News
BoC’s millions in LKR, US$ loans on LoCs kept SriLankan airborne
A Commission of Inquiry (CoI), appointed to investigate alleged irregularities in connection with SriLankan Airlines Ltd (SriLankan), SriLankan Catering Ltd (SL Catering) and Mihin Lanka (Pvt) Ltd (Mihin), from January 1, 2006 to January 31, 2018, was told this week, how the State-owned Bank of Ceylon (BoC) pumped millions in rupees and dollars into Srilankan for years, with merely a Letter of Credit (LoC) from the Treasury, in spite of the Airline defaulting on past outstanding loans.
- Testifying before the CoI, BoC Offshore Branch Manager Upul Kumara Dias said that over US$ 100 million was issued as loans to SriLankan since 2014, with much of it being granted on Overdraft (OD) credit basis of Letter of Comfort (LoCom)- a short term debt assurance.
The CoI was also told that a LoCom has no strong financial legal binding, compared with a Letter of Guarantee (LoG), as required by the Bank, when issuing humongous loans.
The multiple loans issued since 2014 consists of 3 loans totaling Rs 12 billion, and over US$ 100 million in loans issued in phases throughout the year, as requested by the SriLankan management with Treasury approval. Mr Dias informed the CoI that long delays in repaying the loans were renewed, where only interest was paid, but not the capital.
- SriLankan had also obtained several ODs, most of which were borrowed without guarantees.
- While failing to repay previous loans, SriLankan requested more funds through ODs and the BoC extended the LoG limit from US$ 3 million in 2005 to US$ 70 million as of now.
- In the first quarter of 2015, a capital contribution amount of US$ 125 million was granted by BoC as a short term loan facility to SriLankan, as allocated in the Budget, with a LoCom as security. However, in spite of an undertaking that the loan would be settled in full, on a priority basis, the capital contribution is yet to be settled.
- In 2012, the Treasury pledged a loan of US$ 35 million, through a LoCom, which it refused at the last minute. The loan was later granted using SLCatering Shares as collateral.
- Mr Dias noted that SriLankan’s performance from 2005-2008, under Emirates management, was positive, where SriLankan recorded revenues and kept fixed deposits. However, after the exit of Emirates, SriLankan took a different turn.
CoI Chairman, retired Supreme Court Judge Anil Gooneratne questioned how the BoC management was willing to grant more loans to SriLankan, as many previous loans remained unsettled.
Mr Dias replied that, as Sri Lankan is the national carrier that runs with State backing, all the loans were given with the Treasury’s LoC, where clear deadlines were set for repayment. The scheduled repayment period ended on June 30, 2018.
Noting the special treatment given to the loss-making SriLankan, by the BoC management, Justice Gooneratne inquired whether the same treatment would be given to a common citizen who finds it difficult to repay loans.
- SriLankan Industrial Affairs Manager Shiromi Cooray told the CoI how, single-handedly, a group of top influential officials including former Chief Executive Officer (CEO) Kapila Chandrasena, former Chairman Nishantha Wickramasinghe, and Chief Marketing Officer J.T. Jeyaseelan bypassed 2009 Manual of Procedures in appointing overseas General Sales Agents (GSAs), which was given arbitrarily to selected private companies.
For most GSAs appointments, there were no newspaper advertisements or market surveys done ahead. Ms Cooray revealed there was no approval given for most of the GSAs, as the SriLankan Chairman instructed officials to change criteria on selecting GSAs.
- The CoI was also told that how the previous Srilankan management manipulated the 2009 Manual for the payment of GSAs Commissions/Broker Fees, which were increased arbitrarily at the expense of the Airline. According to the 2009 manual, the Over Riding Commission (ORC) for a passenger service is 2.5% and 3% for cargo. However, these were increased to 5% and 7% respectively, to the benefit of the GSA agents.
- When SriLankan decided to appoint a GSA for Russia and Ukraine, where SriLankan did not have a country office at that time, then Sri Lanka Ambassador to Russia Udayanga Weeratunga recommended that a particular company be appointed, to which the SriLankan Management agreed, without following any sort of due process.
“There are no circulars nor anything in the manuals at SriLankan, where a diplomat’s recommendation of a GSA can bypass existing procedures. Throughout my experience, I have never come across such instances,” Ms Cooray told the CoI.
Ms Cooray’s statement was led by State Counsel Chathura Gunathilaka.
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 hearings will continue tomorrow.
Amidst startling revelations being made at the CoI on how a group of top officials at SriLankan ran the Airline into a loss-making venture, the CoI issued summons this week to record statements from officials of the Criminal Investigation Divisions (CID) Investigation Unit of the CoI.
On Thursday, former Chairman of SriLankan Airlines, Nishantha Wickramasinghe and former CEO Kapila Chandrasena appeared before the CoI, and were subjected to hours of questioning, based on the revelations to the CoI, officials said.
The CoI also served summons on former Defence Secretary and founding Director of Mihin Lanka, Gotabaya Rajapaksa, and former CEO of Mihin Lanka, Sajin de Vass Gunawardena to appear before the CoI in the coming days.