Ouncil talks soon to Government" deal
Ings over various issues s and attacks on the media price of LP gas of directors
nal debt (owed to lenders within the country) and external debt (owed to foreign lenders). This matter has come under close scrutiny by the Cabinet Committee on Economic Management (CCEM). At a recent meeting, Premier Wickremesinghe pointed out that the World Bank was willing to give technical assistance on debt management and will send a team to Sri Lanka.
The CCEM has already identified 25 different ventures as “national priority projects.” They include the Hambantota Port, the Mattala Airport, the Ruhuna Economic Development Area and the Mattala Tourism Zone, the Hambantota Pipeline Investments (Refinery, LNG Gas, Dockyard, Cement, Steel Billets), the Financial City, the Colombo Port (East and West Terminal), the Kerawalapitiya LNG Projects and the Floating Terminal, the Trincomalee Economic Development Area, the Pipeline Tourist Projects (Heritage buildings in Galle Fort, Deduwa Canal and Akurala, Additional buildings in Galle, Galle Prisons, Galle marina, Koggala Sea plane museum, Koggala Golf course, Matara Golf Course, Heritage building in Matara Fort, Tangalle Fort, Yachts and cruises).
With regard to projects for which MoUs have been signed with India, China and Australia, a four-member ministerial team has been tasked to follow up implementation. They are Malik Samarawickrema, Sarath Amunugama, Rauff Hakeem and Anura Priyadarshana Yapa. Premier Wickremesinghe has also requested Thilak Marapana, Minister of Development Assignments, to discuss legal issues of the Hambantota Port Agreement with the Attorney General. At present, the only document which is under re-negotiation is the Concession Agreement with a Chinese firm.
Another public enterprise over which the Government has been forced to give priority consideration is Srilankan Airlines, the national carrier, which is haemorrhaging public funds. A routine joint Cabinet Memorandum dated April 19 by Ministers Ravi Karunanayake (then Finance Minister) and Public Enterprise Development Minister Kabir Hashim was to spark off some strong exchanges at last Tuesday’s weekly Cabinet meeting.
The joint memorandum was the result of both President Sirisena and Premier Wickremesinghe urging the two ministers to jointly place facts before the Cabinet vis-à-vis the Airbus A350-900 deal. This was after Hashim, in a previous memorandum, complained that he was not consulted by the SriLankan Airlines management on matters relating to moves by the previous Government to procure Airbus A350900 aircraft. The coalition was forced to pay a huge termination fee in the light of a contract signed by the previous board of directors. This was revealed exclusively in the Sunday Times (Political Commentary) of February 26.
In terms of the joint memorandum, negotiations with the lessor of the aircraft began at the end of October 2015. It adds: “SriLankan Airlines managed to negotiate a termination of the lease on the fourth aircraft (three were ordered for delivery later)) due for delivery in November 2017 for a termination fee of US $ 17.7 million. The Cabinet Committee on Economic Management (CCEM) was given a detailed update on the status of the negotiations on August 24, 2016 by SriLankan Airlines. SriLankan Airlines was subsequently authorised by CCEM to negotiate a termination fee for the three aircraft within the range of US$ 75 million to US$ 85 million. After further negotiations, SriLankan Airlines reported to the CCEM on September 21 2016 that: The termination fee had been re-negotiated. The termination fee had been reduced from US$ 154 million to US$ 98 million. The reduction in the termination fee was conditional upon (i) leasing of a used A 330-200 aircraft, (ii) the extension of a lease on an aircraft already leased and (iii) SriLankan Airlines takes over the lease of two narrow bodied aircraft owned by Aercap and leased to Mihin Lanka. “The CCEM instructed the Minister of Finance to obtain a written statement from the lessor stating these conditions. The CCEM also instructed the Minister of Finance to verify with the IMF on whether these payments were compliant with IMF conditions. If they were compliant, the agreement was to be accepted. If, however, the payment terms were incongruent with the IMF conditions, the lessor was to be informed and the matter was to be negotiated further.
“In view of the imminent delivery of the aircraft, based on the discussion and agreement reached at the Finance Ministry on October 1, 2016, the “No Objection” received from the Ministry of Finance and approval from the Prime Minister, SriLankan Airlines signed the Termination Agreement in line with the terms agreed by the Ministry of Finance, as follows (for a payment of US $ 154 million which would be reduced to US$ 98 million on SriLankan Airlines meeting the terms and conditions…).”
“Termination Fee for the 3 Airbus A350-900 aircraft,” the joint memorandum said is “US$ 154 million. It added, “Reduced termination fee US$ 98 million. Forfeiture of security deposit (already paid) US$ 7.5 million. Cash payment made by SriLankan US$ 90.5 million” The joint memorandum added, “If SriLankan fails to fulfil any or all of the conditions (by AerCap), the termination fee of US$ 98 million (termination fee US$ 146.5 million plus security deposit of US $ 7.5 million). In addition, any delay in payments to accrue an annual interest rate of 3 percent plus J.P. Morgan Chase, New York published interest rate.”
