Imf, World Bank & Adb Agenda on Privatisation: Pillage of Plantations in Sri Lanka

IMF, WORLD BANK & ADA AGENDA ON PRIVATISATION

Pillage of Plantations in Sri Lanka

Nihal Sri Ameresekere

AuthorHouse™

1663 Liberty Drive

Bloomington, IN 47403

www.authorhouse.com

Phone: 1-800-839-8640

© 2011 Nihal Sri Ameresekere. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

First published by AuthorHouse 01/10/2011

ISBN: 978-1-4520-6260-0 (sc)

ISBN: 978-1-4520-6262-4 (e)

Library of Congress Control Number: 2011902126

Printed in the United States of America

Any people depicted in stock imagery provided by Thinkstock are models,

and such images are being used for illustrative purposes only.

Certain stock imagery © Thinkstock.

Because of the dynamic nature of the Internet, any Web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

CONTENTS

Contemporary Realities

DEDICATION

DUBIOUS PRIVATISATION STRATEGY

PRIVATE TREATY SANS VALUATIONS

From The Dhammapada* of Lord Gauthama Buddha

about 2550 years ago …….

*   Well done is that action of doing which one repents not later, and the fruit of which one, reaps with delight and happiness.

*   Should a person do good, let him do it again and again. Let him find pleasure therein, for blissful is the accumulation of good.

*   An evil deed is better left undone, for such a deed torments one afterwards. But a good deed is better done, doing which one repents not later.

*   Those who know the essential to be essential and the unessential to be unessential, dwelling in right thoughts, do arrive at the essential.

*   Those who discern the wrong as wrong and the right as right — upholding right views, they go to realms of bliss.

*   Those who are ashamed of what they should not be ashamed of, and are not ashamed of what they should be ashamed of — upholding false views, they go to states of woe.

*   Those who imagine evil where there is none, and do not see evil where it is — upholding false views, they go to states of woe.

*   Easy is life for the shameless one who is impudent as a crow, is backbiting and forward, arrogant and corrupt.

*   One who, while himself seeking happiness, oppresses with violence other beings who also desire happiness, will not attain happiness hereafter.

*   All tremble at violence; all fear death. Putting oneself in the place of another, one should not kill nor cause another to kill.

*   Neither in the sky nor in mid-ocean, nor by entering into mountain clefts, nowhere in the world is there a place where one may escape from the results of evil deeds.

*   There never was, there never will be, nor is there now, a person who is wholly blamed or wholly praised.

* The preachings of Lord Gauthama Buddha

Contemporary Realities

Case Studies in a Third World Developing Country

Revealing socio-political realities ……..

Incisive insights unraveling the socio-political realities in a third world developing country. The duplicitous hypocrisy of the developed world and international developmental agencies vis-a-vis the just and equitable enforcement of the ‘rule of law’. The dubious management of the resources of the people, which are held in trust, on their behalf, by democratic governments or even by Kings.

" ….. The ruler’s trusteeship of the resources of the State which belong to the people is a part of the legal heritage of Sri Lanka dating back at least to the third century BC as pointed out by Justice Weeramantry in his separate opinion in the International Court of Justice in the Danube Case, by quoting the sermon of Arahath Mahinda to King Devanampiya Tissa as recorded in the Great Chronicle – Mahawamsa* " – June, 2009, Supreme Court of Sri Lanka

•   With the cancerous menace of rampant fraud and corruption, does not the unbridled pillage and plunder of the resources of the already impoverished vast majority of poor people, by few persons socio-politically powerful, influential and affluent, further impoverish them ?

•   Is it not a curious paradox, that schemes and designs to replace, such pillaged and plundered property of the poor people, through ‘poverty alleviation programs’, ironically are financed from the very funds of the poor people or by debts to be re-paid by them or their future generations ?

•   Despite the adoption in December 2005 of the United Nations Convention Against Corruption, specifically identifying as culprits, ‘politically exposed persons’, do not such persons unabashedly continue to peddle fraud and corruption, and are shielded through socio-political influences, and publicly sanctified by religious leaders seeking the ‘limelight’ ?

•   Should not the pillage and plunder of the property of the poor people, referred to as ‘economic terrorism’, perpetrated by ‘economic terrorists’, condemned internationally in contemporary times, be first dealt with, as the root cause for the germination of terrorism ?

•   Denying the impoverished helpless vast majority of poor people equitable social justice, does it not ultimately lead to disillusionment, alienation, frustration, social unrest, insurrection and justifiable rebellion ?

•   Does not therefore, the pillage and plunder of the resources of the poor people, consequently result in armed struggles and armed terrorism, with brutal counter offensives by the international community, to destroy such terrorism ?

