Sunday, July 1, 2007

PERC Pays the Price for Being Vigilant

Source: The Sunday Leader (paid subscription required)

Hot on the heels of The Sunday Leader revelations exposing the invidious Rajapakse hand in several controversial privatisation deals, which have also been severely criticised by the Public Enterprise Reform Commission (PERC), the government last week announced it would take immediate steps to scrap the commission.

Speculation is rife that PERC may have earned the wrath of the Rajapakse quartet as many of the deals it had criticised as detrimental to the country, have been spearheaded by none other than Presidential Advisor Basil Rajapakse, with the blessings of his elder brother President Mahinda Rajapakse.

PERC Considered Redundant
Last week on Wednesday, calling the work of the commission redundant, Media Minister Lakshman Yapa Abeywardena waived the PERC Act, stating the concept of privatisation embodied in the act was against the Mahinda Chinthana policies.

Twenty four hours later, Chief Government Whip Jeyaraj Fernandopulle also said PERC was to be shut down as it was against the Mahinda Chinthana policies. However a top PERC official dismissed Abeywardena's assertions stating PERC would in fact be the appropriate institution to implement the Mahinda Chinthana.

In fact the very spirit of the commission was to augment government revenues through better financial administration and reform contracts, and is a carefully established institution for any type of public enterprise reform, the official said.

Officials Counter Government Claim
PERC officials speaking on the grounds of anonymity told The Sunday Leader that nowhere in the act is the word 'privatisation' used. These sources also confirmed that no official communication had been made to PERC with regard to its imminent closure stating that since the commission was instituted by an act, the legislation would have to be repealed, and a resolution passed in parliament after cabinet approval.

PERC has been fiercely critical about recent controversial deals including the transfer of NTT shares in Telecom and the transfer of 49 percent shares of Hingurana Sugar Industries to a consortium, at absolutely no benefit or revenue to the government.

Contradictory Actions
The transfer of NTT shares in SLT is already before court, with Chief Justice Sarath Silva having issued a stay order against the transfer.

Ironically, while the government continues to hold that it is against privatisation as per the Mahinda Chinthana, it continues to set up private companies like Mihin Lanka Pvt. Ltd., Lanka Logistics and Technologies Ltd., and now even Weerawila International Airport Ltd. (see page 8) in order to siphon off government money into private companies, tightly controlled by the Rajapakse family and its henchmen.

PERC Brings in High Revenue
Far from dismantling PERC, the commission had earned over Rs.2000 million for the government on litigation and arbitration just last year, sources at PERC told The Sunday Leader. While there are 17 post privatisation litigation and arbitration matters currently being handled by PERC, the Pussellawa Plantation case and Lanka Marine Services Ltd. arbitration were won by PERC on behalf of the state in 2006, yielding over Rs. 2000 million.

In fact the Mahinda Chinthana waxes eloquent about the government acting as a custodian in the management of institutions and resources in order to protect the people's ownership and national assets. It also states that the management of national assets and public institutions will be done in a more professional and independent manner.

Mahinda Percival in his Chinthana also promises to manage public expenditure and subject government expenditure to constant review. However, it is constant review by the PERC of controversial share transfers instigated by his family that he now seems to dislike so much.

The Privatisation Saga
There have been 98 privatisations of government institutions of which some 45 have been privatised after the setting up of PERC in 1996. Before the formation of the Reform Commission it was the Commercialisation Unit of the Ministry of Finance that handled the subject.

At that time the Commercialisation Unit was headed by one Tissa Jayasinghe, and each privatisation was handled by the relevant ministry concerned in coordination with the commercialisation division of the Ministry of Finance. The secretary of the relevant ministry would be appointed chairman of the tender board and the head of the commercialisation unit would be a member along with others appointed by the cabinet.

In order to institutionalise and regularise these privatisations, PERC was mooted in 1994, and had the support of the World Bank and USAID as well. The Reform Commission was to be a window of communication with the government, and was to oversee under rigid supervision, the reform of state institutions.

The Objectives of PERC
The function of the commission was, according to the Public Enterprise Reform Commission of Sri Lanka Act No. 1 of 1996, to advise and assist the government on the reform of public enterprises.

The objects included fostering and accelerating economic development, improving efficiency and competitiveness of the economy, upgrading production and services with access to international markets, developing and broadbasing the capital market, motivating the private sector and augmenting the revenues of government so as to enable it to better address the social agenda.
While these objectives are enumerated in imperative and mandatory language the act also states that PERC "may make recommendations to the government on the continuation and efficiency of public enterprises which are profit making and are of national importance."

