The Situation Report

6th September 1998

The deal to secure defence supplies from Zimbabwe

By Iqbal Athas

The deal to secure defence supplies from Zimbabwe

The bogus list

The deal to secure defence supplies from Zimbabwe

Comrades - in -Arms : Nissanka Samaratunga and Raj Mylvaganam

It was truly a VIP welcome when Sri Lankan businessman, 36 year old Nissanka Samaratunga, arrived at the Harare International Airport in Zimbabwe, in late 1994.

Top officials of the Government-owned Zimbabwe Defence Industries (ZDI) were on hand to greet him and usher him into the VIP Lounge. As he exchanged pleasantries with them, a little distance away, in the same VIP Lounge, Zimbabwean political leaders were greeting the former Iranian President, Hojathul Islam Ayatollah Hashimi Rafsanjani, who had arrived that day on an official visit.

Mr Samaratunga shook hands with Col. Tshinga Dube, Chief Executive Officer, Douglas Mrewa, Company Secretary and Captain Shamin Hyder, Public Relations Manager. In the days that followed his arrival, he wined and dined with ZDI big wigs, visited their ammunition factory, mortar facility, both located in the outskirts of the capital, Harare.

When he returned to Colombo, he carried a title. The ZDI had appointed Mr. Samaratunga as their agent in Sri Lanka. They had agreed to trade with General Trading Company Pvt. Ltd. (GTC) of which he was Managing Director.

He broke the good news to his school time buddy, Raj Mylvaganam, who was now working for GTC. He had earlier worked for another defence supplier and joined his boyhood friend at St. Joseph's College, in l992.

Before departing Harare, Mr Samaratunga had suggested to ZDI, which was state owned and headed by Zimbabwe's Defence Secretary, that a proposal be made to Sri Lanka for a government to government deal to sell military hardware manufactured by them.

He was of the view that ZDI had ex-stock a variety of items. Accordingly in July, l996, ZDI had submitted a proposal to President, Chandrika Bandaranaike Kumaratunga, for the supply of defence equipment on a government to government basis. A copy of the correspondence had reached GTC too.

As is the practice, the Presidential Secretariat referred the letter to the Ministry of Defence from where it had been channelled to Army Headquarters.

Keen to get ZDI into business in Sri Lanka, Mr Samaratunga approached his friend Janaka Edirisinghe, a Rotarian. He had met Mr. Edirisinghe after he joined the Rotary Club of Colombo West in l988 and become good friends.

Mr. Edirisinghe, was a good friend of Army Commander, Lt. Gen. Rohan de S. Daluwatte. He introduced Mr. Samaratunga to the Army Chief. The two had spoken about a government - to - government deal to secure defence supplies from Zimbabwe.

Later, with Ministry of Defence approval, two senior Army officials flew to Harare in September, l996 to inspect ZDI facilities and examine the quality of their products. They were Brigadier K.S.C. Kempitiya and Brigadier M.B. Thibbotumunuwe. Mr. Samaratunga accompanied the-two member team as ZDI representative in Sri Lanka. The visit was sponsored by both GTC and ZDI. Besides visiting ZDI factories, the team met top Zimbabwean officials as well as top rungers in the Army, Navy, Air Force and the Joint Operations Commander, General V.G.M. Zvinavashe.

Upon their return, the two Brigadiers forwarded a report to Army Commander, Lt. Gen. Rohan de S. Daluwatte. On the latter's recommendation, the Cabinet Appointed Permanent Tender Board, in October l996, approved the purchase of the following items from Zimbabwe Defence Industries (ZDI).

Ball-Belted Ammunition for General Purpose Machine Guns (GPMG)-500,000 rounds Cost - US $ 280 per 1,000 rounds

Coloured Smoke Grenades - Red, Green, Yellow & Blue - 1,000 rounds each - 4,000 Cost: Red US $ 28 each, Green US $ 20 each, Yellow US $ 19 each and Blue US $ 19 each

Mini Claymore mines 2,000 US $ 27.50 each

81 mm Mortar Bombs 40,000 rounds US $ 62 each

120 mm Mortar Bombs-20,000 rounds- US $ 162.50 each

As a concession for purchasing these items, ZDI offered to give the Sri Lanka Army 24 pieces of 81 mm mortar launchers free of charge. Army Headquarters valued this to be worth US $ 178,800 but the free offer was never received.

The deal was made up of an FOB value of U.S. dollars 6,0l9,000 (Rs. 397.2 million) with freight charges of U.S. $ 380,000 (Rs. l9.8 million). The cost and freight totalled U.S. dollars 6,399,000 (Rs. 422.3 million).

