The Island: 09/03/2007" By R. K. H. M. Fernando Former Director General, Public Finance General Treasury

The recent debate in Parliament over the latest report of the Committee on Public Enterprises is significant for its content as much as for being the first formal debate on a report on the COPE. The Committee that lay somewhat dormant for all these years sprang into action with its chairman Mr. Wijedasa Rajapakse P.C. fortunately free from ministerial shackles, probing some vital organs of the State Corporate Sector with the reportedly active participation of his fellow parliamentarians. It should be mentioned here that the present COPE, set up at the beginning of the Parliamentary session represents the Parliamentarians of all hues and the recent estrangement of the members of the JVP from the Government together with the entry into it of a substantial number of ministers of the former UNP regime gave this debate an opportunity to reflect an updated legislative opinion in a scenario of latest Parliamentary formation.
The salient features of the report just discussed warrant closer examination. Certain vital public utility institutions such as the CEB, CPC and its subsidiaries and financial institutions such as the Central Bank and the Sri Lanka Insurance have come under this probe and this is perhaps the first time that a COPE report has been subjected to a full two-day debate. Hence the very fact that a debate was promptly allowed or rather not blocked is to be appreciated and credit should go to the present regime on this account.

The writer observes that even the comparatively older Public Accounts Committee with its strong background tradition could not have any of its reports debated in detail as in the present case. These reports were merely approved and directed to be published as sessional papers — virtually a way of sweeping under the carpet criticism or comment, the basic tools of transparency.

It is ironical that attempts were made to treat as mud-slinging the references to individual parliamentarians whose conduct has been probed in this report. The chairman of the COPE himself has humbly and honestly admitted in his speech in Parliament, referring to the Parliamentarians in the first person: ‘This report is an indictment on all 225 of us who are here. It is not because we have all robbed the country, but because we are the Custodians of Public finances and we have failed to do our duty in this regard over the years.’ This statement has to be contrasted with that of the former Minister (himself a former chairman of the Committee) to the effect that the report was an indictment of the Government. If reference in the debate to individual parliamentarians whose conduct has been specifically dealt with in the report is mudslinging, the entire report boils down to be an exercise in mud-slinging. The JVP however has made a positive contribution to the debate albeit they are now in the middle of the political divide. Mr. Sunil Handunnetti made the point succinctly when he said, ‘If a germ is to be destroyed then the sunlight must be let in. If we open the Committee proceedings to the media, we will be able to kill the germ.’

There are attempts to exploit the bizarre disclosures made in this report about mismanaged Public Enterprises to justify further privatisation of these loss making enterprises. The proposal is absurd as no investor is likely to come forward to buy an institution that is running at a loss and whose efficiency is at the lowest ebb. Only speculators will venture, that too only to tap the assets and give up half way. In the present context, no nationally sustainable policy on privatisation is likely to evolve with the Mahinda Chinthanaya (the vision of the present regime) and the policy of the former UNP regime having different approaches to privatisation. Hence, restructuring through new management techniques with the minimum capital outlay and checks against political interference appears to be the viable solution. This is what the present regime is pursuing as is seen in the case of the BCC, SLTB and CWE.

The charge that Chairmen and Directors of these mismanaged Public Enterprises have been appointed on the basis of political influence is applicable to both regimes. It is the COPE that can act as a meaningful deterrent to this chronic practice by calling evidence from such chairman and directors, preferably in public as the practice of naming and shaming will go a long way in discouraging this practice obstinately practised by all the previous regimes.

The conduct of the debate on the COPE report was by itself intriguing and amusing. The government ministers, except for the newcomers, though in an unenviable position, with the findings of the report slapping on the new Ministers, whoever may have been the Ministers in office at the time of the particular misconduct, fared well, whereas the newcomers with skeletons in their cupboards were conspicuous by their absence or reticence. This was evident by the performance of the Minister of Finance and the Minister of Power and Energy. Perhaps the newcomers were taken by surprise and it was too early for them to plan, formulate and come out with a strategy of defence. The solitary speaker who ventured in a cavalier manner betrayed the entire legislative community when he said that this kind of report had been presented to Parliament before and that it is not such a big thing. I hope that the majority of Parliamentarians do not share this view or the attitude displayed therein.

Then there was a canard which appeared to gather momentum on the first day of the debate that the Chairman of the Committee had left the country owing to threats to his life because of the report. The explanation given by the Chairman who was present on the second day cleared air on this issue and it was evident that nothing could discourage or deflect the Chairman in his mission which he carried out in conformity with the accepted norms of Parliamentary Accountability.