•   Ironically, do not such brutal counter-offensives, with the utilization of further resources of the poor people, which consequently give rise to despicable violations of human-rights, with concerns of humanity righteously transcending parochial interests of nationality, justifiably raise international concerns, however, at a very belated stage ?

- Nihal Sri Ameresekere

* The Mahawamsa The Great Chronicle is the single most important work of Sri Lankan origin, written in Pali language translated to Sinhala and English, recording the history and heritage from 543 BC

DEDICATION

To my father Sirisena, who paved the way for me to acquire knowledge, my mother Clair, who ingrained righteous values in me, my wife Lilamani, who steadfastly supported espousing the cause of the public interest, my children, Dhananjana, Dheeshana and Sharvajana, who unflappably faced social trauma consequent to my public interest litigations, my dedicated and tireless staff, who loyally maintained confidentiality, persons known and unknown, who supported me and stood by me.

1

DUBIOUS PRIVATISATION STRATEGY

At the time the country got its independence in 1948, the plantation sector was the base of the national economy, which by then had been well developed by the British. `Ceylon Tea’ was a leading global brand with very high demand in international markets achieving the position, as the leading tea exporter of the world. A mechanical engineering industry, manufacturing plantation machinery was well developed at that time, with Sri Lanka even exporting such machinery to many countries. The tea estates, together with the rubber and coconut estates, formed the plantation sector; outside the vast stretches of historical paddy cultivations.

This plantation sector was then owned by a large cross section of public and private companies, with both foreign and local shareholdings, and by proprietorships. A considerable segment of the sector was then managed by Agency Houses, whilst a well developed brokering and export sector over the years handled the sale and export of the produce to the international markets.

A Commission of Inquiry headed by the leftist Minister Bernard Soysa, appointed in June 1971 by Governor General, William Gopallawa, on the recommendation of Prime Minister Sirima Bandaranaike, having issued an interim report in August 1972, issued its final report in December 1974, on the management of the plantations by the Agency Houses, and the operations of the brokering firms, making several recommendations in such regard. Amongst the other members of the Commission, were S.T.G. Fernando, former Deputy Governor, Central Bank & Member SEC, P.M.W. Wijayasuriya, former Auditor General & Member of the Commission to Investigate Allegations of Bribery or Corruption, and K. Shinya, a leading lawyer. A copy of the Warrant appointing the Commission of Inquiry setting out the matters required to be inquired into and reported on is annexed.

Under the Land Reform Law of 1972 and State Agricultural Corporations Act of 1975, the plantation sector estates were vested in the Government, i.e. in the Land Reform Commission. President Chandrika Bandaranaike Kumaratunga was, herself, a then Director of the Land Reform Commission from 1972 to 1976. In 1978 the plantations vested in the Government were placed under the management of two Government Corporations – namely, Sri Lanka State Plantations Corporation and Janatha Estates Development Board.

With the consequent deterioration of the management of the plantation sector, a vital sector of the national economy, the Government in 1992, converted the plantation sector under the SLSPC and JEDB, into 22 plantation companies, in terms of the Conversion of Corporations & Government Owned Business Undertakings into Public Companies Act No. 23 of 1987. Thereafter in 1992, the management of these 22 plantation companies were given out by the Government to the private sector, on the basis of differing profit sharing management contracts. As per Finance Ministry sources such action had been hastily given effect to at the behest of the IMF and World Bank.

Between August and November 1995, the Public Enterprises Reform Commission, as a then Presidential Special Task Force, constituted, authorised and empowered under a Presidential Warrant issued under and in terms of Article 33 (f) of the Constitution by President Chandrika Bandaranaike Kumaratunga, carried out the privatisation of six of these plantation companies, namely, Bogawantalawa Plantations Ltd., Kotagala Plantations Ltd., Agalawatte Plantations Ltd., Kegalle Plantations Ltd., Horana Plantations Ltd., and Kelani Valley Plantations Ltd. This however was merely a mechanism for the sale of the Shares of the plantation companies, and by no means could be identified, as a strategy of privatization or de-nationalisation.

Under and in terms of the management contracts which had been entered into, these six plantation companies were being managed by the following management companies:

INTRIGUING STRATEGY

Under the privatization strategies formulated by Public Enterprises Reform Commission, the respective management companies of these six plantation companies were given an ‘exclusive option’ to purchase the controlling interest of 51% of the share capital of the respective plantation companies, which were being managed by them. Such ‘exclusive purchase option’ was on the basis of a ‘ludicrously absurd price formula’, which had been intriguingly innovated !