Contrary to my earlier reports, there was no insurance cover. Army officials argued that insurance cover was not sought for military cargo.

Financing the U.S. $ 6.399 million dollar (over Rs. 422.3 million) deal became a crucial question before the Letter of Credit was finalised.

Though a Government to Government deal ostensibly, a deferred payment scheme was suggested. That was how the South Korean firm Kolon International Corporation (KIC) was brought in to arrange financing facilities.

Kolon International was earlier represented in Sri Lanka by Divalex Enterprises at Sea Avenue, Kollupitiya, where Raj Mylvaganam was a director. When he joined GTC in l992, the Kolon agency also changed hands from Divalex to GTC.

Mr Mylvaganam had maintained close rapport with the Special Merchandise Team Staff at KIC. Another KIC project team had earlier helped obtain long term finance for MI 17 helicopters purchased by the Sri Lanka Air Force.

The GTC, through KIC, put together a five year financing package effective after an year's grace period. That encompassed a payment of five annual instalments of (1st year U.S. $ l,724,443.50, 2nd year U.S. $ l,620,314.80, 3rd year U.S. $ l,5l6,l86.l0, 4th year U.S. $ l,412,057.40 and 5th year U.S. $ l,307,928.70).

In addition, KIC had also agreed to charter a vessel to transport goods from the Port of Beira in Mozambique to Colombo. That was after the goods were hauled by road from land-locked Zimbabwe to neighbouring Mozambique.

On November 21, 1996, the Sri Lanka Army established a letter of credit (L/C No. M/G/L/96/5278) for U.S. $ 7,960,930.50 (over Rs. 525.4 million). A sum of U.S. $ l,561,930.50 (over Rs. l64.4 million) had been added to the cost and freight value of U.S. $ 6,399,000. This was for interest for deferred payments. The first instalment was to commence after an year's grace.

This letter of credit (L/C) was opened by the Bank of Ceylon (the issuing bank) with the Korea Exchange Bank (the advising bank) in favour of a nominee of the seller, namely Kolon International Corporation.

On January l3, l997, the Sri Lanka Army amended the differed payment requirement. Payment terms were to be goods at sight. The mode of payment was changed to 85 per cent at the presentation of documents and the remaining l5 per cent on provision of a certificate of acceptance issued by the Army. This was in marked contrast to the accepted practice of 50 per cent at sight and the remaining 50 per cent after receipt of goods.

This was done on the advice of the Bank of Ceylon after it was found out that the beneficiary's (ZDI) bank required a placement of deposit as collateral for them to confirm the Letter of Credit. Taking into account the confirming charges and additional interest cost, the placing of deposit for total cost of deferred payment would turn out to be much higher, it was pointed out.

Kolon International, in terms of agreement reached earlier, had agreed to charter a vessel ONLY in respect of one consignment that was to arrive by ship. Four other consignments were to arrive by air and for this, the Sri Lanka Army had remitted to Zimbabwe Defence Industries by telegraphic transfer a sum of U.S. dollars 270,000 as air freight charges for three shipments. In the Letter of Credit, an additional sum of U.S. dollars 380,000 has been provided for KIC to charter a vessel to ferry just a single sea shipment.

Barring the sea shipment of 32,400 mortars that went missing, four other shipments by air, all arrived behind schedule. The first consignment of ZDI cargo arrived in January, last year. It was made up of 6,000 rounds of heavy explosive mortars and 56 rounds of 120 mm heavy explosive mortar bombs.

Col. Tshinga Dube, ZDI's chief executive, arrived in that cargo flight No AFM 13/14.

Unloading operations, under Army supervision, took place from the Sri Lanka Air Force side of the Bandaranaike International Airport. Col. Dube later joined his business colleagues - Mr. Samaratunga, Mr. Mylvaganam - and facilitator Mr. Edirisinghe to visit the SLAF base to inspect the unloading of the cargo.

The second air shipment arrived in early March, 1997. They were made up of 944 rounds of 120 mm mortars, 1602 rounds of 81 mm mortars, 1000 claymore mines and 4,000 smoke grenades. The third air shipment arrived in mid March. It was made up of 1440 rounds of 120 mm mortars, 1440 fuses for 120 mm mortars.

Army officials had complained that the mortars were made in Bulgaria and not at the ZDI factory in Harare. They said they were outdated for use and had threatened to withhold payment. But on March 21, an acceptance letter had been issued. A fourth shipment was pending. So was the sea shipment.

