1 PARLIAMENTARY SERIES No. 10

PARLIAMENTARY SERIES

No. 10

OF

THE SIXTH PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF

(SECOND SESSION)

SECOND REPORT

FROM THE COMMITTEE ON PUBLIC ENTERPRISES

Presented by

HON. , M.P., Chairman of the Committee on Public Enterprises

Ordered by the , to be printed on 24th Friday August, 2007.

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– PRINTED AT THE DEPARTMENT OF GOVERNMENT PRINTING, SRI LANKA TO BE PURCHASED AT THE GOVERNMENT PUBLICATION BUREAU, COLOMBO 7 Prize Rs. 34.00 Postage : Rs. 7.50 SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 2 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

Second Session of the Sixth Parliament

HON. MEMBERS OF THE COMMITTEE ON PUBLIC ENTERPRISES

1. Hon. Wijeyadasa Rajapakshe (Chairman of the COPE) 2. Hon. (appointed on 17.07.2007) 3. Hon. Anura Piyadharshana Yapa 4. Hon. A. D. 5. Hon. 6. Hon. 7. Hon. 8. Hon. Lakshamn Yapa Abeywardena 9. Hon. 10. Hon. 11. Hon. Gunaratne Weerakoon – (resigned on 17.07.2007) 12. Hon. 13. Hon. 14. Hon. 15. Hon. 16. Hon. H. R. Mithrapala 17. Hon. 18. Hon. Hussain Ahamed Bhaila 19. Hon. Vdivel Suresh 20. Hon. 21. Hon. (Ven.) 22. Hon. 23. Hon. 24. Hon. 25. Hon. Anura Dissanayake 26. Hon. 27. Hon. 28. Hon. Sarath Ranawaka 29. Hon. Mavia S. Senathirajah 30. Hon. Senathirajah Jeyanandamoorthy 31. Hon. Sripathi Sooriyaarachchi 3 PARLIAMENTARY SERIES No. 10

SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTREPRISES (COPE)

SECOND SESSION OF THE SIXTH PARLIAMENT

The committee on Public Enterprises (COPE) is pleased to present its second report of the sixth Parliament.

The COPE for the second session of the sixth Parliament was nominated by the Committee of Selection in terms of the Standing Order No. 126 of the Standing Order of the Parliament of Sri Lanka and announced on 08.03.2006, 07.04.2006, 23.05.2006, and 24.05.2006.

During the period from July 2006 to July 2007, Committee met on 106 occasions and examined 70 institutions as follows. Some of them were summoned for several sittings for detail examinations and four Sub-committees were appointed to scrutinize examinations for the special matters arisen on Ceylon Electricity Board, Sri Jayewardenepura General Hospital, Samurdhi Authority of Sri Lanka and Public Enterprises Reform Commission.

No. Examined Enterprise No. of Examinations

1. Central Bank of Sri Lanka 02 2. Telecommunication Regulatory Commission of Sri Lanka 02 3. Ceyon Electricity Board 05 4. Bank of Ceylon 04 5. Ceylon Petroleum Corporation 04 6. National Servings Bank 01 7. Geological Survey and Mines Bureau 01 8. Road Development Autority 01 9. Sri Jayewardenepura General Hospital 03 10. Baord of Investment 03 11. Airport and Aviation Services (SL) Ltd. 01 12. Independent Televion Net Work 01 13. National Water Supply and Drainage Board 01 14. National Child Protection Authority of Sri Lanka 01 15. Development Lotteries Board 01 16. State Mortgage and Investment Bank 01 17. National Lotteries Board 01 18. State Engineering Corporation 01 19. People’s Bank 01 20. Institute of Policy Stdies 02 21. Milk Industries of Lanka Company Limited 02 22. Land Reform Commission 02 23. Samuradhi Authority of Sri Lanka 01 24. Public Enterprises Reform Commission 01 25. Sri Lanka Ports Authority 01 26. Urban Development Authority 02 27. The Associated Newspapers of Ceylon Limited 01 SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 4 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

No. Examined Enterprise No. of Examinations

28. Sri Lanka Land Reclamation and Development Corporation 01 29. Securities and Exchange Commission 01 30. National Transport Commission 01 31. Consumer Affairs Authority 01 32. Agricultural and Agrarian Insurance Board 01 33. Sri Lanka Cashew Corporation 01 34. Coconut Development Authority 01 35. Employees’ Trust Fund 01 36. Sri Lanka Rupavahini Corporation 01 37. National Housing Development Authority 02 38. Building Materials Corporation 01 39. Sri Lanka Broadcasting Corporation 01 40. National Youth Services Council 01 41. National Gem and Jewellery Authority 01 42. Sri Lanka Export Development Board 01 43. Sri Lanka Bureau of Foreign Employment 01 44. Southern Development Authority 01 45. Ruhuna Development Bank 01 46. Mahapola Higher Education Scholarship Trust Fund 02 47. Tea Small Holdings Development Authority 01 48. Sri Lanka Tourist Board 01 49. Sri Lanka Council for Agricultural Research Policy 01 50. Elakduwa Plantation Ltd. 02 51. Local Loans and Development Fund 01 52. State Timber Corporation 01 53. Sri Lanka Institute of Advanced Technical Education 02 54. State Pharmaceutical Corporation 01 55. University Grants Commission 01 56. Housing Development Finance Corporation 01 57. University of Colombo 01 58. Co-operative Wholesale Establishment 01 59. Sri Lanka State Plantations Corporation 01 60. Civil Aviation Athority 01 61. National Institute of Fisheries and Nautical Engineering 01 62. Lanka Putra Development Bank 01 63. Open University of Sri Lanka 01 64. University of Peradeniya 01 65. Kurunegala Plantations Ltd. 01 66. National Film Corporation 01 67. Agrahara Trust Fund 01 68. National Development Trust Fund 01 69. Tea Shakthi Fund 01 70. State Pharmaceutical Manufacturing Corporation 02 5 PARLIAMENTARY SERIES No. 10

The Committee haivng examined in detail the performances and current affairs, submitted one report to the Parliament so far and the first report containing observations and findings arising from our examinations of the Auditor-General’s reports and performance reports submitted by the Department of Public Enterprises in respect of the twenty six institutions.

This report includes specific observations arising from the examinations of the Committee on Public Enterprises in respect of the following institutions and the general observations.

1. The Associated Newspapers of Ceylon Ltd. 2. Sri Lanka Land Reclamation and Development Corporation 3. Securities and Exchange Commission 4. National Transport Commission 5. Consumer Affairs Authority 6. Agricultural and Agrarian Insurance Board 7. Coconut Development Authority 8. Employees’ Trust Fund 9. National Housing Development Authority 10. Sri Lanka Rupavahini Corporation 11. Building Materials Corporation 12. Sri Lanka Cashew Corporation 13. Sri Lanka Broadcasting Corporation 14. National Youth Services Council 15. National Gem and Jewellery Authority 16. Export Development Board 17. Sri Lanka Bureau of Foreign Employment 18. Southern Development Authority 19. Ruhuna Development Bank 20. Mahapola Higher Education Scholarship Trust Fund

GENERAL OBSERVATIONS

During its examinations, the Committee identified the following deficiencies and irregularities which were common in nature to the above institutions.

* Failures and ommission on the part of the relevant Secretaries to supervise and follow up the performance of the institutions which come within their purview. * Failures and ommission on the part of the relevant Ministers to keep closed observation into the affairs of the institutions which come within the purview of their duties and obligations. * Lack of professionalism in the management of public enterprises. * Key senior management position being held on acting capacity or on contract basis for considerably a long period. * Lack of quality management resulting in losses. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 6 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

* Very poor attention on profitability, liquidity and financial viability. * Lack of effective internal Audit. * Poor Treasury Management. * Poor Supervision of the Line Ministry. * Idle and under utilized resources. * Absence of good governance practice. * Non-availability of up date Corporate Plans and Action Plans * Delays in submitting of accounts. * Uneconomical transaction and mismanagement of funds * Non-compliance with financial rules and regulations. * Non-adherence with the accepted tender procedures. * Political interference. * Delays or failures in responding to the Committee directives. * Payments of withholding taxes by the institutions which amounts to a payment of double taxes.

As a result of the above common deficiencies profitability, liquidity and financial viability of most of the enterprises have been declined.

