Friday Nov 15, 2024
Friday Nov 15, 2024
Friday, 31 March 2017 05:35 - - {{hitsCtrl.values.hits}}
My apologies for the delay in part 2, which was partly due to constraints on my personal time, including having to be away from the city and the country intermittently. Part 1, published in the Daily FT on Tuesday 14 February, ( http://www.ft.lk/article/597519/Public-Private-Partnerships--Let-us-get-on-with-it--Part-1) focused on the need to make things happen. It had reminiscences and anecdotes, incorporated to lighten the ‘read’ for stakeholders in general and specifically to convey to parliamentarians and public officials, that there has been a long history of awareness building on PPPs in Sri Lanka at the highest levels, and that adequate precedent and multiple sources of technical and financial assistance and interest exist.
The late Sri Lankan President Ranasinghe Premadasa was a results-oriented reformist
I chose to delay part 2 also partly by design, to give time to individuals and institutions to join the dialogue through any source they could and to engage parliamentarians who are either ‘shooters from the hip’ or passive passengers as well as time for policy planners and public officials to engage in deeper thinking, prior to the formulation of plans and procedures and drafting legislation. I am happy this has happened at least to a limited extent.
We must begin by recognising that the subject of a PPP is an asset owned by the public sector and the right of use is granted to a local or foreign, private company, singly or through a consortium, to use, own and operate, or use, operate and return and so on.
The consideration for such use is a concession, a fee or an equity share and resulting dividends, or a profit share based on a pre-agreed formula, etc. In part 1 I had a message that while time was of the essence, current and future project proponents and Government negotiators must ensure that a wholesome partnership with necessary safeguards acceptable to the host country should be evolved whether it is on Build Own and Operate (BOO), Build Operate and Transfer (BOT) or Build Own Operate and Transfer (BOOT) terms, etc.
In the interest of time, there is a rationale for establishing a technically, financially and administratively well-resourced and adequately funded institutional unit, even before we legislate over that institution. The importance of the legal, general as well as sectoral and regulatory environment was discussed. The well-equipped unit can transition to the legislatively-enabled PPP institution which can follow. But we must get moving.
At this point it is useful to reflect on people and precedent. The late Sri Lankan President Ranasinghe Premadasa was an architect of reform, who had the vision, energy, courage, nerve, organisational capability, and capacity to learn, deploy, implement and follow up. If he had to kick butt he did. Sadly, this architect left us, or should I say was cruelly robbed from us, prematurely, in May 1993.
I must confess that I carried my son, then just two years old, and left the TV room in tears when the gruesome first pictures of that 
bomb blast were shown on TV.
As for the results-oriented reformist, I recall meeting him, when we drafted the strategy for industrialisation and among other things, explained the concept of unit trusts and mutual funds, which he was very keen that we launch.
He often used the Sinhala term for ‘broad-basing of ownership’ rather than privatisation, which has today become a dirty word. Divestment, was a term India used, when they followed us in opening their economy in 1991, 14 years after President J.R. Jayewardene transitioned us from a closed and insular economy to a free and outward-looking one in 1977. The late JRJ created the policy, the economic philosophy and the constitutional and legal environment. The late Ranasinghe Premadasa made things happen and executed them within timelines. The four years to 1993 were perhaps one of the most professionally exciting periods in my career, having returned to the country in 1989. The nation was reforming, restructuring, repositioning, commercialising, privatising and broad-basing ownership. The capital market was active. There were entities to invest in.
Many might remember, commencing with the President Premadasa era which began in 1988/1989, that there were many initiatives to ‘Commercialise Public Enterprises’ whether automotive dealerships, development banks, distilleries, canneries, leather manufacturers and so on. Certain entities under the direction of the President or Government simply got service providers who profiled, valued and advertised the entities via the Colombo Stock Exchange or via Cabinet-appointed Tender Committees. There was a Plantations Restructuring Unit and a unit within the Ministry of Industries. The Commercialisation of Public Enterprises Division (COPED), under the Ministry of Finance, was instrumental in initiating and taking to completion many privatisations or commercialisations, or the term I recommended to Government since 2015 - Broad-basing Ownership. If I recall, it was Tissa Jayasinghe, who headed this unit.
A PPP is not necessarily privatization, divestment or even broad-basing ownership but there are elements of all in these in a PPP. Thus rather than discuss technicalities and examples of PPPs today let me share thoughts on what I term policy and strategy precedent.
I realised only recently that many were unaware of COPED and Tissa Jayasinghe, the Plantations Restructuring Unit and Romesh Bandaranaike or the Ministry of Industries-led commercialisation of public enterprises and Vincent Panditha, or the ‘post JRJ”’Free Trade Zones such as LINDEL (at Sapugaskanda), which then Minister of Industries Ranil Wickremesinghe and DFCC’s Maxi Prelis made happen, just to name a very few people and vehicles that people have forgotten. Might I add that LINDEL is the new home of Kishu Gomes and Chevron, when they lost the lease and were issued a quit notice from their earlier home in Kolonnawa during the previous regime.
