Features
THE NEED FOR INCREASED FUEL PRICES AND DIVESTITURE OF CEYLON PETROLEUM CORPORATION
by Sanjeewa Jayaweera
In a recent TV talk show “Face the Nation”, a panel of economists mostly with experience in the private sector delivered an insightful and no holds barred discussion on the recent hike in petroland diesel prices. The participants were Murtaza Jafferjee (Chair of Advocata Institute), Nishan De Mel (Executive Director Verite Research), Dr Anila Dias Bandaranaike (Former Assistant Governor of Central Bank) and Shiran Fernando (Chief Economist of the Chamber ofCommerce).
It was good to listen to a discussion where no attempt was made to cotton wool the perilous position of the Sri Lankan economy. It was pleasing that all panelists felt that the price increase was inevitable even if taken rather late in the day. Some of the key points they made were:
Murtaza Jafferjee said, “market forces are not allowed to operate due to government interference, which prolongs the issues at hand despite creating an illusion that everything is fine. The government is trying to solve a foreign currency solvency issue by using toolsintended to manage a liquidity crisis. We spend a net amount of US $ 3.5 billion in a year on fuel imports (when the average price is US $ 70 per barrel) which is the single largest import, and that it is vital to price it correctly.
“The revised pricing, unfortunately, does not still cover the cost of diesel. The government should have done price increases in stages. In New Delhi, the price of a Liter of petrol is Rs. 250/- (SEE TABLE 1). According to a World Bank study, the fuel subsidy benefits the richest 30% of households (here) with 70% of the benefit. He proposed that to ease the burden of higher fuel cost on the poorest segment of the population, there needs to be a cash transfer, like Samurdhi benefits to that segment instead of subsidizing all and sundry.”
His message was not to play politics with fuel prices, causing a huge hole in the economy. He was astounded that the single person income tax-free threshold of Rs.three million for a year introduced by the government in 2019 is 400 per cent of the country’s per capita income. This contrasts with countries like Singapore and Australia, both of whom have a much higher per capita income than Sri Lanka, but the tax-free threshold is only around 20% of per capita income.
Dr Anila Dias Bandaranaike said, “leadership need to make tough decisions and convince the public to undergo certain hardships to work towards a better future.” Those presently overseeing the management of the economy are out of their depth and drowning. Post-2015, when attending parliamentary oversight committees, she observed that most MP’s were absent and that many of the few who attended did not understand what was going on! She was critical of the private sector and referred to them as the NATO = No Action Talk Only! But unfortunately, she declined to comment about the role of the utterly inefficient and subservient public service of which she was part for several years!
Nishan de Mel said, “The present government reduced a plethora of taxes when it came to power, thereby significantly reducing government revenue—estimated to be around Rs. 600 billion. These measures were to act as an economic stimulus leading to economic growth. Unfortunately, no analysis has been done to determine whether these measures achieved the desired result.”
He lamented that there is a lack of economic data readily available in our country. This prevents proper monitoring and analysis of various actions resorted to by the government and hinders future planning. He cited an example of how the Central Bank has filed a court case to prevent access to certain data relating to the bond scam. They retained expensive lawyers from private practice as opposed to those from the Attorney Generals Department. The government is resorting to local borrowing to bridge the budget deficit, and by keeping the lending rates below inflation, the government is borrowing at zero cost. Our economy is in a precarious position.
The Need for a Formula for Pricing Fuel
Those who have some knowledge and understanding of how the government should manage the economy have been of the view for several decades that the government needs to price the supply of fuel, electricity, gas, and many other commodities and services based on a formula ofcost-plus profit. In 2018, the Yahapalana government did introduce a price formula. They were subjected to both criticism and ridicule. With an impending election, the practice was hastily withdrawn. A document prepared as far back 2003 proposed that the fuel price formula should be based on:
CIF price (FOB + freight + insurance + evaporation losses) to which the following costs be added (port + jetty charges + customs and excise duty + financial charges + storage and terminal charges + marketing and distribution charges) to arrive at the wholesale cost.
The retail price was to be arrived at by adding the following to the wholesale cost (profit margin of 5% + retailer and dealer margin of 2.5% of the wholesale price + VAT).Fuel prices should be revised monthly to reflect changes in Singapore Platts average FOB price and exchange rates.
It was a simple enough formula to have been implemented. No doubt there would have been periods when world oil prices spiked well above US 100 per barrel, the retail price would have been high. However, we all know that no commodity or service can be provided below costother than for a short period. Unfortunately, this type of logic has escaped those who have governed our country for so many decades.
