The courage to undo and redo

The courage the Government has demonstrated in cancelling the CATIC deal and yet feeling secure, rather than embarrassed by it, must be recognised. It is a responsible step, a prudent decision, which will have enduring benefit both in terms of national policy and FDI strategy.

This step will also earn the respect of the indigenous investment community – the local private enterprise, which drives economic growth and helps the Government in doubling per capita income.

Statistics do not simply happen. The local private enterprise remained ‘on board’ for three decades, while exposed to turbulent inland waters while many ‘jumped ship’ only to explore safer and calmer oceans. The nation and the Government have a responsibility not to fragment this new opportunity. We must open it out but also protect it. It is a challenge I know, but it can be done. Indeed, it must be done.

This decision to undo and redo, can now be transformed into a win-win both for the Government and the country. At the very core of that strategy is the need to build a strong indigenous business community – a community that will remain on shore, rather than take flight, even when there is a financial tsunami, a natural flood, or a hurricane.

Avoid rubbing it in

It would be good also, if the opposition, which publicly opposed the CATIC deal, does not ‘rub it in’ as it were. This is the same stance I advocate when we celebrate Victory Day annually. As I have conveyed in my writings many times before, if our end game is a stable and sustainable Sri Lanka, then, social cohesion and interracial harmony is a fundamental ingredient – a necessary pillar. Hence it would be better to have a ‘Day of National Reconciliation’ rather than a day of victory, which ‘rubs it in’ annually.

As for this undone deal, yes of course, the opposition must continue in its necessary quest to be and to be perceived to be an effective ‘value adding’ opposition. On its part, it has yet to regain credibility and re-earn the title ‘an effective opposition’. That is a tall order. The journey will be long. It has first to restructure and reposition its vehicle, re-equip, refuel it and resource it, if it is to enjoy the journey rather than celebrate after a short spurt or after passing, a near distance milepost.

An opportunity to perform

The opposition now has an opportunity to do so ‘geographically’ in the Colombo Municipality where it can work together with, rather than in conflict with, the Government in general and the UDA in particular.

The way Australia has done it, where the centre in office has worked with the opposition in office in different states, for many years more recently, is a clear example which I gained insight into when I visited Brisbane, Townsville and Melbourne last month.

I have shared this thought with Mayor-Elect Muzammil (when introduced for the first time and only over the phone, at a social gathering, only about two weeks ago) when I articulated the need for cooperation rather than conflict given what we already see, as the positive work of the UDA. I also conveyed a few thoughts to former Mayor Karu Jayasuriya, and I must say that both gentlemen showed warmth, sincerity and humility towards apolitical independent thoughts from an equal stakeholder of the nation.

Drawing board

But the thrust of what I wish to share as a thought today is about the courage to get back to the drawing board. Even Barack Obama does not have this courage. I admired what he said and the way he said what he said for a long time. However, when the USA was downgraded by a rating agency, he went public to say “but we are a triple A country.”

Who was he fooling? Who was his audience? What was his end game? I told my 20-year-old son (an equal admirer of the eloquence of Obama) who was home on holiday when we heard this on TV, that it would have been much better had he said, “Fellow Americans, we have erred. The time has come to get back to the drawing board.”

That was my speech to my captive audience of one as Obama left, “mesmerising” many. I was disappointed. He lost credibility. He lost my respect and admiration that day. He needs to work in a more wholesome manner to regain my rating of him.

Rather than write about what ails America, a country I have great affection for, I thought I would reproduce an article of mine, published in the Daily Mirror Financial Times (now the Daily FT) on Wednesday 23 November 2005 in my column ‘The Thought Leadership Forum’.

I thought this article would further encourage politicians and public servants as well as board members of private enterprise to have the courage to revisit and redo and get back to the drawing board when necessary and feel totally secure about doing so.

Here is that article, of 23 November 2005, reproduced in its entirety:

Flashback

Flashback: ‘Political will, courage and commitment to close a hole in the nation’s balance sheet’. The following are extracts of the address made in Parliament, on the Urea Fertiliser Project, by the then Minister of Finance and Planning Ronnie De Mel, on 21 December 1977:

“I decided to intervene at this stage of the committee discussion on the votes of the Ministry of Industries and Scientific Affairs, to draw the attention of this House and through this House of the country to a matter with far-reaching financial and economic consequences, not only to this Ministry but to the entire country and also to the generations still unborn and on which we have to take immediate action. I refer to the Urea Fertiliser Project.

