Sri Lankans were this week treated to a huge dose of bad governance as the feud between the ruling coalition partners – the Sri Lanka Freedom Party (SLFP) and the United National Party (UNP) – hit a new low. The latest episode is over the fuel price increase. According to an official announcement at midnight [...]


A week of blunders as fuel prices rise and President gets tough on drugs

Former CBSL top official stopped investigations, details were in file number 312–2015 CB, but is the file intact now? --Controversy and confusion over fuel price increase show woeful lack of coordination in coalition Govt.

Sri Lankans were this week treated to a huge dose of bad governance as the feud between the ruling coalition partners – the Sri Lanka Freedom Party (SLFP) and the United National Party (UNP) – hit a new low.

The latest episode is over the fuel price increase. According to an official announcement at midnight previous Thursday, publicised by the media on Friday July 6, Petrol (Octane 92) was increased by eight rupees to Rs 145, Petrol (Octane 95) by seven rupees to Rs 155, Auto Diesel by nine rupees to Rs 118 and Super Diesel by ten rupees to Rs 129 per litre.

The Special Investigation Unit (SIU), which functions directly under the Inspector General of Police (IGP), conducted a probe into the Chinese government-owned China Harbour Engineering Company (CHEC) funding major political parties during the January 2015 presidential election campaign. This was after several payments were detected by the Financial Intelligence Unit of the Central Bank of Sri Lanka (CBSL). The FIU probe was halted by a former top official of the CBSL and the file was closed in June 2016. Here are four cash cheques totaling Rs 100 million – part of such payments – issued from CHEC’s account at the Standard Chartered Bank.

On that Friday morning, motorists who queued up outside fuel stations were in for shock therapy. They were told that prices had gone up. Like most Sri Lankans, as revealed in these columns last week, President Maithripala Sirisena, also learnt of the increased rates only on Friday (July 6) morning, or so he said. He ordered an immediate halt to the increase.

That Presidential order, pathetic enough, had to be carried out through Area Managers of the state-owned Ceylon Petroleum Corporation (CPC). They were hurriedly telephoning fuel outlets to put on hold the new prices. Most agreed, some asked for written instructions and others put up shutters for a day due to the confusion. Sadly there was no official announcement leaving the public in the dark over what was going on.

By hindsight it became clear that the writ of the presidency albeit the coalition government ran so tardily over an issue that affected every Sri Lankan. It was unprecedented. If President Sirisena has called a halt to the price increase, his Secretariat failed to tell the country why it has been done. Nor did the controversy ridden Petroleum Resources Development Ministry do so. For five long days since July 6, fuel was sold at old prices. Then, as if nothing had gone wrong, the previously announced new price increases became effective from midnight Tuesday (July 10). It was the second wave of government shock therapy on the people and caused a new wave of resentment against the coalition. Ironically, that was created by its own inaction.

Dispute over percentage increase
The latest imbroglio over governance and the initial price increase that was suspended featured at this Tuesday’s weekly cabinet meeting. President Sirisena noted that earlier on Tuesday (July 5) he had met Treasury Secretary R.H.S. Samaratunga. He had told him that fuel prices were being increased by “three to four rupees.” It was much later the same night that Petroleum Resources Development Minister Arjuna Ranatunga telephoned him to say fuel prices were being raised by “nine to ten rupees.” Ranatunga told a ministerial colleague that he had to wake up the President, who was asleep, to inform him about the price revision. If Ranatunga hoped there would be action that night to suspend the increase that was not to be.

Sirisena told the cabinet, during the lengthy discussion, that the way the increases were being made lacked proper co-ordination. Though he did not tell his ministers, the President had, since the suspension of the price revision, been making inquiries. He had been told that a senior Treasury official had determined the final increase, working on the Fuel Pricing Committee’s calculations. He had allegedly based his initiates on revisions that have been sought by Lanka-India Oil Company. However, a Treasury source insisted that the Committee’s recommendations formed the basis. Sirisena has also been told that suggestions made by the CPC’s representative to the Committee on pricing formula had not been taken into account.