The occasion was an ideal opportunity to highlight the role of the members of the Legislature as against Ministers representing the Executive. As the Chairman has rightly pointed out in his short but comprehensive speech, the COPE and PAC are the heart and lungs of Parliamentary Democracy. The members of Parliament are collectively accountable for the people’s funds. This accountability should be distinguished from mere responsibility. Even the independently elected President is only ‘responsible’ to the Parliament in executing the policy laid down by it.
Mr. Rajapakse could only make a passing reference to Financial Control by the Parliament and Financial initiative by the Executive obviously due to lack of time. He dismissed forthwith the widely held wrong view that only the Government is responsible for Financial Control.
His views on the need to follow a multiparty process for the national budget deserve further study and follow up. Herein, the writer wishes to recall the attempt made by the PAC in the late nineties through a special report prepared by the committee with the participation of the Treasury officials to have an Estimates Committee for the preparation of the National Budget.
The proposal did not find favour with the Treasury in the present legal framework and the current political set up. At present, expenditure estimates are presented to the Parliament well ahead of the Budget Speech. These are prepared by the Treasury and approved by the Cabinet before laying before the House. No Opposition involvement is allowed in this process. This is in keeping with the old British tradition and based on the principle that financial initiative is the prerogative of the Executive and any Financial Bill has to be presented only by a Government Minister. Revenue proposals prepared and kept confidentially are to be brought to the House in a secret box and formally read giving an element of surprise. In recent times, under both regimes the surprise element of the tax proposals has given way to pre-budget imposition of taxes overnight through the Gazette. As such, I see no harm in allowing even the broader Revenue proposals to be discussed in the House with the participation of all the members and eventually the specific revenue proposals based on them to be introduced by the Minister of Finance in the form of a Bill. The new arrangement indirectly suggested by Mr. Rajapakse may need changes to the present legal provisions and Standing Orders. This will make the Revenue Expenditure Budget debate in the Parliament more transparent and not a mere post mortem exercise.

I would suggest that a seminar with wide participation be organised by parties and organisations interested in good governance to discuss this issue. The independence of the Auditor General also should be taken up simultaneously, without such a back up from a wider section of society any attempt to change the present status quo is bound to lead nowhere as was the case with the Audit Act and the Public Finance Act.

Apart from the Chairman’s contribution, there was a healthy discussion of the vital issue of accountability on Public Finance with the participation of all political parties. The event and the outcome not planned in advance exploited by certain parties to achieve their narrow political ends should be made a regular occurrence during the presentation—of all future PAC and COPE Reports.

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Daily Mirror: 09/03/2007"

Hatton National Bank, when it embarked on a project to provide a hundred libraries for some most deserving schools in remote areas, considered the venture more than just another CSR initiative. The completion of the Nena Pubuduwa project saw over 50,000 children living in some of the most rural areas of Sri Lanka being given the opportunity to derive the simple pleasure of exploring the world through books.

A discussion with Mr. Rienzie Wijethilake, the Chairman of HNB, revealed in detail the wheels that set this benevolent mission in progress. “We started out with the intention of making a difference; we didn’t want it to be a one-off thing but one that would make a lasting impression and a long-term difference in the lives of the beneficiaries. That is why we decided to identify a hundred of the most needy schools, with almost no library facilities and work on fulfilling the need. The Bank mapped out the colossal project, made the financial commitment and even inspired the staff to lend a hand towards this groundbreaking venture that would change the lives of children around Sri Lanka. Staff members willingly volunteered to donate their own books while the Bank shopped for books on a diverse range of topics. Each Principal was asked for a list of books the schools needed.”

“The books were collected, sorted and stocked in the new libraries, with the Bank also paying attention to the furniture requirements of each library. It was truly satisfying to see the eager faces of the youngsters, and many schools even had small ceremonies on the day that the books were provided, in order to show their appreciation,” he said.

The new libraries were gifted to schools in 100 different areas, from Pollonnaruwa to Kadawatha, Galle to Trincomalee, Monaragala to Tissamaharama, and more.
“A hundred libraries have been provided to a hundred needy schools, but we don’t consider the project as completed yet. This was merely an initial step. In time, we have plans to upgrade them further “Because of this venture, over 50,000 children in this country will be growing up with an attachment to the Bank.”

