Sri Lanka auditor general bares US$100mn dubious LakSathosa rice deal
ECONOMYNEXT – A dubious rice deal stretching across two administrations involving Sri Lanka’s Ministries of Industries and Commerce and Finance, costing the taxpayers over $100 million up to late 2016, has been uncovered by the Auditor General.
Lanka Sathosa Limited (LakSathosa), one of a series of state-owned enterprises incorporated by the electing ruling class in recent years as a private company without an Act of Parliament, is losing billions of rupees in various deals since it was started in 2006.
In 2014 and 2015, Laksathosa had imported 257,559 tonnes of rice through questionable deals at a cost of Rs27.01 billion or around Rs105 a kilogram, and sold most of it for Rs11.8 billion, generating a loss of Rs15.1 billion, the Auditor General said in a report to the parliament’s Committee on Public Enterprises.
About 22 percent of the stock has been sold at Rs38 a kilo as animal feed on a decision by the Cabinet Sub-Committee on the cost of living, after being stored in containers in private yards, where the rice had deteriorated, the report said.
One of the largest deals involved an Indian company named ACP Industries. The firm had written a letter to the then-minister of economic development expressing interest in supplying 100,000 metric tonnes of rice.
Although there was no written instructions available from the minister or a cabinet decision to approve it, an October 15, 2015, letter by the deputy treasury secretary had informed the then-chairman of Lanka Sathosa to take "immediate steps" to import the rice and provided facilities to open letters of credit from Bank of Ceylon.
The Treasury had directly placed an order with ACP Industries to buy Samba rice at $488 a tonne and Nadu at $408 a tonne two days later, on October 17.
The auditor general said government procurement guidelines had been violated in the Rs5.9 billion deal. No procurement committee or technical evaluation committee had been appointed.
By February 2015, with a new administration in power, only 4,926 metric tonnes of Ponni Samba and 4,887 tonnes of Nadu rice had been imported by February 20, 2015, when the letters of credit expired.
ACP Industries had asked for an extension. Amid bumper Maha rice harvest, the minister of industry and commerce, at a meeting on February 12, 2015, had instructed the letter of credit to be revised and the Treasury to be informed.
Meanwhile, on February 25, the secretary to the Treasury had given an order in writing not to extend the letter of credit as the Maha rice harvest was coming in.
But by then the letter of credit had already been extended following a letter by Lanka Sathosa, signed by an additional secretary of the Ministry of Industries and Commerce, the audit report said, apparently without going through the Treasury.
The Treasury Secretary had then refused a request to extend a Treasury guarantee to Bank of Ceylon in March 2015, pointing out that the Treasury had already ordered not to extend the letter of credit.
But on April 01, 2015, a letter by a Deputy Treasury Secretary had extended the Treasury guarantee up to April 30, 2015, saying that "the Minister of Finance has given instructions" and that the letter sent on 17 March 2015 will be withdrawn, the audit report said.
LakSathosa had imported rice in 2014 and 2015 through several deals from India and Bangladesh.
After importing rice at cost of Rs15.9 billion at prices ranging from Rs60.23 a kilo (Nadu rice) and Rs66.31 (Ponni Samba), and paid Rs694 million in demurrage for delayed clearing, Rs1.7 billion for clearing charges, over Rs200 million to rent space, as well as interest of up to Rs1.9 billion to state banks by November 2016.
Customs duty of Rs5.8 billion had been incurred, but remained unpaid, the report said.
As of November 2016, 23,751 tonnes of rice remained in containers incurring storage and interest costs.
As of November 21, 2016, Rs7.9 billion was owed to the Peoples’ Bank as penalty interest due to unpaid capital of a loan taken to finance
All this had pushed the cost of imported rice to Rs105 a kilogram.
After incurring a cost of Rs105 a kilo, the rice had been sold at prices ranging from Rs50 a kilog (white rice) Rs55 a kilo (Nadu rice) and Rs60 (Ponni Samba). In 2016, 57,600 tonnes of rice had been sold for Rs38 as animal feed.
Lak Sathosa had violated government procurement guidelines and it was run on instructions from over the head of the Board of Directors coming from the line ministry and Treasury, the auditor general said.