Shocks, aftershocks and Govt’s glossy statements

• Sunday, April 21, 2013
• Blackout blow to millions with huge increase in electricity rates; CEB, CPC losses mainly due to mismanagement of economy
• US-Lanka ties take a nose-dive despite Cabraal’s multi-million-dollar PR stunt; US human rights report claims secret unit set up to protect Rajapaksa family

By Our Political Editor

Rise in electricity tariffs given shocks even to cabinet have ministers. At their weekly meeting on Thursday, Minister Vasudeva Nanayakkara urged President Mahinda Rajapaksa to convene a separate cabinet meeting to discuss the matter.�
Rajapaksa surveyed those seated before him to locate Power and Energy Minister Pavithra Wanniarachchi. Noting that she was absent, he told Nanayakkara he would speak to her and let him know. That put paid to plans by a handful who wanted to complain it was a big blow to consumers, coming as it does after the National New Year.

Seeking special or emergency cabinet meetings to discuss what they deem urgent issues was first made weeks ago by Justice Minister Rauff Hakeem. The Sri Lanka Muslim Congress (SLMC) leader wanted to discuss issues related to Bodu Bala Sena. Rajapaksa rejected the call and said if he wished, a meeting of the Government Parliamentary Group could be summoned. The SLMC leader did not take that offer and left matters to rest.

Whether such a meeting would be held this time kept ministers, most of whom were complaining privately they could not face their electors, remains a big question. Even if it does, some said, it was too late, for the unprecedented price revision was now a fait accompli. This is without any opportunity for them to air their views on various aspects. The price increase in electricity rates came into effect from yesterday.

Economy doing well: Central Bank Governor Nivard Cabraal formally hands over the Central Bank Annual report 2012 to President Rajapaksa

There was still a tragic irony. For weeks and months an upward revision of electricity rates was only too well known. The Ceylon Electricity Board (CEB), which owed billions to the state-owned Ceylon Petroleum Corporation (CPC) was forced to shut down some of its generation capacity and even resort to unannounced power cuts in some areas. Of course, such cuts were not officially admitted. This was until the Public Utilities Commission approved the CEB’s request for the latest price hike. When that was done, the CEB chose to allow consumers to enjoy Avurudhu and give them the shock later. Both the Government and the Opposition, which had a forewarning of what was ahead, did little and appear to have been caught off guard — the government unable to cohesively explain what prompted the increase and the opposition unable to mobilise its full force.

The Government, however, did not explain why such a steep increase, which would have a paralysing effect on lower and middle class income earners, was necessary. That raised more questions than answers. Official spokesperson Minister Keheliya Rambukwella, well known for his profound remarks, declared the increase would not “affect poorer sections” and added that “no government could continue to subsidise utility services.” His remarks came at Thursday’s news briefing after the weekly cabinet meeting.

“We cannot subsidise TV watching, lighting up tamashas, lighting various festivals. They will have to pay for it. They will have to pay the actual cost of power generation,” International Monetary Co-operation Minister Sarath Amunugama told an interviewer. He did not perhaps realise that the vast volume of power being abused for illuminations of different sorts is during tamashas held by the Government. Hence, it is the taxpayer who is forced to subsidise the use of electricity by various state sector concerns. A case in point, a CEB engineer said yesterday, was the lighting at last month’s Deyata Kirula exhibition in Ampara. “The electricity consumed would have been sufficient to provide power to a whole village for three months or more free of charge,” he said speaking on grounds of anonymity.

The opportunity of proving its mettle as a vibrant opposition in a democracy fell again on the main opposition United National Party (UNP). Other than a few comments and voice cuts by different parliamentarians, the party has not been able to mobilise itself to highlight the devastating consequences of the latest electricity tariff hike. This is much the same way the party missed out on the events related to the impeachment of Chief Justice 43 Shirani Bandaranayake. With an upcoming May Day and some provincial council elections due in the coming months, such a lackadaisical attitude to major issues affecting the people will no doubt affect the UNP’s vote base. The Janatha Vimukthi Peramuna (JVP), on the other hand, recommended the extreme step of asking consumers not to pay electricity bills. Leave alone the consumers, none of its own leadership would want to live in the dark thereafter. The consumers have been left to fight their own battle.

How the new tariff structure and the varying increases will affect different categories of consumers will play out in the coming weeks. However, if one is to go by the Central Bank’s latest report, released with much fanfare last week, some thought-provoking questions do arise over why a drastic price rise in electricity rates became necessary. The report for 2012 reveals the loss incurred by the Ceylon Petroleum Corporation for 2012 was Rs. 61.2 billion (provisional) as against Rs. 19.3 billion in 2011. The Ceylon Petroleum Corporation reported an operational loss of Rs. 89.7 billion in 2012 compared to Rs. 94.5 billion in 2011.