The option to purchase the controlling interest of 51% Shareholding was fixed at the lowest price of the offers received for the ‘fragmented sale’ to the public of 20% of the share capital of the respective plantation companies, on the Colombo Stock Exchange, subject to the minimum nominal price of Rs. 10/- per share. If at all, such option ought have been at a percentage well above the highest price, with a premium paid to have secured such option.

Accordingly, Public Enterprises Reform Commission caused the issue by these six plantation companies, of Offer Sale Documents, through the Colombo Stock Exchange, for the fragmented sale of 20% of the Shareholdings of these six plantation companies to the public, to put into effect such ‘ludicrously absurd price formula’.

The share capital structures of these plantation companies being the same, the Offer Sale Documents were similar. The Share Capital of each of these companies was 20,000,001 Ordinary Shares of Rs. 10/- each, giving a Share Capital of Rs. 200,000,010 - one share being defined as a Golden Share. 20% shareholdings of each of these plantation companies, i.e 4,000,000 shares of Rs.10/- each, were Offered for Sale on the Colombo Stock Exchange to the public in the following manner, as set out in the respective Offer Sale Documents:

" Fixed Price Portion

1.9   One million six hundred thousand (1,600,000) shares will be made available at a fixed price of Rs. 10 per share.

1.10   If there is under-subscription in this category, the remaining shares will be made available for allotment to applicants in the Tender portion. If there is under-subscription in both the Fixed Price and Tender portions, the remaining shares will be taken up by the Underwriters to the offer.

1.26   Applications under this portion must be for a minimum number of 100 shares and a maximum number of 1,000 shares."

" Tender Portion

1.11   Two million four hundred thousand (2,400,000) shares will be made available on a tender basis, where applicants will be allowed to offer varying prices for the shares."

1.42   The shares available for sale under this portion of the offer will be allocated among applications in the following manner:

      -   The application offering the highest price per share will be given its full requested number of shares at the offered price, up to the maximum limit of 800,000 shares per applicant.

      -   The application offering the next highest price per share will then be given its full requested number of shares at the offered price up to the maximum of the shares available after satisfying the request of the application offering the highest price with a limit of 800,000 shares.

      -   The above process will be continued for applications offering successively lower prices for shares till all shares available are exhausted or till all valid applications for shares are satisfied.

The above allocation will be subject to the maximum aggregate allotment limit of 800,000 shares to a single person or body corporate."

BUT 51% SHAREHOLDING AT ‘LOWEST PRICE’ @ RS. 10/- PER SHARE

The commitment to sell the controlling interest of 51% of the share capital in each of these six plantation companies to the respective management companies had already been made and disclosed in the respective Offer Sale Documents, with clear denotation that the sale of such controlling interest of the 51% shareholding was fixed to be at the ‘lowest price offered’ by the public for the fragmented sale of the 20% shareholdings !

Surely, such commitment to sell the controlling interest of 51% shareholding, absurdly fixed at such lowest price offered for the fragmented 20% shareholdings, would, in itself, have caused a disinterest by the public and a depression in the prices offered for the fragmented 20% shareholdings. Even more so, a substantial portion, i.e. 1,600,000 shares, of the 20% comprising 4,000,000 shares, being made available to the public at the fixed nominal price of Rs. 10/- per share, how could one expect to get prices, well above such nominal price of Rs. 10/- per share, for the other portion of 2,400,000 shares from the public, that too, with the restriction of 800,000 shares placed for any given value or to any one person ?

Therefore, would it not be fair and logical to postulate, that such ‘intriguing formula’ was calculatedly designed to achieve the objective of a minimum price of Rs. 10/- per share for the 51% Shareholding ? If so, naturally the question arises, by whom and why ? If not, the simple question that comes into focus is, why the deuce was such controlling interest of 51% shareholding not offered to the public for open competitive bidding on an all or nothing basis, transparently on the Colombo Stock Exchange to determine the market price for such controlling interest of 51% shareholding; and the respective management companies, if at all, given the ‘option of the first refusal’, to purchase such controlling interest of 51% shareholding at the highest bid price registered on such open competitive bidding on the Colombo Stock Exchange ? Was this not the most simple and logical thing to have been done, without such questionable and intriguing ‘ludicrously absurd price formula’ ?

The obviously anticipatable effect resulted in the public issues of these fragmented 20% shareholdings being total failures, grossly under subscribed, and the ‘inevitable result’ of the lowest price registered being the minimum nominal price of Rs. 10/- per share, and the conveniently arranged underwriters, institutions, Bank of Ceylon, Merchant Bank of Sri Lanka and National Development Bank having to take up such unsubscribed shares, as stipulated in the Offer Sale Documents as follows:

   1.43   The lowest price per share in cases where all shares in the Tender portion of the offer are taken up by applicants, or Rs. 10 per share if all shares on offer are not taken up by applicants and are taken up by the Underwriters to the offer, will be deemed to be the market clearing price per share."

