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bus scandal Scuttled

Tilak Marapana P.C., M.P., Minister of Transport and Highways and Civil Aviation by his Cabinet Memorandum of April 30, 2002 stating that the peace process has necessitated the commencement of bus services in the North and East of Sri Lanka had obtained the approval of the Cabinet of Ministers to re-structure the Northern Regional Transport Board, Vavuniya Peoplised Bus Company and New Eastern Bus Company.

He had also proposed that independent companies be formed with 50 percent government shareholdings on the basis of "public / private partnerships" and the private sector be given autonomy to manage these companies. The process to select the private sector partners was to been through the Colombo Stock Exchange on a transparent basis, with no government involvement.

Just two weeks thereafter, by his Cabinet Memorandum of May 15, 2002 Minister Tilak Marapana had proposed to adopt the above policy and procedure to the rest of the island and to establish "public/private partnerships" for state bus operations carried out by ten cluster bus companies, namely, Colombo Metropolitan Bus Co. Ltd., Kalutara Bus Co.Ltd., Ruhunu Bus Co. Ltd., Uva Bus Co. Ltd., Mahanuwara Bus Co. Ltd., Gampaha Bus Co. Ltd., Wayamba Bus Co. Ltd., Rajarata Bus Co. Ltd., Sabaragamuwa Bus Co. Ltd., and Nuwara-Eliya Bus Co. Ltd.

Thereafter, from June 12, 2002 the Public Enterprise Reform Commission had invited expressions of interest from the private sector. On September 23, 2002 when investors had been required to submit bid bonds to qualify for bidding at the Colombo Stock Exchange no valid bids had been received.

Subsequently, after the settlement reached in Court, this transaction had been re-advertised from October 1, 2002 offering 39 percent of the equity of the above bus companies for sale.

Two consortiums of investors had submitted proposals by October 24, 2002, one bidding for 9 of the above companies through IBIS Transport Consultants Ltd. and the other bidding for the 3 other companies through Shoresec International (Pvt) Ltd.

However, valid bids with a bid bond of 5 percent had been received from a single consortium in respect of 6 of the above bus companies, through 3 investor companies, with Free Lanka Trading Co. Ltd., being nominated as the management company for 3 of the above bus companies.

The 3 investor companies had all been registered at No. 945, Sri Jayawardenepura Mawatha, Kotte.

Minister Tilak Marapana by his Cabinet Memorandum of November 26, 2002, had sought approval for the sale of 39 percent of the shares of Colombo Metropolitan Bus Co. Ltd., Gampaha Bus Co. Ltd., Kalutara Bus Co. Ltd., Mahanuwara Bus Co. Ltd., Rajarata Bus Co. Ltd., and Sabaragamuwa Bus Co. Ltd., for a total bid price of Rs. 1,418,832,950/-. Approval had been sought to provide a government guarantee to the bus companies to raise funds.

The assets of the bus companies and 39 percent equity to have been purchased by the investor companies were to be mortgaged to the government, as security for the government guarantees. The government was to takeover all the liabilities of these 6 bus companies.

The investor companies was to be given these 6 bus companies with assets, but with no liabilities, and government guarantees also given to raise funds, against the assets of the bus companies and the shareholdings of the companies to have been purchased by the investor companies.

By Memorandum dated December 18, 2002 President Kumaratunga had vetoed the above proposal pointing out that it had been obvious from the data that there had been no transparent process generating adequate competition, and that though 3 investment companies had been selected to purchase 6 of the bus companies, that it had been evident from the available information that the shareholders and the directors of all 3 investor companies had been the same parties and the addresses of all these companies had been the same, and that as such, these investor companies had not possessed sufficient experience in the field of transport.

President Kumaratunga had further censured that government guarantees are being given to raise funds, and at the same time all the liabilities of the bus companies are being taken over by the state, and that the time period given for response had questionably been only 30 days. In the circumstances, President Kumaratunga had directed that the process be cancelled.

On December 18, 2002 a Cabinet Sub-Committee had been appointed to monitor the performance of these investor companies and report to Cabinet. The Committee had comprised Ministers Tilak Marapana, Mahinda Samarasinghe and Milinda Moragoda.

On January 2, 2003 President Kumaratunga had written to Cabinet expressing her total opposition to providing any government guarantees for raising funds by investor companies and had stressed her unreserved opposition to the proposal of the Cabinet.

Once again President Kumaratunga on January 8, 2003 had written to the Cabinet expressing her unequivocal objection to this transaction, stating that in her opinion it was a fraudulent exercise and that it would have disastrous effects. President Kumaratunga had pointed out that the principal character in the so-called investor companies, also having the same address, was Ravi Weththasinghe, with whom the government had had bad experience in the past.

She had refused totally to associate herself with the decision of the Cabinet. President Kumaratunga had followed up with a further Memorandum on January 22, 2003 reiterating her stance of the unsuitability of the investor and the financial standing, and had objected and had disassociated herself with this bad decision of the Cabinet. On January 22, 2003 Minister Tilak Marapana had submitted to Cabinet the Terms of Reference of the Sub-Committee. The President on January 29, 2003 had required her representative to be included in the above Sub-Committee.

