Waiting for Sirisena’s final hat trick

* The Lotus Tower fiasco

* Auditor General’s observations

* COPE query about Lotus Tower


by C.A.Chandraprema

With nominations being called for the presidential elections, President Sirisena’s time as President is fast running out. At the past three elections in this country from the 2015 January presidential election onwards, Maithripala Sirisena has always sprung a surprise on his opponents. At the last presidential elections, he himself was the surprise leaping out jack-in-the-box style to become the common candidate.

At the parliamentary elections that followed in 2015, the surprise was his letter stating that he would not make Mahinda Rajapaksa the Prime Minister even if the UPFA won the election. At that time Mahinda was leading the UPFA campaign and seemed to be gaining the upper hand. President Sirisena followed up on his letter by sacking the pro-Mahinda secretaries of the SLFP and the UPFA on the day that the campaigning closed for the parliamentary election thus deflating the entire UPFA campaign.

That was the surprise that tipped the balance at that election. The surpise that was sprung on the newly formed Sri Lanka Podujana Peramuna on the eve of the 2018 local government election was the press conference called by the Auditor General on the day that the campaigning ended to tell the public that the Rajapaksas had got the country stuck in a debt trap and that even he, the Auditor General did not know how much Sri Lanka owes to its creditors.

Given the fact that campaigning had ended, the SLPP was not able to respond adequately. However, this was too little coming too late and the newly formed SLPP romped home at the LG elections. Now with the presidential elections in the offing, everybody is waiting for President Sirisena to spring his usual pre-poll surprise on the public.

His comments at the opening ceremony of the Lotus Tower about a Chinese contractor who took two billion rupees and disappeared certainly looked like the anticipated Polonnaru ‘gundu’ before the election, but with his story exploding in his face, it has become more a surprise to Sirisena himself and not to anyone else.

The Sri Lankan Ambassador in China has confirmed that ALIT, the company that is supposed to have disappeared is still very much around even though they have changed their address and ALIT itself has responded to Sirisena’s allegation with a statement of its own saying that the advance payment of Rs. two billion was made to the main contractor who is still involved in the Lotus Tower project and not to ALIT.

Before the dust settled on the Lotus Tower fiasco, there was that sudden special cabinet meeting held to discuss the abolition of the executive presidency, but that too turned out to be a damp squib. It appears that Sirisena himself is thrashing around looking for a surprise that would at least prolong his tenure in power. What can be the last ‘gundu’ that’s on the way?

Lotus Tower fiasco

President Sirisena’s charge that one of the Chinese contractors involved in the construction of the Colombo Lotus Tower had absconded with the advance payment of two billion rupees was the proverbial spot of dung in the pot of curd, coming as it did at the opening ceremony of what is to be a national symbol. According to the President, this money had disappeared years ago – but he waited for the opening ceremony to make the accusation.

Little wonder that the former President Mahinda Rajspaksa in a strongly worded response stated that this was done out of sheer jealousy and to prevent the credit for building the LotusTower from going to those who conceived the project.

The ruler of Dubai would never have said something like that at the opening of a national symbol like the Burj Khalifa, nor would the leader of Malaysia say something like that at the opening of the Petronas towers. The President’s speech at the opening of the Lotus Tower last Monday showed the entire world what kind of a leadership Sri Lanka has.

The Chinese Ambassador who was present on the occasion would have been shell shocked. No country on earth has insulted China the way Sri Lanka has over the past five years. All countries in the world are falling over themselves to woo China and to attract Chinese investment. Even the queen accommodates the Chinese President at Buckingham Palace, but Sri Lanka has been insulting and demeaning China almost as a matter of habit over the past five years.

As soon as the present government came into power in January 2015, they halted work on Chinese funded projects. The plaque that commemorated the inauguration of the Colombo Port City Project by Presidents Mahinda Rajapaksa and Xi Jinping was dislodged and carted off and no one seems to know where it is now.

It was only much later when the expected financial rewards from the West for all this China bashing failed to materialize that the government allowed the recommencement of Chinese projects including the Colombo Port City. Today, the same government claims the Colombo Port City as their flagship project!

It was in such circumstances that this latest insult was hurled at China. ALIT is a major Chinese company producing even advanced missile weapons systems. For the President of a country to say that such a company has simply closed shop and disappeared after collecting some money in the manner that bogus job agents do in Sri Lanka, was absurd, to put it charitably. This fiasco has given rise to much merriment in Colombo circles but it’s unlikely that the Chinese authorities would see the funny side of things.

The project

In April this year the Auditor General signed a Special Report of 670 pages including all supporting documents on the Colombo Lotus Tower project prepared by his Department. Even though the Auditor General’s Dept. had probed all payments made by the TRC including those made to the project consultants at the University of Moratuwa, there is no mention at all of a Rs. two billion fraud by a contractor.

