Vasu files FR petition on LMSL privatization

Presidential Advisor Vasudeva Nanayakkara filed a Supreme Court fundamental rights application (SCFR No. 1/2008) on January 1 against the highly controversial deal surrounding the privatisation of Lanka Marine Services Limited (LMSL).

According to court documents Nanayakkara filed the application on behalf of himself and on behalf of 'all citizens of the country who own the Consolidated Fund and all public property and public revenue, which should not be defrauded or plundered from them.'

LMSL was also included in the Committee on Public Enterprises (COPE) report which came out last year, alleging mass fraud and corruption in several public institutions. In June of last year, Nanayakkara filed a fundamental rights petition against the equally contentious privatization of Sri Lanka Insurance Corporation (SLIC).

The respondents have filed objections after several delays and the case is scheduled for inquiry on March 26 and 27. Nanayakkara is now filing his counter affidavit to the objections.

Regarding LMSL, Nanayakkara stated that he has also filed the petition 'in the national and public interest representing the rights of the citizens of the country, to enforce the fundamental rights to equality before the law, which has been denied by unjust, wrongful, unlawful, unreasonable, arbitrary, capricious, collusive and mala-fide administrative and executive actions.'

The petition names eights respondents including Board of Investment (BOI) Chairman Dhammika Perera, former BOI Chairman Arjuna Mahendran, Commissioner General of the Inland Revenue A.A. Wijepala, John Keells Holdings Ltd and the company's Chairman Susantha Ratnayake, LMSL, former Minister of Enterprise Development G.L. Peiris and the Attorney General.

Nanayakkara stated that 'it is abundantly clear that the 2nd, 4th, 5th, 6 th and 7th respondents (Arjuna Mahendran, JKHL, LMSL, Susantha Ratnayake, G.L. Peiris) had intentionally collusively surreptitiously acted wrongfully and unlawfully, causing grave loss and damage and mischief to the government, that is the public, thereby wrongfully and unjustly causing the loss of public revenue held in trust for the people, with the deliberate intent of conferring unjust, wrongful and unlawful enormous benefit on privileged few, in blatant violation of the constitutional safeguards.' Nanayakkara further stated in the petition that 'he by no means advocates policies of liberalization and that this is a classic case, where in the name of liberalization, very valuable revenue of the State, which belong to the people, have been surreptitiously fraudulently pillaged and plundered for the undue and unjust benefit of a privileged few, causing enormous loss and detriment to the State and the citizens of the country, further burdening them with the rise in their cost of living.'

The petition stated that on July 11, 2002, Mahendran had issued a letter of approval to JKHL granting BOI approval on several terms which Nanayakkara is saying were not met.

According to the petition, the BOI had granted approval for the incorporation of an entirely new company and should 'not involve the reconstitution of an existing business or transfer of assets of any description from an enterprise within Sri Lanka.'
It further said that on July 12, 2002, then PERC Chairman Dr. P.B. Jayasundera, prior to cabinet approval received on August 21, 2002, called for 'competitive offers' on the Colombo Stock Exchange for the sale of 90 percent of shares of LMSL but had surreptitiously awarded the shares to JKH.

Subsequently by Gazette Extraordinary No.1256/22 dated 1 October 2001, G.L. Peiris as then Minister of Enterprise Development had 'gazetted regulations dated September 25, 2002, amending the existing conditions, inter-alia, granted BOI approval for '…any existing or new enterprise which is formed by the acquisition of assets of any existing enterprise to engage in business related to petroleum…' and further granted a tax holiday for 5 years and more for any investment of Rs.1250 million or more. The petition states that it is patently clear that Peiris, abusing his power and position, had gazetted the regulations on September 25, 2002 which were amended by JKHL.

LMSL
According to the COPE report, the process for privatization of LMSL began in October 2001 when the Public Enterprises Reform Commission (PERC) called for proposals from the private sector operators 'to participate in the marine fuel market in Sri Lanka.'
At the pre-bid conference held at PERC on April 30, 2002, then PERC Chairman and current Treasury Secretary, Dr. P.B. Jayasundera confirmed that LMSL will not have a monopoly on the import and sale of bunkers subsequent to the sale of LMSL. On a request by Jayasundera, former Treasury Secretary Charitha Ratwatte appointed a Technical Evaluation Committee (TEC) to evaluate both expressions of interest and final bids with no Cabinet approval.

The COPE report also states that between June 21, 2002 and August 21, 2002, no action whatsoever could have been taken on the matter as it was pending Cabinet approval for the Cabinet Memorandum.

Cabinet approval was only received on August 21, 2002. However, the report states that on July 12, 2002, prior to Cabinet approval, the former PERC Chairman, on the exchange of letters with JKHL had made the award for the sale of 90% shares of LMSL to JKHL.' The 'award' to JKHL has been alleged by other bidders as 'foul play'. Furthermore, the COPE report also calls the act of signing the Share Sale & Purchase Agreement and the Common User Facility (CUF) Agreement with JKHL as 'bad in law and invalid, null and void.'

The CUF agreement which was signed included the following 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 using the CUF.' The Court of Appeal has held that the inclusion of the above 'monopoly' clause has been ultra-vires according to the Petroleum Products (Special Provisions) Act, according to the report.

The COPE report has also established that DFCC Bank confirmed that on the basis of a monopoly, their 'business valuation' of LMSL is Rs.2.4 billion, not Rs.1.2 billion as initially stated. They also confirmed that 'had they been required to give a net assets’ valuation, they would have engaged the services of a professional real estate valuer.'

Furthermore, the report states that even though the Instrument of Grant dated January 19, 2005 stated that the government has received Rs.1,199,362,500 from LMSL, the 'government has not received any money for the transfer of this Land' located in Colombo 15 which is under the scrutiny of the COPE subcommittee.

The report also states that 'LMSL Accounts for the Financial Year ended 31 March 2005 do not disclose that LMSL has made a payment of Rs.1,199,362,500 to the government for this land.' Hence, the report makes clear that the Instrument of Grant is a 'fraudulent document' and 'fiction' in that no payment had been made by LMSL and has been 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.' (NG)