In the Special Assignment - Situation Report on Page 6, the various reasons given by the ZDI for the delays in outstanding shipments are revealed. Such reasons, The Sunday Times found, included false claims that the shipment of the remaining mortars was going to be effected from the Mozambican port of Beira. That was after the goods were transported by road from Harare by road. Documents were produced to show that the Mozambican government had granted approval for the shipment.

But all along, Col. Dube has been playing a different game. He arrived in Colombo on May 25 last year and checked into Room 603 at Hotel Galadari. His mission was to persuade the Sri Lankan authorities to further extend the Letter of Credit which had expired and had been extended on many occasions. Investigations have revealed that whilst residing at Hotel Galadari, Colombo, he was making telephone calls daily to Sapir Ben Tsouk of LBG Military Supplies in Israel. What was he talking ?Mr Tsouk was to later play a big role in the mortar mystery.

Before arriving in Colombo, in May, last year, Col. Dube flew to Tel Aviv to meet Mr. Tsouk. That was ostensibly to look for fuses and secondary instruments to be air freighted to Harare to manufacture the mortars (The Sunday Times - October 5, 1997).

When Col. Dube wanted to return to Harare from Colombo, Mr. Mylvaganam drove him in his own car to the airport. They had struck a rapport. Frictions developed between ZDI and the GTC. The subsequent weeks saw Mr. Mylvaganam leaving GTC and forming his own Kolon Lanka Pvt. Ltd. Soon both the Zimbabwe Defence Industries (ZDI) and Kolon International Corporation withdrew their agencies from GTC and made Mr. Mylvaganam's company their agent.

The rest of the ZDI transactions fell on Mr. Mylvaganam's shoulders much to the anger and disappointment of Mr. Samaratunga. The saga began to take another turn.

After the mortars went missing, Col. Dube told me in a telephone interview that he had entrusted the shipment of the mortar cargo "entirely in the hands of" Mr. Tsouk and LBG Military Supplies. "He knows the Captain of the ship. He knows the company the ship belonged to. All we had was his word," declared Col. Dube.

But Mr. Tsouk denied the charge. He said "Our company never engaged in shipping and has never transported, chartered or used any ship for transport of military equipment from Beira, Mozambique to Colombo." He added that his company was never connected by any contractual arrangement with the Government of Sri Lanka for the supply of mortars."

On March 15, 1998, The Sunday Times Situation Report revealed the contents of a letter Sapir Ben Tsouk sent to ZDI dated July 23, It was addressed to Company Secretary, Douglas Mrewa. Among other matters, he said:

" Regarding your question if the vessel left at all with the cargo, I hereby confirm that the goods left on 28.5.1997 from Rijeka, Croatia. I've been present at the site and I have seen the vessel. I've seen the containers. I have checked personally part of the containers in which there were what it was concluded between us.

He also said "We see ourselves on the same side of the table with you. We will co-operate with you any way in this matter we ask for your instructions."

As The Sunday Times revealed exclusively, the mortar shipment never originated from Zimbabwe. Mr. Tsouk had played middle-man to ZDI and obtained the stock from Croatia. It is here that the LTTE is known to have surreptitiously introduced their own cargo vessel and seized the cargo from the port of Rijeka. Financially, the loss to the Sri Lanka Army has been minimised by their refusal to pay for two air shipments amounting to US $ 3,253,250.

However, a sum of US $ 1, 721,143.75 which was 85 per cent payment for the 32,400 mortars was remitted to KIC in South Korea. They in turn have not forwarded the money to ZDI since the goods did not arrive in Sri Lanka. The Government has requested the KIC for a refund but that has not met with a favourable response.

The refusal of the Sri Lanka Army to pay for two air shipments has meant that they underpaid to the value of US $ 865,100.26. But that was in terms of money.

As Additional Solicitor General C.R. de Silva, has raised queries about those involved in the transaction and the dubious role of the ZDI.

As he recommends, the Government of Sri Lanka should agitate this matter at governmental level as it involves a "fraudulent breach of contract."

It should rightly be so since public funds are being utilised for the conduct of the ongoing separatist war. The fact that the cost of war is escalating enormously is no secret.

The bogus list

The exact quantity of 81mm mortar rounds the state owned Zimbabwe Defence Industries were to ship to Sri Lanka was 32,338 rounds.

It has been rounded off to 32,400. This is out of a quantity of 40,000 rounds for which orders were placed. A total of 7662 rounds of 81mm mortars had arrived in two separate air shipments. They were, however, not manufactured in Zimbabwe. They bore markings that showed the country of manufacture as Bulgaria.

Above is a copy of the Packing List provided by ZDI to Kolon International Corporation in South Korea. It has now transpired that this list is bogus since no shipment of mortars was executed from the Mozambican port of Beira.

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