June 30, 2020
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A Trail Of Scandals

Allegations of bribery rock the Kumaratunga government

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A Trail Of Scandals

THE scam fever seems to have spread overseas. Sri Lankan President Chandrika Bandaranaike Kumaratunga's People's Alliance government has been rocked by a series of bribery scandals leading to widespread complaints that she has backtracked on her promise to crack down on corruption. 

"Even when Kumaratunga had opportunities to root out corruption, she failed to take action," says The Sunday Leader editor, Lasantha Wickramatunga, who has been instrumental in bringing the scams to light.

Last month, Wickramatunga's English weekly published a confidential letter written by Foreign Minister Lakshman Kadirgamar to the President alleging that a minister and a senior public servant had taken bribes to change a Cabinet decision regarding privatisation of a cement factory.

The Puttalam Cement Company is the country's largest cement factory and in 1993, when the United National Party (UNP) was in power, 90 per cent of its shares were sold to a Pakistani company—the Tawakkal Group—for $41 million. The remaining 10 per cent of the shares were to be distributed among employees of the factory. And though the sale conditions stipulated that the full payment had to be made in foreign currency if the buyer was a foreign company, the UNP agreed to accept $18.5 million in rupees (Sri Lankan). The plan was to list the company in the share market and raise the local component by selling shares, thus placing the amount as a debt payable to the government by the cement company instead of the Pakistani group. In other words, it was to be a leverage buyout, which is illegal in Sri Lanka unless all parties agree to the terms.

The game plan ran into problems when the UNP was defeated in the 1994 elections. The treasury, which still owned 10 per cent shares allocated to the workers, objected to the Puttalam cement factory being listed in the Colombo stock market on the grounds that the leverage buyout contravened the Companies Act. The new government wanted the Tawakkals to honour the original agreement.

However, it was easier said than done. The Tawakkals had, in the meantime, sold 50 per cent of the shares to a group of institutional investors in Hong Kong to raise part of the funds who now stood to lose millions of dollars.

With the media reminding the government of its promise to clean up the irregularities in the privatisation programme of the previous regime, the President asked Foreign Minister Kadirgamar, a prominent commercial lawyer, to study the deal. The minister recommended that the Tawakkals should be asked to pay the full amount in foreign currency, failingwhich, the deal should be cancelled. The Cabinet initially accepted the minister's recommendations. However, for reasons unknown, the Cabinet decision was not implemented and the issue was put on hold—until the foreign minister's letter blew the lid open. In his letter, the minister also claimed to have seen a transcript of a taped telephone conversation between the chairman of the Tawakkal group and a Hong Kong-based investor in which Tawakkal alleged that he had paid 20 mil-lion rupees (Lankan) to a minister and 10 million rupees (Lankan) to a senior official to revert the Cabinet decision.

The opposition UNP, tainted by corruption during its regime, was now quick to go on the offensive. The party demanded a debate on the issue and moved a no-confidence motion against the government, the second in five months. The government, caught on the wrong side, orchestrated a clumsy cover-up which made matters worse.

The foreign minister withdrew the bribery allegation, saying he was merely passing on information that was given to him but could not vouch for its authenticity. With pressure mounting on the President, she ordered a probe but stood firm on the decision to go ahead with the controversial privatisation.

As the government grappled with this scandal, it was hit by another. The Sinhala weekly, Ravaya , alleged that another minister had reversed a Cabinet decision—to award the privatisation of the Sevenagala Sugar Plantations to a Chinese company—because it refused to pay a bribe of 50 million rupees (Lankan).

Coming four months after the controversial privatisation of the Galle Port project where the minister in charge faced a no-trust motion on bribery charges, even the pro-government media is changing course. For the UNP, the scandals could not have come at a better time. With local government elections two months away, the party has been revitalised at the expense of Kumaratunga's scandal-ridden government.

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