Hatton National Bank, as Sri Lanka’s largest private commercial bank with a history of over 118 years, invests in highly ambitious and wide-ranging CSR programmes, ranging from projects to aid the differently-abled, rebuilding of fishing villages etc. The school libraries programme takes HNB’s CSR initiatives to a new dimension.

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The Island: 06/03/2007" By Sunil C. Perera

A recent survey carried out by a group of scientists attached to the Rice Processing Research and Development Centre and the Resource Management Associate Ltd. say an average of 50 percent of paddy husk produced by rice mills use husk as their fuel for steam generation.
Scientists D. P. Senanayaka, , U. Daranagama and M. D. Fernando said that the paddy husk is a major by-product of the rice milling industry and at present around 540,000 metric tons of husk areproduced annually.

According to the research, in the majority of rice processing areas, husk is considered as waste material and its disposal often create environmental problems.
The Sscientists said an average of 44 percent of husk produced is left unutilized in all mill clusters in Anuradhapura and Polonnaruwa districts.

According to their estimates, available husk could produce over 20 mega watts of electricity.
The rice processing industry produces more than 2.5 million metric tons of rice each year and provides a large number with employment, particularly women in rural areas.
At present, around 7000 rice mills operate in the country. However, in the majority of rice processing areas, rice husk is considered a waste material and its disposal often creates environmental problems.

The scientists alsosaid modern rice mills have improved technologies to generate thermal energy from paddy husk. The results of this study reveals that there was a trend to improve existing rice mills in the North Central Province to produce high quality rice to the market. However, present data on rice mills improvement say around 13 per cent mills have improved their machineries to produce quality rice in that province.

The study has revealed that an average of 48 per cent of husk produced by the mills is used as a fuel for steam generation.

Faced with fuel wood shortage in the country, rural industries have been forced to use rice husk as an alternative fuel. There has been a number of government and industrial initiatives to use existing fuel wood resources more efficiently and introduce alternative biomass fuels such as rice husk.

Various forms of assistance have been given to bakeries, the tea industry, drying of tobacco, brick and tile manufacturers. The scientists say rice husk could be used as an industrial fuel, but needs improved technology.

Meanwhile, the scientists opined that more than 90% of Sri Lanka’s bakeries use firewood to fuel their ovens, accounting for 9% of total biomass fuel used in the country as of 1995.

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Daily Mirror: 06/03/2007"

Retired AG S. C. Mayadunne speaks out on the inadequacy of this key state department

Retired Auditor General S. C. Mayadunne spoke out on BENCHMARK recently, strongly intimating that the work of his erstwhile department is hamstrung by a lack of resources to do a more-than adequate job.

“To do meaningful work, the Auditor General needs a greater degree of autonomy. That’s what we don’t have. We fail to carry out our duties due to the many constraints that are beyond our control,” he also said on the most recent edition of the widely watched weekly business programme.

The recently retired senior public servant discussed at length the challenges facing the AG’s department. “The AG’s role is to report to parliament, so he should be in a position to examine critical items. But the AG lacks strength in terms of adequate professional and competent manpower,” he unequivocally told BENCHMARK.

Mayadunne also observed that infrastructure facilities as well as the financial independence of the department in question need to be “expanded to a greater extent”. He pointed out that the present resources would enable the AG to “come up with some observations”, but that they would not be the “very important and crucial observations that need to be reported to parliament”, he stressed.

As it transpired on the same edition of the big-picture business programme, the AG’s department has been struggling with this and related issues for some time. “To have a meaningful state audit, the AG must not be so muzzled,” he underlined, emphasising that the AG needs not only “functional independence, but also financial and administrative independence, to run the department in a meaningful manner”.

During Mayadunne’s eventful tenure in office, the audits conducted by his department revealed that waste, mismanagement and putative corruption are rife in the state sector. He was the architect of two major reports tabled in parliament – one with regard to the tsunami and the other in respect of the poor governance vis-a-vis state revenue. He affirmed that although he was constrained not to discuss the details at the present juncture, one could expect a “warm debate” on the facts and figures tabled once the relevant parliamentary committees presented a report in full to the House.