Actually, it is a case of not being able to take tough decisions at the correct time. Short-term political popularity has overridden the compelling need for sound economic management. That our country has lacked visionary leaders since Independence is evident. However, we, the masses, are equally culpable for our predicament. The quotation “people get the government they deserve” is quite apt.
In addition, high fuel prices hopefully should also act as a catalyst for car owners to adopt practices such as car-pooling. The benefits extend beyond just financial to also reducing traffic jams on our roads, pollution etc.
The Losses incurred by Ceylon Petroleum Corporation (CPC)
At the outset, I must express my disappointment that the latest CPC Annual Report available is for the year ended December 31, 2018. This reflects the overall inefficiency that pervades state institutions where the work ethic is deplorable. Many companies listed on the Colombo Stock Exchange releases their Annual Reports within 90 days of the end of the financial year. An examination of the financial statements of CPC for 2018 reveals the following.
CPC posted a loss of Rs. 105 billion, of which Rs. 82.7 billion was on account of foreign exchange rate variation and a further Rs. 12.9 billion due to interest costs. Unfortunately, even at a Gross Profit Level (Revenue less direct costs), there was a loss of Rs 3 billion. TheBalance Sheet as of December 31, 2018, reflects that CPC has accumulated losses of Rs. 325.6 billion. The net assets are a negative of Rs. 281.7 billion. Borrowings were Rs. 296 billion,although there was Rs. 110.6 billion of bank deposits, investments in treasury bonds and bank balances. Other liabilities of Rs. 313 billion included foreign bills payable for imports of Rs. 245.5 billion.
CPC is insolvent, and the Auditor General has qualified his report by stating, ” The Corporation’s ability to continue as a going concern without the financial assistance from the Government is doubtful.”
I have included a table (2) detailing the eight-year history of the performance of CPC and some essential information. The absence of the financials for 2019 and 2020 prevents me from doing a 10-year analysis. As can be observed in 2011, 2012, and 2018, CPC made a loss even at Gross Profit Level and posted a loss before tax in five out of eight years. In 2011 and 2012, the average price for a barrel of Brent crude was in the region of US $ 112, and the consequences of not adjusting the fuel price are apparent. On the other hand, in 2013, despite the average cost of a barrel of Brent being US $ 109, CPC was able to post a Gross Profit of Rs. 26 billion as fuel prices were adjusted to reflect the cost.
Poor Management of CPC
Given the pivotal role that CPC plays in our economy, there is a need to ensure that people of skill, proven competence, and experience be appointed to both the Board of Directors and the key management positions. I have noted from perusing the corporation’s Annual Reports that the Executive Chairman post is like a merry go round. In the year 2017, there were three different Chairmen, whilst in 2018, there were two separate Chairmen. No organization, let alone one as large as CPC, can function effectively without continuity. In addition, the calibre of people appointed to the post of Chairman is a cause for concern.
In 2017, the Minister of Petroleum appointed his brother as the Chairman. Under any circumstances, this appointment can only be deemed as nepotism. In addition, the Chairman being a former cricketer, had no relevant experience nor proven competence and maybe the skill sets required to hold this position. The infamous hedging deal that cost the country’s taxpayers a sum over Rs. 14 billion between 2007 and 2008 occurred when another former national cricketer was the Chairman of CPC.
Do we ever learn? Another who served as Chairman in 2018 is a person whose career was in the Sri Lanka Administrative Service. With all respect, having dealt with various senior public servants in our country during my career in the private sector, I have grave reservations about their capability to hold a position that requires proven commercial acumen and expertise. A question that needs to be posed and answered by the Chairman and the Board who served the CPC in 2020 is whether they took advantage of rock bottom prices in the world market to secure our future supplies.
Auditor General’s Report On CPC
The Auditor General’s (AG) Report for 2017 and 2018 of CPC and subsidiary run into 29 and 18 pages, respectively. They are a damning indictment of maintaining poor accounting records, lax internal controls, non-adherence to Sri Lanka Accounting standards, lack of evidence for audit, non-compliance with laws, rules, regulations, poor management decisions, operating inefficiencies, and transactions of contentious nature.
Due to the constraint of space, I shall only list a few of them, although any reader interested can access the annual reports of CPC on their website www.ceypecto.gov.lk
Differences in balances payable/receivable as reflected in the accounting recordsof CPC and other parties:
A difference of Rs. 670.93 million in the inter-company balance between CPC and the Subsidiary – Ceylon Petroleum Storage Terminal Ltd., as of December 31, 2017, increased to Rs. 2.47 billion by December 31, 2018.
A balance difference of Rs. 436.78 million observed between CPC and the Department of Inland Revenue (IRD) regarding Income Tax, Economic Service Charge, and Value Added Tax payable/recoverable.
