The Millennium Challenge Corporation: Boon or bane?

Monday, 2 December 2019 00:00 -     - {{hitsCtrl.values.hits}}

 


  • Crucial deliberations on by two thought leaders and its implications to Sri Lanka; now the most improved economy in South Asia in global competitiveness

It is the closing chapter of another year and just a few more weeks to end all years that end with ‘teens’! In fact, what a year it has been. Globally, Singapore having taken over the US as the most competitive economy of the world, Sri Lanka recovering its economy whilst gasping to defend its title as improving in its competitiveness in Asia with an ever-changing skyline of its commercial capital and now in the hands of the Seventh Executive President. 

All of which takes place in the backdrop of modernisation and at the cusp of the fourth industrial revolution. Add to the mix is stronger bilateral trade relations with several economic and geo-political superpowers. The subject at hand is MCC and wider overarching implications. 

I find my journalistic pen raring to go to explore the minds of two gentlemen whom I was most fortunate to secure the confidence of who are two experts in this area to formidably present their views on the captioned matter. 

One; a title holder and a stalwart of an apex body of the unofficial bar, a learned professional with a wealth of expertise and archives of information ready to defend what he considers a future in jeopardy. The other; a solicitor, a modern progressive professional having surrendered a flagship London office to return to his hometown with the mandate of service. 

I am certainly privileged to be have been given an audience with both Attorney-at-Law and Bar Association of Sri Lanka (BASL) Secretary Kaushalya Nawaratne and Solicitor of England and Wales Aritha Wickramasinghe, currently serving as the Head of Legal at the National Agency for Public and Private Partnerships and a Director at iProbono, a network of 80,000 lawyers across the world that provide free access to justice to vulnerable people and communities, both unequivocally willing to give of their take on the MCC and indulging beckoning questions to be answered boldly. 

Here is but a synopsis of the discussion elevated above any personal or political agenda.  

Aritha on how the MCC benefits the Sri Lankan economy plus its impact on FDI

The MCC grant will be funding two key projects in Sri Lanka; migration of Sri Lanka’s land registration system from registration of deeds to a registration of title and establishing of an electronic Land Register of all land (including State land) and traffic and road sector improvement. 

The land project has been the most controversial of these projects, despite only taking up $ 68 million of the $ 470 million grant. The bulk of the funds is going towards better traffic management, new low floor buses and upgrades to existing road infrastructure. 

First of all, what must be laid in the outset is that these are not projects which the MCC came to the Government and asked to fund. The MCC is also not demanding Sri Lanka to take their money. It’s quite the opposite. MCC grant funding is something Sri Lanka has been applying to receive since the MCC’s inception in 2004 and has been preparing for since then. 

It is the Sri Lankan Government which proposed the following projects to be funded by the MCC. These projects are the results of over a decade of work put in by Sri Lankan civil servants to identify catalytic projects that can help address some fundamental bottlenecks affecting Sri Lanka’s economic growth. 

It is no secret that Sri Lanka has a major traffic and transportation problem. A University of Moratuwa Department of Transport and Logistics estimate in 2017 put the cost of traffic congestion in Sri Lanka at 1.5% of GDP. 

In real terms, this is about $ 1.3 billion or about Rs. 235 billion. We have also seen a 25% reduction in the use of public transportation from 2008-2016. Reducing traffic congestion and moving people into safer and more reliable public transportation will therefore have an immediate and positive impact on economic growth. Funds from this project will go a long way into resolving these issues.  On the land project, which has been the most controversial, currently, most land in Sri Lanka is registered by way of deed. This is a system where it is the documents lodged and recorded in the land registry which serves as evidence of title. This system is fundamentally different to the registration of title where it is the register itself which serves as the primary evidence of title to property.

The system of deeds registration dates back centuries. The problem with this system is that a deed does not in itself prove title; it is merely a record of a transaction. A deed shows that a particular transaction took place but does not prove that the parties were legally entitled to carry it out or that the transaction is valid either. 

In addition, reviewing and assessing all the documents required to determine a claim to a property can be extremely tedious and expensive in a deed system. In Sri Lanka good title to property must be established for the past 35 years. If any deeds are missing or were not registered, the title to land becomes defective. This gives rise to title risk and can lead to expensive title insurance or decades fighting in court.