On March 24, 2003 Minister Milinda Moragoda had forwarded a Cabinet Memorandum stating that it had been agreed with IBIS Consortium that instead of the payment being made in cash, that they would furnish an irrevocable Letter of Credit and that the Economic Policy Committee of the Cabinet had cleared a recommended course of action.

The course of action had been to open Letters of Credit through a UK Bank (name not disclosed) separately for 25 percent and 14 percent of the 39 percent Shareholdings of the 6 bus companies, being payable within 30 days.

The recommendations speak of ANZ Guarantee Letter to be issued by the government of Sri Lanka and the government also to issue a Letter of Comfort to the Bank of Ceylon. The IBIS Consortium was to provide a mortgage of their proposed shareholding in the 6 bus companies and the Management Agreement was to be signed on March 31, 2003.

Immediately, on March 30, 2003 President Kumaratunga had addressed an urgent Letter to Prime Minister, Ranil Wickremesinghe decrying the above Cabinet Memorandum submitted by Minister Milinda Moragoda pointing out that the course of action contemplated by him is contrary to even the earlier Cabinet decision and that no action should be taken and the Management Agreement should not be signed until the next Cabinet Meeting on April 2, 2003. President Kumaratunga had also copied her Letter of March 30, 2003 to Minister Milinda Moragoda.

By his Letter of March 31, 2003 to President Kumaratunga, Prime Minister Ranil Wickremesinghe had, inter-alia, stated - "No sooner I received your letter I checked the current situation in regard to this matter and found that the Management Agreement had been signed this morning".

The Cabinet on April 2, 2002 had decided that Ministers Tilak Marapana and Milinda Moragoda would take up with President Kumaratunga the issues highlighted by her. Thereafter on completion of a pending Court Case, discussions had been had between IBIS Consortium, Minister K.N. Choksy, Secretary Charitha Ratwatte, Attorney General K.C. Kamalansabayson and Chairman Public Enterprise Reform Commission.

The IBIS Consortium had agreed that Bank of Ceylon would remit to the Treasury US $ 8,512,967.70 for 25 percent shares of the 6 bus companies. At the same time US $ 13.5 Mn. of funding had been identified as urgently necessary and in respect of which the government was to provide a guarantee to the Bank of Ceylon.

After the transfer of the balance 14% shares with the payment, the government was to provide further guarantees up to US $ 30 Mn. The Agreements had been approved by the Hon. Attorney General. The above had been set out in a Cabinet Memorandum by Minister Milinda Moragoda on September 15, 2003.

On October 1, 2003 President Kumaratunga had forwarded her observations on the above Cabinet Memorandum, which had sought to provide government guarantees to IBIS Consortium.

She had strongly objected, observing that this transaction had been completely messed up, citing the previous submissions she had forwarded. The entire transaction had been done in an improper manner, notwithstanding objections and it was still worse to offer sovereign guarantees to the buyers the President had stated.

She had also observed that further legal action had been instituted in the Supreme Court where an interim injunction had been issued against the handing over of the management of the 6 bus companies. President Kumaratunga had observed that the government had no firm policy on national transport.

Therefore, she had directed to desist from proceeding with this transaction, including the proposal to provide government guarantees to IBIS and to formulate government policy on public transport and thereafter to reformulate proposals.

As a result the Cabinet Memorandum of Minister Milinda Moragoda had been withdrawn on October 1, 2003.

Thereafter on October 2, 2003, Minister Tilak Marapana had forwarded a Cabinet Memorandum recommending to revoke the above award to IBIS Consortium, inter-alia, stating that the transaction could not be completed as the mode and terms of payment of Rs. 1.4 billion for the 30% stake of the 6 bus companies had not been finalised. Minister Tilak Marapana had also cited the restraining order issued by Supreme Court on September 19, 2002.

Once again, President Kumaratunga had forwarded a Note to Cabinet on October 8, 2003 agreeing with the proposal to revoke this transaction, stating she had already pointed out unsatisfactory and unacceptable features and had disassociated herself with this transaction.

The President had reiterated her position that it was pre-requisite to develop a comprehensive public transport policy before commencing a new process.

The Cabinet of Ministers on October 8, 2003 had decided on the revocation. Subsequently on January 19, 2004 Director-General, Manjula de Silva had written to Minister Milinda Moragoda's Ministry Secretary, G. Hewagama stating that R Paskaralingam, Advisor to the Prime Minister had suggested to amend the draft Cabinet Paper to extend the performance based subsidies up to Rs. 4.5 billion over a period of three years (3 years) to be specified in the Request of Proposals in view of the government remaining to be the majority owner of the state bus companies.

On the same day, January 19, 2004, Minister Milinda Moragoda by Cabinet Memorandum setting out the foregoing background, had sought approval to call for proposals to divest 39% of the shares of the 13 state bus companies, on similar basis as above, with the addition of a 3 year subsidy of Rs. 4.5 billion.

Accordingly, draft Request for Proposals had been finalised by the Ministry of Economic Reform, Science & Technology on January 16, 2004. President Kumaratunga once again had on January 28, 2004 forwarded her observations stating that the new proposal needs to be scrutinised carefully in view of the past experience and that she needed two weeks time to study the same.

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