There is a balance difference of Rs. 778.3 million between CPC and the CEB as of December 31, 2018
An amount of Rs. 2.7 billion is reflected in excess as payable to Sri Lanka Customs compared with Sri Lanka Customs’ records.
No basis disclosed or audit evidence provided for the provision of Rs. 142.92 million made on inventory items to be written off.
An amount of Rs. 4.59 billion payable to the People’s Bank on account of hedging transactions between 2007 and 2009 has been excluded from the financial statements of CPC. In addition, Commercial Bank of Ceylon Plc has filed a case at the Commercial High Court, Colombo, claiming US $ 8.65 million from CPC. The total estimated loss due to the hedging transactions between 2007 and 2009 is estimated to be Rs. 14 billion.
An estimated loss of Rs. 1.5 billion because of non-implementation of collecting a monthly utility fee from CPC- owned dealer operated filling stations and Treasury owned dealer operated filling stations from January 01, 2014, onwards.
CPC has borne Rs. 53.57 million and Rs. 259.9 million during 2017 and 2018 respectively as PAYE Tax of its employees without deducting it from their personal emoluments.
A sum of Rs. 307.8 million incurred in purchasing seven motor vehicles in 2017 without the approval of the Ministry, General Treasury and the Department of Public Enterprise.
An agreement has been entered into with Hyrax Oil SDN BHD to build a Lubricant Blending Plant on a BOT basis in May 2016. No comparable proposal has been obtained, which is the acceptable procedure. The AG’s report also mentions that they could not ensure that a properfeasibility study had been conducted for the project.
The list is much longer. The Auditor-General and his staff need to be commended for their work. In most countries, an audit report of this nature would result in action against officers responsible. I believe most audit reports compiled by the Auditor General on state enterprises would be equally bad or even worse.
The Impact of fuel Prices and politicization
The Minister, in justifying the price increase said, CPC has borrowed around Rs. 600 billion from People’s Bank and Bank of Ceylon, and any further borrowing might destabilize the entire banking system.
There is no doubt that an increase in fuel prices has a ripple effect that runs across from the cost of transport to goods, resulting in hardship to some population segments. It mainly impacts the poorer segment struggling to make ends meet. The popular euphonism in Sinhalese that most opposition politicians say “gahen watuna minihata gona anna” which is equivalent to the English “from the frying pan to the fire.”
In the 2018 Annual Report, it is disclosed that CPC lost Rs. 14.7 billion due to selling kerosene below cost. The loss per litre is Rs. 56.86. The annual report states, “The subsidy on kerosene is largely misused by the transport sector when the price gap between the diesel and kerosene is more.” However, as Jafferjee said, the solution to avoid this pain is to make a cash transfer to those in the poverty net and not benefit the rest of the population.
I came across a Sri Lanka review done by the World Bank in 1996 where they say “Sri Lanka’s large array of safety nets are both costly and poorly targeted. They typically have transferred resources, albeit modest, to a large fraction of the population above the poverty line and inadequate sums to the very poor.” Unfortunately, 25 years on this statement is still applicable.
It is deplorable that politicians of both the main parties try to politicize fuel prices despite being aware of the massive negative economic impact of not pricing fuel based on the cost-plus profitformula. Their job is also to educate the public and stop childish symbolic acts of riding bullock carts, cycles and three-wheelers. The decision to import expensive vehicles for MP’s needs our unreserved condemnation. One must live hoping that action will be taken against the members of the CPC Board who in 2017 ordered seven vehicles for Rs. 307 million with no covering approval.
Conclusion
In my view, the need to privatize the Ceylon Petroleum Corporation is compelling. The government can maybe hold a majority stake of 51%. However, the management of CPC by an independent professional team outside government interference is a must. This is equally applicable to many other state corporations like the CEB, the National Water Board and Litro Gas.
I can imagine the howls of protest this will draw from the JVP, other left-wing parties, and trade unions. The opposition by the trade unions is understandable given that the staff cost at CPC for the year was Rs. 6 billion, which increased to Rs. 12.7 billion inclusive of the subsidiary company. As to whether the Rs. 259.9 million borne by CPC as PAYE tax on behalf of its employees is included or on top of this is anybody’s guess. The cost to company (CTC) of anan employee at CPC (excluding the subsidiary company) is approximately Rs. 180,000 per month.
The government must draw upon the success of the part divestiture and independent management of Sri Lanka Telecom and Sri Lankan Airlines under Emirates to restructure all loss-making institutions. These changes should have been implemented long ago, but as the panel of experts said in the Face the Nation talk show, it is better late than never.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
US sports envoys to Lanka to champion youth development
Rahuman questions sudden cancellation of leave of CEB employees