Deeds registration is also not ‘parcel based’. This means that deeds are indexed under the names of the parties, rather than the parcel of land, and cadastral maps are not always used in the system.

Therefore, the importance of migrating land registration to a title register becomes curtail. In fact, migration to a title register will lead to more secure title for property owners as you no longer need to prove 35 years of good title to property. 

Under a title system, it is the Government which guarantees title to property whereas in a deed system it is the deed holder that guarantees ownership. The impact of secure title to property and a Government guarantee on your title means cheaper property transaction costs (saving especially unnecessary legal fees), quicker property transactions and better access to property information. 

The UK switched to the land title system in 1925. Singapore switched in 1956. Sri Lanka only introduced the title system in 1998 but had been unable to commence the project until 2007 when Bim Saviya began. We are therefore already nearly 100 years behind some countries in migrating to land titles.

It is therefore fairly obvious to appreciate that secure title means more investment. Lack of security over title to land is a major impediment to property owners and investment. In the 2020 Doing Business Index, Sri Lanka was ranked 138 out of 190 countries in the ‘Registering of Property’ category. 

When property owners cannot prove ownership over their land, they are unable to fully capitalise on their land and generate income from it. This drives down investment as investors do not want to be stuck in decades long litigation in Sri Lankan courts and lenders don’t want to lend towards projects on properties with unsecure title.

The conversion of a deeds system to a title system also requires the development of plans showing parcel boundaries, unique parcel identities and cadastral index maps. Cadastral maps serve as indices to the land parcels and related titles and to the field measurements. This allows for easier search of the land register and better information to property owners, buyers, investors and lenders.

Preparation of the index maps will also require identifying State-owned land and creating a central data base of State land. Currently over 85% of all land is owned by the Government. This means not only is there very limited private land available for ownership and investment but also that the giant inventory of State land is largely a mystery. 

Identifying and recording State land will also allow the Government to fully utilise land which it owns, either for agriculture, for more economic zones, tourism or other investment purposes. 

 

Do you consider the MCC to carry any threat to the national interests as a Democratic Socialist Republic?

Unfortunately, the only threat I see from the MCC is that from people, especially lawyers and politicians, who have prioritised their interest as opposed to the national interest, by peddling myths about sovereignty and electric fences to a population largely ignorant of the contents of the agreement. 

First of all, the MCC agreement is not very different in its standard clauses from other grant funding agreements that Sri Lanka enters into on a regular basis. The agreement is also far less onerous than some loan agreements that Sri Lanka enters into which places a number of obligations on the Government, including the passage of legislation. 

The Government can also always decide to renegotiate the conditions of an agreement or return the money. When you receive conditional funding from any source and you decide to not abide by those conditions for which the money was received, you have obligations to return that money. Most of the conditions in the MCC agreement are to ensure the transparency of the project and that monies are not siphoned away. 

Immunity clauses and requirements to use the funder’s procurement rules is very much the standard when agreements are entered into between states, their agencies or with multilateral lenders. Sri Lanka’s Procurement Guidelines makes specific exemption for projects funded by external funders permitting the use of the foreign funder’s procurement rules instead. 

If you look at any of the loan agreements between Sri Lanka and our main lenders such as the World Bank, JICA or ADB, you will see that the MCC conditions are actually quite tame in comparison. 

The fact that it was a requirement of the MCC agreement coming into force for it to be presented and approved by Parliament is a remarkable commitment to transparency I haven’t seen in other agreements. 

There are agreements which tie Sri Lanka into hundreds to billions of dollars in debt or which sell or lease out State assets for considerable periods of time to third parties. None of these agreements are ever presented to Parliament or revealed to the public. Failing to do so also does not violate our sovereignty. 

Sri Lanka is a representative democracy. The sovereignty of the people is exercised by the different branches of the State and every few years, we exercise our franchise to choose the representatives that will be making decisions on our behalf. 

Entering into agreements of any nature is the prerogative of the Executive exercised by Government. Requiring consensus or approval from 225 Parliamentarians and 21 million people before entering into any agreement will lead to an absolute paralysis of the functioning of Government. I think we clearly saw that with the MCC agreement. 