“I am not bringing this to the notice of the House merely in a spirit of criticism of the last Government, but as I want this to be a lesson for the future, a lesson and a warning to our chairmen and directors of corporations not to repeat this mistake, a lesson for the general managers of our corporations not to make this mistake again

“We propose to introduce legislation very soon to make chairmen and directors of corporations personally liable for their actions in those corporations. Their property will be sequestered if they do this type of thing. I do not think most of the present chairmen and directors would like to continue if they know what they are in for. They will make it a point to study their projects a little more carefully when they know that they will be personally held liable and that they will be charged and surcharged for any losses or lapses on their part.

“Every worthwhile financial and technical consultant advised them not to go ahead with this project. Several countries, to which the Government applied for aid, including Iraq, advised them not to touch this project even with a barge pole because it will never be feasible in this country. But the last Government went ahead with this, notwithstanding all the advice given by the technical and financial consultants who would have given them advice. The World Bank told them not to go ahead with this project.

“Several aid group countries, whom they appealed to, refused to give them aid because the project could never be made a worthwhile project in this country. But they went ahead regardless of all this advice.”

The following summary extracted from the detailed address to Parliament of then Minister Ronnie De Mel in December 1977, with direct quotations made by him on specific aspects of the fertiliser project, will provide further clarity on why this State Owned Enterprise (SOE) had to be closed down:

=The original proposal to start a fertiliser factory in the country would have cost Rs. 90 million. Due to a tug of war between several ministers, that project was shelved.

=The project was revived during late Dudley Senanayake’s Government from 1965-’70. The then Minister of Industries, Philip Gunawardena, was to complete the project at a total cost of Rs. 346 million.

=That Government fell and the United Front Government which took office in 1970 abandoned the project after what they called a detailed inquiry by a committee which was headed by the then Minister of Posts and Telecommunications, C. Kumarasuriar. The reason given was that the costs were too high – viz Rs 346 million.

=However “they revived the project and called for tenders again – the usual game”

=“By that time it was only the SLFP that formed the Government because the other partners of the United Front had left the Government. They accepted a tender at a total cost of Rs. 1,168 million.

=“They entered into a contract with a successful tenderer. Today, with further inflation the costs have been revised, and the present revised estimate is Rs. 2,000 million. What was Rs. 90 million in my time, what became Rs. 340 million and was considered too expensive in Phillip Gunawardena’s time in Dudley Senanayake’s Government, has now become Rs. 2,000 million.

=“Now we will go into the project itself. That is the most shocking story of all. The project is based on naphtha as the feedstock, not on natural gas, which is the normal feedstock for any worthwhile fertiliser project. We have no natural gas here.

=“So, actually we should never have started this type of project. Naphtha is a by-product of the Petroleum Corporation based on crude oil – something that is imported. Being an oil by-product, the, cost of naphtha has been increasing steeply from Rs. 797 per metric tonne in 1975 to Rs. 1,600 at pre-budget prices. It will be nearly double at post-budget prices.

=“At the same time, the international price of urea fertiliser has dropped considerably because all over the world the oil-producing countries are having their own fertiliser factories fed with their own natural gas or naphtha as a by-product of their own oil.

=“Fertiliser factories are springing up all over – Pakistan, Saudi Arabia, Qatar, Kuwait, the United Arab Emirates, and Bahrain – because they have the raw material in their own countries, their own oil and their own natural gas. And the price of urea fertiliser which stood at 330 dollars in 1974 steadily dropped and now stands at 110 dollars c.i.f., Colombo. So, you will see that the raw material has gone up four times in price. The finished product has gone down by 70 per cent – it has become one-third of its previous price.

=“What is the position today? The installed capacity of our so-called urea plant is 310,000 metric tonnes. What is the total annual requirement of urea in this country? Only 100,000 metric tonnes. In other words, the plant is geared to produce three times the annual requirement of this country.

=“Where were they going to sell this urea? Were they going to eat this urea? This was pointed out to the last Government but they brushed aside all these things. I understand the commission was in the region of Rs. 50 million – apart from the commission on the import of crude oil, which was going to be an annually recurrent commission. As I said, the entire capacity of the plant is 310,000 metric tonnes while the domestic consumption is only 100,000 metric tonnes. Even the projected consumption in 1985 is supposed to be 150,000 tonnes. Thus, this plant will not work at more than 50 per cent capacity even if it supplies all the requirements of Sri Lanka.

=“I will now give you the projected figures on this factory prepared by my Ministry of Finance and Planning. The annual loss is going to be Rs. 400 million in the first year. It will rise to Rs. 500 million in three years’ time. It will go up to Rs. 600 million in… if you commit yourselves to this factory… What a tragic waste of money, what a reckless way to spend hard-earned foreign exchange resources of this land!

=“I would request the Minister of Industries and Scientific Affairs to immediately go into the question of cancelling the contract, because even if you pay a penalty of Rs. 100 million, it is still worthwhile. Pay a penalty of Rs. 100 million and cancel this contract because you will be saddled with a loss of Rs. 500 million every year, if you do not do so. I wish that my friend the Minister of Industries and Scientific Affairs would go into this matter very carefully – I am prepared to give him all assistance – and get out of this contract which is a dead loss to this country, a dead loss for all time.”

– End of extracts from the Hansard.

What I like in particular, is Minister De Mel’s message to public servants: “I am calling upon all chairmen of corporations, all directors, all general managers to note this: Please do not think you can get away with this type of nonsense in the future because we are going to make you personally responsible.

We will sequester your property and your assets if you do this type of thing in the future. That is all I have to say, sir.”

My question to all people’s representatives in the legislature and key public officials is this: Was the legislation referred to by the former Minister brought to Parliament? Was it passed? If not what statutory measures exist – through either the existing codes or specific statutes – which will act as a deterrent to the type of actions and resultant risks to the country, examples of which we just discussed?

In lighter vein, the money wasted on this project could have funded millions of bags of free fertiliser and millions upon millions of glasses of free milk!

Opportunity cost

However, on a serious note, if that money was ploughed into rural roads, buses, access to safe drinking water, electricity, rural schools and hospitals almost 30 years ago – which was even before we ‘opened the economy’ or knew what ‘privatisation’ meant, even to bash the bad ones around – we could have bridged income as well as digital divides and reduced the regional disparities about which there is so much natural concern today.

Then the pledges of today’s political parties, about fertiliser or milk, would have been relatively redundant.

I thought it useful to share the above with readers, given that the seminar on the ‘Open Economy & Privatisation – Myths, Realities, Risks and Safeguards’ was abruptly cancelled. That was a great pity since several aspects of this case would also have been discussed from a multi-stakeholder perspective.

Just as the State Timber Corporation of Sri Lanka, a Harvard case study of many years ago used in Asian Business Schools until the mid ’90s, this and several other Sri Lankan cases are good ‘learning’ tools for European business schools to which I have been invited to contribute Sri Lankan cases some years ago or to Harvard Business School, Asian, Latin American, or any business school anywhere.

My preference, however, would be to see how politicians of all political parties in my own country – Sri Lanka – professionals who advise politicians, consultants who advise big, medium or small private sector enterprises, can enhance their awareness through writings or presentations such as these.

We can then build a more aware political, business, chamber and corporate leadership as well as a strong public sector working in harmony with a vibrant private sector. Then, we might just be able to transform our dreams to deeds and rhetoric of all quarters, to tangible reality, for the benefit of society.

End of article of 23 November 2005.

I am confident that all politicians, in office and out of office, business chambers, multilateral development partners, bankers and the wider stakeholder community may like to have the courage to rethink and revisit their respective roles, in initiatives which might require to be revisited, re-evaluated, redefined and redirected, rather than simply maintaining the status quo, or allowing themselves to be afflicted by what I have often called the ‘Gaga Syndrome’: Going Along and Getting Along.

The beneficiary is the nation, and of course generation next – the generation we will hand over the baton to.