Last week, the Sunday Times (Café Spectator) revealed the highlights of the “Termination and Amendment Agreement” where the amount payable has been mentioned as US$ 146.5 million “payable in eight instalments.” This was after an upfront payment of US$ 10.5 million in October last year, soon after the agreement was concluded. This is what the agreement says dealing with “Termination Fee and Payments”: “In consideration of LESSOR’s agreement to terminate the Lease Agreements subject to and in accordance with Articles 3 and 4 below, LESSEE hereby agrees to pay LESSOR an amount of US$ 146,500,000 (one hundred and forty six million five hundred thousand dollars….” There is provision in the agreement for the reduction of the termination fee “provided each of the conditions” has been satisfied in full. Aercap has agreed. Such conditions include payment of compensation on time, extend the current lease on A330-200 MSN 627 aircraft for ten years by November 30, 2016 and SriLankan Airlines takes over the lease of two narrow bodied aircraft owned by AerCap and leased to Mihin Lanka."
The purpose of the joint memorandum, ministers Karunanayake and Hashim said was “to authorise the Secretary of Treasury and Secretary of Public Enterprises Development to note the contents of the agreement and facilitate any actions that may be required by the Ministry of Finance and the Ministry of Public Enterprise Development to ensure compliance with the terms of the agreement.”
When the matter came up for discussion at Tuesday’s weekly ministerial meeting, Patali Champika Ranawaka was to raise issue. He charged that SriLankan had suffered a loss of Rs 22 billion and said the national carrier was in “a mess.” He said that the board of directors were not paying heed to the minister and the latter was not kept informed of developments. Rajitha Senaratne was to claim that the directorate was not following instructions. Also joining in the criticism were Navin Dissanayake and Dayasiri Jayasekera. Premier Wickremesinghe defended the board of directors and noted that they have done substantial work. He said contacts were under way with Emirates Airlines for a partnership deal. When such a deal with them or the others materialises, a new board of directors would have to be appointed, he said.
Enterprise Development Minister Kabir Hashim, under whose portfolio SriLankan is placed, was to confirm claims that he was not being consulted by the board of directors. He said at least they should now report to the three-member ministerial subcommittee examining the restructuring of SriLankan. He charged that some 1,250 persons had been given employment in the national carrier. Asked to comment on his accusations that the board of directors was not reporting to him, Hashim said, “I can only say there are some issues. We will sort them out. I cannot comment on what transpired before the Cabinet.” However, Hashim told a member of the UNP Working Committee that he had not been successful in registering his party’s trade union, the Jathika Sevaka Sangamaya, with the SriLankan management.
The heated exchanges at the Cabinet prompted President Sirisena to say that he would invite the SriLankan board of directors for a meeting. He would discuss with them the issues raised by the ministers and the future plans of the national carrier.
As for the Premier Wickremesinghe’s remarks about talking to Emirates, the Sunday Times learnt that there is no finality. In fact, the Cabinet Committee on Economic Management (CCEM) at its last meeting cast doubts on a possible deal. This is what CCEM minutes said after a discussion on a report by the Restructuring Committee on SriLankan: “A lengthy discussion took place with regard to the restructuring process of SriLankan Airlines. It was reported that the Ministerial Committee which was appointed had detailed discussions with Emirates and it was reported that Emirates will submit their Business Plan on Sri Lankan within next 2 – 3 days and the Committee was instructed to continue the discussions with regard to three scenarios considering downsizing as the central issue. (1) Possible partner scenario (2) No partner scenario, and (3) liquidity. It was finally instructed to have a concrete report on restructuring process and the Emirates Business Plan by the end of July to be discussed with the International Monetary Fund (IMF).”
In the days that followed the weekly Cabinet meeting, SriLankan Airlines rebutted the claims that were made at the Cabinet meeting and later reported in the Media. Responding to what they called “inaccurate reports in the press,” SriLankan said, “The airline continues to pay a heavy price for the extremely high lease rental agreements entered into by the previous Government. The cost of terminating the leases on four A350-900 aircraft that were grossly overpriced and completely unsuitable for the national carrier….” Yet, there has been no governmental action so far to probe who was behind the Airbus A350-900 deal and whether anyone made fat commissions. However, the statement from SriLankan said that during the year 2016-2017, the draft loss has been Rs 27.7 billion. The amount is Rs 5.7 billion more than the amount of Rs 22 billion which Minister Ranawaka claimed.
In a second statement, this time “referring to recent media reports,” SriLankan contradicted its own minister. Rebutting the claims made by Minister Hashim at the Cabinet meeting that some 1,250 had been recruited by the national carrier without reference to him, SriLankan said the number was only 126.
It said this number includes the Management Trainees, cadet pilots, airport service delivery and additional security personnel “recruited due to the increased number of flights and the statutory requirement stipulated by the Civil Aviation Authority (CAASL) to enhance airside security for catering.”
The upcoming talks to renew their MoU come in the backdrop of the government’s achievements, failures and mismanagement. Thus, each of these factors will weigh in, more particularly the shortcomings in yahapalanaya or good governance. Hence, it is not an easy road to another MoU.