‘No private assets will be taken over by govt’

Following are excerpts of the speech made by Economic Development Minister Basil Rajapaksa in Parliament on Wednesday during the debate on the Revival of Underperforming Enterprises and Underutilized Assets Bill

All property included in this draft Bill is public property which belongs to the people and not private property. This should be stated categorically. These public properties have been vested in private industries or enterprises under various conditions at various terms in the past. This has even happened during the British period. Landless peasants in Giruwappatuwa had been given land on an annual permit on the condition that they should use this land for chena cultivations. Later they were given land for on the basis of a land tax. There was a condition that they could not transfer them to their sons or relatives without the express permission of the DRO. They could not use the land for any other purpose either. For instance, if they set up a boutique in it, the land would be acquired by the government.

Middle class lands were given from time to time for the cultivation of various crops. When former President, J.R. Jayewardene was a State Minister in the Dudley Senanayake government, he established Tourist Zones and gave land under conditions to people engaged in the tourist industry.

The first such land was given in areas such as Bentota. The conditions were that they should be used for setting up tourist hotels and for nothing else. If any attempt was made by a person to build a house in that land and occupy it, steps were taken to acquire the land by the government.

Industrial zones

Other conditions included the extent of the buildings they should put up and the investment which should be made within a given period. When Maithripala Senanayake was Minister of Industries, in the Sirimavo Bandaranaike government, he set up industrial zones and gave away state land for setting up various industries.

Many old indigenous industrialists who received this privilege have today achieved a lot under this process. Later during the Jayewardene era, several investment zones were set up and land given, not only for locals, but for foreigners as well for investment on certain conditions. A large amount of public funds was used to develop infrastructure in those zones which included roads, security fences and provision of electricity.

Privileges not available for an ordinary factory owner outside the investment zone were given to those investors by using state and public funds to develop infrastructure. When state or public property is given away, it is done with a host of conditions attached. Not only when leasing out state or public property conditions were attached even when relief or privileges were given to an individual. For example when the President assumed office, the fertiliser subsidy was given to farmers at a rate of Rs. 350 per bag which actually was continuously given for six years, which meant 13 cultivation seasons. For example, a bag of fertiliser now costs around Rs. 3,500. When the farmer pays Rs. 350 per bag, the government subsidises it to the tune of Rs. 3,150.

Fertiliser subsidy

Then we imposed a condition that it should be only used for paddy cultivation. Through this subsidy, we hoped to attain self-sufficiency in rice which is the staple food of the people of this country. People not only fulfilled their duty, but also followed the stipulated conditions. However, when some breached this condition and got caught selling the fertiliser to gain an instant profit, they were taken to Court and jailed, and the fertiliser confiscated. This shows that even the fertiliser subsidy given to the poor was on certain conditions.

Furthermore, we had a target to make the people self-sufficient in food. The honour of this august assembly should go to the farming community who fulfilled their duty. They have almost doubled or trebled rice production by using that fertiliser correctly.

Apart from this, not only land, but ‘Mini Moke’ vehicles were also given for cultivation purposes during the Dudley Senanayake era. When those vehicles were seen parked near prestigious Colombo 7 schools, pictures were taken of them and the owners were asked why these vehicles were being misused. There were instances when vehicles given for tourism purposes were seized when they were being misused.

Similarly, MPs were given tax-free vehicle permits on the condition that they could not sell the vehicles purchased for a specified period. If this condition is breached, sometimes there is a probability of MPs breaching it, there is a law to acquire the vehicles. Therefore, it should be categorically stated that through this Bill, we only become temporary trustees of state property belonging to the people. Under the Constitution, we have a duty by the people to acquire such things if they are misused by breaching the conditions under which they were given.

Private property

What this Draft Bill means is that none of these enterprises are private property. I wish to reiterate that these are public property given to these entrepreneurs under on certain conditions. If these conditions have been violated, we should categorically state that the same law applicable to the poor should be applicable to the capitalists too.

I saw certain people clamouring that they have a history of maintaining prosperous enterprises. A Business Acquisition Act was first presented in 1971. It was called the Business Acquisition Act No. 35 of 1971. That power was available during the time of Sirimavo Bandaranaike. It was tabled in Parliament by the Minister of Finance. It stated that “2 (1) The Minister of Finance of his own motion or at the request of any other Minister. (a) may direct in writing the Secretary to the Treasury to acquire on behalf of the government by agreement any such business undertaking shall be specified in such a direction....”.