Sirisena left yesterday on a visit to Italy and Georgia. He is to attend the 24th sessions of the Food and Agriculture Organisation (FAO) Commission on Forestry at its headquarters in Rome which begins on July 16. The meeting brings together heads of forest services and other senior government officials to identify emerging policy and technical issues, to seek solutions and to advise FAO and others on appropriate action. It also covers environmental issues. In Georgia, he will be the first speaker at the plenary of the US backed Global Summit on Open Government Partnership in the capital city of Tbilisi from July 17 to 19.

An official committee has been tasked with formulating the pricing formula based on the prevailing crude oil prices. This is to revise prices every two months. Such revision takes place in the first week of the third month. Finance Minister Mangala Samaraweera acknowledged at the cabinet that there has been a lack of coordination. Those remarks were clearly an understatement and downplayed the significance of the issue. It was his own Ministry officials who made the decisions on the new prices. Thus, it was their unquestionable responsibility to keep the President informed, either through their Minister or directly. Not surprisingly, Sirisena declared that coordination was most essential since he “did not want to look a fool.” On the other hand, Sirisena had the opportunity to act, if he wanted to. Minister Ranatunga had woken him up to inform him of the increase. He retired to bed and became concerned only after the media reports on Friday morning (July 6). Then he cried halt.

He told his ministers that the proposed price revision would be discussed further at a meeting he would chair that Tuesday (July 10) at 4 p.m. at the Presidential Secretariat. At this meeting, Lalith Samarakoon, who heads the National Economic Council (NEC), made a presentation on the fuel pricing formula. Taking part were ministers Mangala Samaraweera, Daya Gamage, Rajitha Senaratne and Arjuna Ranatunga. Officials included Treasury Secretary R.H.S. Samaratunga, his deputy S.R. Attygalle and Petroleum Resources Development Ministry Secretary Upali Marasinghe. It is noteworthy that none of the SLFP ministers was present at this meeting.

Samarakoon, who is playing a key role in President Sirisena’s economic development drive since the shutting down of the Cabinet Committee on Economic Management (CCEM), which was under Prime Minister Ranil Wickremesinghe, made some critical comments on the Fuel Pricing Formula. According to sources privy to the discussion, he said the methodology adopted was wrong and was not fair by the consumer.

This Fuel Pricing Formula is now based on three factors – (1) the landed cost of crude oil based on the Singapore price plus premium. (2) Transport, distribution costs and the margins of profit for retail outlets, and (3) the addition of all government taxes on fuel products. Samarakoon argued that the question was not about a pricing formula but the total operating cost. He noted that taxes were enormous.

According to the same sources, the National Economic Council (NEC) statistics show that the percentage of the recent fuel price increases was higher. They are: Petrol (Octane 92) is up by Rs 53 per litre (or 36 percent of formula price), Petrol (Octane 95) is up by Rs 60 per litre (or 39 percent of formula price), Auto Diesel is up by Rs. 21 (or 18 percent of formula price) and Super Diesel is up by Rs. 31 (or 24 percent of formula price). Samarakoon’s proposal was that an increase of a maximum of three per cent of the average price for two months would have to be considered. He said this way the government would not be accepting the “automatic” price increases.

A recent study by experts in the Fiscal Affairs Department of the International Monetary Fund (IMF), though not the Fund’s official view, reflects how an “automatic pricing” system works. It says “………… Motivated by a desire to protect fuel tax revenues, some countries have adopted automatic fuel pricing mechanisms. The adoption of such a mechanism is intended to ensure full pass through of changes, both increases and decreases, in international fuel prices to domestic fuel prices. (Note: Pass-through is defined as the ratio of the absolute change in retail prices divided by absolute change in world prices, both in local currency units). At the core of the mechanism is an explicit fuel pricing formula, which determines domestic prices as the sum of the import price of fuel products, domestic wholesale and retail distribution margins, and fuel taxes.

“Domestic fuel prices are then changed at pre-specified regular intervals (e.g., weekly, bi-weekly, or monthly) to fully reflect changes in international prices. In addition to protecting fuel tax revenues, this approach also protects the margins of distributors, thus avoiding the disruption of fuel markets that often results from distributors incurring subsidy arrears due to lack of full pass-through of international fuel price changes. The adoption of an automatic mechanism should also be viewed as the first stage of a transition to a fully liberalised pricing and supply regime, which has typically been a more effective approach to avoiding subsidies and protecting the budget…….”