When even payments of 100,000 to individual officers have been probed, it is very unlikely that the AG’s Dept could have missed a two billion rupee fraud - if it actually took place. Another thing that becomes clear when perusing the documents in the AG’s Special Report is that it was always the main contractor, China National Electronic Import and Export Corporation, that corresponded with the TRC, with regard to the Lotus Tower and not ALIT.     

According to the Special Report of the Auditor General, the original Cabinet Paper with the proposal to set build the Colombo Lotus Tower had been approved on 13 October 2010. The idea was to construct a Multi-Functional Transmission Television and Telecommunication Tower, 350 meters in height. Though the initial proposal was to build this tower in the Peliyagoda area, the site was soon shifted to the 2.59 hectare site by the Beira Lake.

The construction cost was estimated to be USD 104.3 million. Construction work had commenced on 12 November 2012 and was scheduled to be completed in 912 days by 2015. However, after the change of government there had been delays. The period of construction had been extended up to October 2017 at the request of the contractor but had not been completed even by that date. The continuous delays had increased the cost of the project.

The contractors of the project were according to the Cabinet Paper to be China National Electronic Import and Export Corporation (CEIEC) and Aerospace Long March International Trade Co. Ltd. (ALIT) Another Cabinet Memorandum had been approved on 30 November 2011 with the proposal to obtain loan facilities for the project from the Export-Import Bank of China. The loan was to be obtained direct by the Sri Lanka Telecommunication Regulatory Commission on a government guarantee.

A sum of Rs. 300 million a year was to be paid by the TRC to the Urban Development Authority over a period of 34 years to defray the cost of acquiring the land at Rs. 11.6 billion. After completion, the Colombo Television Tower and Entertainment Center was to become a public company under the ownership of the Sri Lanka Telecommunication Regulatory Commission.

Another Cabinet Memorandum dated 12 September 2012 granted approval for the TRC to obtain a loan from the China Exim bank up to a maximum of 85% of the construction cost (USD 88.6 Million). This was also the Cabinet paper that granted approval for the payment of 15% of  the contract sum USD 15.6 million or Rs. two billion as an  advance to the contract company  using the funds of the Sri Lanka Telecommunication Regulatory Commission and to inform the contract company to commence work immediately.

Cabinet approval was also granted to obtain the approval of the Central Bank and the Treasury to remit a sum of USD 15.6 Million to the contractor. It was also decided that while the contractor was to commence work without waiting for the China Exim Bank to start disbursing the loan, interim bills would not be presented by the contract company for work done until the Exim Bank of China issues funds out of the loan. Even if there is a delay in getting the loan, work on the project should be carried out continuously by the contract company without any termination or any delay.

The memorandum of understanding between the Sri Lanka Telecommunication Regulatory Commission and Exim Bank for providing the loan for the project was entered into on 09 May 2012. The period of the loan agreement was 13 years including a three year grace period and 10 years to pay back the loan.

A sum of Rs. 1.14 billion had been paid to the China Export and Credit Insurance Corporation as a loan insurance fee during the year 2013. The first disbursement had been done by the EXIM Bank on 19 August 2013 and the loan disbursement period was scheduled to end on 18 August 2016.

However, only a sum of USD 43.7 million which represents 49 per cent of the total loan amount had been disbursed as at that date. According to a Cabinet decision of 13 September 2016, the amendment of the loan agreement had been signed on 21 October 2016 due to the extension of the period of the contract. The final loan installment had been released by the Exim Bank on 27 October 2017 due to expiry of the period of loan disbursement and the total amount of the loan disbursed had been limited to USD 67.2 million.

On 09 January 2018, Cabinet approval had been granted to use the funds of the TRC to make payments to the contractor to complete the project. An agreement had been signed between the Sri Lanka Telecommunication Regulatory Commission and the University of Moratuwa on 15 February 2013 to obtain consultancy services for the project for a fee of Rs.198 million.  On 26 November 2015 the TRC Board had decided to extend the Consultancy Service Agreement up to 31 October 2017 and to pay a further sum of Rs. 72 Million to the University of Moratuwa at Rs. 3 Million per month.

Auditor General’s observations

Observations on the contract agreement between the Sri Lanka Telecommunication Regulatory Commission and CEIEC/ALIT had been sent to the TRC by the Attorney General’s Department and the Professor of the Project Consultancy Unit had informed the Sri Lanka Telecommunication Regulatory Commission by the letter dated 05 October 2011 that those observations had been included correctly in the amended contract. The Auditor General’s Department had made several observations about the Lotus Tower project which are as follows:

*   A feasibility study report had not been prepared for the project and only a financial Feasibility Study Report of the project had been prepared by the Project Consultancy Unit of the Faculty of Architect of the University of Moratuwa.  

*According to the loan agreement entered into between the Exim Bank and the Sri Lanka Telecommunication Regulatory Commission, the loan interest rate was to be 4% added to the LIBOR rate for the period. The LIBOR rate for the period was 0.6%. However the flat interest margin had been miscalculated as 3.5% when assessing the borrowing cost. As a result there had been an under-statement of Rs. 502 million in the borrowing cost.

* According to the loan agreement, loan interest should be paid half yearly on 21 January and 21 July from the date of first disbursement and loan installments should be paid within 10 years in 20 equal installments. Nevertheless loan installments of the feasibility study report had been calculated on the basis of payment of 144 monthly installments within 12 years from the commencement date of paying loan installments. Accordingly it was observed that the loan interest payments that have to be paid during the period of disbursement of the loan had not been taken in to consideration.

* The management fee of US$. 797,895 represent 0.9% and the commitment fee of 0.7% for the unutilized loan amount which should be payable according to the loan agreement had not been considered in the feasibility study report.

* Although an insurance cost of Rs. 463 million representing 4% of the loan amount had been included in the feasibility study report, a sum of Rs. 1,144.9 million had been paid as loan insurance during the year 2013. That amounts to 11.6% of the total amount of the loan. Accordingly Insurance cost had been understated by Rs. 681 million in the feasibility study report.

* Predictions of income had been made for the first 15 years in the financial feasibility report. According to these predictions potential revenue amounting of Rs. 5.475 Million had been lost up to 30 August 2018 because the Tower had not been constructed on the due date.

* The total amount of the loan agreed with the Exim Bank could not be obtained due to the delay in construction.

* Although the amount of the loan disbursed had been limited to USD 67.2 million by the Exim Bank, it was observed that the commitment fee of Rs. 91.8 million  (US$. 636,058) had been overpaid due to the application of the total amount of the loan – USD 88.6 million to calculate the commitment fees.

* An additional fee of Rs. 49.6 million (USD 322,984) had to be paid for the period 19 August 2016 to 27 October 2017 for the unutilized amount of the loan.

*   Although the Professor of the project Consultancy Unit had informed the Sri Lanka Telecommunication Regulatory Commission that the observations of the Attorney General’s Department had been included correctly, the contract agreement had not been amended in accordance with the AG’s observations. As a result, the conditions relating to the payment of taxes which was included in the said observations had not been amended. A claim had been made to recover income tax of Rs. 87,394 and PAYE tax of Rs. 11,175,734 which had been paid to the Department of Inland Revenue from the Commission.

* The procurement process for selecting a sub-contractor for the electric lifts and escalators commenced in August 2013, and had been awarded on 31 March 2016 after the lapse of a period of two years and eight months. It was observed that the delay in awarding this tender had added to the delays in the construction of the Lotus Tower.

* The lift contractor had failed to complete the work within the stipulated period. Although the fixing of several electric lifts and all escalators should have been completed before the 30 April 2017 it was observed during an inspection carried out on 28 June 2017 that the equipment had only been brought to the work site as at that date. The fixing and operating of all electric lifts and escalators had not been completed even by 11 May 2018.

* According to the Telecommunication Act, even though the Sri Lanka Telecommunication and Regulatory Commission did not have the power to establish a company, it was observed that Cabinet approval had been obtained by the Commission to establish a company (for the commercial operations of the tower).

* Cabinet approval had not been obtained for the vehicle park complex which had been proposed to be built using the funds of the Sri Lanka Telecommunication and Regulatory Commission -  not exceeding a total investment of Rs. 4 billion.

That essentially was what the Auditor General’s special report on the Lotus Tower said. There was no mention in it of the alleged fraud that President Maithripala Sirisena spoke about at the opening ceremony. Interestingly, the Auditor General’s report mentions a query that the Committee on Public Enterprises of Parliament (COPE) had addressed to the TRC.

COPE had by a letter dated 23 June 2016 directed the TRC to submit a report on the benefits that could have been obtained if the construction of the Lotus Tower had been carried out with the funds of the TRC without obtaining a loan. The Director General of the Commission had reported by the letter dated 09 August 2017 that attention had not been paid to the benefits that could have been obtained by carrying out the construction using the funds of the Commission.

Even this query made by COPE has a direct bearing on what President Sirisena said at the Lotus Tower opening ceremony. The President in his speech kept stressing the fact that this tower had been built with public funds that were among other things used to pay the salaries of government servants. Even though it was largely funded by a loan, the President stressed that the loan too would have to be repaid with public funds.

The whole tenor of the President’s speech implied that the tower had been built by thieves for their benefit, depriving the public of money that was rightly theirs. But COPE wants to know whether it would not have been more advantageous to Sri Lanka if the project had been done entirely with TRC funds without obtaining a loan – the very opposite of the impression that President Sirisena was trying to convey!

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