1. The Associated Newspapers of Ceylon Ltd. (ANCL) (Date of examination 25th August 2006)

1. The Committee examined the ANCL and discussed with the officials present whether they have undertaken a study to ascertain the threats, weaknesses ets. for its viable existence and growth as it has now been found that it is unstable. The Company did not have a Corporate Plan and the Plan drawn by them covered only a period of three years, which was not adequate enough for an organization similar to ANCL since it is in a highly competitive trade ie. news print media.

2. The Committee noted that due to poor management and, lack of strategic planning there has been a severe blow to its survival and down-ward trend has been observed which should be correctly addressed to resolve the problems, and to create a more competitive and a viable atmosphere. It was found that newsprint sales have come down continuously and sharply.

3. The Committee has found that the company had not planned for any alternative avenue for revenue such as commercial printing. It has also been observed that the company has a land to the extent of 8 1/2 acres at Hokandara that had been idling for over 10 years and that can be easily used for a printing press or any other suitable purpose to avoid the congestion in the head office. 7 PARLIAMENTARY SERIES No. 10

4. The Committee extensively examined the inefficienccy of the unsatisfactory debt recovery processes as huge amounts of debts have been shown as static for a long period. Debts amounting to Rs. 70.9 million was remaining unrecovered for over one year and some debts are pending from the year 2000. At the examination it was stated that the company had taken legal action in respect of Rs. 55 million.

Theses debts were due form governement institution and from the private sector as well. When Committee enquired about the difficulty of collecting dues from the Government institutions the management was unable to give an acceptable explanation. The Committee therefore instructed the Secretary to the Ministry to take the issues with the respective Government authorities as a first step of the recovery processes.

5. The Committee seriously considered the poor response to audit queries and the uncertainty, which arose have caused serious concern of certain areas. There were 31 queries issud by the Auditor General remained unanswered to date and directed the Chairman of the company to reply those within two weeks.

6. The Committee also discussed an issue taken up at the previous examinations with regard to a payment of an advance to a foreign company amounting to Rs. 50 milion which has become unrecoverable. The Contract was not preceded as the relevant Minister had suspended the procurement due to the incorrect procedure adopted for this particular purchase. It was further observed that the supplier company had become insolvent.

2. Sri Lanka Land Reclamation and Development Corporation (Date of examination 1st December, 2006)

1. The Committee examined the SLLRDC and found that it has developed its Corporate Plan for the period of 2006 - 2010 and approved only on 17th November 2006, after after a lapse of 1/5th of the period covered by the Plan. The Committee further observed that the disregarding of the basic principles of planning by an entity like this need to be considered seriously.

2. The Committee noticed that the Coporation does not have a proper mechanism to collect information which need to carry out their main operations even though the Corporation is a long standing institution. The Committee considered the following lapses in this regard.

(a) The Corporation had not identified total extent of the marshy lands in the country even though it is a basic duty and bound to do so by virtue of the relevant statue.

(b) The Corporation had no formal channel in operation to get information about unauthorized fillings of marshy lands. At present it depends on complaints received hardly from the Agraian Service officers, the Police and the affected public. The Secretary to the Ministry also accepted the lapses in this regard. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 8 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

(c) Even though the Act of incorporation has been amended to identify the marshy lands to be gazetted it has not been done. The marshy lands of the Western Province itself had not been gazzetted as at the date of examination.

(d) The Committee also observed that certain projects carried out by the Government had also caused for flood situations in addition to the other factors. For example, the Corporation had pointed out the temporary structures costructed for the express way across the “Dadugan Oya” Ja-ela had caused the floods occurred in that area.

3. The Committee seriously noted that the Corporation had neglected its one of the main objectives of prevention of floods and it was unable to prevent even Colombo city from floods. However the Corporation informed that they had completed flood prevention projects only in certain areas in the Colombo city.

The Committee considered that this type of lapses need to be addressed without any further delay.

4. The Committee observed that some activities carried out by the Ministry itself were open for question as some operations were not sufficiently transparent enough. (I) The Committee extensively discussed about the “Lunawa Development Project” of which phase, I, II and III had been done by the Corporation and then taken over by the Ministry to do the rest of the Project. The Committee noted the following facts. (a) The estimated cost of the Project is Rs. 900 Mn approximately. (b) The Ministry had obtained the engineers of the Corporation to do this project. (c) There was no clear reason for the Ministry to take over the Project as the Corporation which was under the same Ministry was well equipped to carry out the activity. (d) The handing over the project to the Ministry had to be done in terms of the agreement signed by the Treasury and the ADB as a result, the original Cabinet decision also had to be amended to accommodate this change. (e) The Corporation itself had to bid for the Project due to unexposed reasons. (II) The Committee is of the view that this has to be looked in to in detail and directed the CAO to provide all copies of all agreements and other related documents to the Committee.

5. In the course of the examination it was highlighted that the Corporation was not involved in any target which should have been handled by the Corporation had been taken over by the Ministry, although the Ministry was not supposed to handle Projects. The Committee considered it as a serious departure from the governig rules and regulations and specially considering the fact that Corporation possessed employees over 500 which are trained in the particular field including experts and the all necessary equipments to be utilized in such a project. 9 PARLIAMENTARY SERIES No. 10

6. The Committee noted that the Corportation had established a security services company named LRDC Services (Pvt.) Ltd. with the intention of providing security for the offices and water storages of the National Water Supplies and Drainage Board and later it had provided security services to the institutions under the Ministry and the Hospitals and carried out functions as a commercial venture. The Committee observed that the Company had suffered continuous losses since 2003. According to the Auditor General the loss for the year 2004/2005 was Rs. 2.7 million. The Committee also emphasized that operating of security services is not an objective of the Corporation and found no valid reasons for continuing this as it is a burden to the country and the general public.

7. The Committee discussed about the non availability of a proper debt recovery system in the Corporation. As it was evident in the cause of examination, out of total debtors amounting to Rs. 314 Million, Rs. 199 Million or 63% had remained outstanding for over one year of which Rs. 51 Million had remained non moving for over 5 years.

3. Securities and Exchange Commission (Date of examination 11th January 2007) 1. The Committee observed numerous short comings in the Ministry of Finance in regard to the poor coordination between the Secretary to the Ministry and the Commission. The Committee noted the following deficiencies during the course of its examination. (a) The Secretary to the Ministry has failed to take appropriate steps to assure that all vacancies in the Commission are duly filled at the proper time. The Committee observed that only eight out of ten vacancies had been filled at the date of examination and the two vacancies had been kept vacant for more than ten months. (b) The Committee noted with displeasure the neglignece on the part of the Secretary to the Ministry for not having a proper monitoring system to oversee the affairs of the Commission and the poor performances of very senior officials of the Commission. The Audit and Management Committee of the Commission had failed to meet as required and such short coming have not been addressed by the Secretary to the Ministry. In the year 2006 the said Audit and Management Committee had been convened only once even though it was required to meet at least four times in a year.

2. The Committee examined certain administrative procedures and activities carried out by the Ministry. It was found that these meetings were controversial, arbitrary and suspicious. The procedure followed with regard to the recruitment for a post of Deputy Director General by advertising the post twice within a period of two months despite that ten out of seventeen applications had been short listed from the first advertisement. The Committee observed that the only change effected in the second advertisement was the age limit and the relevancy of this particular amendment and the reasons for refusal of the results of the first attempt and the process seem to be lacking transparency, suspicious and cause doubts over the fairness and the appropriateness of the entire selection. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 10 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

3. The Committee observed that the delusions of the responsibility and the public confidence over the Commission as it has not taken appropriate steps and established a sound mechanism against the market manipulations and ill surveillance system.

4. Violations, inside dealings and market manipulations have created serious doubts in the minds of the general public damaging the credibility of the institution.

Certain observations made by the Committee in this respect are given below.

(a) The Commission could compound one case of market manipulation in the year 2006 and the penalty imposed was Rs. 500,000.

(b) Charges have been framed against nine individuals for market manipulation

(c) When enquired about the investigations going on with regard to , a company on plantings and the appropriateness of their accounting method as the company uses “fair value accounting” method as introduced in International Accounting Stantard 41, the Committee noticed that the Commission has failed to come to a conclusion within a reasonable time frame and kept the uncertainty exist and was waiting to get the views from other relevant institutions. The lack of competency of the Commission has established a situation deteriorating and eroding the confidence in the minds of the investors and general public and affects the economy of the country badly.

