EPF buys Sri Lanka loss-making airline shares without research, payment before approval: inquiry

ECONOMYNEXT- The Employees’ Provident Fund Department of Sri Lanka’s Central Bank had bought shares in loss-making SriLankan Airlines  for 500 million rupees in 2010 without research to back the decision and money had been paid weeks before gaining board approval, an official revealed at a commission of inquiry.

EPF Department Superintendent Nalini Bandara testifying at a Presidential Commission of Inquiry, said that the retirement funds of the private sector workers, entrusted to the Central Bank, had been released without approval from the Monetary Board of Sri Lanka.

Bandara said the Investment Committee of the EPF Department was authorized to take only some investment decisions by itself, which had to be ratified with the Monetary Board.

Investments of EPF funds in shares of unlisted companies like SriLankan Airlines required Monetary Board approval to go ahead, she said.

Shoot First

Bandara said the Investment Committee had approved to purchase SriLankan shares on 2 July 2010, when the EPF middle office informed that BOC had requested 500 million rupees be invested to transfer ownership of the airline from the Middle Eastern carrier Emirates, to the SriLanka’s government.

Monetary Board approval was sought a month later, she said.

Usually, money is disbursed based on a plan approved a month earlier by the Monetary Board, but the approved plan in June did not refer to any investments in unlisted shares for July, she said.

She was giving evidence based on documents filed when R. Deerasinghe was Superintendent and Ajith Nivard Cabraal was Central Bank Governor.

Emirates had owned 43.36 percent of shares in SriLankan over the previous decade as it managed the local airline. However, Emirates gave up the management of SriLankan in 2008 and later sold stock back to Sri Lanak.

She said from 2010 until 2015, the Central Bank had not monitored the investment made in SriLankan to evaluate the risk, and that the EPF had not received any returns from the airline.





The existence of the EPF is to maximise the returns of the retirement funds of the private and semi-government sector workers, she said.

Bandara said that the EPF had not received any document such as an investment proposal from BOC prior to 2 July 2010 according to the files in the department and meeting minutes of the Investment Committee.

"My concern is that there should be a proposal attached to this minute. But there isn’t one," she said.

She said for the Investment Committee to approve a transaction, it requires careful analysis of an investment proposal on the returns for EPF account holders and the risks of the investment.

Research papers have to be written and presentations have to be made by the middle office to the Investment Committee before any decision is made after carefully examining data, Bandara said.

The middle office is required to obtain further data from the company to make an analysis if information in the investment proposal is inadequate, she said.

No such analysis was presented to the Investment Committee when it approved the transaction, based on meeting minutes, she said.


A letter from BOC Assistant General Manager P A Lionel arrived four days after the approval, on July 0, 2010, Bandara said.

The letter outlines how the cabinet directed BOC to purchase the shares of SriLankan held by Emirates, she said.

The BOC letter states that it wants to purchase the shares jointly with the People’s Bank, National Savings Bank, Sri Lanka Insurance Corporation, Employees’ Provident Fund, Employees’ Trust Fund and the Airports & Aviation Services.

She said there was no joint agreement signed with the other state institutions to purchase the shares, and ultimately the ETF, Airport & Aviation Services and Sri Lanka Insurance Corporation did not invest in the airline.

Bandara said the letter does not state who had authorized the BOC to purchase the shares jointly with other state institutions.

Senior Deputy Solicitor General Niel Unamboowe commented that the wording of the BOC letter made it seem as if the state bank was ordering the Central Bank to remit funds for the share transfer.

Bandara chose not to reply to that comment.

She said cabinet approval was only for BOC and Sri Lanka Insurance Corporation to purchase the shares.

The EPF Department had not taken the effort to get a hold of the cabinet decision in 2010, and it was not attached to the BOC letter, Bandara said.

A Central Bank who could not be identified had written at the bottom of the BOC letter for the EPF Department to obtain the necessary approval before remitting the funds, Bandara said.

Deerasinghe had permitted the fund transfer on July 13, 2010 to Bank of Ceylon with endorsement from one senior official (an Assistant Governor) and two junior officials, Bandara said.

The required approval was sought at a Monetary Board meeting on August 05, 2010, seeking to ratify the transfer of funds, she said.

Even by this time, no supporting research documents were made available to the Monetary Board to make the decision, she said.

No Research, No data

Bandara said an EPF Department board paper to the Monetary Board had justified the purchase, claiming that the government would back the airline even during any difficult period, that Sri Lanka is expected to get more tourists after the ending of a civil war and the world economy is recovering after the 2008 crisis.

The board paper had the signatures of then Deputy Governor P D K Fernando, then Assistant Governor P. Samarasiri and then Acting Superintendent of EPF.

There was no data driven research to back the claims, or a government guarantee that it would continue to back the airline submitted to the Monetary Board, she said.

But, the Monetary Board meeting had said it approved the purchase at a price of 268.29 rupees per share.

Unamboowe questioned whether the Monetary Board approving without the proper documents was rubber stamping the Investment Committee decision, to which Bandara did not reply.

She said only the Monetary Board Secretary had signed the meeting minute of that day.

Commissioner Wasantha Geeganage asked whether the share price was overvalued.

Bandara replied that no documents are available, or had been available to make such an evaluation. (Colombo/Oct1/2018)


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