciplinary Committee should be appointed to look into the professional misconduct by PwC and Ernst & Young.

Finally, the report stated that the facts and circumstances of the SLIC transaction is “null and void ab initio and frustrated. Prima facie the conduct of the responsible officers is in violation of the provisions of the Public Property Act and the bribery and corruption laws.”

According to the same COPE report, the process for privatisation of Lanka Marine Services Limited (LMSL) began in October 2001 when PERC called for proposals from the private sector operators ‘to participate in the marine fuel market in Sri Lanka.’

The report said at the pre-bid conference held on April 30, 2002, then PERC Chairman P.B. Jayasundera confirmed that LMSL would not have a monopoly on the import and sale of bunkers subsequent to the sale of LMSL. Mr. Jayasundera caused the then Treasury Secretary Charitha Ratwatte to appoint a Technical Evaluation Committee (TEC) to evaluate both Expressions of Interest and final bids, with no Cabinet approval.

The report said that between June 21, 2002 and August 21, 2002, no action whatsoever could have been taken on this matter as it was pending Cabinet approval. Cabinet approval was only received on August 21, 2002.

However, the report stated that before Cabinet approval was granted, on July 12, 2002, the then PERC Chairman ‘had made the award for the sale of 90% shares of LMSL to John Keells Holdings Limited (JKHL) on an exchange of letters. The ‘award’ to JKHL has been alleged by other bidders as ‘foul play’, according to the report.

The report also called the act of signing the Share Sale and Purchase Agreement and the Agreement with JKHL ‘bad in law and invalid, null and void.’

Furthermore, the agreement included the new Clause 8.2 which was not there previously stating that the ‘GOSL/SLPA/CPC shall ensure that all bunkers/marine fuels handled and transported within the Port of Colombo would be handled and transported in terms of the agreement’.

According to the COPE report the Court of Appeal had held that the inclusion of the ‘monopoly’ clause was ultra-vires according to the Petroleum Products (Special Provisions) Act,.

Further, the report had established that DFCC Bank confirmed that on the basis of a monopoly, the ‘business valuation’ of LMSL was Rs. 2.4 billion and not Rs.1.2 billion as initially stated. It also confirmed that had a net assets valuation been required, the services of a professional real estate valuer should have been engaged.

The report said that even though the Instrument of Grant dated January 19, 2005 said the Government has received Rs.1,199,362,500 from LMSL, the ‘Government has not received any money for the transfer of this land’ in Colombo 15 which is under the scrutiny of the COPE sub-committee.

The report also said that ‘LMSL Accounts for the Financial Year ended March 31, 2005 do not disclose that LMSL has made a payment of Rs.1,199,362,500 to the Government for this land.’ It said the Instrument of Grant was a ‘fraudulent document’ and ‘fiction’ in that no payment had been made by LMSL and none received by the Government.

The COPE report concluded that “this transaction had been executed blatantly without Cabinet approval, with several flaws causing loss and detriment to the Government, and demonstrating it to be a questionable ‘fix’, and is therefore, ab initio bad in law, null and void, and hence, should be cancelled, annulled and made void forthwith.”