The SLIC deal:The flak still remains

Although the Government tabled in Parliament a statement pertaining to the privatisation of Sri Lanka Insurance Corporation (SLIC), it has failed to address many of the findings of the Committee on Public Enterprises (COPE) charging that this privatisation was seriously flawed.

The statement tabled in Parliament by Deputy Finance Minister Ranjith Siyambalapitiya states that Cabinet approval was granted on two occasions for the privatisation process of the SLIC , first in April 2002 for the initial studies pertaining to the privatisation and again in April 2003 for the final agreement.

However COPE has said that the steering committee to handle the sale of 90 per cent of the SLIC had been appointed by the then UNP government minister Milinda Moragoda and this committee had in turn appointed Pricewaterhouse Cooper (PWC) Indonesia in collaboration with PWC Sri Lanka, without Cabinet approval on 10.04.2002 as consultant to the government for a fee of US $ 1.6 million.

COPE said by the time Cabinet approval was granted on 18.04.2002 to appoint a Technical Evaluation Committee (TEC), PWC had already been selected.

The decision to privatise the SLIC was taken to make it an independent institution and to make it more competitive among other insurance companies in the private sector, the government statement said.

The steering committee was chaired by Krishantha Perera while the Chairman of PERC from January 2003 onwards, P.B.Jayasundera (Chairman PERC till December 2002) , Dr Jayanath Jayasuriya, Director General SLIC, Dr. Rani Jayamaha (Additional Governor Central Bank), M.Kandasamy General Manager SLIC, Kanaga Sabapathy Additional Director General Trade Department, Deva Rodrigo Partner of Pricewaterhosue and Cooper, Mareena Tharmaratnam (DFCC Bank) and Aneela De Soysa (Director and Secretary PERC) were membesrs of the committee.

The COPE report said Mr. Rodrigo , senior partner of PWC had been a member of the steering committee that selected PWC as consultant to the government and he later continued as a committee member supervising the work of PWC and approving payments to PWC.

It also said Director PERC and secretary of the steering Committee Aneela De Soysa who handled the transaction for PERC joined PWC as a partner in March 2003.

Minister Siyambalapitiya said that in July 2002 the sale of SLIC was advertised locally and internationally and tenders were called for. There were 17 bidders initially and five were short-listed. Eventually this was scaled down to three and once the necessary evaluation was done it was forwarded to the Cabinet Appointed Tender Board (CATB).

COPE said that the Cabinet had approved the appointment of a Technical Evaluation Committee by the Secretary to the Treasury, but had rejected the request of the Secretary to appoint a Tender Board by him and decided it should be appointed by the Cabinet. Disregarding the Cabinet nonapproval the Treasury Secretary had directed the Treasury’s Deputy Secretary N.Pathmanathan to appoint the CATB including himself as chairman.

The Government in its response admitted that the tender board was appointed by the Treasury Secretary.

Financial advisors had estimated the value of the SLIC to be between Rs. 5100 million and Rs. 5400 million for 100 per cent of the shares.

After the evaluation of the bids, the TEC had recommended the sale of 90 percent of the shares to a consortium comprising the Distillers Co.Ltd, Aitken Spence Insurance (Pvt) Ltd together with Technical Parties ING Institutional and Government Advisory Service BV (Holland) on 25.3.2003.

On the same day, the CATB had recommended the TEC proposals. A Cabinet memorandum dated 27.3.2007 had recommended the sale of 90 per cent shares of SLIC to the said consortium.

The Government statement said the estimated value of the cost of the SLIC was Rs 5100 to 5400 million. The consortium had bought the SLIC shares for a much bigger amount of Rs 6050 million.

The Minister also said that adhering to international standards of auditing, SLIC auditors Ernest and Young prepared an investigative report and presented it just before the privatisation of SLIC.

However the COPE report said Ernest and Young had been auditors to the SLIC while the government was the 100 per cent share holder and continued as the SLIC auditors after the sale to the illegal buyers thus compromising in discharging their responsibilities to the government.

The Ethics Committee of the Institute of Chartered Accountants, coming under the purview of the Minister of Trade , after the preliminary investigation, established a prima facie case, and decided that a disciplinary committee should be appointed to look into the professional misconduct of PWC and Ernest and Young.

It also said that former Chairman PERC who handled the SLIC transaction and now Secretary to the Treasury P.B.Jayasundera has been a senior policy adviser to Earnst and Young and has failed and neglected to act in the interest of the government in this matter.

A sub committee has now been appointed to look in detail into this transaction .