(d) Only manually operated surveillance system is in operation to combat manipulations and cannot be satisfied over the prevailing situation. The Director General informed that an electronic based srveillances system will be introduced in the near future to enhance the effectiveness and efficiency.

5. The Committee examined the success of reaching the objectives and found that progress achieved was not seen satisfactory.

Two main targets in relation to market development set in their three years Corporate Plan from 2006 - 2008 are shown below.

(a) The target for market capitalization was to enhance it up to 50% of the G. D. P. and they have achieved only 34% as at the end of the Year 2006.

(b) The target for market turnover was to increase it annually by 50%. However the achievement was only 21% increase in the year 2001 and was a decrease by 8.2% in the year 2006, showing a downward trend as per the reported statistics. This position was accepted by the representatives of the Central Bank who were present before the Committee.

6. The Committee observed that the management of the surplus fund of the Commission is not properly reviewed by the accountable officials. The Committee found that surplus fund amounting to Rs. 521 Million held by the Commission as at 31st July 2006 without sufficient attention. Only a portion of that surplus has been transferred in between August and December 2006. 11 PARLIAMENTARY SERIES No. 10

7. Further more the Committee observed that the competency of the Commission was lacking behind. When the committee questioned the suitability and the appropriateness of Blue Chip companies into Sri Lankan economy, it was found that the Commission has not paid due attention over such current issues. Finally the Committee instructed the Commission to submit a report to the Committee in this regard.

4. National Transport Commission (Date of examination 09th March 2007)

1. The committee observed that NTC did not have an acceptable Corporate plan. The plan submitted covered only a period from year 2006 to 2009. The committee noted that a monitoring entity like NTC should have a Corporate plan covering a long period at least a period of five years with a vision for a longer period.

In the cause of examination it was found even the planned targets had been realized to the extent less than 20%. The committee noticed that there had no meaningful steps taken to find ways and means to implement the Action plan to meet objectives.

2. The committee observed that the time tables for buses should be developed after having a systematic survey considering the needs of passengers transport service consulting Provincial Councils as those Councils also have to play a vital role in this field after the 13th amendment to the Constitution was enacted.

The committee found that no database is developed even though such a database is essential for a monitoring body to monitor this very important sector like public transport. The Committee’s view is that for monitoring the public transport NTC should establish a relevant, complete, updated and reliable database without further delay. If this sector is not properly monitored it will affect adversely the entire man power and the economy.

3. The Committee reviewed the performance of setting time tables for the buses. When the NTC implemented the time tables in Badulla District, it was objected and a stay order had been served and still under proceedings in the courts of law. In other districts NTC had not attempted to implement time tables. When Committee questioned, the NTC failed to give clear explanation in this regard. However it was evident that there was no Board decision or a higher management decision on the issue and no formal directive had been obtained.

4. The Committee found that the performance of reviewing the time tables also was very poor, it was targeted to review 30 (thirty) time tables during the year 2006. However the NTC had attended only four out of that targeted amount in that year.

5. The Committee examined the performance in issuing route permits and found that procedure followed is against the policy decision approved by the Cabinet of Ministers. According to the evidence given at the Committee the relevant Minister had advised to ignore the Cabinet decision and to adopt his instructions in issuing rout permits. The officials admitted that the Cabinet decision taken was very appropriate and was a practicable and acceptable one. Even after disregarding the SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 12 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

Cabinet directive it appeared that no attempt was made to amend the relevant Cabinet decision or to regularize the procedure followed under the directives given by the Minister. This shows a very serious breakdown in the system and Committee decided not to accept the procedure followed.

It was observed that there were 442 and 23 such route permits issued in the year 2004 and 2005 respectively without following the stipulated procedure.

It was further observed that neither tenders called for nor procedure followed in issuing this route permits.

6. Another major drawback observed by the Committee was that the lack of monitoring by NTC to assure a suitable public transportation to the satisfaction of the service renders and service recipients.

It was observed in the examination that average run of a bus is less than six hours per day while a bus is in standby and awaiting position around 18 to 20 hours per day. It was evident that most of the buses assigned to travel around 100 to 120 kilometers per day. Under these circumstances the Committee is of the view that while there is a high demand for public transportation there is no proper system to monitor whether they deliver the best transport service.

7. The Committee observed that the NTC does not have a sound and meaningful co-ordination with the Provincial Councils to carry out the inspections to detect the offences in the public transportation. The NTC had only 12 inspectors for such detections and does not have any information over the Provincial Council coverage capacity, activities and practices over the same field, which should be known to the monitoring body to promote a sound control over the activities.

8. The Committee observed that so many rules and regulations are not enforced as expected. It was evident that overloading, non issuance of tickets, over speeding, non adherences to air-conditioning requirements etc. were among such non compliances.

9. Furthermore the Committee noticed that the financial results as well as financial status of the NTC is deteriorating year by year. The excess of expenditure over income was Rs. 44 million in the year 2005 and this unfavorable gap has widened in the year 2006 to the extent of Rs. 61 million.

Operational cost of the commission in the year 2006 was Rs. 120 million. The treasury has funded Rs. 35 million and the NTC had generated internally only Rs. 25 million for the day to day operational cost. As the treasury had to provide another Rs. 65 million for the capital expenditure of NTC, the full provision of the treasury has increased to Rs. 100 million in the year 2006 and when that cost compared with the service provided by the NTC. The Committee could not satisfied with the performance. The net worth of the NTC as at the beginning of the year 2006 was Rs. 25 million and that has dropped to the level of Rs. 21 million as at the end of 13 PARLIAMENTARY SERIES No. 10

that year. Unless this downward trend is arrested the total capital of the NTC will get eroded within a few years time. Therefore the NTC should develop a suitable strategy for tis existence and to promote its accountability.

10. The Committee noticed that the NTC had not taken seriously the need of presenting its Annual Reports at the Parliament within the stipulated time period to expose the actual performance level to the general public through Parliament. The Committee found that no Annual Report after the year 2002 had been tabled in respect of the NTC.

5. Consumer Affairs Authority (Date of Examination 21st March, 2007)

01. The Committee was very concern about that the Authority had not complied with the directives given at the previous COPE Examination on 18th August, 2005, to prepare a Corporate Plan, and it was revealed only a part of that is completed even after 1 1/2 years and that also covers only up to the year 2007. This was considered as a serious weakness and shows the imprudence of the senior management of the Authority. The Committee is of the view that an entity established to play a very vital role and spending public money without a proper plan is an utter waste of public funds and a burden on the government and the general public. The Committee directed the CAO/AO to complete and submit the Corporate Plan within one month.

02. The Committee observed that there is a shortage of staff. Out of the approved carder of 150 for the post of Investigative Officers, there are only 67 Officers which represent 44% of the approved carder. Though the Investigative officers are vital to carry out the functions of the Authority, action had not been taken to fill the vacancies. This also shows the lethargic approach of the management towards the fulfillment of the responsibilities of the Authority.

03. The Committee had an extensive discussion about the very poor performance of the Authority and the Committee also felt that the Authority had failed to fulfill the expectations of the Parliament as well as the general public. The Committee felt that there is an overlapping of functions and responsibilities as two or three public sector institutions seem to be passing the responsibility to others. The institutions named at the examinations were the Ministry of Health, Sri Lanka Standards Institution, Consumer Affairs Authority, Food Commission etc. It is appropriate that the legislature should look into this matter and fix responsibility on the most suitable institution because otherwise the Parliament has to allocate funds to more than one institution to carry out the same responsibility. For an example; raid of markets, hotels for substandard goods and foods.

04. The Committee found in the cause of examination that there is a Council consist of 3 full time members and they were referred only 8 cases during the year 2006. It was also observed that the Council has no administrative and financial capability to carry out their functions even to make aware the public that there is such a separate SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 14 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

Council. It was further observed that the Authority had not provided even a telephone, chairs and peons to the Council. It felt that the Authority is not making use of the council at least at the minimum level.

6. Agriculture and Agrarian Insurance Board (Date of examination 8th February 2007) 1. The Committee examined following facts connected with the disputed payments of compensation to the Mavilaru farmers and observed that although the policy decision taken by the government was to pay compensation to all the affected farmers. Officers of the respective Authorities have visited the cultivated areas relating to the applications received for claiming damages and the damages were assessed accordingly without doing overall assessments.

