The Enemy Within
It was a shock, though not an unexpected one. Last week Sri Lanka lost her first hedging case, to the Standard Chartered Bank. Given this precedent-setting verdict, the other two arbitration suits – filed by the City Bank in the US and the Deutsche Bank in Singapore – are also likely to end in defeat. Ultimately, Sri Lanka will end up by paying around US$500 million to the three banks, money the country can ill-afford.
The culprits, who in full knowledge entered into this pernicious hedging deal, will get away scot-free. The populace will have to bear the brunt of the consequent financial burden, in the form of higher indirect taxes, increased prices and slashed services. The hedging-saga is thus a morality tale about Rajapaksa rule and its consequences to the country and the people.
“Crime is contagious”. Louis Brandeis (Dissenting opinion in Olmstead vs. United States)
The hedging deal was perniciously unfair to Sri Lanka, but the Ceylon Petroleum Corporation entered into it knowingly, and willingly, and with cabinet and Central Bank approval, as the CPC Chairman himself admitted. “Mr. De Mel said the CPC sat with the banks and went through everything in detail. ‘It wasn't a haphazard hedge.’ He explained that over the last two year, he has gone all over the world to all the exchanges and has been educated by every expert in this field….. To this effect, the CPC has followed CB guidelines for hedging which states that an undertaking has to be given from the bank that the client understands all the risks” (The Sunday Times – 16.11.2008).
The hedging deal was somewhat similar to the private sector pension scheme of the Rajapaksas. There is nothing wrong with hedging, per se, so long as it is undertaken intelligently, with national interest in mind and with the sole purpose of getting Lankan consumers the best deal possible – just as there is nothing wrong with a private sector pension scheme, so long as it is beneficial and not harmful to the employees. But the Rajapaksa pension scheme was conceived to short-change private sector employees. Similarly, the hedging deal seemed to have been structured to short-change the country and the consumers.
The hedging deal was signed by the CPC, when it was under the stewardship of Ashanta de Mel, one-time cricketer and a Rajapaksa family connection. Mr. de Mel seemed to have had a very close and a very cosy relationship with the three banks involved in the hedging deal. For instance, the media conference called by the CPC to justify the hedging deal was actually organised by one of the three banks, the Standard Chartered Bank. The invitations to the media conference were sent by the CPC on Standard Chartered Bank letterheads. At the media conference, Mr. De Mel, flanked by the heads of the three banks benefiting from the deal, read out a prepared statement hailing the virtues of the deal and reiterating Sri Lanka’s determination to honour it. It was subsequently revealed (at the Supreme Court) that this statement was prepared by the CEO of the Standard Chartered Bank (who was a family friend of Mr. de Mel). This revelation prompted the then Chief Justice to remark acerbically that the Chairman of the CPC acted as the ‘mouthpiece’ of the banks.
After causing the country irreparable financial damage, Mr. de Mel (like other Rajapaksa favourites) got away scot-free. The price of the pernicious (and probably fraudulent) hedging deal will be paid not by the CPC authorities who signed on the dotted line (nor their political masters who blessed it), but by the already overburdened citizens.
The Real Payees
The Rajapaksa regime seems to be having a marked proclivity to lurch from one avoidable error to another. And contrary to the grandiose claims by the Ruling Family (and its acolytes), our international friends will not come to Sri Lanka’s rescue, if the regime bankrupts the country with its imprudent and impudent conduct. Whatever help we receive from our international friends such as China and Iran would come with strings attached (a truth the regime deliberately and assiduously keeps away from the people). For instance, the much hyped Iranian offer to upgrade the Sapugaskanda oil refinery was not quite what the regime touted it to be. Far from being a free gift, the offer came with conditionalities. The promised Iranian investment was contingent on Sri Lanka putting up its own share, to the tune of US$500 million, in one go. (This incidentally is equal to the sum of money the country will have to pay to the three foreign banks for the hedging deal). Since Sri Lanka is unable to come up with the funds, “the Iranian offer to expand the Sapugaskanda oil refinery, from 50,000 barrels per day to 100,000 is apparently as good as dead” (The Island – 14.7.2011).
The Chinese are no Father Christmases either; they are equally hardnosed and exacting, motivated not by altruism (or solidarity) but by their own self-interest. The Rajapaksa expectations of being bailed out by either China or Iran thus are nothing but pipe-dreams.
Fraud, gross-negligence and opacity seem to be the hallmarks of most Rajapaksa deals. The selling of 10 acres of prime land opposite the Galle Face Green to a Chinese company, China Aviation Technology Import Export Corporation (CATIC), is an excellent case in point. According to UNP parliamentarian Harsha de Silva, “there were serious misappropriation charges regarding the CATIC transaction” (Daily Mirror – 15.7.2011). Though the land has been sold outright, some government ministers continue to claim that the land was given on lease, he pointed out, citing an interview given by Deputy Education Minister Nirmala Kothalawala to Lankadeepa: “It is clear that the land was sold…..and yet they continue to make blatantly false statements” (ibid). Incidentally the purpose of these false claims, made to the Sinhala-language media, is to deceive the monolingual Southern masses. The truth about these land sales will dent the patriotic credentials of the Ruling Family and the Rajapaksas would want to avoid that at any cost.
According to Harhsa de Silva, “In the agreement signed between CATIC and the Finance Ministry on 18 February 2011….US$ 50 million has to be paid as an advance and that the remainder of US$ 86 million must be paid before 21 April 2011…. If the full payment is not made by 21 April, then the agreement becomes invalid” (ibid). Quoting the documents tabled by Deputy Minister Lakshman Yapa Abeywardene, Mr. de Silva pointed out that by 25th April 2011 only US$ 54.7 million had been deposited (moreover, this money has been paid not by CATIC directly, but by an organisation called Avic). “Since the full amount has not been paid on 21 April as stipulated in the agreement, this document is no longer valid. Therefore, how can the Government sell land on an agreement that is not legally valid?” he queried (ibid).
The regime’s tendency to appoint incompetent and unsuitable people to key posts, simply because they happen to be Rajapaksa kith or kin has made matters worse.
The Mihin Air debacle is a classic example of the deleterious consequences of this habit. And as the Supreme Court observed, this Rajapaksa proclivity made a significant contribution to the hedging fiasco: “The court blamed authorities for having appointed an unqualified person (Mr De Mel), who had not even passed the G.C.E. Advanced Level examination, to a responsible position like the CPC chairmanship, and said the ministers who had protected such a person should be exposed” (The Sunday Times – 16.11.2008). These are issues which should concern every Sri Lankan, irrespective of party affiliations or any other difference, because, in the end, we will have to pay the price of the regime’s crimes and errors.
When the Music stops…..
President Rajapaksa recently waxed indignant about public officials who do not conduct themselves properly when the national anthem is being played. Given the presidential silence on innumerable acts of criminal misconduct by public officials and politicians, one cannot but wonder whether, according to Mr. Rajapaksa’s worldview, costing the country millions of dollars is a lesser crime than ‘dishonouring’ the national anthem. In any case, the lack of interest displayed by the President about the crimes and misdeeds of his ministers and officials proves that waste and corruption are non-issues in the Rajapaksa eyes. This permissive attitude will encourage more – and more costly – acts of corruption and wastage, because these crimes and misdeeds, irrespective of their cost to the country and the people, are cost-free to the perpetrators. Why should public officials and politicians be honest, when dishonesty is cost-free?
Lankan citizens of all hues need to question the regime’s attitudes and activities before the country reaches the point of no return, financially. For instance, why is defence expenditure not decreasing post-war? No one is suggesting that the regime should turn swords (or guns) into ploughshares; what is possible is a gradual decrease in military expenditure. But this would require a gradual decrease in the military and that the regime is not willing to do, even though the exorbitant defence costs are swallowing up a large chunk of the peace dividend.
Despite the growing debt burden and debacles such as the hedging losses, the regime continues to spend public funds lavishly on its own upkeep. For instance, recently the Finance Ministry presented yet another supplementary estimate to the parliament (this has become another Rajapaksa habit; a relatively moderate budget is followed by a string of expensive supplementary estimates). “The supplementary allocations have sought Rs. 6.5 million to purchase vehicles for the Foreign Employment Promotion Ministry, Rs. 13.3 million to purchase vehicles for the Telecommunications and Technology Ministry, Rs. 6.8 million for the Civil Aviation Ministry, Rs. 5 million for the Livestock Development Ministry, Rs. 6 million for the Export Crop Promotion Ministry, Rs. 15.3 million for the Plantation Industries Ministry and Rs. 10 million for the National Languages and Social Integration Ministry. The government has also sought approval for Rs. 40 million to repair the office of Senior Ministers along with Rs 10.5 million for the renovation of the Mass Media Ministry” (The Sunday Leader – 11.7.2011; emphasis mine).
The real enemies of the nation are those who are driving the country to the mire of bankruptcy. And these enemies are ensconced at the zenith of power and are in control of national wealth.
Presidential and parliamentary elections are not due for several more years. Thus the issue is not regime change, but preventing the regime from committing the sort of error which can have disastrous consequences on the country as a whole.
The Regime’s habits of waste and extravagance are matters which should engage the interests of UPFA supporters as well as Rajapaksa opponents. After all, the cost of Rajapaksa economics will have to be borne by all Sri Lankans, irrespective of whether they are supporters or opponents of the government. Thus it is in everyone’s interest to act now to put a halt to the regime’s costly errors, such as its suicidal determination to hold the 2018 Commonwealth Games in Hambantota, at a minimum cost of Rs.400 billion.
- Asian Tribune -