 

We live in an era of modernism and digitalisation which no profession is exempt from. In this light, what would you perceive as being the benefits of MCC alignment with a progressive legal system? 

When posed the above, Wickramasinghe had this to say,

The second part of the grant for the land project will be used to set up an electronic Land Registry. This will enable more efficient, cheaper and transparent land transactions. The UK introduced electronic conveyancing using electronic signatures to transfer and register property in 2002. 

Singapore switched to an automated system in 2006. The UK and the UAE are already experimenting with migrating land title registration on to the blockchain, while we here in Sri Lanka are grappling with switching to a system introduced a century ago.

As lawyers it is our duty to encourage and pursue modernisation of systems in order to free people from bureaucratic hurdles. However, the history of the introduction of the land title system in other countries has shown that lawyers and notaries have been particularly opposed to it, because it makes many of their roles redundant. 

When it is the Government that guarantees your title to land and when you no longer have to spend 20 years in court trying to prove ownership over your land, lawyers are limited to the role of conveyancer only. As you can understand, many may be put off by this. However, by trying to prevent the introduction of this much valued system, lawyers will actually be denying for themselves the other opportunities, such as greater investment, that arise from secure title.

In the interest of recording a balanced report on the subject, and having perused the objections to the MCC by the BASL, I then turned to a senior member of the Bar, Attorney-at-Law Kaushalya Nawaratne, who was able, willing and proficient in the subject to answer the following; 

 

As a senior member of the profession and a responsible title holder of the BASL, what is your sentiment on the MCC?

At the outset I wish to place on record that I am in not of the opinion that the Government of Sri Lanka should not enter into any bilateral and/or multilateral agreements with other countries, but the only concern as a legal professional I wish to raise is that the conditions of such agreements should not compromise and/or violate the territorial integrity and sovereignty of Sri Lanka under any circumstances whatsoever.

It is common knowledge that the said Agreement is not available for perusal by any experts and/or any citizen of the country. One would recall the suspicious circumstances under which the Government moved to have the said proposed Agreement signed, especially on the eve of a pending Presidential Election which raised concerns of many citizens including the professionals. 

Hence, various attempts were made to obtain a copy of the Agreement but however, the said attempts were futile, since the relevant officials refused to comply with the request made thereto in order to obtain a copy of the Agreement. 

Hence, several representations were made by the BASL to the Minister of Foreign Affairs and to the then Prime Minister regarding the adverse impact of the conditions of the Agreements proposed to be signed between the Government of Sri Lanka and the US, wherein the Prime Minister requested the BASL to submit the concerns regarding the said MCC Agreement which was submitted later. 

However, notwithstanding the aforesaid, as set out above, the Government of Sri Lanka announced that the said MCC Agreement would be signed before 16 November, which inter alia resulted in the said decision being challenged in the Supreme Court by way of a fundamental rights application, which application is presently due to be taken up in the Supreme Court. 

 

Considering the trade and bilateral relations between the two countries, and the previous underpinning agreements/treaties, could you explain the holistic implications to Sri Lanka as a whole due to MCC?

Prior to expressing my concerns, regarding the adverse impact on Sri Lanka due to the MCC Agreement, I wish to set out the background presentations made by the officials of the US to obtain permission to enter into the said Agreement with the Government of Sri Lanka. 

In this context, it is important to analyse the Congressional Report submitted to Congress by the Millennium Challenge Corporation of the US and the statement of US Indo-Pacific Command Commander Admiral Philip S. Davidson before the Senate Arms Services Committee on US Indo-Pacific Command Posture on 12 February.  On a reading of the Congressional Report it is clear that the goal of the Land Project is to increase the availability of information of private land and underutilised State land or al lands in Sri Lanka to which the Government of Sri Lanka is lawfully entitled to or which may be disposed of by the Government in order to increase the land market activity. 

The Land Project would increase the tradability of land for small holders, women and firms through policy and legal reforms. It is to be noted that the said MCC Agreement is mainly aimed at achieving the alleged two objects i.e. to improve the transport, logistics and infrastructure and to enhance access to lands for agriculture, service sector and industrial investors. 