At Tuesday evening’s discussion, Samarakoon also argued that the government taxation on fuel was high and a phased increase should be considered with little or no shocks to the consumer. He urged that the increase be confined to three percent. However, Finance Minister Samaraweera stood his ground. He insisted that no changes could be made in the increases already recommended. When he has held portfolios, it is a known fact that Samaraweera stood by decisions taken by his officials and strongly defended them. On the other hand, there are also other compelling reasons. The Treasury is cash strapped and needs to raise money to keep the wheels of government turning. So much so, any means of raising money receives serious consideration. One such case is a periodic tax on car owners whilst parliamentarians not only receive duty free permits but also the opportunity to sell their vehicles at highly inflated prices.

Lost on the coalition leaders is the solemn pledge they made to voters three and half years ago – to deal with those involved in high profile cases of bribery and corruption. To the contrary, these social ills have risen to such high if not higher levels under their rule too. And if those funds were saved after the law was applied on the present day crooks, some now billionaires or millionaires, the coalition would have saved billions of rupees. That alone would have obviated the need for burdening the public with more taxes and heaping more hardships. More on this aspect later.

There is an even more important aspect in this week’s developments. Sirisena abolished the Cabinet Committee on Economic Management (CCEM) early this year and took over the running of the country’s economy. This was through the setting up of the National Economic Council (NEC). Yet, the NEC has had little or no role to play on an important element of the country’s economy – the energy sector. Nor has the Petroleum Resources Development Minister, who by law is the authority to revise prices and not the Ministry of Finance. Recommending such revisions haa been placed in the hands of a committee of officials. It has now been decided that the fuel prices will be reviewed every month. In fact a suggestion to review it weekly had been made earlier by Central Bank Governor Indrajit Coomaraswamy. This was not considered useful.

That Sirisena, contrary to his own NEC head’s recommendations, eventually concurred for a higher fuel price increase is one thing. This was notwithstanding the views of the three UNP Cabinet ministers, who favoured a lesser hike. That way he has endorsed a virtual UNP fuel pricing policy perhaps influenced by the worsening financial situation in the country. This is whilst the head of the former CCEM, Premier Wickremesinghe who took many decisions related to the economy, some even outside CCEM’s scope, remains side lined only to prophesise on coming events. During the past days, headlines in the state run Daily News reveals many. Among them: “Lanka, a fully developed country by 2050 – PM,” “Galle to become South Asian hub of Tourism – PM,” and “PM says new Education Standard Act to be introduced shortly.”

Death penalty to the fore
When business on the agenda concluded at Tuesday’s cabinet meeting, Sirisena also raised another issue. He said he had received an intelligence report on the proliferation of the drug trade and how war lords condemned to the death cells in prisons for drug offences were directing operations. At present death sentences are not carried out on them. “We cannot allow this situation to continue. We have to have our domestic priorities. The death sentence should be enforced on those condemned and are in prisons,” he declared speaking in Sinhala. There was loud applause. Some ministers clapped whilst others tapped on their tables. He turned to Justice Minister Talatha Athukorale and told her to forward him the names of those convicts who were directing drug running operations from prisons after being sentenced to death. This is to issue warrants for their hanging after the due process of the law is completed. “Oya nam tika denna. Mang assang karannam” or you give me the names and I will sign them, he said.

In terms of the Constitution, “any offender shall have been condemned to suffer death by the sentence of any court, the President shall cause a report to be made to him by the Judge who tried the case and shall forward such report to the Attorney General with instructions that after the Attorney General has advised thereon, the report shall be sent together with the Attorney General’s advice to the Minister in charge of the subject of Justice, who shall forward the report with his recommendation to the President.” Thereafter, the President is empowered to issue a warrant.

Sirisena noted that there would be “do gooders” who would oppose the move to introduce death penalty. Even liberal minded people like Minister Mangala Samaraweera may not like it, he said. The Finance Minister remained silent. Echoes of some ministers shouting “apita liberal epa” or we do not want liberals reverberated amidst laughter inside the Cabinet room. Even abroad, some may complain we are violating rules, the President continued. There was also another round of applause for Sirisena.

Interestingly, if Facebook is by any means an indicator of popularity, Sirisena’s rating has gone up. There was praise for summoning the courage to deal sternly with drug offenders. A few posts also noted that he now has the backbone to act.