Not only that. Thereafter, the J.R. Jayewardene government brought the Urban Development Authority Act. This also enabled the acquisition of fixed assets at any time. During Black July, a special Act was passed which was called the Persons, Property and Industries Rehabilitation Authority Act. Under this, a large extent of land and buildings in Colombo were acquired by the private sector.

Thereafter, the Public Enterprises Reforms Act No.29 of 1990 was passed. This too was a similar Act. Then during the time of President Chandrika Bandaranaike, an Act was brought to acquire vested state lands.

This was drafted during the tenure of former Chief Justice Sarath N. Silva. The Opposition has expressed diverse views on this draft Act. The Constitution has clearly laid down the directive Principles of State Policy and Fundamental Duties in Chapter VI. Section 27(2)(d) of the Constitution states as follows: “the rapid development of the whole country by means of public and private economic activity and by-laws prescribing such planning a contracts as may be expedient for directing and coordinating such public and private economic activity towards social objectives and public wealth”. This means we are bound by the Constitutional provisions to bring in laws for the development of the country.

Section 28 (e) states, “To preserve and protect public property and to combat misuse and waste of public property”. It is in keeping with this that we are presenting this Bill today. There is no such urgency associated with this Bill. The President during the last budget said that all investment projects of which no work had been commenced or remain closed would be annulled. A Cabinet paper based on the report of an Expert Committee was submitted and on receipt of Cabinet approval of August 3, the matter was referred to the Legal Draftsman.

Party affiliations

The Cabinet finally approved it as an emergency Act in terms of Section 122 of the Constitution. What necessitated this course of action? There are those who oppose these moves. Ruwanwella MP, Y.G. Pathmasiri may be aware that the machinery in that institute which remained closed for some years were dismantled and removed in these vehicles in the night. Not all, but most of the businessmen rob state property.

Sirimavo Bandaranaike wanted to give effect to the Land Ceiling Act from the date of Cabinet approval. Many people tried to defeat the purpose of this Act by subtle means. The urgency associated with the Bill is justifiable due to the need to protect public property. It took almost two weeks for the Bill to be passed. A number of emergency Acts were passed in terms of Section 122 of the Constitution. So there is nothing new as such associated with this Act.

There was the allegation of political victimisation. Every institution was gone into and only after careful scrutiny, the Bill was presented in Parliament. Had we been bent on political victimisation, we could have taken recourse on arbitrary action!

I would like to mention the case of three institutions. One of them belongs to a government MP, but we did not exempt him. Then there is a very powerful corporation chairman. His institution too has been listed. There is also the property of our individual who is closely related to the President and to us. If we go on the basis of party affiliations or close relationships, we should not have listed his property. We have never done that.

We have the list of institutions which had vested under BOI, free trade zones or outside them - which have enjoyed special facilities provided by the government. Cynotex (Pvt) Ltd was closed down on 18.02.1996 and the agreement was annulled. Their Kebitigollewa establishment was closed down in 1996 and the one at Katunayake FTZ on 14.01.2009. Those institutes have defaulted EPF payments to the tune of Rs. 3.5 million. There were 346 employees working at Jaka Lanka at the FTZ. None of them are working today. No compensation has been paid to them. A sum of Rs.77.8 million has to be recovered from the employers. The situation with regard to many more institutes is as follows:

Plymouth Industries (Pvt) Ltd - EPZ Closed on Under Arbitration Katunayake 31.03.2004 EPF Payment gratuity and compensation defaulted. Cosmos Mackie Industries Katunayake 26.09.2004 Holiday pay not paid. EPF Rs. 5.9 million gratuity Rs.7.2 million, Compensation Rs. 6.9 million Seethas Fashion (Lanka) (sacked 375 employees) Garment (Pvt) Ltd, Wewagama, Polonnaruwa. D.C. Apparel (Pvt) Ltd, Legal action instituted by Labour Commissioner closed on 30.09.2008. Kandy EPF payments defaulted. Eighty six employees sacked. High Pashion Garment (Pvt) Ltd, Machinery dismantled and removed. Remains closed from 05.12.2007. All 200 employees sacked. Ruwanwella Collins International (Pvt) Closed from 05.11.2005 - Padaviya,