The aforesaid Admiral Philip Davidson stated that Sri Lanka remains a significant strategy opportunity in the Indian Ocean and Sri Lanka has handed over the deep water port of Hambantota to China on a 99-year lease which has caused international concern. It is in the said background the US has proposed to enter into the Millennium Challenge Compact along with two other Agreements: Acquisition and Cross Servicing Agreement (ACSA) and Status of Forces Agreements (SOFA). 

 

How do you consider the MCC to carry any threat to the national interests as a Democratic Socialist Republic?

The proposed Agreement refers to a sum of $ 480 million. In terms of rupees – approximately a sum of Rs. 84 billion. According to the former Auditor General the day’s expense of the State is approximately Rs. 7 billion. According to the Government records, a sum of approximately Rs. 25 million is needed to build 1 km of the road and thus, the maximum distance of road that can be constructed is only 20 km. This clearly raises concerns with regard to the genuineness of the proposed objects.

Further, the road map which led as far as the Government of Sri Lanka is concerned we find that systematically the sovereignty of the country is compromised, especially with the statutes introduced by the Government – Right to Information Act, Foreign Exchange Act and proposed Land Bank Act etc. 

 

Could you elucidate any amendments/changes to the MCC proposed and implications?

As it is not our role to suggest matters of policy, we would refrain from stating how this can be best achieved. However, the sovereign rights of the citizens of this Country to prevent lands from falling into the hands of foreigners in whatever form must be achieved by placing suitable caveats in all amendments and if new laws are proposed in our view. 

The right of the people of passing legislation is vested in Parliament. Such a right cannot be restricted by an agreement with another country. By this Agreement, by agreeing to pass legislation we have compromised that right. 

A clause of that nature, in our view, cannot be there in an agreement. Agreeing to bring legislation or refusing to bring legislation cannot be a reason for a party to the contract to terminate the contract. If that is so, it would be an agreement to compromise on our sovereignty in order not to violate the agreement.

Article 157 of the Constitution considered where a treaty can restrict the passing of any written law contrary to the interests protected by such treaty. Such can only be done when Parliament approves by not less than 2/3rds of the whole number of members including those not present in respect of a treaty for something that is considered as essential for the development of the National economy. 

It is only such a treaty or agreement that shall have such force of Law in Sri Lanka and even in respect of such, when in the interest of national security, laws could be made against such interests. 

However, by agreeing to bring in legislation of the manner agreed, the Government of Sri Lanka would be compromising on the sovereign right of the people to bring in whatever legislation they deem fit through Parliament. 

The only way in which such right can be curtailed is in terms of Article 157 of the Constitution as explained. Without that being done, if the Government of Sri Lanka enters into an agreement with the MCC, such restrictions regarding legislation would not be valid in terms of our Constitution. 

However, as the Government of the US is a far more powerful entity than the Government of Sri Lanka, militarily and economically, our claiming that the agreement violates our Constitution would result in an acrimonious foreign relationship with the Government of the US and we would not be able to enforce our sovereign right as against the contracting party. 

Therefore, it is not advisable to agree to bring in any legislation as a condition precedent or to restrict ourselves from bringing in legislation in a manner that restricts our sovereignty. 

 

What in your opinion is the way forward for Sri Lanka as a progressive economy in this regard? 

The idea of creating a road network and identifying underutilised State lands are by themselves commendable objectives. However, the MCC should not be read in isolation but must be read together with the legislations enacted and proposed to be enacted together with the intention of the contracting parties.

In this context, it is my considered opinion that the proposed agreement with the US regarding the Millennium Challenge Compact ex facie violates the aforesaid components, thus, the Government of Sri Lanka should not enter into the said proposed Agreement in the present manner but, may enter into the said Agreement after making necessary amendments to safeguard the rights of the country and the nation as a whole, including the future generations of Sri Lanka. 

I am quite aware that the officials of the Government as well as the stakeholders have expressed the opinion that the conditions contained in the proposed Agreement do not in any way have any adverse effects to the country and thus, that the same should be signed. This is a developing area and we all now look to the Supreme Court for direction.  

