Sri Lanka - Exim Bank of China, CATIC aircraft deal murky; mired in false feasibility: probe report
Apr 13, 2015 11:57 AM GMT+0530 | 2 Comment(s)
CHINESE AIR: Xian MA60 pictured here used by Air Force commercial passenger transport unit Helitours/SLAF photo
COLOMBO (EconomyNext) - A Sri Lanka government inquiry into aircraft purchases has uncovered shocking details of how an opaque deal sanctioned from the top and justified with cooked up feasibility studies were made with the Exim Bank of China and a Chinese state firm.
Board of Inquiry that probed into Sri Lanka's loss-making state-run airlines during the ousted Rajapaksa regime recommended that the procurement of two Chinese-made Xian MA 60 aircraft by Sri Lanka be further investigated for criminal liability.
A Board of Inquiry that examined full-service carrier SriLankan Airlines and its sister budget airline Mihin Lanka, had found that the second airline had been used as a front to buy Chinese aircraft for the military by submitting cooked up feasibility studies with rosy projections.
The report showed how Sri Lanka was pressured into buying more aircraft by China despite an initial feasibility finding that only two aircraft could be used. To justify a bigger purchase, it required rosier reports with higher revenues and profits be prepared with international flights also thrown in.
There were also questions on whether the aircraft was not certified by Civil Aviation Authorities for civilian passenger carriage, the report said. The MA 60 has not received US or European certification.
The report raises the possibility that in a budget presented to parliament, military expenses had been falsely represented as civilian.
In the deal which had been in the works at least from around 2008, Mihin Lanka had been asked by the Secretary of the Finance Ministry and Civil Aviation Ministry to prepare feasibility studies to qualify for a loan from the Exim Bank of China.
China National Aero Technology Import and Export Corporation (CATIC) which had been involved in other deals that made headlines in Sri Lanka had offered six, MA 60 aircraft as a package deal.
CATIC and the Embassy of China had told Finance Ministry that a special funding package as available from the Government of China.
Chinese authorities were not immediately available for comment.
Not for Mihin
Former Chief Executive of Mihin Lanka, Kapila Chandrasena, had told the inquiry board that he honestly believed that the aircraft were for the Air Force and not for Mihin Lanka.
The acquisition was carried out by the Ministry of Ports and Aviation and the Finance Ministry and perhaps with the military.
And the purported imports under Mihin Lanka for which money was provided in the budget estimates, was to meet the condition of foreign funding (form Exim Bank of China) as the facility does not allow funding of armed forces.
Former SriLankan Airlines Chairman Nishantha Wickramasinghe had categorically said that he had nothing to do with the MA 60 aircraft but it was between Chandrasena and other officials.
"According to him, MA 60 is a mismatch for Sri Lankan or Mihin Lanka," the Board of Inquiry report said.
On further questioning , Wickramasinghe had said he was aware from the inception that the aircraft could not be used by Mihin, and that these aircraft will not receive commercial licenses due to falling short of safety requirements and "riddled" with corruption.
He had informed President Rajapaksa of this on more than one occasion and was requested to keep his hands off the procurement process.
Despite all this, a feasibility report had been prepared as if the aircraft were coming to Mihin and the report had advised the import of two aircraft to and to bring the rest after feasibility had been established.
CATIC had insisted that their 'package' was for 6 aircraft and Sri Lanka would lose a 'concessional' loan if they bought less.
The feasibility assumed a 20 year loan with 5-year grace period and the interest rate was not mentioned. The deal was valued at 106 million US dollars.
To justify the acquisition of two more aircraft, regional flights to India and Maldives had been included.
Financial projections were made with revenues of 14.9 billion rupees and 11.8 billion rupees in 20 years. In year one, revenues of 474 million rupees and profits of 103 million rupees (a margin of 25 percent) was projected for Indian sectors.
The projections "appear overly optimistic", were not in line with "international and regional benchmark outcomes," and were "made merely to fit a justification," to acquire six MA60 aircraft, the report noted.
Sri Lanka had decided to purchase the aircraft despite an inspection team noting in 2008 that they were unable to check whether the aircraft met Sri Lanka Civil Aviation requirements and the aircraft were not used by any reputed airline or in any developed regulatory market.
The aircraft is in service in several African, Asian and South American countries.
According to media reports MA 60 has been buffeted by safety concerns in several countries (Notorious Tongan plane at centre of NZ travel warning grounded) http://tvnz.co.nz/world-news/notorious-tongan-plane-centre-nz-travel-warning-grounded-6231749 (Chinese aircraft scrutinised after same-day crashes) http://eandt.theiet.org/news/2013/jul/ma60-grounded.cfm.
According to an entry in Wikipedia, by March 2014, there were 53 MA60s in service and 14 were 'stored'. It is not clear why they are 'stored'. Zest Airways of Phillippines had retired 4 and returned to its lessor in China and one was written off after an accident.
The inquiry panel had found a letter by the Aviation Ministry, making reference to the Secretary Defence which transfers budget votes in 2011 from Mihin to the Air Force.
It said further investigation was needed to find whether such transfer by letter were legal without an apparent parliamentary approval.
The aircraft appeared to have been delivered straight to the Air Force and not to Mihin Lanka. According to media statements made at the time, Chinese officials were also involved in the ceremony.