When asked what the Auditor General’s Department does to ensure that when discrepancies in the state sector are detected, they are investigated – and prosecuted, if necessary – Mayadunne conceded that the AG’s Department cannot exercise any judicial action. It can merely report the relevant findings to the legislature or the executive for necessary action, he revealed.
“When such things are reported to parliament, they are redirected to the Parliamentary Oversight Committees,” he disclosed. These two committees include the Committee on Public Enterprise (COPE), which covers the state-owned enterprises; and the Public Accounts Committee, which covers all departments, ministries and local authorities. These committees could then summon the relevant officials and examine the issues raised with the assistance of the Treasury, and the AG could then give the necessary instructions to the executive for remedial measures. They could also report their findings to parliament. “Then, the House will take it up for debate. But so far, very few reports have been discussed. If the debate is taken up, the relevant ministries have to explain why these things went wrong and cite the officers and other parties – it may even be political authorities – responsible,” stated Mayadunne. He noted that the relevant ministries would also have to determine the corrective action to be taken as well as future pre-emptive measures.

During Mayadunne’s tenure as AG, the department also published a report which stated that the Inland Revenue and Customs Departments did not collect a staggering Rs. 389 billion in revenue that was due to the state in 2005. On BENCHMARK, this retired AG said: “This [Rs. 389 billion] is only a sample. Therefore, the total should be more than that sum. Our drafts were sent to the relevant institutions and we got their responses, and revised our observations, after considering their explanations and objections. Therefore, no one can argue about the accuracy and acceptability of the figures,” he emphasised.

Mayadunne also underscored that corruption and malpractices will have “a very adverse impact” on the national economy. “There is a lot of corruption in government transactions. These things will eat up the portions that should go to the general public. Therefore, this will weaken the position of the country and the general public will suffer,” he concluded.

BENCHMARK is compiled and presented by LMD, and produced by ‘the wrap factory’. It airs on TNL every Sunday at noon, with a repeat telecast at 9.05 p.m.

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Sunday Island: 04/03/2007" By Dr. Vijaya Kumar President, Lanka Estate Workers Union

The World Bank report "Sri Lanka Poverty Assessment" shows that in 2002, the poverty headcount in the estates was 7% points higher than the national average. In 1991 the poverty headcount in the estate sector had been 5% lower than the national average. Over the 10 year period, there has been an increase in poverty of 12% in the estates. The powerful team of World Bank economists who produced the report goes on to state that "no clear picture emerges as to why consumption poverty in the estate stagnated or worsened slightly (sic) over the past decade" and suggests that this could be due to a fall from 2.3 to 1.7 in the average number of income earners in estate households. The World Bank shows a remarkable degree of irrationality when it fails to relate the increase in poverty with the privatisation of management of estates which took place coincidentally in 1992, an event which it forgets to mention although it was the prime mover in the privatisation agenda.

Poverty in the estates can be directly ascribed to the strategy of privatised management to slash estate wages in real terms and maintain them at subsistence levels.

What did happen to estate wages after 1992 ? The real wages of estate workers according to Central Bank data had increased by 20% during the thirteen years of nationalized management, 1978-1991, an increase similar to that obtained by another low salary group, government minor employees. It is well known that the Central Bank deflator is routinely underestimated and the increase in real wages may have been much less. The main reason for this increase had been a cost of living increment which increased wages by 4 cts. per day for every 1.5 point increase in the Cost of Living Index up to 1984 and 4 cts. per day for every point increase from 1984 to 1993.

With the privatisation of management of the estates in 1992, the daily wage of estate workers which was Rs. 61.82 was increased to Rs. 72.24 in 1993 at which level it was frozen until 1995. It was increased after long drawn negotiations to Rs. 83.00 for 1996 and 1997, Rs. 101.00 for the period 1998 to 2000, Rs. 121.00 for those with 75% attendance and Rs. 116.00 for those without in 2001 and Rs. 147.00 for those with 75% attendance and Rs. 135.00 for those without in 2002. Between 1992 and 2002, wages had risen by 138 % for those with 75% attendance and 118% for those who did not. If we apply the GNP deflator of 132.6% for this period it is seen that real wages of estate workers had increased by 2.2 % for those who had 75% attendance and decreased by 6.5 % for the rest in 2002 based on 1992 wages. When based on with 1993 wages, these became decreases of 4.4% and 13.6% respectively.