QUEER EXCLUSIVE OPTION

The Offer Sale Documents stipulated such ‘exclusive option’ to purchase 51% shareholdings in the respective plantation companies, granted to the management companies at such intriguing ‘market clearing price per share’, as follows;

   2.8   [The management company] has been given an option to purchase a block of 51% of the issued ordinary shares of the Company — consisting of ten million two hundred thousand (10,200,000) shares — on an all or nothing basis at the market clearing price per share established on the basis of the initial offer for sale of 20% of the shares in the manner described in Section 1 of this document. In order to exercise the option [the management company] must, prior to the expiration of seven days from the date of establishment of the market clearing price per share, make a down payment of 10% of the sum of the full value of the shares to be purchased and the related debentures to be taken up. The remaining payment in full must be made within thirty days of the date of establishment of the market clearing price per share". If [the management company] does not make either the down payment or the full payment within the stipulated deadlines its option to purchase the controlling interest will expire at that time.

2.9   In the event that [the management company] chooses not to exercise its purchase option the Secretary to the Treasury will make these shares available for sale to the highest bidder through the Colombo Stock Exchange on a all or nothing basis at a minimum price of Rs. 10 per share within three months of the expiry of [the management company’s] option to purchase 51% of the issued ordinary shares of the Company at the market clearing price per share. If there are no acceptable bids for this all or nothing parcel of shares, the Government will decide on the appropriate course of action at that time.

1.10   [The management company] has submitted a non-refundable deposit of Rupees Five million (Rs. 5,000,000) to the Secretary to the Treasury in the form of a bank guarantee indicating its interest in purchasing the block of 51% of the issued ordinary shares of the Company. The full sum of Rs. 5 million will be drawn down upon immediately after the establishment of the market clearing price per share. The sum will be credited towards the down payment in paragraph 2.8 if [the management company] chooses to exercise its option to purchase the block of shares at this price. If it does not exercise the option and subsequently purchases the shares by submitting the highest bid in the all or nothing basis sale through the Colombo Stock Exchange the Rs. 5 million will be credited towards this purchase. If [the management company] does not purchase the block of shares by either mechanism the Rs. 5 million will be forfeited."

Hence it had been admittedly well known that there had been indeed a ‘highest price’ for the 51% Shareholding of the plantation companies, whilst deviously and fraudulently giving an option to the management companies, without any consideration therefor, the right to purchase obviously at the nominal price, raising the question why ? Even an option to purchase at the highest price, ought to have been at a price charged for such ‘option’.

NOT 51% BUT ACTUALLY SOLD 60 % -72%

In addition to the exclusive option of purchasing such controlling interest of 51% shareholdings in the respective plantation companies, the respective management companies were also deviously given the exclusive opportunity of investing further monies, varying from Rs. 50 million to Rs. 140 million into these 6 plantation companies to be converted into shareholdings, thereby effectively and actually giving such management companies, a much greater shareholding than the 51% held out to the public, going up to even as much as 71%. The given Chart sets out the actual shareholding percentages which were so acquired and the effective cost of such acquisitions.

CHART

The relevant extracts from the Offer Sale Documents in such regard are as follows;

   2.11 The following conditions will be attached to the purchase of the block of 51% of the ordinary shares of the Company, whether the purchaser is [the management company] or any other investor.

   2.12 Purchase of Debentures: Simultaneous with the purchase of the shares on offer, the purchaser of these shares must purchase, or arrange for another party or parties to purchase, Rupees …. worth of debentures issued by the Company. This take up of debentures will improve the liquidity position of the Company significantly. The conditions applicable to the debentures will be as follows:

      -   The par value of each debenture will be Rs. 10/-

      -   The purchase price per debenture will be the price paid per share by the buyer of the 10,200,000 ordinary shares of the Company.

      -   The total number of debentures to be issued will be Rs….. divided by the purchase price per debenture.

The debentures will be freely transferable.