(a) The water fed area of the Mavilaru irrigation project is 25,000 acres approximately under six Agrarian service areas. (b) For the first instance 3, 106 farmers had reported damages in respect of 7349 acres. (c) The Treasury had granted Rs.176 million for this purpose and a sum of Rs. 124.35 million had been paid for 2,917 farmers at Rs. 25,000 per acre up to the date of examination.

(d) Subsequently further 3000 appeals were received and those had not been put in to process due to the non availability of funds.

2. The Committee observed that the Board had spent a sum of Rs. 625,000 to supply meals to displaced families at Mavilaru out of the Farmers’ Pension Fund which is not meant for the above purpose while there are various state organs to handle such situations. This was seriously taken into consideration by the Committee as the fund is deteriorating year by year and there will be a problem in the near future in paying pensions for farmers due to non availability of adequate funds. It was further observed that the Cabinet had not approved the utilization of the fund for this purpose.

3. The Committee also observed that a sum of Rs. 5 million had been taken from the fund for a “Govi Jana Pola” on a request made by the Secretary of the Ministry with the approval of the Cabinet. However the purpose is not under the purview of the Act. of the Rs 5 million obtained only Rs. 1.5 million had been paid back to the fund. The Committee instructed the CAO to submit a report to the Committee indicating the withdrawals from the fund for various purposes.

4. The most significant issue is the deteriorating financial viability of the fund. Operating results of the fund had diminished from a surplus of Rs. 59.7 million in the year 2003 to a deficit of Rs. 257 million in the year 2006. Despite this serious situation the fund had not paid adequate attention to assure whether the Regional Agents or the Regional Officers are remitting their collection of insurance premium to the Head Office promptly. The Auditor General also had observed that Rs. 3.6 million collected by the regional office had not been received by the Head Office and the Head office 15 PARLIAMENTARY SERIES No. 10

had not yet taken remedial action on this. The Committee is of the view that this type of situations would leads to frauds, misappropriation and misuse and emphasized the need of a proper system to ensure the prompt remittance of regional collections.

5. The Committee further noticed that the fund has obtained 5% from the fund for administration expenses contrary to the provisions of the Act. According to the Act only 2% can be obtained for administration purposes and presently using 5% in on a decision taken by the Board of Directors, overstepping powers vested with them.

6. The Committee examined the position of computerization of individual accounts and found out that it is not producing the expected results. Even though it was planned to link the District Offices and operate a computer net work, the Computer division is functioning without a qualified officer or a Consultant since July 2005 and only with a very limited number of staff. It was further observed that the fund maintains around 3,500,00 insurance policy holders and 950000 pensioners by only the basic information of 1,500,00 policy holders had been computerized. However it was observed that although a sum of Rs. 19.5 million of capital expenditure had been incurred for this purpose, the computer system does not provide the balance prevailing in a policy holder at any given time.

7. The Committee noticed the response to audit quarries also was very poor, 26, 27 and 06 audit quarries for the years 2004, 2005 and 2006 respectively had not been replied by the fund and the Committee is of the view that this situation should be corrected urgently by the Fund.

8. The Committee seriously noted that the representative of the Ministry of Agriculture had not been appointed to the Board of Directors for last two years disregarding the requirement laid in the Act.

7. Sri Lanka Cashew Corporation (Date of examination 20th February 2007) 1. SLCC had been running at losses since the year 2002 up to now. The Committee noted that the accumulated loss as at 31st December 2006, was Rs. 60.02 million. According to the Finance Act it clearly says that no public corporation or a statutory Board, should carry out without profit making or loss making at least for five years and the SLCC has deviated from the requirements stated in the Finance Act. The Committee noted that the expenses incurred by the SLCC exceeds by 40%, of revenue collection. The Committee showed its dissatisfaction over the above situation and stated that in 2007, budgetary allocation is also not accordance with the going concern concept.

2. The Committee noted that the most of the aspects which should be fulfilled by the Corporation had not been in a satisfactory level. Considering the total kernel production of the country, production of the Corporation had shown a drastical decline.

3. SLCC, Corporate Plan for 2005 - 2009 stated that in 2009 productivity would be brought up to level of 650kg /hec, but the strategies were not given and currently the SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 16 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

productivity level had been far below the average local productivity level. In 2006, productivity level of SLCC was 174 kg/hec, but in 2003 it was 289 kg/hec. Therefore the Committee was of the view that the Corporate Plan should come up with more realistic values.

4. The Committee noted that SLCC had neglected their social responsibilities to the country and the Committee was of the view that there should be a proper mechanism to overcome the following deficiencies. (a) Loss of productivity.

(b) Declining export market of kernel production (625 M.t/kernel in 1997 and 2006 it was 170M.t/kernel) and importing in bulk manner. (c) Increasing of kernel product imports. (d) High administration expenses and increase of wages.

(e) Poor attention paid towards to the preprocessing centers. (f) Idle assets, 5 official quarters and the laboratory, office and electrical equipments given to the Wayamba University to carry out researches with the collaboration of the University. But equipments had remaind unused for 3 years with unopened packs.

5. In the Action Plan it is stated that in 2006 it could be expanded up to 525 acres of nurseries but failed to reach up to at least 40%.

6. The Committee noted that the SLCC had tried to improve the allied product from the kernel and the fruit (“Puhulam”), but the Committee noted that the productions have not been profitable to the Corporation.

8. Coconut Development Authority (Date of examination 10th January 2007)

1. Authority is having a Corporate Plan for the period of 2003 to 2007. But it had failed to evaluate as to whether their performance had reached the goals and what were the shortcomings. It was observed that most of their works have done in ad hoc basis despite the fact that there had been a Corporate Plan. It had failed to prepare and finalize a comprehensive Corporate Plan in time for the future of the institution.

2. Its Audit and Management Committee has failed or neglected to hold regular meetings despite the fact that it was obliged to meet at least once in a quarter. Accordingly it had failed to fulfill its obligation on its accountability.

3. Most of the senior posts such as Deputy Directors and Assistant Directors remain vacant for a long period. Therefore, the activities have been declined since they are directly related to the operational activities of the institution.

4. It was revealed that the coconut industry is badly affected and production is declined due to fragmentation of coconut estates and there had been an undue delay on the 2 – PL 002428 17 PARLIAMENTARY SERIES No. 10

part of the Authority and the Legislature to introduce relevant laws to safeguard coconut estates. As a result, the coconut production has come down to 2.75 billion nuts in 2006 and 2.54 billion nuts in 2005, whereas it had been 3.1 billion in 2000. To make the country self sufficient in near future it should be targeted to produce 4 billion nuts. But the Authority has no strategy as to what actions to be taken to increase the production.

5. The Athority complained that the Treasury is holding Rs. 846.5 million which had been collected by way of CESS and due to be paid to the Authority up to the end of 2006. But the Authority also failed to explain any Action Plan to be implemented in the event the money being released by the Treasury. On the other hand the Authority is also holding Rs. 172 million. The Authority revealed that it had achieved its targets to expand the coconut cultivation by distributing 3.7 million saplings in the course of this year.

6. It was revelaed that the export market had been seriously declined by following percentages; coconut oil – 32%, desiccated coconut – 38%, coconut milk –16%, coconut fiber – 38%, coconut arrack – 44%, vinegar - 88%. But the Authority had failed to give a satisfcatory clarification to the Committee to the effect that they have any strategy to regain the export market.

7. The Authority had been successful in introducting a new innovation to manufacture virgin coconut oil which would help the industry to capture local and foreign market.

8. It also was revealed that the local consumption amounts to two billion nuts annually and 33% of the fat is being wasted since the traditional extraction systems are not improved. But no action had been taken to find a solution to minimize the wastage.

9. The Committee pointed out the importance of popularizing drip irrigation and inter-cropping systems which would help to increase the production substantially.

10. The expenditure of the institution had been increased substantially; 107% increases in research and development segment was 31% increase of cost of employment segment. It was a noticeable change since there had been an average decline of 30% of the export products.

