Australian media allegations shock SL

* Mass resignation of officials and PM’s devil-may-care attitude
* Traders apprehensive about govt.’s intentions on VAT


President Maithripala Sirisena

The news that shook everybody up last Wednesday was an article titled "Australian companies linked to bribe scandals in Sri Lanka and Congo" which appeared simultaneously in The Age and the Sydney Morning Herald websites both of which belong to the Australian media company the Fairfax Group. Within the hour it had gone viral in Colombo with people alerting one another about the article over the telephone and sharing the article over social media. The article stated that two Australian companies were embroiled in bribery scandals involving the presidents of Sri Lanka and the Republic of Congo, as the firms sought to secure multimillion-dollar contracts. The company involved in the Sri Lankan case was the Snowy Mountains Engineering Company (SMEC). This was not just an investigation by a media organisation but one involving the Australian Federal Police as well.

The Fairfax group investigation claims to have had uncovered two incidents of bribery involving officials of SMEC and Maithripala Sirisena, one being a sewerage project in 2011 worth 2.3 million USD and a dam project in 2009 worth 1.82 USD. The evidence uncovered so far appears to be based mainly on company emails belonging to SMEC. The Fairfax group article says that according to the emails in their possession Maithripala Sirisena as well as an unnamed advisor to Sirisena had solicited the bribes. The 2009 project was funded by the World Bank and the Fairfax Group refers to several emails written by the Sri Lankan manager of SMEC to his Aussie colleagues in the company. One email refers to the need to ‘inform the minister/coordinating secretary of the size of the kickback to be paid since the signing of the contract would depend on it’.

According to another email referred to by the Fairfax group, the SMEC manager had personally met Sirisena and at this meeting the latter is supposed to have said that ‘there will be elections in the near future’ and that he had wanted to know ‘whether SMEC could make a donation for the elections’. Sirisena is supposed to have proposed an amount/percentage on the contract value. Referring to the emails in their possession, the Fairfax Group says that the amount finally decided on for one contract was Rs. 2.5 million. They also state that company accounts reveal that $A27,000 (equivalent to Rs. 2.5 million) was withdrawn in cash by the said manager. The Fairfax group reports that in responding to these charges, SMEC has confirmed ‘a request for a political donation’, but insists an internal investigation found no donation was made and the firm continues to fully cooperate with the AFP.

The Colombo Telegraph, reproducing this article on its website had given it the apt title "Sirisena in a soup over bribe scandal involving Australian company." Indeed president Sirisena is is a soup because a major media organisation in Australia and the Australian Federal Police are involved in this investigation which means that it will not be wished away or swept under the carpet. The Australian press is well known for its doggedness. It should be understood that this investigation is against their own companies that do contracts overseas. If they are investigating their own companies for giving kickbacks, they are certainly not going to shield any third world politicians. The Fairfax group newspapers would not have published this news lightly because they too welcomed the ‘yahapalana revolution’ in Sri Lanka and the election of Maithripala Sirisena as president.


Fairfax Group had praised

Sirisena earlier

On February 24 2015, the Fairfax Group published an effusive article about President Sirisena written by Bruce Haig a former diplomat who had served in Sri Lanka titled "President Maithripala Sirisena a new broom for Sri Lanka". Like the articles accusing Sirisena of having solicited bribes, Haig’s article was also published simultaneously in The Age and the Sydney Morning Herald. In this article the writer gushed "Maithripala Sirisena's surprise election as Sri Lankan President on January 8 has paved the way for a significant departure from the policies of his predecessor, Mahinda Rajapaksa." The writer berated the Australian government for the cordial relationship it maintained with the disgraced Rajapaksa government and called upon it to do a ‘fundamental rethink’ about its future relationship with Sri Lanka. The writer said that before the election the relationship between Australia and Sri Lanka was predicated solely on stopping Tamil asylum seekers coming to Australia by boat and described this as ‘foreign policy at its worst’.

Ironically, in this effusive article on Sirisena’s surprise election victory, the writer had expressed concern about the fact that the good relations that Australia maintained with the disgraced Rajapaksa regime may get Australia embroiled in the corruption investigations against the Rajapaksas. Bruce Haig wrote: "It would be embarrassing were Australia to be caught in the foreshadowed inquiries into corruption alleged to have occurred on Rajapaksa's watch. It was poor judgment and ill-conceived self-interest that drove Australia's relations with such a rotten and discredited regime." Haig had praised Julie Bishop for pledging to support "the new President in his moves to implement democratic reform and counter corruption." Now it appears that the first person being investigated by the Australian authorities is not the disgraced Rajapaksa but Sirisena, the head of the celebrated anti-corruption drive in Sri Lanka.