    -   The debentures will be exchangeable by the Company at the discretion of the purchaser, or any person to whom the debentures have been transferred by the purchaser, for ordinary shares of the Company any day on or after the second anniversary of their date of issue, each debenture with a par value of Rs. 10/- being exchanged for a single ordinary shares of the Company also having a par value Rs. 10/-

      -   All debentures which have not been exchanged for ordinary shares by the day prior to the fifth anniversary of their date of issue shall be mandatorily exchanged by the Company for ordinary shares on the fifth anniversary date. "

The monies advanced initially, treated as convertible debentures at 6% p.a., and thereafter being ‘mandatorily converted’ into Share Capital, dilutes the 20% shareholdings that were being offered to the public, to as much as 11.7%; and this naturally would have caused further depression to the public offer prices for such supposedly offered 20% shareholdings to determine the questionably unique ‘market clearing price per share’ !

Was it a case of letting the cat out of the bag when, Romesh Dias Bandaranaike at the presentation of a plantation company to the Colombo Stock Brokers at Trans Asia Hotel, pronounced that it was not in the interest of the underwriters and present management company to promote the plantation company, as they had an agreement between them to purchase the Shares’ as was reported in The Sunday Leader of 14th January 1996.

The then Members of Public Enterprises Reform Commission, who carried out these privatizations were:

Rajan Asirwatham, Chairman, Senior Partner, Ford, Rhodes, Thornton & Co.

Thilan Wijesinghe, Chairman Board of Investment of Sri Lanka

Chandra Jayaratne, Managing Director, CTC Eagle Insurance Co. Ltd.

Saman Kelegama, Director Institute of Policy Studies

Arittha Wikramanayake, Director-General, Securities & Exchange Commission

P.B. Jayasundera, Director Economic Affairs as nominee of A.S. Jayawardena

A.S. Jayawardena, Secretary to the Treasury

A. de Vass Gunawardene, Chairman Board of Investment of Sri Lanka

Nimal Malalasekera, Engineer

J.M.S. Brito, a confidante of President Chandrika Bandaranaike Kumaratunga, engaged as a Consultant from London to the Ministry of Finance & Planning, and A. Ekanayake, Director, Planning, Ministry of Plantation Industries had also been attending Public Enterprises Reform Commission Meetings. Indrajit Coomaraswamy had been functioning as Director General, Public Enterprises Reform Commission.

Those others who had on invitation participated at the relevant time in Meetings of the Public Enterprises Reform Commission had included, World Bank Resident Representative Roberto Bentjerodt, ADB Consultant Philip Milkye and World Bank Consultants - R L Arsenault, P. Trivedi, Hafeez Shaikh, John Speakman, R. L. Ansnault, Juan Ellias, Tom Houston, Barcu Cakin, Mueen Bartlay, Prajapathi Trived, R. A.Dennis, Joseph B Brady, Kuneida

The Directors of all these six plantation companies and the signatories to the Offer Sale Documents issued to the public have been; Secretary Ministry of Plantation Industries, R.S. Jayaratne, Secretary Ministry of Food & Cooperatives, T.P.G.N. Leelaratne, Director-General External Resources, M.F. Mohideen, Director, Ministry of Plantation Industries, S.A.B. Ekanayake and Romesh Dias Bandaranaike, who was the Director, Plantation Management Monitoring Division that assisted Public Enterprises Reform Commission on the privatizations of the plantations.

The World Bank, USAID, and Asian Development Bank are reported to have provided funds and rendered technical assistance, by way of expatriate consultants, to the privatization programme undertaken by Public Enterprises Reform Commission.

Tea plantation sector in particular was developed by the British, when they occupied Sri Lanka, and the industry is now about 150 years old. Sri Lanka produced its own plantation machinery, into which adequate funds for research and development having not been invested, Sri Lanka has been overtaken in this plantation machinery manufacturing industry by other countries from whom Sri Lanka now imports plantation machinery, whereas in the past Sri Lanka exported such machinery. With the development over several decades, Sri Lanka became the leading tea exporter in the world. During such period, those who managed the plantations from the capital City of Colombo, made handsome profits and enjoyed luxury lifestyles.

Much funds have been invested into research, to develop the tea plant and the leaf. On the other hand, the vast human resource sector, comprising the poor plantation workers, still live in abject poverty, in squalor conditions, without proper housing, sanitation and health facilities. They have been a much neglected vast labour force, who ironically have been the very backbone of the plantation sector, maintaining and tendering the industry, toiling from the wee hours of the morning, even well before the dawn of sunrise, some in extremely cold conditions. Their hard work and sweat, earning valuable foreign exchange for Sri Lanka for over decades, have tremendously contributed to sustain the national economy.

2

PRIVATE TREATY SANS VALUATIONS

Dubious privatization of the plantations - the most valuable vast resource belonging to the public of this country and the future generations to come. These plantations were held by the Government, on behalf of the People. The privatization endeavours of the plantations therefore needed a much greater degree of skill, concern and expertise, than