9. Employees’ Trust Fund (Date of examination on 9th January 2007)

1. The dividends and interests paid to the members of the ETF for the year 2005 had been reduced to 8.5% and that reduction was due to insufficiency of the profit earned during the year 2005. Now the Board has sought approval of the Ministry of Finance to increase it to 10%. Since the Board’s profit had been increased in the year 2004. The profit had been recorded as 4415 million.

2. Investments amounting to Rs. 34 million had been written off against the profit for this year under review as finance expenses. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 18 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

3. In terms of section 8(i) of the Employees’ Trust Fund Act every member should be informed of the balance at the end of each year but this had not been complied with in full.

4. The expenditure incurred amounting to Rs. 1,433,054 for laying the foundation stone for the construction of the Navam Mawatha Head Office building and that expenditure had been shown as capital expenditure of the accounts of the Year 2005.

5. Idenfitied losses of a sum of Rs. 1,401,250 had been spent for a case filed against the Board by employees as the Board had made some appointments without adhering the approved scheme an subsequently those appointments had been cancelled and a sum of Rs. 7,193,250 had paid as an advance for obtaining a building without calling quotations and this money had been in the custody of the particular company and therefore Board had lost a sum of Rs. 530,000/-.

6. It was represented that there is a proposal under consideration by the relevant authorities concerned to merge Employees’ Trust Fund and Employees’ Provident Fund with a view of overcoming lapses and shortcomings.

10. Sri Lanka Rupavahini Corporation (Date of examination 11th January 2007)

1. committee observated that the Corporation has failed to prepare a Corporate Plan for the period beyond 2007 up to date. In view of new technology the existing Corporate Plan was now obsolete. The Committee observed that it was an unsatisfactory situation since it is an imporatnt organization in the Goernment sector.

2. The SLRC has ordered to purchase a huge stock of video cassettes to be used at the tenth SAF Games held in Sri Lanka in August 2006, but the stock of videos had reached the SLRC only after the conclusion of the games. The Committee expressed its dissatisfaction over the explanation given by Corporation. It was further revealed that these cassettes are technologically out dated and cannot be used.

3. Similarly it was observed that certain equipments ordered for the same purpose had reached only after the conclusion of the event and Sum of Rs. 166 million had been spent. It shows the clear negligence and failure to act with due diligence in dealing with public funds. The Committee ordered to submit a detailed report.

4. It was revealed by the Auditor General that a large sum of outstanding monies had not been collected for a long period the Committee too observed that it as a failure on the part of the financial administration. Outstanding Rs. 28 million from the Department of Election Commissioner was taken into consideration and Election Commissioner had made a representation that the SLRC was obliged to bear the cost. Since it was the official channel used by Commissioner under the relevant statue. The Committee accepted the justification he has made and insisted to take legal action to recover the rest of the outstanding amount Rs. 662,259,684. The Committee also expressed its concern towards the lethargic attitude and conduct of the administration in recovery of dues since certain amounts remain outstanding over a period of five years. 19 PARLIAMENTARY SERIES No. 10

5. The Auditor General pointed out the serious lapses on the part of the Finance Manager since he had failed to reply five Audit quarries out of twenty two for the year 2005. The finance manager undertook to reply to the audit quarries for the years 2005 & 2006.

11. National Housing Development Authority (Dates of Examinations on 27th September, 2006 and 24th November, 2006)

1. The Authority had sold a circuit bungalow with an extent of 2100 square feet, which is in the 7th floor of Liberty Plaza building to the Ocean View Development Company (OVDC), for a sum of Rs. 9 million. Before entering into this transaction government valuer’s valuation had not been obtained and the valuation was done by the valuer of the Authority. The valuer had valued the bungalow for Rs. 11.52 millions. But the sale has been done for Rs. 2.5 million below the valued price. The price for a square feet had been Rs. 4000 while the market price for a square feet in the area is selling at about 1.5 million. Although there was no valuation the Board of Directors had approved the transaction. The Committee directed the Secretary of the Ministry to make a complaint to the CID.

2. The Authority is formulating a National Housing Policy with the technical assistance of the UNDP. The Committee gave some directions and recommendations that should be taken into consideration in the procedure. But the Committee expressed its dissatisfaction over the five projects completed by the NHDA as the Certificate of Conformity had not been given by the local government authorities due to the poor quality. Due to this reason the projects are not completed yet and the Authority has to face difficulties and financial constrains to complete them.

3. A housing project in Mahaiyawe about 35 houses had been launched and permission was granted to do it as a joint venture project with the cooperation of Kandy Municipal Council, NHDA and UDA. As the land for the said project had not been transferred to the Authority, the Authority has built the said scheme in a land that they have no title. Moreover no agreement was signed among the three institutions regarding the joint venture project and the money had been spent by the Authority itself. Up to date the house had not been transferred to anyone while thousand of families are suffering without a shelter.

4. The amount of bad debt in the NHDA since 1984 is amount to Rs. 3217 million. According to the reports of the Ministry of Finance the annual income of the Authority is Rs. 519 million in 2005 and the recurrent expenses is Rs. 823 million. The annual income of the Authority is not sufficient even to its day to day maintenance. Due to this new projects are being stalled and the expected service of the institution is not served to the public. The entire capital grant given by the government had to be spent for salaries.

5. A land in Kirimandala Mawatha which worth is about Rs. 4 billion had been sold for Rs. 75 million for an ECO Housing Project even without a Cabinet approval. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 20 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

6. The Authority is performing according to a out dated Corporate Plan formulated on the statistics of the 2001 census and there is no project plans or action plan to gain their goals.

7. They lack high ranking executive officers such as the Deputy General Managers – 03 vacancies, Additional General Managers – 18 vacancies, Senior Manager – 24 vacancies and Manager Grade IV – 32 vacancies. Although this is the situation in the decision making level there is an excess carder in the lower rank officers. This is because of appointing officials without the approval of the Treasury and now the NHDA has arranged a reconstruction programme to reduce the excess cadre. The General Manager Mr. Piyal Ganepola had the responsibility in appointing the cadre and at the time of the inquiry before the Committee he had obtained no-pay leave from 15th December, 2005 for a period of two years to join an overseas project even without the approval of the Board of Directors. As the post of the General Manager is a very responsible post, he had acted in completely irresponsible manner.

12. Building Materials Corporation (Date of Examination on the 24th November, 2006)

1. The Corporation is now under the inspection and supervision of the PERC and nearly to be transformed into a company with the HDFC Bank. The Corporation is performing with a number of vacancies for higher executive officers such as General Manager, Financial Manager and Purchasing Manager and the officials in the lower ranks are covering up the duties.

2. Annual audit reports for the year 2005 had not been completed by the private audit firm as the answers were not given for the audit quarries raised by the firm. Although there is an increasing of the annual income comparing to the previous year, Rs. 37 million annual income for the year 2004 is little for a corporation.

3. The Corporation has entered to an agreement with NGO called Lorance Friendship Organization and the NGO had paid a sum of Rs. 328 million to supply building materials for a Tsunami housing project in 2005. But the Corporation was able to supply hardly any sack of cement and had to repay the full amount back to the NGO. This was because the cement supplier of the Corporation didn’t supply the stock as agreed. The Supplier was selected by the Chairman of the Corporation. To repay the full amount back to the NGO the Corportaion had to mortgage its lands to the HNB and thereafter to pay the mortgage, BMC had to sold the land. This shows the inefficiency of the officers of the Corportaion in investing public money.

13. Sri Lanka Broadcasting Corporation (Date of examination 09th February 2007) 1. The Committee observed that the high uncertainty of the financial accountability of the SLBC as the audit opinion on the financial statements of the SLBC is a disclaimer throughout since the year 1997. 21 PARLIAMENTARY SERIES No. 10

2. It was found out at the examination that the asset management of the SLBC had been very poor. The SLBC had not maintained a Fixed Assets Register and no annual survey had been carried out. The value of assets shown in the accounts were mere book balances and existence was not evidenced.

3. The Committee examined about the debt management system of the SLBC and it was noted that debts remained unrecovered as at 31st December 2006 amounted to Rs. 66 million of this 13.5% was unmoving for a period of one year and more. It was further observed that credit facilities had been awarded to direct clients instead of the Registered Advertising firms contrary to the policy adopted in the SLBC and noted that no disciplinary action had been taken against the officers responsible even after a lapse of one year.