The CPC maintained throughout that its losses were due to global oil price fluctuations. However, the Central Bank report notes, “During 2012 crude oil prices were highly volatile, although the average crude oil price remained largely unchanged when compared to 2011�”

Thus, it is clear that crude oil or refined oil prices — contrary to claims — did not increase during 2012 when compared to 2011. Hence, the main reason why the CPC and the CEB were incurring heavy losses in 2012 was due to the rapid depreciation of the rupee and to a lesser degree the drought that prevailed. The latter factor necessitated increased fuel-based power generation.

In 2012, CEB sources say, the total import cost for CPC was US$ 6 billion whilst CEB’s imports (including coal, equipment and other material) were about US$ 615 million. That totals some US$ 6.6 billion. As at June 1, 2012, the rupee cost ($ 6.6 billion into Rs. 110) would be Rs. 726 billion. However, due to depreciation, the cost was worked out at the rate of Rs. 130 per dollar bringing it to a total of Rs. 858 billion. The same sources said this was why both the CEB and the CPC had to extract an additional Rs. 132 billion from consumers. The drought that prevailed had cost the CEB Rs. 30 billion due to additional 1000 GW hours being generated using heavy fuel and diesel. Hence, the additional cost the CPC and the CEB incurred was due to the rupee depreciation and drought. It amounted to Rs. 150 billion.

“That not only takes the issue back to why the rupee depreciation came about. It also raises the all-important question of a subsidy. If indeed there was one, where was it in force and in what form?” a CEB expert asked and added “this is only propaganda.” He pointed out that contrary to claims of there being a subsidy; the long term debts of both the CPC and the CEB were either partly or wholly absorbed by state banks. He lamented that the consumer would be compelled to face the brunt not due to a so-called subsidy, but the depreciation of the rupee.

He asked, “what happens if the rupee depreciates further?” Inevitably, it would compel further price revisions; all caused by what is clearly a mismanagement of the economy, he argued. That would naturally turn the spotlight on the Central Bank of Sri Lanka (CBSL) which took the bold step of depreciating the rupee vis-�-vis the US dollar, a question that requires deeper study by economists after trying to resist the move all of 2012. That had a drastic impact on the country’s Balance of Payments and it was President Mahinda Rajapaksa who first announced the depreciation in his 2011 Budget presentation even without the knowledge of Central Bank Governor Nivard Cabraal. Later, the Central Bank was forced to make a further depreciation of the rupee last year.

This is whilst the CBSL has embarked on new foreign policy initiatives by tying up with Thompson Advisory Group, a lobbying firm in the US as exclusively revealed in the Sunday Times (Political Commentary) of April 7. Details of an agreement the CBSL signed with TAG, and as US law requires registered under Foreign Agents Registration Act (FARA), were disclosed.

This week, the CBSL issued a news release. It did confirm, though only after the revelations by the Sunday Times, that there indeed was an agreement. However, the CBSL which is now the exclusive domain of Governor Cabraal, the architect of many a revolutionary economic measure, had this to say:

“The Central Bank of Sri Lanka embarks on extensive local and international Awareness Programme to portray accurate picture of Sri Lankan Economy

“In the recent times, the Central Bank of Sri Lanka has observed an aggressive and well-funded misinformation campaign that is being carried out by various groups with dubious agendas, both locally and internationally to tarnish the political image and true economic successes of Sri Lanka. The Central Bank also notes with concern, that if such campaign continues without a counter campaign to correct the misconceptions it may have the potential to create a highly detrimental image for Sri Lanka, and erode the growing confidence of international investors in Sri Lanka.

“Since such an outcome would adversely affect the country’s economy and its economic and financial system stability, the Central Bank has embarked upon a robust local and international Awareness Programme to refute such misinformation, and to provide the factual position of the economy and the political environment to all relevant stakeholders.

“Towards that objective, the Central Bank has also secured the services of a competent international professional firm to assist in the effort to convey the true and factual position regarding Sri Lanka and its economy, particularly in the USA. Such an endeavour will be particularly significant, since the USA is a major market for Sri Lankan exports, while US investors have made a substantial foreign direct investment and are the leading holders of Sri Lankan bonds.”

It is only after the revelations of the contents of the Agreement that the CBSL has realised there is a “well-funded misinformation campaign that is being carried out by various groups with dubious agendas, both locally and internationally to tarnish the political image and true economic successes of Sri Lanka.” Since, the CBSL is the authority to monitor financial transactions; it will not be a bad idea if it comes out with who is funding whom and what the “misinformation” campaign is all about. A mere “press release campaign” will not wipe out the truth and that requires the CBSL to answer every point raised. The Sunday Times revealed that the CBSL is paying US$ 66,000 (or Rs. 8.3 million) every month from the tax payers’ money to the US lobbying firm for its “robust local and international Awareness Programme.” Why a US lobbying firm when there is a Sri Lanka embassy in Washington DC?