(The writer is an Attorney of the Supreme Court and a graduate of the Charted Institute of Marketing UK, an economic commentator in the FDI space and can be reached at tanya.goonewardene@gmail.com.) 

 


Highlights: Specific concerns are raised regarding the proposed Millennium Corporation Compact by BASL

 

  • In the Preamble, the Government of Sri Lanka has been substituted by the Ministry of Finance and Mass Media and the definition given to the Government of Sri Lanka in the part where the definitions are given to mean as provided in the Preamble. This may have complications if the Government is defined in that manner for the entire operation of the Agreement

     
  • Since the Government of Sri Lanka is liable for all actions of the legal entity, the Government without being in a position to take decisions and by allowing the decisions to be taken by a separate legal entity would be opening itself up only for the liabilities which may be accrued by the legal entity. Therefore, it is advisable if strict guidelines can be given in the Memorandum and the Articles. For instance, by stating every decision of the company must be submitted to Cabinet for ratification. If not the liability on the part of the Government for actions taken by the legal entity would create a mismatch between actions and responsibilities 

     
  • The Government is required to make specific policy legal and regulatory reform commitments identified. This is a matter where the sovereign right of the State of Sri Lanka is compromised under an agreement with a foreign entity and the Government will not be able to change its policies based on a future need of the country without the threat of the Agreement being cancelled by the MCC at its discretion

     
  • As there is no method given to determine whether the Government has in fact used the money in violation of the Agreement, the MCC could demand such money at its sole discretion

     
  • The Government through its President is in any event entitled to sell land under the State Lands Ordinance for commercial purposes if necessary. Thus land already given and developed as agricultural land need not and should not be converted into a ‘marketable commodity’ in our view

     
  • Interest earned on the funds to be given over to the credit of the MCC. This again could cause difficulties as there may be no agreement on what component of the funds remains in the hands of the Government without being utilised at a given time and if there is a dispute as to the interest component once again the termination clause could be activated by the MCC

     
  • Each disbursement is subject to the satisfaction of the condition precedents given in condition precedents which states that the Government has certain obligations under this Compact or any supplemental agreements

     
  • Ordinarily, termination in any contract would be upon the happening of a certain event or a breach and such would be subjected to the right of the other party to claim that the event concerned has not happened or is not due to the fault of such party. MCC at its sole discretion is entitled suspend or terminate in whole or part MCC funding according to the Compact. Upon termination, it allows the MCC to demand, in dollar terms, money from the Government with interest for any component deemed by them as being repayable after the Government’s receipt of MCC’s request for repayment if any MCC funding is used in violation of the Agreement

     
  • There is reference to the obligations of the Government and the commitments under this Compact or any other agreement or arrangement entered into by the Government in connection with this Compact or program. As to what this any other agreement or arrangement is, is not clear. This leaves room for any interpretation to be given on the part of the MCC which could be detrimental to the Government 

     
  • The Government is expected to find additional funding in respect of the matters contemplated under the Compact. In this matter too, the parameters are not given. This leaves room for interpretation by the MCC enabling them to terminate. This again compromises the rights of the Government which creates the ability without even an arbitral process for the MCC to virtually claim all monies given by them with interest if it chooses to do so. Therefore it would not be a fair condition to have in an agreement. The entire emphasis seems to be on the marketing aspect of land. However, in the words of the first Prime Minister, the original idea behind the Land Development Ordinance was to create agricultural land for food production and to prevent fragmentation while keeping such land in the hands of the community that provided food for the nation. Therefore, any laws that are intended to be created by the Government should be in line with the original objective which had been followed by all subsequent Governments in our view 

     
  • Lands that have been given over by the Land Development Ordinance for agricultural purposes and not merely for paddy cultivation purposes would remain under agriculture if restrictions were placed on the sale of such land. Additionally, it must be considered that the permits and grants given under the Land Development Ordinance given for agricultural pursuits should not be removed from those pursuits and if land is required for commercial activity, such land should be identified separately leaving out lands that are already being utilised for agricultural purposes. When the emphasis is to increase land market activities and not agricultural activity, such can spell disaster and go contrary to the original intention of the founding father of the nation, first Prime Minister D.S. Senanayake whose vision has been explained in his book ‘Agriculture and Patriotism’

 

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