Login    Forum    Search    FAQ

Board index » Socio-Economic issues » Frauds,Corruptions, scandals & Conspiracies




Post new topic Reply to topic  [ 2 posts ] 
Author Message
 Post subject: Bizarre privatisation Sri Lanka Insurance Corporation (SLIC)
 Post Posted: Sat Sep 16, 2006 3:57 pm 
Bizarre privatisation deal of Sri Lanka Insurance Corporation (SLIC)

The former UNF regime under the leadership of the then Prime Minister Ranil Wickremesinghe has made blunders in its privatisation programme. The blame should directly go to the minister in charge of economic reforms at the time Milinda Moragoda. It was under Moragoda’s direction that the Ceylon Petroleum Corporation was sold to the Indian Oil Company (IOC). And it was under his direction that Lanka Marine Services was privatised and sold to John Keells. The entire episode dealing with the privatisation of Sri Lanka Insurance Corporation (SLIC) appears to be spurious if not a bizarre exercise.

By Wilson Gnanadass
@ The Nation / 10Sep2006


The entire episode dealing with the privatisation of Sri Lanka Insurance Corporation (SLIC) appears to be spurious if not a bizarre exercise. On the one hand the former United National Front (UNF) administration stands exposed for failing to properly involve itself in the transaction between the SLIC and the business magnate Harry Jayawardene while on the other hand the auditors and financial consultants appointed by the same UNF government come into sight as those who have severely erred.

While fingers are pointed at the buyer Harry Jayawardene who bought 90 % shares of SLIC, nobody dares to point the same fingers at the party that was in governance at the time, to find out whether by a genuine mistake it failed to look at this lapse or deliberately disregarded this huge issue as this transaction came directly under the purview of a powerful Cabinet Minister Milinda Moragoda.

Milinda Moragoda was in fact the Minister of Economic Reforms and therefore obviously became the Minister in Charge of the Public Enterprise Reform Commission (PERC) as well, and under whose very nose a series of privatisation of public assets took place.

The present United Peoples’ Freedom Alliance (UPFA) government laments that even the agreement that was signed between the SLIC and Jayawardene has not been proper and transparent. The government further states that the agreement has not even been correctly drafted that it has now become extremely difficult to quantify the dues, Jayawardene owes the state.

Minister of Skills Development and Public Enterprise Reforms, Sripathi Suriyarachchi said the Sri Lanka Insurance Corporation (SLIC) was divested on April 11, 2003 after obtaining the approval of cabinet and that PricewaterHouse Coopers was appointed as Financial and Legal Advisors to the government at a cost of US$ 1.62 million, which was paid by the Sri Lanka Insurance Corporation.

Cabinet approval

If the present government was able to see a plethora of lapses in the transaction between the SLIC and Jayawardene, one wonders how this deal obtained cabinet approval with many gaffes. Certainly PERC officials, who were involved in this transaction and including the minister-in-charge, should be held responsible and questioned further on this lapse. It is reported that it was the then Finance Minister K.N. Choksy who had raised objections to this deal, while other members of the Cabinet gave their consent. Interestingly those who were at the helm of PERC and were instrumental in making the deal with Jayawardene are today back in the UPFA government, again enjoying state patronage and even holding high offices.

P.B. Jayasundara who was one of the senior consultants to PERC at that time is today the Secretary to the Treasury. Anila de Soysa who was the Chief Transaction Manager at the PERC is now attached to PricewaterHouse Coopers. Chrishantha Perera, who was the Chairman at the SLIC at the time of transaction subsequently, joined PERC after privatisation and relinquished service later on.

What the then cabinet knew was that Jayawardene was going to purchase the majority of shares of the SLIC but what the cabinet was not privy to was the payment of US dollars 1.62 million to Coopers that was appointed as Financial and Legal Advisors by the government. Questions are asked as to why the then cabinet minister Moragoda failed to submit the cost factor that was involved in paying PricewaterHouse Coopers, also to cabinet for approval.

The former UNF regime under the leadership of former Prime Minister Ranil Wickremesinghe has made blunders out of the privatisation programme. The blame should directly go to the minister in charge of economic reforms of the time Milinda Moragoda. It was under Moragoda’s direction that the Ceylon Petroleum Corporation was sold to the Indian Oil Company (IOC). It was under his direction that Lanka Marine Services was privatised and sold to John Keells.

If P.B. Jayasundara is also party to the government’s claim that the agreement reached between the SLIC and Jayawardene was tainted, then he should be immediately held responsible along with Moragoda in particular, and the UNF government in general, for this confusion. Meanwhile a cabinet memorandum has also lambasted the financial and legal advisors for the present lapse and sought legal action against them.
The memorandum under the title ‘Divestiture of Sri Lanka Insurance Corporation Adjustment of Purchase Price Consideration’, submitted by Minister of Skills Development and Public Enterprise Reforms Sripathi Suriyarachchi saids the Sri Lanka Insurance Corporation (SLIC) was divested on April 11, 2003 after obtaining the approval of cabinet and that PricewaterHouse Coopers was appointed as Financial and Legal Advisors to the government at a cost of US$ 1.62 million, which was paid by the Sri Lanka Insurance Corporation.