The embassy has not even been consulted. It is now known that even a “hire driver” or a man who runs a taxi service in Washington DC — who helped in the deal — has been recruited by what CBSL calls a “competent international professional firm” for US$ 7,000 (Rs. 889,000) a month as a consultant. Surely, is there no one better qualified in the Sri Lanka embassy in Washington DC than a taxi service operator? Is it not an admission that even a taxi service operator will have to be paid to convey CBSL’s “true and factual position regarding Sri Lanka.” Neither the Ministry of External Affairs nor the Cabinet has approved the endeavour of Governor Cabraal, the all-powerful economic Czar responsible for many a controversial move in the country’s economy.

By last Friday, it became clear that it would be a difficult task both for the Central Bank and the Thompson Advisory Group to pursue the objectives they have agreed upon at a cost of more than Rs. 8.3 million a month. Secretary of State John Kerry released the US country reports on human rights practices. The report on Sri Lanka, compared with the previous one in 2011, or the ones before, contains some highly critical remarks with some pointed references to Defence Secretary Gotabaya Rajapaksa too. It has accused the Government of “co-ordinated moves” “to undermine the independence of the judiciary.” Added to that are 2014 budget cuts announced by Secretary Kerry where funds for military training and assistance have been pruned.

(The report on Sri Lanka can be accessed on the following website: http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm?year=2012&dlid=204411#wrapper)
The lengthy Sri Lanka US human rights report for 2012 notes, “��. The major human rights problems were attacks on and harassment of civil society activists, persons viewed as Liberation Tigers of Tamil Eelam (LTTE) sympathizers, and journalists by persons allegedly tied to the government, creating an environment of fear and self-censorship; involuntary disappearances as well as a lack of accountability for thousands who disappeared in previous years; and widespread impunity for a broad range of human rights abuses, particularly involving police torture, and attacks on media institutions and the judiciary.

“Other serious human rights problems included unlawful killings by security forces and government-allied paramilitary groups, often in predominantly Tamil areas; torture and abuse of detainees by police and security forces; poor prison conditions; and arbitrary arrest and detention by authorities. Lengthy pre-trial detention was a problem. Denial of fair public trial remained a problem, and during the year there were coordinated moves by the government to undermine the independence of the judiciary. The government infringed on citizens’ privacy rights. There were restrictions on freedom of speech, press, assembly, association, and movement. While citizens generally were able to travel almost anywhere in the island, there continued to be police and military checkpoints in the north, and de facto high-security zones and other areas remained off limits to citizens.�

“Authorities harassed journalists critical of the government and self-censorship was widespread. The president exercised authority under the 18th amendment to maintain control of appointments to previously independent public institutions that oversee the judiciary, police, and human rights. Lack of government transparency was a serious problem. Violence and discrimination against women were problems, as were abuse of children and trafficking in persons. Discrimination against persons with disabilities and against the ethnic Tamil minority continued, and a disproportionate number of victims of human rights violations were Tamils. Discrimination against persons based on their sexual orientation and against persons with HIV/AIDS were problems. Limits on workers’ rights and child labour remained problems.

“The government prosecuted a very small number of officials implicated in human rights abuses but had yet to hold anyone accountable for alleged violations of international humanitarian law and international human rights law that occurred during the conflict that ended in 2009. During the year unknown actors suspected of association with pro-government paramilitary groups committed killings, kidnappings, assaults, and intimidation of civilians. There were persistent reports of close, ground-level ties between paramilitary groups and government security forces.”

Among other significant highlights in the report are:

• The law prohibits arbitrary arrest and detention; however, in practice such incidents frequently occurred. There were numerous reports throughout the year of victims randomly selected by police to be arrested and detained on unsubstantiated charges.
• Widespread impunity persisted, particularly for cases of police torture, corruption, human rights abuses, and attacks on media institutions. By law authorities are required to inform an arrested person of the reason for arrest and bring that person before a magistrate within 24 hours, but in practice several days and sometimes weeks or months elapsed before detained persons appeared before a magistrate. A magistrate could authorize bail or continued pre-trial detention for up to three months or longer.
• Following the September 2010 passage of the 18th amendment, executive influence over the judiciary significantly increased. The 18th amendment repealed the 17th amendment and eliminated the Constitutional Council, a multiparty body created to name members of independent judicial, police, human rights, and other commissions. In place of the Constitutional Council, the 18th amendment established the Parliamentary Council, which submits nonbinding advice on appointments to the president, who has sole authority to make direct appointments to the commissions. The president also directly appoints judges to the Supreme Court, High Court, and courts of appeal.
• The law provides for freedom of speech, including for members of the press, but the government did not respect these rights in practice. Government officials criticized, pressured, harassed, and arrested members of the media, and most journalists practiced self-censorship.
• Police, under the authority of the Ministry of Defence, reportedly maintained a special unit to monitor and control all references in the media to members of the Rajapaksa family. Official pressure reportedly was regularly exerted through orders to government and private firms to cease advertising in critical newspapers and television stations and advertise in pro-government outlets. Newspapers critical of the government faced difficulty obtaining credit from major banks, all of which the state owns or has interest through pension schemes and other investments. While the media could operate freely, independent and opposition media practised self-censorship. Media freedom suffered from severe government pressure throughout the island, and most journalists practised self-censorship, particularly on matters of accountability, human rights, and criticism of government officials, particularly in regards to the president and his family.
• The LLRC report stated that it was “deeply disturbed by persistent reports concerning attacks on journalists and media institutions and killing of journalists and the fact that these incidents remained to be conclusively investigated and perpetrators brought to justice�any failure to investigate and prosecute offenders would undermine the process of reconciliation and the rule of law.” The LLRC recommended steps be taken to prevent harassment and attacks on media personnel and institutions and priority be given to investigate and prosecute those responsible for such incidents. During the year the government did not make progress on implementing this recommendation, nor did it take concrete steps to protect media freedom as laid out in the government’s National Action Plan.
• The law provides criminal penalties for official corruption; however, the government did not implement the law effectively, and officials in all three branches of the government frequently engaged in corrupt practices with impunity.
• There was an increase during the year in bribery and corruption complaints against public officials, particularly divisional secretariats, police personnel, and school principals.�
• The government often criticized local NGOs critical of government actions, failed to respond to requests for assistance, and put pressure on those that sought such assistance. The NGO Secretariat was moved from the Social Services Ministry to the Ministry of Defence in 2010 and remained under the Ministry of Defence at the end of the year. Several NGOs noted a lack of clarity in defence ministry procedures and enforcement of regulations.
• The military seized significant amounts of land during the war to create security buffer zones around military bases and other high-value targets, which the government called high security zones (HSZs). The declaration of HSZs displaced large numbers of persons, particularly in the Jaffna Peninsula, who did not receive restitution for their lands. A degree of progress was made in reducing the size of the HSZs during the year, with some lands being demilitarized.

It is clear even further from the contents of the US Human Rights country report on Sri Lanka that its second resolution at the UN Human Rights Council in Geneva is an extension. With the stance of the Obama administration toughening, as is evident from the report, both the CBSL-TAG tie up and the Sri Lanka Embassy in Washington DC will find their tasks even more difficult. CBSL chief Cabraal wants a “re-calibration of US policy” towards Sri Lanka. On the other hand, still officially, the Sri Lanka Embassy in Washington DC wants the country to be a part of the “US pivot” with defence and economic co-operation as hallmarks.

On top of that, the Embassy has entered into another contract with The Majority Group, another US lobbying firm, paying US $50,000 per month.

Yet, another issue seems to cause irritation at the highest levels. Recently, Allison V. Areias-Vogel, Economic Counsellor of the US Embassy in Colombo, wrote to Ceylon Electricity Board Chairman W.B. Ganegala. A US Embassy spokesperson admitted it was to seek a meeting “after media reports about a possible electricity price revision.” Ganegala sought, quite rightly, clarification from the External Affairs Ministry. This is on the grounds that requests from diplomatic missions must be routed through the EAM. The US move angered UPFA leaders at the highest levels. Some said that it was “interference in the internal affairs of the country.” However, a diplomatic source whilst conceding the procedure may have been wrong declared the query was to determine matters relating to tariff hikes. This was particularly to advise prospective US investors of the new tariffs they would have to factor in their plans for investment. In fact the Central Bank statement (see above) admits that “US investors have made a substantial foreign direct investment” in Sri Lanka.

This week’s events show that Washington-Colombo links, which remained at a low ebb, are taking a nose dive. None other than External Affairs Minister G.L. Peiris has declared in Parliament that there would be no change in Sri Lanka’s US policy. Against this backdrop, Cabraal’s US$ 66,000 a month to a lobbying firm in the US to change President Obama’s attitude towards Sri Lanka is money down the drain.

However, a more important challenge lay in how long more could Sri Lanka keep the rupee at around Rs. 126 per US dollar with an ever widening Balance of Payments (imports expenditure versus exports earnings) gap. If the rupee value decreases, so will import cost rise and the consumer will have to face the brunt. So will be fuel tariffs that could come as an even bigger after shock to the electricity bills. The time has come for the Government to go beyond the glossy media statements of economic prosperity and achievements. The sooner the dark truth is ascertained, the better it is for the country and the people. Or is it a fool’s paradise that we live in?