4. Moreover the Committee found out that no prompt action had been taken with regard to 24 dishonored cheques amounting to Rs. 919,794 and uncashed money orders amounting to Rs. 641,881. It was further informed that some of the parties who issued the cheques had passed away and the Committee was in view that no proper procedure had been followed in this regard.

5. Further more the Committee discussed about the weaknesses in collecting license fees as required by the SLBC Act. The Committee emphasized the necessity of the involvement of the Secretary to the Ministry to streamline this process of collecting license fees.

6. The Committee observed that the SLBC had involved with contract deals by providing air time to certain business parties and had obtained goods or services from them and these transactions had not been disclosed in the accounts fo the SLBC.

7. The Committee noted that the accumulated loss of the SLBC as at 31st December 2005 was Rs. 694 million and had utilized bank overdraft facility for financing the loss. According to the Auditor General the SLBC is utilizing gratuity provision too for its operations. The committee extensively discussed about the weakness in fund flow management of the SLBC as it was observed that it is facing severe cash flow problem.

8. The Committee was highly concerned about the non availability of an Internal Auditor in the SLBC which is being a very prominent public sector entity. It was noted that an audit assistant being acting for the vacant post since the year 1997, even though the Committee in the year 2002 had instructed the SLBC to appoint and Internal Auditor, it had not been complied with and the Committee made a serious note on this situation.

9. The Committee found that revised cadre of SLBC is not approved by the Management Services Department of the Treasury and the cadre position is not adjusted to agree with the proposed Institutional Plan. It further observed that120 recruitments were made on relief basis in the year 2006 while the total cost of employment had increased by 34% during the year and the total cost of employment had been the 73% of the total revenue of the SLBC. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 22 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

14. National Youth Services Council (Date of examination 12th Januray 2007)

1. The Committee observed that the council had spent 85% of their total expenditure on establishment and administrative expenses and only 15% had been spent on the main objective of youth development. The Committee was of the view that the council is mostly interested on maintaining their institution rather than achieving their vision and mission. It was further observed that there is a difficulty in curtailing estalishment and administrative expenses because of the Council had an Island wide network of offices and training centers. The Committee feels that the Council should find ways and means to increase their internal income as the Government cannot grant around Rs. 200 – 300 million in each year like past 5 years. Despite this adverse situation the council had no strategy in their Corporate Plan 2005 – 2009 to address this vital issue.

2. The Committee also observed that the participation of members in the Board meetings is poor during the year 2006 when compared with the preceding ear. Out of 10 meetings held in the year 2006, more than 1/3 of Board members had not participated in 7 meetings, thus indicating the less interest of members to activate the Council towards achieving the objectives.

3. The Committee further observed that the internal audit contribution is very weak and it had achieved only 10%, 08%, 09%, 07% and 20% respectively of their annual internal audit programmes agreed upon by the Auditor general for the years 2002 to 2006. It was also observed that out of approved cadre of 8 only one officer had been attached to the Internal Audit unit as at the time of examination. The Committee was of the view that weaker the internal Audit function, higher the opportunities for frauds, misappropriations, irregularities, wastages and non compliances. Therefore internal audit should be strengthen not only in this Council but also in all the other institution owned by the state.

4. Furthermore the Committee observed that only 82 programmes had been carried out, out of 183 programmes shown in the Action Plan for the year 2005. The Committee found out that no young leaders in the fields of sports, fine arts, business etc. had been produced by the Council during the recent past despite the Council consists of Island wide network with 09 provincial offices 23 district offices and 31 training Centres. The Committee insisted the need of follow up procedure and continuous guidance towards the young leaders selected at the workshops/ seminars etc.

5. Some members of the Council had brought to light that the selection of young leaders is disturbed by political interventions and the Committee felt that the politicians should avoid these types of interventions and should give a free hand to the Council to carry out their own programmes for the benefit of the country at large.

6. The Committee found that the Council had invested Rs. 4 million from 1982 to 1988 in the “Youth Services Company Ltd” a subsidiary Company but no dividends had been received up to date. Further the Council had not taken any action to obtain even the annual financial statements of that Company. these financial statements 23 PARLIAMENTARY SERIES No. 10

neither been auditated by the Auditor General nor by any other auditor appointed by the Council itself. The Auditor General informed that it was very difficult to get information about this Company. He further informed that this Company is carrying out income generating activities such as operating a Motor Garage, a Canteen, a Press, a security service, a cleaning service etc. The Committee considered this situation is not acceptable and advised the Council to rectify this in an appropriate manner.

15. National Gem and Jewellery Authority (Date of examination 12th January 2007)

1. The Committee observed that the Authority is a much disorganized institution and overall performance of the administration is very poor. The posts of Director General, Chief Valuer and Senior Manager (Land, Mining and Technical) had been vacant for more than 2 years and the posts of Manager (Gewuda Centre) and Regional Managers Matara and Monaragala had been vacant for more than 6 months. Vacancies in the senior management level posts had contributed significantly for the inefficiency of the Authority.

2. The Committee was very serious about the allegation made by some members of the Board that the Board is being informed only after important decisions have been taken. The Committee was of the view that even though there is a good combination of industry related and talented persons in the Board their participation had been very limited as the decisions had been taken by a very few ranking officers without leaving opportunity to discusss in the Board. Therefore it was found that the good governance is not exercised in this Authority.

3. The Committee observed that the Chief Internal Auditor had been appointed to act on the post of the Manager, Human Resources Management, whereas he himself is the Auditor of his own activities. This had to be considered as a very unacceptable system with regard to internal control and the organizational structure too.

4. The Committee also observed that staff transfers had not been done for 10-15 years, which is reflecting the inefficiency and inappropriateness of the administration of the Authority.

5. The Committee further observed that only 3 Audit and Management Committee meetings had been held from February 2004 to end of the year 2006 and noted that this is a serious lapse in exercising good governance concepts. In addition 20 Audit Queries issued by the Auditor General during the period 2004 to 2006 had remained unreplied.

6. The Committee was of the view that although the only state institution for gem industry is this Authority it has no proper management information system to make readily available the needed statistics regarding the export of gems found in Sri Lanka and the re-exporting after value additions. The Committee considered this as a very unsatisfactory situation. The Committee wondered how the Corporate Plans, new project proposals can be developed without having the very basic information about the industry as a whole. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 24 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

7. The Committee found that the revenue collected from auction of lands had been appropriated between the Authority and the land owner contrary to the directives given by the Ministry of Finance. The prescribed apportioning percentage is 60% to the Authority and 40% to the land owner. But they have made it vice versa merely on a Board decision, without obtaining approval from the Treasury. The income deprived of due to this unauthorized change was Rs. 16.4 million for the year 2006. If further observed that not a single land auction had been held for almost five years prior to this particular auction.

8. The Committee observed that the Authority had created a fund by collecting 25% of the gem export income from the year 2001, for the establishment of a laboratory for certifying gems and under this arrangement they have collected funds amounting to Rs. 92 million. However the laboratory had not been set up even as at end of the year 2006, resulting in adverse effects on sale of gems locally as well as internationally.

9. The Committee also found that there was no proper cash management system implemented by the Authority, there were around Rs. 39 million, to Rs. 59 million surplus money idling in current accounts without generating an income in the years 2003, 2004, 2005 and 2006. This idling money stocks have restricted the opportunity for using those for development activities of the country.

10. The Committee further observed that the Authority had not taken action for the safety of the workers involved in this industry as required by section 1 of the Gem and Jewellery Authority Act. It was noted that there were around 500,000 workers in the industry at present.

11. The Committee furthermore observed that the financial results reported in the audited accounts are adjusted in the ensuing year reducing the profits shown in the accounts and it was also observed that incentives had been paid to the employees on the profits shown before the adjustments. Accordingly the profit of Rs. 6 million, Rs. 18 million, Rs. 15 million, Rs. 5.6 million and Rs. 22 million for the years 2000 to 2004 respectively have reduced to Rs 4 million, Rs 10 million, Rs. 5 million and a loss of Rs. 1 million and Rs. 17 million respectively.

16. Export Development Board (Date of examination 9th February 2007) 1. The Committee observed that an entity like EDB should have a proper planning for discharging its reponisbilities towards the betterment of the country. However EDB had prepared its Corporate Plan for the period 2007 – 2010 only in January 2007, which is not an acceptable management practice. The Committee also observed, the strategic plan has been prepared merely adding 10 - 12% to the last year figures while the Service Industry is 54% of the GDP and that was not reflected in the Plan. The Committee was of the view that there was nothing constructive in that plan.