The news of Tuesday’s cabinet decision was announced by official spokesperson Minister Rajitha Senaratne. He said: “The cabinet unanimously decided to get the services of the armed forces to fight the narcotics issue. The cabinet also decided to re-implement the death penalty on drug offences. All cheered that decision. I am a person who is against the death penalty. But throughout the world they had found that the drug menace has been reduced by sentencing persons to death. Many countries have enforced the death penalty for drug offences. The recent detections show that persons in prisons were involved in the smuggling of drugs. Nineteen persons who are involved in big-time smuggling of narcotics have been identified. It was decided to implement the death sentence on them.

“It was also decided to use the armed forces to crack down on drug trafficking. In the Philippines, it has been successful, though the methods used by President Duterte were not acceptable.”

The reference drew a response from Manila where Duterte said he was happy Sirisena has recognised his drive against drug offenders.
In Brazil, the former President Lula de Silva tried to control the drug cartel for three months. He used the Police. When he failed, he used the Navy and then even carried out air strikes. But three months later he gave up when it was not successful. This is a big Mafia. That is why we decided to get the assistance of the armed forces, Senaratne said.

Q: What about offences such as rape of school children?
A: We will start from one and see.
Q: Isn’t the death penalty already there?
A: This is regarding enforcing it on those who have been convicted for drug offences and continue to engage in drug trafficking from prisons. The President called for the list and said he would be signing it.
Q: But isn’t it a matter of President signing it?
A: The policy was not to sign earlier. Here the cabinet decided and has now sought the list.
Q: Is it the list of 19?
A: The list of 19 and specially persons who have been convicted twice.

Q: How soon will this be implemented?
A: The report from the Justice Ministry has to come
Q: During former President Chandrika Kumaratunga’s period too, there was discussion on this subject, but it was not implemented. Due to protest from Human Rights groups, will this decision too suffer a similar fate?
A: This is being implemented for large scale drug traffickers.
Q: Who made the proposal?
A: The President.

Whether hanging to death drug offenders by itself will see an end to the proliferating drug trade is extremely doubtful. As Sirisena told his Cabinet ministers, there is a lot of money in this trade. Like the world renowned drug cartels in Central and South America, local drug lords are also extremely wealthy and influential. They have in their pay politicians, those in the legal profession, Police, other law enforcement agencies, security establishments and more importantly a better intelligence network. Those within the system are abreast of the law and receive tip offs from inside. Not so long ago, a top notch Police officer held a birthday bash at a leading Colombo hotel and the costs were borne by a drug lord. When a drug lord is killed, another succeeds him. His empire does not die. In Sri Lanka, this is why drugs are easily available in close proximity to schools and even temples. What is required is a multi-pronged strategy including measures to fight large scale corruption — an area where the government has failed miserably in the past three and half years.

Nevertheless, the government’s decision has been welcomed in some sections. Minister Patali Champika Ranawaka, leader of the Jathika Hela Urumaya (JHU) is one of them. He told a group of his party members that Buddhism preached a righteous society devoid of evil. It was in the interest of society, as enunciated in the Angnana Sutra, to ensure a clean and disciplined society. Cardinal Malcolm Ranjith has welcomed capital punishment for drug lords but added that more has to be done. The London-based Amnesty International frowned on the move.

The reimplementation of executions after 43 years has the prospect of drawing Sri Lanka into an international controversy. It will put in peril GSP+ tariff concessions granted by the European Union and other concessions the country currently enjoys, as well as co-operation in criminal investigation and enforcement matters. On the GSP plus issue in particular, the EU has taken note of the fact that Sri Lanka is a signatory to the United Nations moratorium on death penalty. It was adopted by the UN General Assembly in December 2007 with 104 countries including Sri Lanka voting in favour. How the coalition proposes to change this remains a critical question.

It will seriously complicate extradition issues. The death penalty is non-existent in Europe (including Eastern and Central Europe) and Russia, Latin America, Canada and several states in USA, Africa, and in several Asian-Pacific countries including Australia and New Zealand. All the empirical evidence conclusively establishes, contrary to Minister Senaratne’s latest claim, that the death penalty is not a deterrent. In fact, where the death penalty is prescribed for rape, the murder rate has increased since the rapist feels more secure if the victim is dead and unable to identify the culprit, since the penalty for both is the same.