In my capacity as Director of the Business Development Unit of the John Keells Holdings Group of Companies, (a unit which in May 1989 I proposed to then Deputy Chairman Ken Balendra we establish, with him readily embracing the idea about a year before he took over the chairmanship from David Blackler), I had to necessarily interact closely with many of the units referred to above, including COPED whenever a state-owned enterprise (SOE) was advertised for privatisation, in order to study, visit, analyse and value each such entity, such that we were in readiness to bid, singly or with technical or financial collaborators.
There were many entities targeted for whole or part divestment in sectors such as fabric manufacture, dairy development, tea smallholder factories, cement production, fruit canning, etc. Subsequently, while in independent consulting, I had to engage with COPED with regard to the privatisation of SOEs in steel manufacture, sugar production and many more industries for client entities and consortia who retained me.
I mention all this to give an insight to the readers, today’s policy planners and the people’s representatives of the challenge that the Plantations Restructuring Unit, units of the Ministry of Industries or COPED had to face, the sectoral and entity specific complexity to be technically and administratively competent, open and transparent, just and fair, and to risk manage potential litigation, was formidable. Lets us reflect very briefly on examples of SOEs which transitioned to PLCS.
Today’s Speaker Karu Jayasuriya, who I first got to know when he, as a Chamber leader, was designing the Entrepreneur of the Year Award in the mid 90s and who later became a client of my consulting practice, was the first Chairman of the privatised United Motors, today’s United Motors Plc!
The SOE, National Development Bank (NDB) is today NDB Plc and its General Manager, Chartered Management Accountant, Banker and Lawyer Ranjit Fernando, led the transition from SOE NDB to NDB Plc. Once a public official, he remained the CEO of NDB Plc until he retired.
The CWE-owned Hotel Lanka Oberoi is today’s Cinnamon Grand. Sitting on freehold land, this was privatised to an overseas fund. The Sri Lanka Insurance Corporation/ETF-owned Ramada or Trans Asia – a 99-year leased property, today’s Cinnamon Lake, was also privatised and divested to the same fund.
That overseas fund then clubbed these two properties to create the Asian Hotels Corporation, which then went public and today’s majority owners, a dynamic Sri Lankan diversified conglomerate, bought it on the stock market.
It is interesting how foreign funds buy low and sell high to our people even today on our stock market. But the courage to buy this at a price critics then said was too high has more than paid off for the conglomerate.
This article would be incomplete if I were to omit a respectful reference to a very special professional. I first met and worked with senior Chartered Accountant, the late V. Kailasapillai or GFD/VK, VK or simply ‘Kailas’ (as we affectionately referred to him), in the early 80s and then again 10 years later in the early part of 1989, when he co-opted me to three Advisory Committees, of the Strategy for Industrialization (Strategy), of the then Minister of Industries Ranil Wickremesinghe. Kailas wrote to the Minister to have me co-opted just two days after I shared a few thoughts on economic development strategies I had learned overseas in my research into ASEAN nations.
We worked on the strategy, almost 24x7, for six continuous months and even long after. We conceptualised, presented and debated at the ministry, drafted policies and strategies and indeed legislation to enable new institutions or to facilitate new investments, through fiscal and investment incentives.
We created unit trusts, mutual funds or venture capital/private equity funds. We incentivised the modernisation and expansion of factories, which were modelled on the Singapore Economic Expansion (Relief from Income Tax) Act and incentivised research and development modelled on similar incentives in Malaysia, all of which I was privileged to research and have implemented thanks to Kailas.
I am happy that the life and times of VK and his magnificent contribution to the country and the corporate community will be celebrated on his birth anniversary on 31 March, coincidentally the financial year end he worked tirelessly towards each year.
Even as recently as this week, his always supportive wife Kamala, whose home I have visited many times, partaking in many a vegetarian meal cooked with care and affection, called to remind me about the event. I made her a promise to be there at Deal Place A. It is a promise that I shall keep.
Enter 1994. On political platforms President Chandrika Bandaranaike Kumaratunga was critical of COPED. Among her many criticisms was that it was not legislatively enabled. The entire privatisation program was critiqued on political platforms and the UNP Government was swept out of office in 1994. COPED was history. Privatisation or restructuring our economy was put on hold. The Public Enterprise Reform Commission (PERC) was legislatively enabled. More on PERC later.
The above are practical examples of precedent of a much bigger picture than PPPs and the courage to make things happen as well as thoughts to market, as well as to risk manage a Government’s agenda such that we avoid what I referred to in part 1 as the potential loss of momentum in our PPP journey – the already delayed journey. If we are to take off, a very late takeoff, and then have to stall because an Opposition or the multitude of detractors leverages the freedom of the print and electronic media, the freedom of expression and association, the freedom of the political opposition and the freedom of protest upon protest on a daily basis, on and off the street, inside and outside parliament, to challenge or create obstacles to the PPP journey, that will be a pity indeed.
As professionals we have a responsibility to articulate our points of view constructively, not destructively. I remain optimistic that better sense will prevail soon. This article will pave the way for technical specifics on PPPs which are reserved for another day.