2. The Committee noticed that 50% of the overall cost is spent as establishment cost. The EDB has requested for an allocating of Rs. 960 million for the year 2006 but had receive Rs. 533 million and out of that Rs. 223 million, almost 50% had been spent as administrative expenses. 25 PARLIAMENTARY SERIES No. 10

3. The Committee found out that the EDB is not contributing sufficiently to encourage export products. It was also observed the management of the EDB seems to be giving priority in participating trade fairs abroad and giving very low attention to developing production of export items.

4. The Committe found out that the EDB had participated in 24 foreign trade fairs at a cost of Rs. 72 million and the total number of persons participated was 205 including the enterprise people. The Committee felt that the resulting benefits were not satisfactory at all when compared with the expenses incurred. Eventhough the Committee directed the EDB and the Ministry to submit a detailed report to the Committee within three weeks on the expenses incurred on foreign fairs for the years 2005 and 2006.

5. The Committee seriously considered about the trade exhibitions held in foreign countries, the expenditure incurred thereon and the resulting benefits and found out that the benefits are negligible when compared with the expenditure incurred. As it was evidenced an exhibition in London at a cost of Rs. 26.5 million and 50 people including small and medium enterprises had participated. The quantifiable benefits obtained through this was Rs. 4 million and the EDB failed to explain the future benefits from these exhibitions. Sri Lanka Telecom and National Gem and Jewellery Authority had sponsored Rs. 2 million and Rs. 1 million respectively.

6. The Committee also examined the local performance of the EDB and found out that the local performance was also very unsatisfactory. EDB had awarded a tender under the Indian Loans Scheme to provide 600 poly tunnels whilst only 100 had been supplied and according to the Internal Audit Report only 45 out of 100 is being utilized and the other 55 is being abandoned. Accordingly 7.5% of the projected target was achieved.

7. The Committee inquired about the two buildings taken on rent in Kandy and Kurunegala. The building in Kandy had been taken on rent without adhering the tender procedure but on a decision taken at the Ministerial level. The EDB had spent a sum of Rs. 16 million for refurbishment of the building on rent and the rent paid is Rs. 253,000 per month of which Rs. 79,000 is paid by the SME Bank occupying the building. The EDB Kandy branch is operated from this building.

The Building in Kurunegala was taken on rent from the 3rd highest offer out of four applicants and on the condition to pay three years rent at the beginning at once. The EDB could not give valid reasons on this transaction to the satisfaction of the Committee.

8. The Committee also noted that a Deputy Chairman had been appointed contrary to the provisions of the EDB Act, even without the approval of the Management Services Department. A valid reason for this also was not provided to the satisfaction of the committee.

9. The Committee observed that the EDB had given promotion to the post of Deputy Directors and the Supreme Court had quashed those promotions. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 26 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

The Chairman of the EDB informed the Committee that he was compelled to promote them and admitted that which was not correct.

17. Sri Lanka Bureau of Foreign Employment (Date of examination 07th February 2007)

1. The objectives of the Foreign Employement bureau are mainly promotion of foreign employment opportunities, act on the welfare of the foreign employees and secue the security of them. The committee examination continued to see how far these objects had been achieved.

2. The Committee questioned the present position with regard to the payment of compensation for the employees returned to Sri Lanka due to the war situation prevailed in Kuwait. The Committee found the following information regarding the above matter.

3. Payment of compensation had been started in the year 1991. Out of 94820, the total number of 89263 applicants had been paid compensation. At present there is a balance of 11130 applicants to be paid compensation and Rs. 1627.4 million remains with the bureau to meet this expenses. The Chief Accounting Officer undertook to finalize the payment of compensation in 03 months commencing from 02.02.2007 and to submit the action plan formulated in relation to the completion of payment of compensation. However the collective view of the Committee was that the time taken for this purpose was very excessive..

4. The Committee turned its attention to the memorandum of understanding signed between the Governments of South Korea and Sri Lanka. I was for the serious concern of the Committee that although the bureau had obtained 11000 job opportunities during the years 2005 and 2006, it had been able to send only 5330 people for these jobs.

5. In addition, the Committee considered about the decline of the quality of Sri Lankan labour in the South Korea. Rating of the quality of the Sri Lankan Labour had deteriorated according to the available reports. The Committee was of the view that this situation had been created by the bureau by not making proper selections for these jobs. Although the selected persons had possessed the educational qualifications they had not have required work experience. In addition the Committee observed that certain fraudulent activities also had been taken place in selecting people for these jobs which is associated with the above situation.

6. The Committee’s serious attention was focused on the selection of the welfare officer who has been presently deployed in Korea. It was reported that this officer does not have the knowledge of the Korean language and the Committee’s concern was that, what kind of service can be expected from a person in that caliber which involves a lot of conversations with the Korean authorities. The Committee expressed its dissatisfaction over the selectors of this officer while there had been a considerable number of people in Sri Lanka who has the knowledge of Korean Language out of whom the selection could have been made. The Chief Accounting Officer was specially 27 PARLIAMENTARY SERIES No. 10

directed to bring this unsatisfactory situation for the notice of the Hon. Minister. There had been another instant which drew the attention of the Committee that two persons who are above 65 years had been appointed as Welfare Officers in foreign countries. Chief Accounting Officer and the other officers made an attempt to justify these two appointments by promoting their credentials and also pointing out that there was no upper age limit prescribed in the scheme of recruitment. However the Committee was of the view that these appointments should have been given to capable people. The Chief Accounting Officer was directed by the Committee to introduce an upper age limit in the scheme of recruitment. Subsecuqently the Committee was made aware that the Cabinet approval for these two appointments had not been obtained although these two appointees are overaged.

7. There was another misappropriation of finances committed by the Bureau, which took the serious attention of the Committee. A construction of a building meant for a training centre in Matugama had been abandoned having spent a sum of Rs. 58 million. This building has gone into a dilapidated condition. In addition the ownership of the above land had not been vested with the Bureau and still it is a property of Divisional Council of the area. The Committee having made a serious note on this grave sitution directed the Chief Accounting Officer to expedite the construction process and to get the ownership of the land very early and report back to the Committee.

Further to the above, the Committee paid its attention on the following issues too, in general (a) Welfare of the 6300 employees returned from Lebenan due to war condition. (b) Difficulties in various kinds that have to be faced by the Sri Lankan workers go abroad for jobs specially house maids.

(c) Foreign employment agencies not registered in the Foreign Employment Bu- reau. (d) Gradual decline of income per migrant. (e) Unrealistic expenditure of Rs. 70,000/- incurred by the officers of the Bureau for their food and lodging on a book distribution campaign organized at Nuwara Eliya.

18. Southern Development Authority (Date of Examination 23rd March 2007)

1. Southern Development Authority was established in 1997 by mainly focusing the major development in the Southern region to come up with mega projects by the aid of foreign and local investors. But the Committee noted that the SDA had been unable to fulfill their vision which was clearly mentioned in the Act after completion of the 10 years. The Committee observed that the SDA did not have any Corporate Plan after 2003 and the Authority admitted before the Committee that the most of the projects were carried out by the SDA in an ad hoc manner in the past five years. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 28 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

2. The Committee noted that for the year 2007 recurrent expenses had been estimated as Rs. 82 million and out of that, Rs. 47 million had been for the salaries. The Committee considered this situation as a serious matter and observed that the total administration expenses for the past ten years is a real absurd to the country when compared with the benefits gained from the SDA to the country.

3. Ministry of Media, Tourism and Aviation Services had given a licence to the SDA to operate and maintain a Television Net Work in 1996. SDA had entered into an 10 year agreement with a concurrence of the Australian Company, which is called Chalmway (Pvt.) Ltd., by using the license and to operate a Television Net Work, called Multivision (Pvt.) Ltd. in June 6, 1997. According to the said agreement 10% of the total revenue should be given from the company to the Authority. In 2005 Rs. 7.6 million had been received as a royalty payment, by the Authority out of the total collectable revenue of Rs. 44 million for the period from 1997 to 2006.