The memorandum says as per the terms of the Share Sale and Purchase Agreement (SSPA), the Purchase Consideration was to be adjusted as per the movement of Net Working Capital of the Company between March 31, 2002 (bidding was based on the Accounts of this date) and April 11, 2003 which is the date of actual transfer of shares and the Management of the Company to the Purchaser.

It further states that the Cabinet Paper or the Cabinet Decision did not indicate any time limit for the payment of purchase price adjustment but the Share Sales and Purchase Agreement (SSPA) provided for maximum of 60 days from the date of handover to prepare the Completion Balance Sheet as at April 11, 2003 and to make the payment within five Business Days.

“As per SSPA, the Purchasing Consortium should require the Company (SLIC) to prepare and deliver the Balance Sheet as at April 11, 2003 known as Completion Balance Sheet to the Government on or before June 11, 2003. The Company had requested PERC to extend the due date for the completion of the preparation of the Completion Balance Sheet and the computation of the Net Working Capital on numerous occasions.
The Company on 26.3.2004 submitted the Completion Balance Sheet. PERC requested the Company to compute the Net Working Capital and for which the Company requested a number of extensions. PERC informed the Company on September 21, 2004 that no further extension would be granted. However, the Company on October 15, 2004 for the 16th time requested another extension up to October 28,2004 to submit the computation of the Net Working Capital adjustment. Again the Company wrote to PERC on October 28, 2004 asking extension up to November 20, 2004.

“All these times, the Company informed PERC that Ernst & Young (E & Y) had been involved in the preparation of the completion Balance Sheet and computation of the Net Working Capital.

“In order to resolve this long delayed settlement, PERC, based on the Accounts prepared by E &Y did compute the Net Working Capital and requested the Purchaser to make an interim payment of Rs. 1.5 billion on November 17, 2004 pending the final conclusion of the matter.

“The Purchaser, in turn, requested the Government to pay a sum of Rs. 2,059,436,000/= because of the decrease of the Net Working Capital. The Purchaser did not reveal the basis of such computation. Subsequently, the Purchaser through Sudath Perera Associates sent a Letter of Demand requesting the payment of Rs. 2,059,436,000/= on January 11, 2005. PERC referred the matter to the Attorney General who responded back denying any liability. PERC requested the Attorney General to take appropriate actions in June 2005. More recently PERC forwarded to the Attorney General’s Department with suggested working drafts of Plaints prepared by PERC on November 11,2005,” the memorandum stated.
It must be noted that Ernst & Young (E&Y) was the Auditor of SLIC when it was fully owned by the Government up to April 11, 2003, and was continuing as the Auditor of SLIC after the change of both the ownership and the management and at the time of preparing for the divestiture, SLIC had retained the services of E&Y to prepare the Accounts as at March 31, 2002 as per International Accounting Standards (as per the advice of PwC). E&Y also prepared the Completed Balance Sheet as at April 11, 2003.

Although E & Y on numerous occasions agreed to compute the said Net Working Capital adjustment, the company later refused to do so.
The cabinet memorandum says that the E&Y’s position was that the Share Sale and Purchase Agreement does not define the Current Assets and the Current Liabilities and, therefore, E&Y was now unable to advise PERC on this matter adding that the E & Y also stated that as per the legal advice received by them they would not want to get involved in a potential litigation of third parties.

“PERC is of the view that E & Y were the Auditors of SLIC when it was fully Government owned and, therefore, they are answerable to the GOSL as the sole shareholder,” the memorandum stated.

Discrepancies

According to the memorandum while pursuing various Accounts prepared by E&Y, PERC has noted the following discrepancies that were brought to the notice of E&Y and E & Y never responded.

(a) E&Y prepared the Audited Accounts for the Year ended December 31, 2001 while SLIC was Government owned.

(b) The Audited Accounts for the year ended December 31, 2002 (for the period SLIC was owned by the Government) was prepared by E&Y on 28.11.2003 after handing over the management to the Purchaser. In these set of Accounts, the respective figures for 2001 had been restated in such a manner that the Current Assets had been increased by Rs. 3 billion. No reason was given for such a discrepancy. This over statement would result in lowering of any increase of Net Working Capital between March 31, 2002 and April 11, 2003. In the absence of any plausible explanation, it appears that E & Y was colluding with the Purchaser to minimize the actual increase of Net Working Capital between the aforementioned dates by manipulating accounting entries.

(c) The above conduct of E&Y creates serious doubt about E&Y’s professional integrity and impartiality as an Auditor. Accordingly the veracity of the Management Account prepared by E&Y as at 11.4.2003, also known as Completion Balance Sheet, is also questionable because the increase or decrease of Net Working Capital has to be determined based on these accounts.

(d) Incidentally, SLIC has made a loss for the period up to April 11, 2003 and started making profits immediately thereafter.

The cabinet memorandum says further that Pricewaterhouse Coopers (PwC) were the Financial and Legal Advisors to the Government SLIC and as per the Share Sale and Purchase Agreement (SSPA) prepared by PwC, the Purchase Price has to be adjusted as per the Increase/Decrease of the Net Working Capital of the Company between March 31, 2002 (Bidding was based on the Accounts prepared at this date) and April 11, 2003 (the date of the hand over of SLIC to the Purchaser).


