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Tuesday November 29th, 2022

SriLankan Airlines drained by high commissions paid to GSAs owned by one person

ECONOMYNEXT- SriLankan Airlines had been drained by unusually high commissions paid to general sales agencies operating in several countries owned one person, amid interference by a former chief executive and chairman in agent appointments, a commission of inquiry heard.

Agencies controlled by one Dilan Ariywansa, had been given the General Sales Agency (GSA) for SriLankan Airlines in key revenue markets and contracts extended in some cases despite failing to meet targets, a Presidential commission investigating irregularities at loss-making state-run carriers SriLankan Airlines and now-defund Mihin Lanka was told.

Then Chief Executive Kapila Chandrasena, and then-Chairman Nishantha Wickramasinghe interfered in the appointment of GSA’s in many territories against regulations, a witnesses said.

A board of inquiry headed by lawyer J C Weliamuna had earlier said there was a ‘clear violation’ of procedures in appointing GSAs.

"Special attention was paid to theGSA appointment in Russia and Australia, especially since there was a clear attempt toconceal the real beneficial owners of such GSAs," the report of the Board said.

"The BoI observed the involvement offormer Ambassador to Russia Udayanga Weeratunga’s with the GSA in Russia, and Dilan Ariyawansa’s involvement in both Russia and Australia questionable and suspicious."

Anna Korolkova, listed as General Manager for the agency, was an employee of the Russian Embassy, the report said.

At the Presidential Commission of Inquiry, Industry Affairs Manager Shiromi Cooraysaid GSAs owned by Ariyawansa had enjoyed higher commissions than allowed in company manuals.

Cooray said that Ariyawansa’s Sri Lankan LLC, the airline’s GSA in Russia, had received 5.5 percent commissions on passenger tickets and 5 percent cargo commissions, initially, which was much above the 2.5 percent ceiling for passenger commissions and 3 percent for cargo set in the 2009 manual.

In 2014, the terms were changed to 4 percent commission and fuel surcharge fees, as well as 1 percent online sales commissions, despite fuel surcharges and online sales commissions not being a part of the 2009 manual, Cooray said.

She said that the GSA agreement was extended for 3 years in 2014, despite Sri Lankan LLC performing below targets given by the airline.

“I personally would not have recommended to extend the agreement if the performance was so bad,” Cooray said.

She had not been in charge of Industry Affairs during this period.

Cooray said that the national carrier had not considered switching to another GSA prior to continuing with Sri Lankan LLC.

Then chief executive Kapila Chandrasena had approved the extension, violating regulations which state
that a review panel should decide on extending a GSA contract or calling for a new round of bidders, Cooray said.

She said the Russian GSA had prematurely cancelled the agreement in January 2015. There was also a letter in the file stating Ariyawansa had wanted to sell his shares in the GSA, she said.

When Sri Lankan LLC cancelled the agreement, a parcel of required documents was sent through the Sri Lankan embassy in Russia, signed by First Commercial Secretary ChandimaKiriwandala, Cooray said.

Ariyawansa had also operated the North American GSA for the US, Canada and the Caribbean since 2005, Cooray said.

Cargo revenue from the North American GSA had been 74 percent below targets in 2010/11 and 72 percent below targets in 2011/12, she said.

Passenger revenue targets for Canada were not reached although overall, passenger revenue targets for the three regions were achieved, she said.

However, after the Canada GSA was separated from the North American Ariyawansa’s Sri Lankan Travel Inc. was re-appointed as the GSA in 2012, she said.

Cooray said the Canada GSA was split off as SriLankan wanted to appoint another GSA for the country if and when required.

She was not aware of the reasons for the decision.

Prior to 2009 Ariyawansa’s North American operations had charged 75 US dollars per ticket sold and after the practice was stopped, Sri Lankan Travel Inc. had attempted to reinstate the charge later, she said.

However, this request was denied, Cooray said.

Sri Lankan Travel Inc. had enjoyed 5.5 percent commission rates for the US and the Caribbean, and 7 percent for Canada between 2012 and 2015, she said.

A re-negotiation in 2015 saw the commission rates fall to 5 percent despite a request from Ariyawansa’s company to increase commissions to 7 percent, she said.

Yasmin Majeed the former Industrial Affairs Manager, testified that Ariyawansa’s Sri Lankan Aviation Ltd was appointed the GSA for Australia in 2014 by Wickremesinghe against both the 2009 manual as well the amendments which were not approved by the board of directors.

Majeed said the Australia GSA received a 5 percent commission initially, which was increased to 7 percent within months, without a cost-benefit analysis. She said as far as she was aware, no evaluation was done on Ariyawansa’s GSA before increasing the commission.

A new board of directors appointed in 2015 had directed the airline to readvertise and appoint GSAs for Far East, Australia and Dubai using proper procedures.

Despite Ariyawansa’s GSA scoring the highest marks, the second place travel agency was given the GSA as it had a better distribution network, Majeed said.

However, she said with SriLankan starting direct flights to Australia, the winner had terminated the contract, and Ariyawansa’s GSA was reappointed and continues operations to this day.

It had then agreed to a 4 percent commission inclusive of fuel surcharges, as well as 2.5 percent commission on online sales, Majeed said.

This was against a 3 percent commission and 1 percent online commission ceiling set in the 2015 manual, she said.

The manual was amended to give 2.5 percent commission on online sales if such sales made up more than 30 percent of total revenue, however, this wasn’t included in the new Australia GSA agreement, she said.

She said that the US, Canada, Russia and Australia markets were heavy revenue generators for SriLankan Airlines. (COLOMBO, 24 August, 2018)



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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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