The act also states that PERC may make recommendations to the government on the selection of public enterprises for conversion into public companies under the Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act No. 23 of 1987.

A perusal of the act will demonstrate that PERC was not set up in order to promote and implement privatisation but rather to act as an advisor and rigid supervisor to economic reforms envisaged by the government.

If Rajapakse and his two ministers had only read the Mahinda Chinthana and the PERC Act they would well know that there are no jarring provisions that do not complement each other. Rajapakse, if he bothered to read his own Chinthanaya, would find that he too advocates a national economic policy that integrates a free market economy with domestic aspirations where domestic enterprise can be supported while encouraging foreign investment.

It is to this end and working well within the ambit of its powers and functions which included augmenting government revenues that PERC roundly condemned the controversial transfer of both SLT and Hingurana Sugar Industries shares.

Orchestrated by the Rajapakses
Mind you, these two controversial deals were personally orchestrated by the Rajapakse brothers and were deals which would bring absolutely no revenue to the state despite enjoying the blessings of the Chief Executive. The transfer of 25.3 percent of NTT shares in SLT to Global Telecommunications Holdings incorporated in the Netherlands, specifically for the purpose, was to be of no benefit to Sri Lanka.

Neither was the transfer of 49 percent shares for free of Hingurana Sugar Industries with a Rs. 200 million worth distilleries licence to boot, to Lanka Orix Leasing and Brown & Company, both controlled by Ishara Nanayakkara.

That President Percival's government does not regard the rule of law is now obvious. PERC, to the Rajapakses, being determined to carry out a system of privatisation that would ensure they control through private companies, over 70 percent of state funds, has perhaps become of nuisance value. An irritable thorn in the flesh that needs to be rooted out and discarded.

What PERC said about Sri Lanka Telecom
  • GTH is an unlisted company incorporated recently in the Netherlands Antilles with the purpose to acquire NTT shares in SLT.
  • GTH shall not have any employees or CEO until the proposed transaction is completed.
  • GTH is an indirect wholly-owned subsidiary of Usaha Tegas Sdn Bhd (UTSB).
  • Question arises why GTH is incorporated recently in the Netherlands and not in Malaysia when UTSB undertook to fund GTH.
  • Two of the requirements for the 1997 bids were that the age of the company should be more than 25 years and should be in telecom operations for more than 15 years.
  • GTH is a recently incorporated company with no business operations and not even a website address is available.
  • That the proposed parent company UTSB posted total revenues of US$186 million and US$19 million for the fiscal year 2006 whereas the unqualified bidders in 1997 posted such revenues as high as US$4,525 million and US$ 2,118 million.
  • Neither is a website available for the parent company UTSB.
  • Though it is stated by NTT that GTH has a solid track record as a telecommunications operator with a leading position in Malaysia given that it was recently incorporated and has no employees or a CEO it is questionable to what extent NTT's assessment and recommendations are reliable.
  • Even though the SLT deals in fixed lines, the fixed line operation of Maxies (a part of the UTSB) is very marginal and it is strong only on mobile services.
  • PERC itself states in its report that even though NTT says UTSB has control equity positions in entities operating in various sectors, they have not stated whether Maxis is a direct subsidiary of UTSB.
  • According to NTT, the GTH claim to fame is its link to Maxis. PERC states even if this were so, Maxis itself is more a mobile operator and not a fixed line operator and therefore unsuitable to the needs of SLT.

Hingurana Sugar Industries

  • The government granted a 49 percent stake of Hingurana Sugar Industries Ltd. (HSIL), full management control and a distilleries licence currently worth over Rs. 200 million, to a consortium based on an unsolicited proposal that would bring absolutely no revenue to the state.
  • The government put forward and approved a memorandum in this regard completely disregarding earlier cabinet decisions. PERC at the time in writing stated:
  • They were of the opinion a fresh cabinet memorandum should be submitted as approval had been obtained for a solicited proposal pursuant to a "transparent tender procedure in this case 'on all or nothing window' of the Colombo Stock Exchange."
  • The concept adopted in the said cabinet memorandum is different to what is to be implemented now, which is divesting 49 percent shares of the new company to an unsolicited proposal.
  • Under the circumstances, a fresh Cabinet Memorandum should be submitted by you for the new restructure process.
  • The cabinet memo should specifically request approval to supercede the earlier cabinet decisions since there are several decisions obtained by PERC in relation to restructure of HSIL which are not yet cancelled, hence, still operative.
  • PERC also states it is not in a position to submit a cabinet memorandum for an unsolicited proposal.
  • Warns that submitting a Cabinet Memorandum for an unsolicited proposal as initiated by PERC will open up the government to litigation at a future date.

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