Rumblings over the expropriation bill

| by FS

(November 21, Colombo, Sri Lanka Guardian) Rumblings of discontent over the controversial bill to take over under-performing or under-utilized assets continued throughout the week while the government moved to calm the unsettled waters and re-assure local and foreign investors that this was a one-off piece of legislature.

The Central Bank (CB) also stepped into the debate assuring investors that the new law was for the specific purpose of dealing with ‘lands which have been provided to private operators for specified purposes, while the ownership of the land continued to remain with the Government or a Government agency’. It said the Act doesn’t refer to private lands.

Its comments drew mixed views from economists and the corporate sector. “Should not the CB be involved in monetary policy and financial regulation and not speak on issues that doesn’t come under its purview?” asked an economist. A corporate specialist however said the CB has reasonable grounds to comment on these issues as it also has an impact on the banking sector and other connected financial matters.

Separately the President’s Office issued a statement re-assuring investors that the government has no intention of acquiring any businesses and enterprises under the provisions of new Act other than those stated in the schedule of that law.

“It is regretted that some sections of the media have reported untrue and unverified material regarding alleged moves by the government to acquire anymore business ventures or properties under this legislation. Such reports appear to be aimed at creating uncertainty and doubts among the investors, both in Sri Lanka and abroad, which will in turn have an adverse impact on the national economy.

They also appear to have a political motivation, in resorting to unsubstantiated speculation, in the period immediately preceding the presentation of the National Budget for 2012 next week,” the statement said.
Such statement of reassurance sshould have been issued in the immediate aftermath of the presentation of the bill and its passage in parliament. The only re-assurance that the government doesn’t intend to take over any other properties other than those listed in the schedule in the new law came only through a statement issued by seven business chambers on Saturday 5th November 2011 after a meeting with President Mahinda Rajapaksa and officials.

The government didn’t issue any statement of re-assurance until the bill was presented in Parliament on Wednesday, November 9th. By that time investor sentiment had been adversely affected by the expropriation of these properties for the clear reason that the process was not followed, apart from other issues.

Both international rating agencies, Moody’s and Fitch said the move would affect investor sentiment while Franklyn Amerasinghe, a former Director-General of the Employers Federation of Ceylon, in an article published elsewhere in this section asked why the new Act was presented as an urgent bill? “What is the urgency,” he asked, among other issues raised.

Elsewhere the Colombo Stock Exchange (CSE) was slow off the tracks to suspend trading in the listed companies affected by the bill – Hotel Developers Ltd (Hilton owners) and Pelwatte Sugar – immediately after there were public pronouncements that these companies were being taken over, a development that would have impacted on the share price. The CSE was aware as early as November 6 or even before that the takeover bill, through many reports in the media. Subsequently when Hotel Developers and Pelwatte informed the CSE of these developments on 11th November and 14th November, respectively, trading in these shares were suspended. “What if someone bought shares in this stock on around November 7 and before the announcement suspending trading? Won’t that amount to negligence on the part of the CSE?” noted one market analyst.

A further appeal against the bill before a fuller bench (more than 3 judges) of the Supreme Court by aggrieved parties including Sevanagala Sugar owner Daya Gamage this week also failed with ‘leave to appeal’ refused. Separately a case filed by Sevanagala workers against the acquisition was due to come up before the Appeal Court on Friday. The Government has accused some media of stirring trouble over the new Act saying some reports were politically motivated to scuttle the budget.

Credibility is a commodity no-one can buy. Credibility has to be earned and that appears to be an onerous task as far as this administration is concerned given the plethora of decisions taken, some of which lacks commonsense and thoughtfulness. In the present case, companies that are reported to be doing well like the Sri Lanka Exhibition and Convention Centre, Sevanagala Sugar and Pelwatte Sugar should have been gone through a process of consultation and discussion, with government authorities asking for an explanation as to why these companies are under-underutilized. If on investigation, there was sufficient proof and evidence that these assets are underutilized, then such a move one would adduce would have been a democratic process. The sudden take-over of some companies raised suspicions of a political vendetta however much the government choose to deny that this was not the motive.

And, no way will the government, at least in the short term, be able to convince the investment community that this is a one-off take-over bill.