Central Bank raised loans, issued Treasury Bonds ignoring regulations
The Central Bank of Sri Lanka (CB) failed to comply with mandatory regulations and issue prior gazette notifications before raising loans, including the issuance of Treasury Bonds since 1997, due to practical difficulties, till the regulations were amended in 2016, CB Governor (Gov.) Dr Indrajit Coomaraswamy told the Commission of Inquiry (CoI) Investigating Alleged Irregularities at SriLankan Airlines (SriLankan), SriLankan Catering (SL Catering) and Mihin Lanka (Mihin) this week.
Dr Coomaraswamy said that, as instructed by the Ministry of Finance (MoF), the CB adopted the practice of issuing gazette notifications with regard to raising loans, as the amount to be raised cannot be determined precisely before the process commenced.
Additional Solicitor General (ASG) Neil Unamboowe, who led Dr Coomaraswamy’s testimony, argued that under Section (5) a of the Monetary Law, the MoF should issue the gazette notification setting out the details of the mode of the loan and the amount to be raised, and at what interest rate, in the public domain before the process commenced.
Replying to Court of Appeal Judge Justice Amarasekara's query whether any gazette notifications were issued from 2012-2014, where billions worth of TBs were issued, to raise funds as capital investment for SriLankan, Dr Coomaraswamy said there were no such prior gazette notifications as set out in the regulations, but they followed only after the loans were issued.
He reasoned that such a process was adopted by the CB, as many such loans are market oriented, with the amount to be raised varying accordingly, and the interest or coupon rate was to be decided by the government, making the whole process difficult to provide details of the loans prior to issuing such loans.
However, the CB Gov. added that all types of loans issued by the CB in a year, with comprehensive details, was annually published in the gazette by year end.
ASG Unamboowe pointed out to the CoI that, though the Law specifically sets out clear instructions of data to be provided, prior to issuing any such loans, the MoF systematically ignored the regulations and continued the practice in violation of the Law. "That's what the letter of the law says," Dr Coomaraswamy said. When pressed further, the CB Gov. said it would be proper to ask his predecessors under what circumstances they approved these loans to be raised in such a manner.
Dr Coomaraswamy told the CoI that, soon after he assumed office as CB Gov. in July, 2016, he introduced certain amendments to the monetary regulations with the recommendations of the Attorney General (AG), where newspaper adverts would be published prior to issuing any loans.
Explaining the issuance of Rupee loans, adopted prior to 1997, where the amount and interest rate was decided precisely before public subscription, CB Gov. Coomaraswamy said such processes could not be adopted when issuing TBs, as they are market oriented and would be subject to change accordingly.
Comprehensive evidence that, in 2012, the CB issued a TB worth Rs 14.2 billion, was placed before the CoI. The Ministry of Transport & Aviation had secured Cabinet approval to infuse capital funding of US$ 520 million (nearly Rs 14.2 billion) to SriLankan and Mihin, to exploit the booming tourism industry after war's end in 2009.
The ambitious Cabinet paper sought to expand the current fleet to 30 aircraft, opening direct flights to European and Middle Eastern destinations, and to restructure both airlines with more capital expenditure. However, it did not specifically state the manner in which the proposed amount would be raised.
Dr Coomaraswamy acknowledged that, "it now appeared the CB was sceptical about the decision to raise that amount through the issuance of TBs", but noted that such a directive should have come from the Treasury, and could not be initiated by the CB itself.
He also argued that, the Cabinet decision came after Parliamentary approval of the 2012 National Budget, when the then MoF Mahinda Rajapaksa set out government plans to fund approximately Rs 10 billion to both airlines.
However, ASG Unamboowe brought to the attention of the CoI that, as the amount to be raised had been decided already, a gazette notification should have followed, in keeping with regulations.
He also observed that there were no supporting documents such as Research and Analytical Reports or Evaluation Studies carried out before the decision was taken to raise the amount through the issuance of TBs.
The CoI ordered the submission of all relevant documents available in CB custody, with regard to the issuance of TBs from 2012-2014.
Earlier this week, senior officials attached to the Technical Division of SriLankan testified before the CoI on irregularities and the financial loss caused when receiving and re-delivering life jackets of an aircraft obtained under Lease agreement.
SriLankan Technical Asset Manager Senaka Kumara Dissanayake testified that it is the current practice in the airline industry to return life jackets received after the lease expires, as stipulated in the Lease agreements but the airlines don’t use life jackets with the logo of other airlines.
Like other airlines, Srilankan too, was in the practice of using life jackets with its own logo, while other jackets obtained under the Lease agreement were put in the storage room. The CoI was told that the lifespan of life jackets is nearly 10 years and, based on the quality, they can be repaired for reuse.
SriLankan Engineering Sales Operations Executive Thilak Jayaruwan Dharmasena told the CoI that a loss of Rs 3.1 million was reported due to irregularities involving life jackets.
The CoI comprises retired Supreme Court Justice Anil Gooneratne (Chairman), Court of Appeal Judge Gamini Rohan Amarasekara, retired High Court Judge Piyasena Ranasinghe, retired Deputy Auditor General Don Anthony Harold and Sri Lanka Accounting & Auditing Standards Monitoring Board Director General Wasantha Jayaseeli Kapugama. The CoI sittings will continue tomorrow.