In this serious issue the Committee noted that this shows the negligence of the Treasury representatives in the Board for the past 10 years and stated that the several lapses could be seen in the monitoring part by the Ministry of Finance and Planning.

4. Southern Development Authority had invested money Rs. 43,888 million in 2005, in the Venture Capital Company Limited with the purpose of granting loans and the above said company had been showing in the balance sheet only as Rs. 42 million and it was also showed loss making continuously due to not recovering the granted loans. The Committee seriously concerned that this was an utter wastage of the government money and advised them to recover the non performing loans.

The Committee also advised the Authority to rectify all the shortcomings which were identified by the Committee, with the guidance of the line Ministry.

19. Ruhuna Development Bank (Date of Examination on 7th July, 2007)

1. Ruhuna Development Bank is an entity established under the Regional Development Banking Act No. 06 of 1997. The General Treasury bears 68% of the shares of the bank while the rest is borne by the Bank of Ceylon, People’s Bank, National Savings Bank and the Employment Provident Fund by equal shares. The Board of Directors represents the nominees of the above five institutions. According to the Auditor-General, Ruhuna Development Bank functions under the guidance of the above directions in a profitable manner. The Committee was informed that the Ruhuna Development Bank has given loans in the following percentages against the total loans granted. Housing Loans 31% Agricultural Loans 21% Fishery Loans 02%

2. The present interest rate of the Ruhuna Development Bank is generally 18% to 20%. The purpose of the establishment of this bank was to finance the poor people of the area to start mostly self employment projects and not as any profit making entity. 29 PARLIAMENTARY SERIES No. 10

But by charging the above higher interest rate they gain considerably a higher profit margin. In addition, they have accommodated their operational cost too in the determination of the interest rate. The Committee observed that they have given their entire burden on the poor people by introducing higher interest rate and the purpose of the establishment of the bank had not been fulfilled.

3. In the year 2000, the Ruhuna Development Bank had invested Rs. 104 million in Vanik Incorporation and they have withdrawn Rs. 79 million out of it. The balance Rs. 25 million and the relevant interest had not been able to withdraw due to the insolvency state of the Vanik Incorporation. It is said that the Rs. 25 million and interest receivable at the rate of 14% is going to be a loss to the Ruhuna Development Bank. In doing this investment the Ruhuna Development Bank had not obtained the approval either from the General treasury or from the Central Bank.

They had decided to invest this money in the Vanik Incorporation as the Central Bank had detailed the Vanik Incorporation as Primary Dealer and there had been a requirement on them to invest in one of the primary dealers. There had been 18 such Primary Dealers listed out by the Central Bank and the Vanik Incorporation had been chosen out of them.

4. It was revealed that with regard to this transaction an investigation had been done by the Internal Audit Division of the Ministry of Finance and Planning. There had been serious lapse on the part of the Ministry that, the report concerned had not been up to the time of the Committee meeting handed over to the management of the Ruhuna Development Bank. The officers of the Ruhuna Development Bank categorically stated that they had not received the said report up to the time of the meeting. Consequent to this serious lapse action could not have been taken on the recommendations made in the report. According to the Ministry Officials present, the report reveals that there had been serious discrepancies taken place in decision taking by the Finance Manager and some contradictory decisions had been arrived at by the General Manager and the Board of Directors. In addition the Vanik Incorporation had issued dated cheques in the name of the Ruhuna Development Bank in settling the dues. Subsequently these cheques had got lapsed. There are two serious shortcomings in connection with these dated cheques. One thing is that in principle the Government Institutions do not accept the dated cheques. The other is that the Ruhuna Development Bank had not taken any step against the Vanik Incorporation regarding the cheques being lapsed.

5. Another serious event reported by the above report is that there had been shares in the Vanik Incorporation in the names of the General Manager and the former Chairman of the bank simultaneously purchased. The Committee considered that the higher officials of one financial establishment holding shares of another is a serious situation. The collective view of the committee was that the General Manager had involved in all the above fraudulent activities and keeping him on contract basis will create problems in making him responsible on the above activities. The Committee found fault with the management of the bank for keeping him on contract basis for a long time. SECOND REPORT OF THE COMMITTEE ON PUBLIC ENTERPRISES OF THE 30 PARLIAMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

6. Having considered the above mismanagement of the Ruhuna Development Bank, the Chairman was issued with the following directives. (a) Lodge a complaint with the Criminal Investigation Department within a period of two weeks regarding the investment of nearly Rs. 100 million in the Vanik Incorporation in fraudulent nature and the personal accounts of the General Manager and the former Chairman being credited concurrent to the above investment. He was categorically ordered to give every assistance to the CID to carry out the investigation effectively and the Additional Secretary of the Ministry of Finance and Planning was directed to have personal supervision on this matter. (b) The General Manager be disciplinary dealt with if he has taken any illegal or undisciplined action in the above investment process of 100 million rupees in the Vanik Incorporation and report to the Committee of the outcome. The Additional Secretary of the Ministry of Finance and Planning was further directed to have personal supervision on the above. (c) Explore the possibility of recovery of the monies invested in the Vanik Incorporation and to report to the Committee of the reasons if it found to be unable to recover. Provide the Committee with a report as to whether the above investment had been done in accordance with the rules and regulations of the Ministry of Finance and Planning and the Central Bank of Sri Lanka. If not keep the Committee informed of which rules and regulations had been violated.

7. The Committee considered an instance where pass books for the Bank had been printed in a fraudulent manner. In the year 2000 pass books had been printed at the rate of Rs. 10.35 and the same pass book in the same quality and the same quantity had been printed at the rate of Rs. 6.50 in the year 2005. The Committee’s concern was that generally with the inflation prevailing in the country cost should have gone up although in this transaction it happened otherwise. The Committee expressed its doubts with regard to the price paid in the year 2000.

8. The opening of a financial company in the name of the “Sahasra” with the participation of the former Chairman of the Ruhuna Development Bank and the General Manager was taken into consideration. The Committee’s concern was that howfar it is ethical to the General Manager to participate in the opening ceremony of the Sahasra Finance Company, being a rival company to the Ruhuna Development Bank. The Committee directed the Chief Accounting Officer to provide the Committee with a certified copy of the form 448 in respect of the Sahasra Finance Company registered under N(PVS)31649 in terms of the Section 17 of the Companies Act of 1982 which includes the names of the directors and the total investments.

20. Mahapola Higher Education Scholarship Trust Fund (Examined on 6th March, 2007)

1. Late Hon. Lalith Ethulathmudali had a vision to establish a Trust Fund to accommodate students with economical difficulties who are qualified to receive 31 PARLIAMENTARY SERIES No. 10

university education. With this view he established this Trust Fund and the capital of the fund is now nearly Rs. 5 billion. The annual expense for scholarships is about Rs. 950 million. This sum of money is earned from the annual interest of the capital investment and the profit share of the Development Lotteries Board. In 2003 the management of the Trust had entered into an agreement with a foreign collaboration called “G-Tech” who wanted to start a lottery called “On-Line” on the licence granted to this Fund.

2. In terms of the agreement entered the foreign partner was obliged to pay a minimum of Rs. 400 million to the Fund within first three years. But it was revealed so far they have paid only 10 million and the fund was obliged to pay 10% of it by way of VAT. Accordingly the loss suffered by the Fund during last three yeas is Rs. 1,200 million. In addition to that said lottery system was badly affected and partly defunct causing severe and continuing losses.

3. It is also revealed that the said overseas company has furnished an insurance bond for a sum of Rs. 400 million and the Fund could not claim it as there was a condition that the Fund cannot claim it without the consent of the said foreign Company. The Committee questioned as to why this kind of ridiculous condition was incorporated into the agreement. Although the officials attempted to establish that this agreement was approved by the Attorney General.

4. The Committee observed the unsatisfactory and lethargic conduct of the officials as they have not taken any positive legal steps to recover the money due to the fund.

5. It was revealed that there is a pending arbitration in the Singapore and as a result the Fund has to spend more and more money in addition to the loss of colossus amount referred to above.

6. The object and the goal of this Fund is to assist the all University students. But they were unable to reach that target even after 25 years and at the moment they assist only 65% of the University students. Officials have failed to convince that they have any strategic plan or a vision to improve the Fund to meet the growing demand. It is improtant to maintain their capital reserve for the continuation of the Fund and to find ways and means to increase the capital.