In Britain, Judicial Commissions have found that some persons executed in the past were in fact not guilty of the offences for which they were convicted. All the evidence suggests that the strongest deterrent is the certainty or high probability of detection and swift trial — neither of which exists in Sri Lanka. Where drug money is welcomed by candidates seeking election to public office at all levels, and known drug dealers are even nominated for public office by political parties, this latest move, to say the least, is farcical.

NYT-China Harbour issue
It is in this backdrop, the Criminal Investigation Department (CID) has started investigations into allegations in The New York Times report that China’s state owned China Harbour Engineering Company paid at least US$ 7.6 million from its account at the Standard Chartered Bank to affiliates of Mahinda Rajapaksa’s presidential election campaign. The focus, it is learnt, is on the funding of the former President’s campaign.

The NYT report cited a document from an active internal government investigation. “The document details China Harbour’s bank account number — ownership of which, it said, was verified — and intelligence gleaned from questioning of the people to whom the cheques were made out. The report added: “With 10 days to go before polls opened, around US$ 3.7 million was distributed in cheques: $678,000 to print campaign T-shirts and other promotional material and $297,000 to buy supporters gifts, including women’s saris. Another $38,000 was paid to a popular Buddhist monk who was supporting Mr. Rajapaksa’s electoral bid, while two checks totalling $1.7 million were delivered by volunteers to Temple Trees, his official residence. Most of the payments were from a sub-account controlled by China Harbour, named “HPDP Phase 2,” shorthand for Hambantota Port Development Project.”

The Sunday Times (Political Commentary) revealed last week that Chinese funding to different political parties was the subject of investigation in early 2015 by the Special Investigations Unit (SIU) which functions directly under the Inspector General of Police. This unit took over the probe after the Financial Intelligence Unit (FIU) functioning under the Central Bank of Sri Lanka (CBSL) first discovered the induction of funds.

The New York Times report prompted the Chinese Ambassador Cheng Xueyuan to hold a news conference in Colombo on July 6. He denied any funding by the state owned China Harbour Engineering Company (CHEC) for Rajapaksa’s presidential election campaign. China Harbour Engineering Company Joint Managing Director An Xin, who was at the news conference, said claims his company funded Rajapaksa were “completely inconsistent with the facts.” Noting that his company would co-operate with any investigation, Joint MD An said they were “holding discussions on pursuing legal action against The New York Times for publishing defamatory and damaging allegations.” Are these claims by the Chinese Ambassador and the CHEC factually correct, grossly misleading or a cover-up?

The Sunday Times is able to reveal today that the funding for major political parties did come from the China Harbour Engineering Company, a firm owned by the Chinese government. As reported earlier in these columns exclusively, this formed the subject of an investigation by the Special Investigation Unit (SIU) in early 2015 after evidence was first discovered by the Financial Intelligence Unit (FIU) of the Central Bank of Sri Lanka (CBSL). A former top official of the CBSL, it has now been confirmed, had sought the investigations to be halted though the reasons are not clear.

The Sunday Times is also able to reveal today that the file which contained material about the China Harbour Engineering Company funding is 312–2015 CB. This CBSL file has been closed in June 2016. Whether the file is still available with the Central Bank with its contents intact or it was taken over by the SIU is not clear. Four cash cheques totalling Rs 100 million were issued by China Harbour Engineering Company as part of payments for political parties. Three cheques are dated January 7, 2015, a day before the presidential election whilst the fourth is dated January 6, 2015.

At that time, the SIU investigation had identified those who cashed these cheques and obtained copies of their National Identity Cards. One high ranking source said some persons including a former government official were among those questioned before the probe was halted unceremoniously by the onetime top CBSL official. See montage of the cheques on this page. They are drawn from the China Harbour Engineering Company’s own account at the Standard Chartered Bank in Colombo. It is not immediately clear whether CID detectives will also probe this aspect during their investigation or concentrate only on the moneys received for the Rajapaksa campaign.

With only some 14 months to go for the scheduled presidential election, followed by parliamentary elections, whether the results of the high profile investigations into bribery and corruption will ever be known, remains a huge question. So is the probe into whether Mahinda Rajapaksa received funds for the 2015 presidential polls from a Chinese firm. After all, the pledges to probe other major cases were made months before 2015 and remain unfulfilled. The only thing the people appear certain is the price hike — this time fuel.

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