Given this background, the Fairfax group in particular would not have published that article about Sirisena’s involvement in allegedly soliciting bribes from Australian companies lightly. The Anti-Corruption Front which is an extension of CAFFE, the elections monitoring NGO has put out a press statement saying that president Maithripala Sirisena who has been taking action against corruption locally and talking about fighting corruption in international fora should explain to the people the facts behind the allegations levelled at him. To give the statement added weight, it has been signed by several office bearers of the front including its president Ven. Ulapane Sumangala, its advisor Keerthi Tennakoon, Nirmal Ranjith Dewasiri, lawyer and NGO activist Namal Rajapaksa among others. Transparency International has also called on president Sirisena to make a full explanation about what this is about.

President Sirisena for his part has denied any involvement in the incidents referred to in the Fairfax Group articles and has pledged to cooperate fully with the Australian Police investigation. The yahapalana camp is obviously reeling under this unexpected and inconvenient broadside from down under. The Sirisena-led government has been arresting and remanding members of the opposition even for claiming more petrol than they were entitled to. Now for the head of such a holier-than-thou government to be the subject of an investigation by a foreign police force for soliciting bribes, is a rare irony indeed.

Though this article in the Fairfax Group newspapers was known to every media organisation in Sri Lanka by the afternoon on Wednesday, not a single mainline media organisation picked up the story with the sole exception of the Daily FT. The story did not feature in any of the TV news bulletins either. One possible reason for this is the climate of fear that the yahapalana authorities have instilled within the media. The other was of course embarrassment and confusion. The media did not know how to react to the news. This was something unique. Never has the president or a prime minister of this country ever been accused of corruption by the foreign press or named in an investigation by a foreign police force. Later, with the presidential secretariat issuing a clarification regarding this article, it got some publicity in the newspapers. But the issue still does not feature in the TV channels. Despite this, by now, all members of the public who regularly follow the news have got to know about the Australian newspaper articles and have obviously formed their own conclusions about it.

Mass resignation of treasury


Last Wednesday, the same day on which the Australian media broke the story about President Sirisena, 85 officials of the ministry of finance serving as ex-officio directors on the boards of 280 public corporations resigned from their directorships saying that they will not resume their duties unless steps were taken to ensure their future security and professional respect. They had stated that the Chairmen and CEO’s appointed to the bodies in which they served as representatives of the Treasury were political appointees and that they too have had to face investigations and have been arrested and remanded due to the actions of these political appointees and that therefore serving in these public bodies or in tender boards and technical evaluation committees would be inimical to their wellbeing. They had pointed out that the representative of the treasury will have to bear greater responsibility for any decision taken by these bodies. The Prime Minister’s cryptic response to this mass resignation has been to say that these officials will not be reappointed to those positions and that new persons will be appointed.

The issue here is that those who have resigned are 85 of the senior-most officers of the Ministry of Finance. It’s not as if there are hundreds of officers of similar rank in the ministry who can be appointed as directors of public enterprises or as members of tender boards. By saying that these officials will be replaced, it seems obvious that the UNP-SLFP unity government is trying to run the country the way the UNP conducted the 1981 Jaffna DDC election. Due to the reign of terror launched by PLOTE and other Tamil terrorist organisations, sufficient election staff could not be found among government employees in Jaffna. Then the government took steps to bring election staff from other parts of the country to man the polling booths in Jaffna. When the election staff from the south arrived in Jaffna for election duty by train from Colombo, they saw Jaffna in flames after the police went on the rampage in reprisals for the killing of policemen by PLOTE and they went back in the same train.

Thereupon the government got the peons, minor employees and the like whom the UNP at that time had at their beck and call, to come to Jaffna for election duty. It was they who conducted the Jaffna DDC election. Even at 10.30 in the night peons were wandering around with ballot boxes not knowing where to take them. It is no wonder that there were stories about ballot boxes being found under the beds of places where accommodation was provided for election staff. The question that now arises is whether this country is to be run the way the then UNP government ran the Jaffna DDC election by replacing experienced staff with all kinds of upstarts and riff raff.

When parliament met on Friday, Joint Opposition member Bandula Gunawardene raised the question about the Treasury officials who had resigned from the boards of statutory bodies and government owned enterprises due to fear of being arrested and remanded by the FCID and about private sector individuals serving in government director boards in a honorary capacity also being arrested and remanded. In replying to him the prime minister said that some officials serving in the boards of various government bodies had resigned and that if they are scared, they will not go back to those positions. Furthermore he said that the presence of treasury officials in organisations like SriLankan Airlines and the CPC had not prevented those organisations from running at a loss. Explaining the immediate reason for the resignation of these officials, the PM explained that money belonging to the Tourism Promotion Bureau had been spent on the Uva provincial council election and that this has to be investigated. He stated that there are plenty of people in his party who are willing to fill the vacancies created by the resignation of the treasury officials. COPE is obviously going to have more work than it can cope with.

