Two years after Emirates left, SriLankan's liabilities flew over assets

When, in the afterglow of the war victory, the national carrier, Sri Lankan Airlines, embarked on its ambitious Business Strategic Plan-2010, targeting the booming tourism industry in the region, its "liabilities were greater than its assets,” it was revealed on Friday.

The revelation was made when the airline's Finance Department Head Yasantha Dissanayake testified before the Commission of Inquiry (CoI) probing allegations of large scale frauds and malpractices in SriLankan Airlines, Sri Lankan Catering Ltd and Mihin Lanka (Pvt) Ltd.

Responding to questions on the re-fleeting process or addition of new aircraft to the fleet, he said that with the exit of the Emirates-run management in 2008, the national carrier faced severe issues over liabilities and, by 2010, the company did not have enough capital to go for a profitable financial lease option to obtain new aircraft.

The Commission was told that, compared to the expensive operational lease, the financial lease was profitable, where, in terms of the agreement, the airline would eventually own the aircraft at the end of the term, following a final payment to the lessor. As the strategic plan recommended, the company went on to buy new aircraft at high cost under an operational lease arrangement.

The evidence was led by Additional Solicitor General (ASG) Neil Unamboowe. He was assisted by Senior State Counsel Fazly Razik and State Counsel Sajith Bandara, Chathura Gunathilaka and Leshan Ratnayake.

Earlier in the week, the Commission heard comprehensive testimonies from senior Treasury officials. They said that, according to the Registered Stock and Securities Ordinance (RSSO), “only the subject Minister -- the Minister of Finance -- was vested with the powers to determine the mode of raising a particular loan, be it treasury bonds, bills, sovereign bonds or any other government financial security option. It was also pointed out that issuing gazette notifications with regard to raising loans was also a ‘post-procedure’ norm at the Treasury. In other words, the notification was issued only after a loan was raised but not prior to the process.

In February 2012, Deputy Treasury Secretary S.R. Attygalle wrote to the Central Bank's senior officials, instructing them to issue treasury bonds worth US$ 125 million (Rs 14.2 billion) as previous year's annual budget had proposed to raise US$ 500 million as capital investment over five years on a phase-by-phase basis. Accordingly, the CBSL issued Treasury Bonds at the yield rate of 10.2 percent for five years.

ASG Unamboowe asked Mr. Attygalle whether top Treasury officials had been vested with powers to raise government loans, through available modes such as treasury bonds or bills on their own without even informing the subject Minister -- the Minister of Finance -- or obtaining specific prior approval from Parliament or the Cabinet.

In response, Mr. Attygalle, who is now the Central Bank's deputy governor, said that, since Parliament had passed the annual budget, the relevant Appropriation Act issued that year mandated the Treasury to take the next step to raise the loan for the funding purpose.

Documents placed before the Commission this week showed how the Treasury's then Deputy Secretary, Attygalle, had issued written directives to Central Bank officials to raise treasury bonds for various other government needs since 2012, in addition to the bonds issued for the purpose of capital infusion to the airline.

Reiterating his position, Mr. Attygalle argued that, since the Treasury was mandated to raise loans to fulfil the financial needs of the government within a particular time frame, it was his duty to seek all available avenues to raise such loans at the lowest cost to the Government.

“As I repeatedly maintained since 1997, it has been the practice at the Treasury, even though there is no black-and-white law or regulation with legal validity to stipulate the procedures clearly,” he said; while emphasising that, even last month, the Central Bank issued treasury bonds, following the same procedure that had been in practice for more than 20 years.

Noting that no one has challenged this flawed process in higher courts, Commissioner and Supreme Court Justice Gamini Amarasekara intervened to ask who should be held responsible if there was any alleged financial misappropriation or corruption involved in this process.

“I have no answer,” Mr Attygalle responded, while reiterating that it had been the practice since 1997.

Also testifying on Friday before the Commission was the airline's legal division chief Malaka Ranasinghe. He was questioned on the professional service agreements the airline had gone into with third party consultation companies such as Seabury, and lease agreements on aircraft that had been inducted to the fleet since 2010. His evidence was led by Senior State Counsel Fazly Razik.

The Commission of Inquiry comprises retired Supreme Court Justice Anil Gooneratne (Chairman), Supreme Court Justice 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 sittings will continue tomorrow.