The ‘Emperor’ on logs:the murky business of making cars out of imported used parts

by Rajan Philips-May 7, 2016, 8:26 pm 

It is literally a case of the Emperor hoisted on logs. But the Emperor in this instance is not a king or a former president, but the name of the car produced by assembling imported used car parts for the domestic market. A private company began this business in 2003 after getting the coveted BOI (Board of Investment) approval for producing an initial quota of 2025 car assemblages. About 400 Emperor cars were produced and sold but the owners who bought them ran into road blocks in not being able to legally register their vehicles. The matter went to courts and has since become a football involving the Courts, the cabinet of Ministers, the Attorney General, the BOI, the Commissioner General of Motor Traffic (CGMT) and the Police. It is a strange game of football in that nobody wants to kick any ball, except the courts which have to deal with it whenever the matter comes before them, and the police who pounce on the Emperor whenever the poor contraption hits the roads. In the last week of April the private company making these vehicles took the matter to the Supreme Court alleging contempt against the CGMT for refusing to abide by an earlier court ruling and register the Emperor cars. In addition, about 60 buyers of the vehicles are also said to be launching another fundamental rights application alleging that the government’s refusal to register the vehicles is a violation of their rights as citizens and consumers.

The court motions were reported in last week’s Sunday Island, and I found the news report to be possessed of real public interest in contrast to the political fuss that was going on about measuring whose May Day was bigger! The last word on the size of meetings and the substance of speeches fittingly belongs to Dr. Colvin R de Silva whom I once heard perorate at a New Town Hall meeting: "the size of an audience has never affected the substance of my speech or the manner of its delivery." Where substance gets lacking size becomes the main political prop, and crowd size seems to have become the mainstay of the Rajapaksa loyalists. Yet, for all their predictions and assertions the Rajapaksa, rather the Joint Opposition (with due disregard to the disgraced former Media Secretary) rally is said to have been much smaller than the show put up by the UNP, and also a little smaller than the SLFP’s ‘decentralized’ Provincial May Day rally in Galle. That said, good sized political rallies are not going to help the Sirisena-Wickremasinghe government positively differentiate itself from its Rajapaksa predecessor. People are looking for real differences in government actions and in results. Specifically, in the context of the Emperor fiasco, what action is the government going to take and what result is it planning to achieve?

The Emperor question: To register or not to register

The Emperor saga begins in April 2002, when the Board of Investment gave approval to Vehicles Lanka (Private) Limited to make cars out of imported used car parts purportedly from Japan. Some news reports called it a Sri Lanka-Japan joint venture, although there was no inter-governmental involvement and I have not come across references to any specific Japanese partner. The business was described as a Rs. 500 million venture, located in Panagoda, Homagama. Later it has transpired that the vehicles were assembled in the company’s factory in Minuwangoda. But before any assembly could begin, the BOI recanted and then reversed its recantation on the approval it had given.

There was understandably furious opposition from the Brahmins of car imports, the venerable Ceylon Motor Traders Association (CMTA). The Association threatened legal action against the upstart new kid in car business. Allegations were made and denied about "budded vehicles" (used cars brought in two halves, welded and sold), the safety of car users and other road users, and negative environmental effects. In July 2002, three months after the first BOI approval, CMTA lawyers wrote to the then BOI Director General and Chairman, and got no reply. They then wrote to the Minister of Enterprise Development, Industrial Policy and Investment Promotion (long winded as usual), and managed to get a statement from the Ministry Secretary raising questions and concerns about the Emperor business. Apparently based on that statement and other representations, the Investor Facilitation Committee directed the cancellation of the BOI approval. This was in January, 2003, with committee acting more in oversight than facilitating. Six months later, on the 2nd of June, Vehicles Lanka, the makers of Emperor, went to the Supreme Court as a matter of fundamental rights. Nine days later, on June 11, 2003, the BOI reversed its revocation of the initial approval. So the Emperor was re-approved. And the approval stands as of today is the contention of Vehicles Lanka. But much oil, used or not, has spilled between 2003 and the current court proceedings.

To give some context and faces – 2002 and 2003 were the years of the short-lived but hyper-peace-active UNP government. The BOI chief at that time was Arjuna Mahendran, now the Governor of the Central Bank. He was characteristically charming in explaining the first BOI approval: "The BOI wrote to the Transport Ministry for advice. But the Ministry remained non-committal. So we went head and granted approval for the project." Whether future Central Bank events were then casting their BOI shadows, it’s not for me to say. And there were other faces. The minister I referred to earlier was none other than GL Peiris, then happily ensconced in the Wickremesinghe cabinet. And the Chair of the Investor Facilitation Committee, that recommended the rescinding of the BOI approval, was the redoubtable R. Paskeralingam.

That was also the period of uneasy cohabitation of an SLFP President and a UNP Prime Minister. The cohabitation ended dramatically with the President sacking three important UNP ministers in October, 2003, and then sacking the whole government by dissolving parliament in April 2004. Inadvertently, President Kumaratunga set the stage for the Rajapaksa presidency to take over Sri Lanka in November 2005. Amidst all the political turmoil, the Emperor assemblage remained unborn. But it was soon reborn and has been stuck in controversy ever since. The matter went to courts again after the Commissioner General of Motor Traffic stopped first, allowed and then stopped the registration of the assembled vehicles. Even the Supreme Court ruling authorizing registration has not been enough to change CGMT’s reluctance to allow registration. The Rajapaksa cabinet, that included Law Professor GL Peiris, took a curious decision and asked the Attorney General to review the Supreme Court decision. Then country knows what happened when matters were referred to the AG’s Department during the days of the emperor. The lawyers for Vehicles Lanka are now arguing not only contempt of court by the government but also illegality. Three judges of the Supreme Court are set to begin full hearing on June 13, 2016.

To its credit, when the matter first came before it, the Supreme Court appointed an independent Experts Committee – comprising representatives from the Ministry of Finance, Customs, Environmental Authority and the University of Moratuwa. While authorizing registration, the court also directed Vehicles Lanka to start using only imported new parts within three years. Curiously, or not so curiously, the BOI did not do anything of the kind. There should have been a comprehensive technical and policy review before approving a venture of this kind. And old habits are continuing unabated. While the Emperor was being put on logs, the BOI has been announcing other assembly ventures over the years. I have come across four such announcements after 2008. The latest was the announcement of the plan for a Volkswagen assembly plant in Kuliyapitiya. It is not clear whether the assembly would involve used or new parts from Germany. And more to follow, according to the BOI, from Toyota and Nissan in Japan.

The Emperor story is an illustration of total government failure at every step – from the first BOI approval to the current stalemate, and spanning three different governments and as many Presidents and Prime Ministers. The failure involves the intersection of several policy areas, regulatory frameworks, conflicting interests, hapless bureaucrats, and political appointees and their social connections. At the apex of the mess is the cabinet of ministers, and crushed at the bottom are the unsuspecting citizens who purchased the Emperor cars. Who will give them redress? On the other hand, times are getting tough for vehicle importers. Their Association has announced a six month moratorium on imports due to the falling rupee and rising VAT. But the BOI is merrily announcing more assemblies with imported parts. And the political leaders are pre-occupied with measuring crowd sizes.