However these figures do not give the full picture. Apart from the fact that the Central Bank GNP deflator is routinely less than the rate of inflation, collective agreements covers two to three years and this means that the drop in real wages becomes greater in the second and third year of the collective agreement. Real wages decreased by over 17% in 1997 and 2000, 11.1% in 1995 and between 8 and 0% during 1996, 1999 and 2001 based on 1992 wages. If 1993 is used as the base year real wages declined by nearly 10% in 1994 and was consistently more than 15% less until 2001 except for the 12% decline observed in 1998. In 1997 and 2000, the decline in real wages was around 25%. With the attendance bonus being introduced in 2001, the real wages compared with 1993 of those with 75% attendance decreased by 14.4% based on 1992 wages and 22% based on 1993 wages. This became 4.4% and 13% in 2002 and 9.7% and 19.4% in 2003 respectively for those entitled and not entitled for attendance incentive. For real wages to be maintained at 1993 levels, an estate worker had to earn Rs. 176.06 in 2004, Rs. 193.49 in 2005 and Rs 208.04 in 2006.

Although a wage of Rs. 260 was negotiated last November 2006 this includes a substantial attendance component of Rs. 70 per day. The attendance incentive has been doubling as a percentage at each negotiation rising from Rs. 5 (4% of pay) per day in 2001, Rs. 12 (8%) in 2002, Rs. 25 (13%) in 2004 and now to Rs. 70 (27%). An attendance incentive which raises pay only from starvation levels to subsistence levels smacks of a strategy to reduce the status of estate workers to bonded labour. An estate worker who is unable to show 75% attendance will receive a wage of Rs. 190 per month during 2006 to 2008 in real terms far below what she was paid in 1993. Of this wage Rs. 20 is arbitrarily called a Price Share supplement and like the attendance incentive not considered for consequential benefits like provident fund. A variable price share supplement which provided workers with a small increment in wages (between Rs. 5-15 for tea workers and Rs. 20-30 for rubber workers) with rise in commodity prices has been removed this time.

Further the collective agreement which expires in December 2008 will keep estate wages constant for over two years ensuring that estate workers will plunge into even deeper poverty by then given current rates of inflation.

Poverty in the estates can be directly ascribed to the strategy of estate management to keep wages at subsistence levels - a strategy which has the dual purpose of keeping profits up and of weakening the estate workers ability to fight for a living wage.

The shameless part of the story is that estate management is controlled by some of the biggest corporate players in Sri Lankan business - Aitken Spence, Hayleys, Forbes, James Finlay, Lankem, Mackwoods and Richard Pieris to name a few.

The claim by management companies that if they pay workers a living wage, the industry would be plagued with losses and its future doomed is totally unacceptable given questionable practices in transferring estate funds through inordinately high management fees and unmonitored transactions between estates and companies within the same group.

The companies portrayed themselves as having the management expertise to transform the industry and the sector into a mainstay of national development. Government policy of reducing tea export taxes and welfare expenditure prior to privatisation itself contributed to improve profit margins in the estate sector. But sadly, private sector management expertise cannot visualise any strategy for the upliftment of the industry without pauperizing its workers.
Taxes on the export of tea were greatly reduced when ad valorem taxes were removed shortly before privatization. Estate welfare which was a function, although ineptly carried out, of the corporations which ran the estates was transferred with privatization to a state promoted Welfare Trust largely funded by foreign agencies with hardly any contribution from plantation companies.

Plantation companies often complain of their inability to convince workers and trade unions of the need to improve labour productivity and thereby increase estate wages. How has the productivity of tea estates fared with privatization ? The average yield per hectare rose from around 1300 kg per hectare prior to 1992 (discounting years affected by drought and political turmoils) to 1645 kg per hectare in 2005, an increase of 27%. Tea production of 232 million kg in 1992 was enhanced by 33% to 310 million kg in 2002. Worker’s plucking norms have been arbitrarily increased by about 14% after privatization. The number of workers per hectare of tea has been reduced from 3.15 to 2.75 since 1992 contributing to the observation in the World Bank report that the average number of income earners in estate households had fallen from 2.3 to 1.7 between 1996 and 2004. Nobody can deny that there has been a remarkable increase in productivity in the plantations. Unfortunately the poor estate worker’s contribution to improved productivity is ignored and she is denied any share of the additional surplus generated, a surplus that is voraciously devoured by a management forced by the stock market to constantly embellish its balance sheets.

Sri Lanka’s corporate sector takes great pride in reporting projects which reflect its corporate social responsibility. It is indeed ironic that estate management companies upholding a policy of maintaining estate workers in abject poverty are permitted to sanctimoniously claim their corporate social responsibility with the widest possible publicity through a few such projects. On the other hand, it may not be so ironic, and may merely reflect the twisted thinking of corporate Sri Lanka which only a few years ago made its first-ever award for corporate social responsibility to a company best known for its manufacturing and aggressive marketing of products contributing to disease and death.

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