1.6 bn avoidable loss incurred in Bond auctions: AG

Rs. 5867 mn net profit to Perpetual Treasuries AG permitted to add more losses in secondary market Bond auction held March 29, 2016 was unusual AG uncertain during cross examination

The Auditor General’s report submitted to parliament stated that the relevant authorities at the Central Bank should be responsible for a loss totaling to Rs.1.674 billion, the Auditor General Gamini Wijasinghe said yesterday.

The losses which were deemed ‘avoidable’ in the report, were in reference to the two Bond Auctions which took place on February 27, 2015 and March 29, 2016.

The revelation was made during the continuation of evidence led by Deputy Solicitor General Priyantha Navana before the Presidential Commission for the Controversial Bond Issuances. Giving evidence the Auditor General said that the net profit gained by Perpetual Treasuries Ltd during the period April 1 to August 31, 2016 was amounting to Rs. 5867 million.

When delivering his evidence over the Bonds Auction held on March 29, 2016, the Auditor General explained that the value of the bids offered by the CBSL initially at the auction was Rs. 40 billion but had unusually accepted Rs. 77.732 billion bids exceeding Rs.37.732 billion.

However, the Funds requirement of the Government at the time was around Rs. 80 billion.

He moved that the decision to raise funds solely from the Bond auction was irrational because it could incur financial losses to the CBSL in various ways.

The CBSL could have stopped accepting bids at the Rs. 40 billion cut out and raised other fund requirements of the Government by using Direct Placement Method.

When questioned by the commission the Auditor General said if the DPM was not available the CBSL could have stopped accepting bids at Rs. 40 billion cut out in the auction and go for another auction later within a week to raise other funds required.

And he said the OD facilities of BOC and People’s Bank could have been used to manage the process until the second auction, because the funds were required by the Government by April 2. Commenting on the participation of the Employees Provident Fund in the bond market, the Auditor General also said according to his findings that the EPF had invested only in the secondary market at lower interest rates despite its availability for investing at primary market at higher interest rates. However, when questioned by the Commission it was revealed that such a decision is identified as a complex one to the EPF authorities.

On the other hand, at the cross examination conducted by Nihal Fernando PC and Counsel Romali Tudawe the Auditor General was asked to answer some theoretical questions regarding Treasury Bonds and the methods he used in loss calculations.

It was seen that the Auditor General was uncertain at some points responding to the questions during the cross examination. Subsequently, considering the significance of his evidence, the president of the Commission SC Justice T. Chitrasiri advised the Auditor General to avoid subject matters of which he does not have expert knowledge and to reply with great attention to the questions, because contradictory responds would be a reason to set aside the whole evidence of him.

Meanwhile, the Commission yesterday requested the Auditor General to inquire and prepare a report on transactions that had taken place in the Secondary Market regarding the issuances of Bonds in the Primary Auctions held during February 1, 2015 to March 31, 2016 by the CBSL.

Earlier, it was revealed that the CBSL had failed to provide details regarding the secondary market transactions in order to calculate more possible losses due to the controversial bond issuances. The Commission did so with the intention of examining any further financial losses to the State or any other public body. The decision was made acceding the application made by the Attorney General’s Department while the objections, which were based on the mandate given to the Commission were also overruled.

The objections were raised by the counsel who appeared on behalf of Perpetual Treasuries Ltd and the Former Governor. The Commission which was appointed by the President comprising Supreme Court Judges Kankanithanthri T. Chitrasiri, Prasanna Sujeewa Jayawardena and former Deputy Auditor General Kandasamy Velupillai to inquire into the Treasury Bond issue will resume today.