According to the memorandum the PwC had been negligent because :

(a) PwC advised the Government to accept financial bids on the basis of Un-audited Accounts. Any transaction of this magnitude ought to have been based on audited accounts.

(b) The SSPA requires the Government to accept the April 11, 2003 Accounts prepared as per International Accounting Standards to determine the Increase or Decrease of Net Working Capital (NWC) and NWC had been defined as Current Assets less Current Liabilities. However, the Accounts prepared as at March 31, 2002 and April 11, 2003 do not reveal Current Assets and Current Liabilities ex-facia. E&Y is also stating the same thing that Current Assets and Current Liabilities are not stated in these Accounts. This gray area has given ample opportunities to the Purchaser who was responsible for preparing the Accounts to manipulate accounting entries to the detriment of the Government.

(c) PwC now advises PERC that the Increase/ Decrease of Net Working Capital of only the General Insurance should be taken for determination of the adjustment of NwC. However, as per the SSPA, it is the Company’s Net Working Capital (both the General Insurance and the Life Fund) that should determine the Purchase Price Adjustment.

Current situation

The settlement of the dues has remained unresolved for over two and a half years. Every attempt by PERC to obtain the computation from E & Y had been a failure.

According to PERC sources E &Y has categorically refused to comply with the request made by PERC at a meeting chaired by the Minister himself.
This also prompted PERC to request the assistance of the Auditor General to have determined the Net Working Capital.

The PERC will not be able to take up the issue with the purchaser unless and until E&Y, as the auditors to SLIC, both before and after privatization, advises as to the increase or decrease of Net Working Capital.

The Attorney General it is learnt had advised that the Government should refrain from suing PwC for professional negligence and only initiate action should the Government become liable to make any payment to the Buyers’ Consortium.

Meanwhile according to the cabinet memorandum the Approval of the Cabinet of Ministers is sought to implement the following Administrative measures:
(a) All Public Sector Institutions should refrain from doing any business with E & Y until the legal dispute is resolved comprehensively.
(b) All payments due to E&Y by any Public Sector Enterprise should be frozen until the dispute is resolved.
(c) The Attorney General should expedite the appropriate legal actions against the parties concerned.


Top 
  
 
 Post subject: SL Insurance sale annulled, shares revested in Treasury
 Post Posted: Fri Jun 05, 2009 7:04 pm 
Offline

Joined: Fri Aug 12, 2005 12:54 pm
Posts: 192
SL Insurance sale annulled, shares revested in Treasury

by Chitra Weerarathne @ The Island / 05 June 2009

The Supreme Court yesterday declared in judgement that the sale of 90 per cent shares held by the Secretary to the Treasury on behalf of the government, in the Sri Lanka Insurance Corporation, had been carried out wrongfully. The Court declared the aforesaid sale to a private owner null and void and ordered that the shares sold in that transaction be immediately re-vested in the Secretary to the Treasury.

The respondents, Milford Holding Pvt. Limited and Greenfield Pacific EM Holdings Ltd., would have to return to the Treasury the 90 per cent shares they purchased subsequent to an agreement dated April 11, 2003. The aforesaid companies will be entitled to their investment amounting to Rs. 6.5 billion. The Court ordered that the Secretary to the Treasury nominate new Directors to the Sri Lanka Insurance Corporation.

The petitioners, Vasudeva Nanayakkara, and a group of employees of the SLIC had complained that the privatisation of 90 per cent shares was done mala-fide. The petitioners had filed a public interest litigation, in the interest of the citizens of the country. They sought to nullify the agreement dated, April 11, 2003.

The Greenfield Pacific Holdings Limited is the local agent of Milford Holdings Pvt. Limited of Singapore. Harry Jayewardene had been a signatory for the purchases, at the agreement to purchase 90 per cent of the SLIC shares in April 11, 2003. The Court declared that the petitioners had been subjected to arbitrary treatment by this deal.

The Court said that the steering committee to structure the sale appointed without Cabinet approval. Although Minister Moragoda said that it was only advisory in function, the committee had carried out administrative and executive action. The Tender Board had been appointed without following Cabinet directions and had no jurisdiction.

The government Valuer did not value the privatisation project. The steering committee had kept the government valuer out of the scene. The petitions were supported by M. A. Sumanthiran and Viran Corea. The Court commended the petitioners for litigating in the interest of the public and getting re-vested in the State a pivotal public institute. The Court said such services are priceless and could not be limited to an ordered cost. As a token of appreciation they were granted a copy each of the judgement free of cost.

The judgement was by Justice N. G. Amaratunga with Chief Justice Sarath N. Silva and Justice K. Sripavan.


Top 
 Profile  
 
Display posts from previous:  Sort by  
 
Post new topic Reply to topic  [ 2 posts ] 

Board index » Socio-Economic issues » Frauds,Corruptions, scandals & Conspiracies


Who is online

Users browsing this forum: No registered users and 2 guests

 
 

 
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum

Search for:
Jump to: