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The Situation Report

13th September 1998

Yet another huge arms deal exploding

By Iqbal Athas

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A hurriedly negotiated multi billion rupee defence procurement deal with a Chinese supplier has raised eye brows in the defence establishment and triggered off a minor diplomatic row.

For obvious reasons, The Sunday Times refrains from publishing details of the deal or the catalogue of items, some advanced equipment hitherto unused included, have been negotiated.

However, the circumstances under which such a deal has been worked out, particularly when a specific government to government deal exists between Sri Lanka and China, has become the crucial question.

The Sunday Times learnt that the new deal, said to involve over US $ 80 million, took shape after the arrival in Colombo of a delegation from China's People's Liberation Army's trading arm, Bomtec.

They have been accommodated at the Hotel Ceylon Intercontinental and the costs borne by the Sri Lanka Army.

After preliminary negotiations in Colombo, a three member Sri Lanka Army team flew to China to inspect the wide variety of military hardware. The team was headed by Brigadier Nissanka Wijesinghe and comprised Brigadier Sumith Balasuriya and Colonel Ranjit Rupasinghe.

Consequent to the visit, high ranking military sources in Colombo say, Chinese authorities had begun loading the defence procurements into two cargo vessels for shipment to Colombo. Letters of Credit for the deal were to be opened when things began to go wrong.

The Chinese leadership clamped down a ban on the PLA indulging in business. The surprise move was based on the grounds that there has been widespread smuggling. Reporting the issue, this is what China's national news agency Xinhua said:

"The Chinese central leadership has ordered the armed forces to clear and close down all its businesses as a major contribution to the current nation wide anti-smuggling drive.

"Jiang Zemin, General Secretary of the Communist Party of China and State President, disclosed the plan at a joint anti-smuggling conference held in Beijing on Monday and Tuesday by the headquarters of the People's Liberation Army (PLA).

"Army leaders including Vice Chairman of the Central Military Commission Zhang Wannian and Chi Haotian, as well as commission members Fu Qanyou, Yu Yongbo, Wang Ke and Wang Ruilin took part in the conference.

"Jiang, who is also chairman of the Central Military Commission urged the armed forces to fully understand the importance and urgency of the nationwide anti-smuggling campaign in order to ensure the country's long-standing stability and the army's purity.

"The armed forces must play a leading role in the current drive to set a good example for society and further the efforts to build a clean Party style in the army, he said.

"The current international situation is favourable for China's ongoing modernisation drive as the country's international status has been further enhanced, while China's economic growth has maintained a relatively high speed despite the current financial turmoil in Asia, Jiang told the participants.

"He noted that the sound situation of the reform and economic drive has enabled China to resolve problems and difficulties the country has been encountering as it advances.

"He termed the recent launching of the nationwide anti-smuggling drive by the Party Central Committee and the State Council a major decision, which was made to better safeguard healthy economic development, social stability and the interests of State security.

"Smuggling has been rampant in parts of the country and some government departments, he said, noting that this kind of severe crime will bring enormous danger to society if it is not firmly abolished.

"Jiang stressed: The People's Liberation Army is a staunch pillar of the people's democratic dictatorship and an iron and steel Great Wall for safeguarding the socialist motherland.

"The army must implement the major arrangements made by the central leadership for the anti-smuggling programmes, while sparing no effort to support and co-operate in local anti-smuggling activities and making serious investigations of problems related to the PLA and the People's Armed Police (PAP).

"Our armed forces are a people's army under the absolute leadership of the Party", Jiang said answering the conference that the army could stand any kind of test no matter whether in war or peace.

"The People's Liberation Army has a glorious history and enjoys a lofty reputation among people of different nationalities," he said, praising the armed forces for their great contribution to the Party-led revolution, economic drive and reform.

"He expressed his hope that the army will make new achievements for the Party and the people.

"The Chinese Government is planning a large scale anti-smuggling campaign for the second half of this year to demonstrate its determination to ensure the healthy economic growth needed to protect stability.

"The drive according to Jiang "a major economic struggle" that will have a bearing on the reforms, opening-up and modernisation.

"Jiang told a conference on smuggling earlier this month that, to win the campaign, China will deal with major cases in an efficient way and that it plans to reform its system and set up a national police force specially for that purpose."

Besides the Xinhua item, other reports including one in Asiaweek said that the clamp-down on the armed forces by President Jiang Zemin, was to prevent the powerful Army from becoming a hot bed of corruption.

I do not suggest that the deal with Bombtec itself falls strictly within the category defined by the Chinese leader though how it originated is shrouded in secrecy. But the fact remains that the ruling has affected the transaction. If a Letter of Credit is opened, can Bombtec be named as the beneficiary ? There were unconfirmed reports that one of the loaded ships has already arrived in Colombo.

If the shipment is unloaded, to whom does the payment go ? The Sunday Times has learnt that an arms dealer who was part of an influential and powerful lobby that was promoting the Bombtec deal was in China at the time the military team was there. He had travelled separately.

But the most important factor that has made matters worse for Sri Lanka is the fact that a government to government agreement exists between China's military trading arm, NORINCO (China North Industries Corporation) and the Sri Lanka Ministry of Defence.

In terms of the agreement, originally entered into by the previous Government and renewed by the PA Government, it is NORINCO that has entered into a valid contractual arrangement to supply military hardware from China.

Angered by the new deal, Gu Yongchun, Vice President of NORINCO has sent a strongly worded letter to Sri Lanka's Ambassador in China, R.C.A. Vandergert.


Mr Gu says: "Now a percentage of the products within the range of the Agreement from a channel other than NORINCO is undertaken in Sri Lanka and China which will undoubtedly result in the violation of the Agreement if it is not stopped immediately. We have expressed our most concerns of any violation to the Agreement in our above quoted letter dated 16th August, 1998.

If the same thing continues to happen and finally cause the great violation of the Agreement, which is unwilling to be seen by both of our two sides and which will surely hurt the feelings of both our two sides."

Unlike many western nations, the People's Republic of China has been the only country which has continued to provide an uninterrupted supply of military hardware to Sri Lanka in the 17-year-old separatist war.

This is not the first time that NORINCO has complained about the violation of a government to government agreement for defence procurements.

In August, 1995, NORINCO expressed "shock" that the Sri Lanka Ministry of Defence awarded a US $50 million deal to "another source through an agent in Hong Kong" (The Sunday Times August 20, 1995).

The source referred to even at that time was the People's Liberation Army (PLA). That deal through a Hong Kong agent meant that commissions on the $50 million transaction went to them and their Sri Lankan counterparts.

NORINCO or China North Industries Corporation is an international enterprise group established by the Chinese Government. It develops and produces an extensive range of defence ordnance equipment including Main Battle Tanks (MBTs), Armoured Personnel Vehicles (APVs), 155 mm (and 152 mm) gun/howitzer, multi tube rocket launchers, Red Arrow anti tank missiles, small arms, ammunition of entire range as well as military engineering vehicles conforming both to Warsaw Pact and NATO standards. NORINCO is the main supplier to the People's Liberation Army.

The previous Government entered into a Bonded Warehouse Agreement with Norinco in November 1993 and it expired on November 30, 1995. In terms of this agreement, NORINCO established a Bonded Warehouse in Sri Lanka to meet the requirements of the Ministry of Defence.

The agreement was extended for a further two years after Sri Lanka's Ambassador in Beijing, R.C.A. Vandergert, signed on behalf of the Secretary, Ministry of Defence, on May 22, 1998. With NORINCO authorities taking offence at Sri Lanka going beyond the first agreement, how a similar step has been taken for a second time (in reported violation of the Second Extension of the Agreement) is the question that is being raised in defence circles.

One military source who spoke on grounds of anonymity for obvious reasons told The Sunday Times that the prices offered by Bomtec were "so ridiculously low." He added "there were also very attractive free offers of some hitherto unused items." There were reports that the three-man military team was not shown some of the items which had been loaded into the ship. However, this claim could not be verified.

This transaction is yet another example of the unprincipled manner in which defence procurements continue to be made into the security forces. The Sunday Times has for a long time focused on the questionable procedures adopted in this regard.

In some instances, as in the case of the mortar deal with Zimbabwe Defence Industries (ZDI), the questions raised and the hidden issues implicit in the episode imply that there was more to it than mere non- compliance with procedure.

Those issues perhaps go beyond corruption into more serious matters concerning the very security of information and physical security of material procurement to the security forces.

The ZDI deal, in particular, is a damning illustration of the situation that prevails, considering the number of casualties that resulted to the troops in Operation Jaya Sikurui (Victory Assured) from mortar fire from ammunition re-inforcements the LTTE obtained. It is a known fact that over 65 per cent of the casualties (both deaths and injured) were from mortars. Has anyone been held accountable for this serious situation ? Why is an attempt being made from the very beginning to cover up the issue with claims that all what was ordered from ZDI had arrived ?

The question arises as to what the urgency was to bypass an established agreement with the government of the People's Republic of China, particularly when the ongoing operation has been virtually stalled this year with the remote likelihood of it regaining its momentum before the monsoons set in, a month away from now.

This transaction does not only leave many questions regarding procedures, controls and procurement planning. More importantly, it opens questions as to the planning and conduct of the war itself. Also equally importantly, if there has been no transparency in procurements, those corrupt and violating procedures have not been taken to task. If this was done, it would not only have been a deterrent but also an example to the others.

And, against this background of unkept deadlines of V Day and Operation Jaya Sikurui halted around Mankulam, the public, to say the least, are getting increasingly concerned of the Government's conduct of the war.

The questions that arise from heavy expenditure on military procurement sans procedures does not in the situation give much public confidence. Certainly, not when some sections of the PA leadership, in an effort to cover up the growing corruption in procurements, come out with excuses that they are only allegations made by unsuccessful tenderers. Such claims are as comical as the deadlines they have set, and the headlines they earn daily, after guided media tours that speak of nothing but "successes."

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