Ruhunuputha Apparels (Pvt) Ltd Bibile, Moneragala and Lunugamwehera branches closed on 31.10.2004, 31.10.2005 and 01.11.2005 Sanjaya Garments (Pvt) Ltd, Kalawana - closed on 30.06.2011 Maefa Apparel - closed since 2005 Yobida Associates (Pvt) Ltd, Gonawila - closed since 2000 Dynomic Clothing (Pvt) Ltd. - closed since 12.06.2008 Cosmopolymer Lanka (Pvt) Ltd, Seithawaka, BOI Zone - closed since 31.07.2008 Great Wall Thread Manufacturies (Pvt) Ltd. - closed since 22.06.2009 Labour Commissioner has filled action for compensation Adanjee Extractions (Pvt) Ltd, Grandpass - closed since 01.09.2008 Data Foods - closed since 10.05.2008 Tendon Lanka (Pvt) Ltd, Pallekele EPZ -closed since 15.03.2010 Recon Lanka (Pvt) Ltd, Malwatte EPZ/Nittambuwa - closed since 15.03.2005 Composite Trower Solutions (Pvt) Ltd - closed since 24.03.2009 Health Food Products (Pvt) Ltd - closed since 24.03.2007 Sri Virag (Pvt) Ltd - closed since 30.11.2006 Royal Export (Pvt) Ltd, Mirigama - closed since 30.09.2008 Continental Vanaspathi (Pvt) Ltd- closed since 30.04.2008

Most of these institutes are in Export Promotion Zones. Huge public funds have been invested in there zones. Since these institutes remain closed, no optimum use could be made of them. Ventures that remain closed not only in EPZs, but even the mere sight of two or three shops remaining non-functional in a supermarket, has its impact on the others. In many countries such premises will be acquired by the state. The law is such that a Pradeshiya Sabha would not hesitate to vest with it any of its meat stalls selling fish.

Various irregularities

The present position relating to Hilton Hotel needs no elaboration. It is known to all how it acquired its land, revalued it and transferred this to others and the litigation it entailed. Last year, it recorded a loss of Rs. 10.3 billion. The hotel is in a very expensive land, where the former Fort Police station had been located. It has become unproductive today after various irregularities. This is one of the prime hotels in Sri Lanka. Repairs to rooms have not been effected for a number of years. The hotel has to be freed from its encumbrances. The hotel land is about 6.6 acres. Cornel Perera was selected on 7.2.1984 to invest in the hotel project. The UDA valued the project for Rs. 136 million on the same date. On the 15th, after a lapse of eight days, Cornel Perera transfers the project to Hotel Developers (Lanka), having valued the property for Rs. 250 million - the value having increased by Rs. 114 million within seven days by reducing the previous value.

Subsequently, shares were purchased, but the sum of Rs.136 million was not paid. He paid only Rs. 28 million, the balance was to be paid in instalments. However, no instalments were paid thereafter. Later several transactions followed.

A loan was obtained from a Japanese company. The amount pledged to invest was not forthcoming. Later, since the government guaranty was not honoured, the responsibility fell upon the government to settle the deal. K.N. Choksy appeared in the case.

We have taken back the land. This is public property which is economically important to the country. The government is definitely committed to project it and that is why we have listed it. I believe no representative of the people could raise objection to this.

Employment opportunities

There are several proprietors to the Sevanagala Institute including the husband of a Member of Parliament.

I never wanted to speak on Sevanagala due to may personal reasons. However, in view of the matter raised here, even with reluctance, I shall speak a few words.

During its privatisation, two preliminary agreements were entered into - the Privatisation Agreement and the agreement with the BOI for tax relief. In the privatisation agreement, the investor will include such conditions as the sum of money to be invested, areas of development, employment opportunities to be provided and the anticipated returns on the national economy.

The project proposal and the financial proposals will be examined by separate technical boards before the transaction is okayed. What has been projected under phase I and phase II should be completed before the specified dates.

Income tax

When there are other commitments such as modernisation of distillery, establishment of new bottling plant, waste water management system and nuclear plantation with irrigation facilities. It was stated that Rs. 929 million would be invested in phase I and Rs. 1,268 million in phase II, totalling Rs. 2,808.11 million.

Regrettably, none of these have been implemented. There is also the Agreement No. 7328 signed with the BoI, according to which the initial tax relief period is eight years, and 15 years thereafter. All machinery had been declared tax-free. The investors affirmed their project as an export-oriented industry.

According to the agreement, the investor is required to cultivate the total acreage of the land. The investment of the full amount as agreed, provision of employment opportunities numbering 1,599 are other conditions of the agreement. The current strength of the employees cadre is only 157. All these have to be complied with to be eligible for exemption from tax. Since the investors had failed to fulfil these conditions, no tax-free certificate was issued to them by the BoI. Neither have they paid income tax, according to my sources.

To be continued