Traders’ anxiously observing

govt. propaganda drive

The government has been running pro-VAT and pro-tax advertisements on TV which seems to indicate that they are not about to back off on the VAT issue despite the stiff resistance it has encountered from the trading community. Under this government we have seen a couple of demonstrations extolling the virtues of VAT in particular and taxation in general. Now there are these pro-taxation TV ads. This is a new experience for the people of this country. Nobody has heard of taxes imposed on the people being hailed as a virtue. Quite the contrary, here and abroad, taxes have given rise to revolts against the government. In that respect the present government is attempting to swim against the historic tide with their pro-tax ads. One advertisement features a young woman complaining of having been late for something because all the roads were blocked by anti-VAT demonstrations!

The traders who have been at the forefront of the anti-VAT demonstrations, have been watching these ads with some trepidation because they seem to indicate the intent of the government as regards the VAT increase. Furthermore, the Federation of Traders’ Associations complain that some of the claims amount to a tweaking of the truth and at times are outright falsehoods and that the government is trying to mislead the public about the application of the VAT. For example the claim made in the ads that of the 2 million people required to pay taxes only a tiny fraction do so is questioned by the traders. While it is true that a very large number of people who are eligible for taxes don’t pay, that number is nowhere near 2 million, they argue. The total economically active population is around 9 million or less, and of this number about 1.3 million are government servants who do not pay tax. Then there are around 3.5 million private sector workers, 2.9 million own account workers and about a million ‘contributing family workers’ and only a tiny percentage of these categories would be eligible to pay any kind of tax. The total number of employers right down to the smallest boutique according to the department of census and statistics, is less than 270,000 and only a minority would be eligible pay taxes. So the traders dispute the figure of 2 million potential taxpayers mentioned in the govt. propaganda ads. Moreover, all this is not about the need to pay taxes since the trading community in Sri Lanka is aware that the country needs taxes. The issue at hand is only the VAT charged on the retail and wholesale trade.

The government’s ads also try to convey the impression that the rise in the VAT is only from 11% to 15% with the actual increase being only 4%. This is certainly so in the case of goods and services that already subject to VAT. However sectors like the health services and the small and medium wholesale and retail trade would be subject to the VAT for the first time. The most problematic issue is the VAT on the wholesale and retail trade. There was no VAT on the small and medium wholesale and retail earlier, and there this will mean a 15% jump in prices at the retail level if implemented. Traders claim that the actual increase passed down to the consumer will be even greater because goods pass through at least three intermediaries before reaching the shelves of the retailers.

The importer may sell the goods to a Pettah merchant and the Pettah merchant in turn sells it to a delivery service which in turn sells it to the retailers. At each stage the intermediaries will be paying VAT on the margin they keep and passing that down in stages to the consumer. By the time the imported item reaches the consumer it may have increased in price by more than 20% due to the 15% VAT on traders and intermediaries right down the line.

Even though the government has been saying in their advertisements that the VAT was 20% earlier which had come down in later times, what matters is not in the percentage charged as VAT but the items it is charged on. Even if a VAT of 20% is charged on items that are not used by ordinary folk, that does not have an adverse impact on prices. However, even if a VAT of 15% is charged on goods and services consumed by the ordinary public, it does result in a major economic burden. Even though items like rice, wheat flour and vegetables are exempt from VAT, the moment they are cooked and prepared for sale they become VAT liable and this will drive up the retail prices of cooked food by 15%. The same applies when cloth is turned into garments locally. Traders warn that this sudden increase in prices will drive down consumption and wipe out many small and medium enterprises which operate on very small margins and need a certain volume of work to keep their enterprises going.

This writer would like to add in this context that many years ago he knew a sales representative of a major pharmaceutical company marketing a popular brand of paracetamol tablets which is a household name in this country who told this writer that at certain times of the year when farmers in rural Sri Lanka run out of the money they got from the harvest, even the sale of this paracetamol tablet drops and picks up when the farmers have money again after the next harvest! One would think that paracetamol which is taken to cure headaches and the like would sell regardless of the prevailing economic conditions of the population because curing a headache cannot be postponed. Yet even the sale of paracetamol drops when economic conditions are bad and even curing headaches are in fact postponed. This is the effect that the Federation of Traders’ Associations is warning everybody about.

animated gif
Processing Request
Please Wait...