ISSN: 1391 - 0531
Sunday, June 03, 2007
Vol. 42 - No 01
Financial Times  

Tariffs refund crisis forcing NTT to sell

By Natasha Gunaratne

The controversial sale of a bigger slice of the NTT stake in Sri Lanka Telecom (SLT) may have been prompted by calls by the Supreme Court forcing the refund of excessive tariffs amounting to billions of rupees which would leave the Japanese firm in financial ruin.

A proposal submitted earlier this year for tariff reductions was also turned down which also precipitated the decision to partly exit, industry sources said. The Supreme Court in 2005 had endorsed an earlier Appeal Court order that excessive tariff charges should be refunded.

Industry sources said details of the case were not made public to avoid negative publicity because 'SLT found the case will bring upheaval to their profit making.' The issue came to the fore earlier on when in 2003 the Consumers' Association of Lanka (CAL), headed by its Chairman Peter Jayasekera filed action in the Court of Appeal (Case No.1776 of 2003) against the tariffs.

The dispute arose over the sale of 35 percent of the government stake in SLT through a tender process in 1997. Two parties, NTT and France Telecom, submitted bids but NTT came out on top and purchased the shares based on certain conditions and agreements. "The management and shareholders agreements were not transparent," Jayasekera said. "They were done in secret and known only to the powers that be and NTT."

NTT persuaded the government to give SLT the right to increase tariffs from 5 August 1997 to 5 August 2002, a five year period. According to the agreement, tariffs would be increased from year to year. The first in 1998 was a 25% increase, 1999 was a 25% increase, 2000 a 20% increase, 2001 a 15% increase and 2002 a 15% increase.

Jayasekera, a well-known consumer rights lawyer, became aware of the details of the agreements through his involvement with another case. "When I saw these increases, I got very agitated. I disliked it and did not concur with it."

When the TRC granted SLT a license in 1991, one of the provisions stated that tariff increases would be based on economic criteria and calculated using the Cost of Living Index minus 2%. Jayasekera said that when the Japanese entered the picture, NTT asked that this particular condition be suspended from August 1998 to 5 August 2002 which the TRC agreed to. However it was 2003 when the TRC granted the last tariff increment due in 2002. It was due to commence on 1 September 2003. In Jayasekera's view, this was illegal and unlawful.

Jayasekera said tariffs were fixed by SLT in collusion with the government, resulting in incoming operators and mobile phone operators also using the high rate of tariffs. "They all get together and have a field day by making enormous profit. We grieve the situation." He explained that the CAL is not asking companies to incur losses but to agree to reasonable tariffs. "The political establishment is not supporting this trend."

The 2003, court case against SLT was filed on the grounds that the tariffs imposed were unlawful and excessive. Jayasekera also argued that the TRC did not have the authority to approve a tariff increase in 2003, after 5 August 2002. Furthermore, he argued that the suspension of the provision in the original licence on calculating tariff increases had lapsed in 2002.

On 25 July 2005, the Court of Appeal issued a judgment, declaring the tariff increase effective from 1 September 2003 as being unlawful and ordered SLT to refund the excessive charges, estimated to be between Rs.3 – 5 billion. Subsequently in 2005, SLT filed an application for special leave in the SC which was granted. Jayasekera explained that once special leave is granted, it becomes an appeal. The SC denied SLT's request for a stay order or interim relief, in essence concurring with the Court of Appeal judgment.

During this time, Jayasekera said the SC was indicating that a reasonable settlement should be reached between the two parties with SLT bringing down tariffs to a level that is affordable and reasonable to the public. Alas, a settlement was not reached. In 2006, the appeal proper to get SLT to reduce tariffs and also refund the excesses commenced.

SLT submitted a proposal to the CAL on reducing tariffs in January 2007 which CAL rejected.

In March 2007, when SLT had still failed to reduce tariffs, the SC directed the two parties to enter into negotiations with the TRC acting as facilitator. The Court said negotiations should be aimed toward reducing tariffs to a rate affordable to a vast majority of the public.

Subsequently, SLT has submitted proposals for consideration. Jayasekera said even though the company claimed they were vastly reducing tariffs with these proposed rates, they were rejected because CAL maintains it is not enough. "Wrangling is still ongoing."

Jayasekera explained that the 2005 judgment by the SC which essentially endorses the Court of Appeal directive, ordering SLT to refund excessive tariff charges and the fact that they have failed to do so up to now puts them in contempt of Court. CAL has not pursued contempt charges due to the spirit of the ongoing negotiations. "If SLT does not resolve this matter in an acceptable way including the refund, CL is contemplating action against contempt," Jayasekera said. "We want to force SLT to reduce the unreasonable tariffs they got from the government. It's time to revise the situation. We will fight any other sell outs and make tariffs reasonable in line with other countries where cost per line and investment costs are falling. These increases are looting and plunder." (See also Page 9 for connected story).


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