Central Bank a late backer of Revival Bill; issues statement a week after

Usually proactive but reactive this time around, the Central Bank in a much-delayed move issued a statement backing the Revival Bill, listing its benefits as well as dispelling some of the misconceptions.

It was not clear on what mandate the Central Bank issued the statement a week after the bill was passed in Parliament, but analysts believe the monetary authority’s act was to allay unfounded fears over the new legislation, which has been largely rejected by the Opposition and the private sector.

Interestingly, the Central Bank statement may add to the confusion as it states that existing owners of the underperforming assets could stand the chance to continue to operate, though with a renewed commitment to stick to the original objectives.

“It should be noted that the process, as set out in the new law, would not deprive the existing operator or company from reaching an understanding or agreement with the Competent Authority to operate the asset or enterprise in keeping with the original purpose of the agreement. In such an event, there may not even be a change in the operator, but only a change in the mode of operation, with the existing operator being provided with the opportunity to ensure that the original intention of the agreement is fulfilled,” the Central Bank statement added.

Here is the full text:

The main purpose of the Revival of Underperforming Enterprises and Underutilised Assets Act is to revive 37 identified underperforming enterprises or underutilised assets where the land belongs to the Government or a Government agency. It is applicable only to those 37 named enterprises, and not to any other enterprises whatsoever.

The act provides for the appointment of a Competent Authority which will control, administer and manage the enterprise or asset so as to ensure the revival of the named enterprise or asset, through means such as restructuring or entering into a management contract.

Accordingly, the Revival of Underperforming Enterprises and Underutilised Assets Act does not, in any way, constitute the nationalisation or the expropriation of private assets, but instead is designed to ensure the productive use of assets that have hitherto been lying abandoned or have been seriously underutilised.

It is important to emphasise that the assets specified in the act do not refer to private lands, but to lands which have been provided to private operators for specified purposes, while the ownership of the land continued to remain with the Government or a Government agency.

In such context, it would be fair and reasonable to expect the operator or user of the land or asset to utilise the land or asset for the specified purpose for which the land or asset was initially entrusted to them. And, if not so done for a lengthy period of time, it would also be fair and reasonable for such land or asset to be placed under the control of a Competent Authority who will ensure that the identified land or asset is utilised for the purpose it was originally provided.

It should also be noted that several enterprises specified in the act are situated in Free Trade Zones, where agreements have been entered into between such enterprises and the Board of Investment (BOI), and where the agreements have specified conditions such as the minimum investment to be made, the number of jobs to be created, the minimum extent of land to be developed, etc.

In exchange for the fulfilment of such conditions, generous tax concessions, and in some cases even exemptions from the Exchange Control Act, have been granted. But unfortunately, in the case of many of the named enterprises, these agreements with the BOI have been breached and/or operations have ceased, leading to the operators abandoning their properties and allowing the assets to remain idle without being put to the intended use for several years.

In the case of the two sugar plantations (Pelwatte Sugar Industries PLC and Sevanagala Sugar Industries Ltd.), it is noted that the total extent of land cultivated by the respective operators has been only a fraction of the total extent that was entrusted to them. Further, it was noted that the operators were focusing on subsidiary objectives instead of concentrating on the primary objective of producing sugar, which was the purpose for which the land was provided to them.

Ceylinco Leisure Properties Ltd. had also been identified for revival, since it is a project that originally contemplated the construction of a mega 5-star hotel facility cum apartment complex, but which had been half-built and abandoned for over two years. The project has been the subject of protracted litigation, which had crippled the project from progressing.

The partly-constructed building and the land is situated in the heart of Colombo, overlooking the Indian Ocean, and has been deteriorating daily, and hence there was an urgent need to recommence the project to avoid further financial losses and physical damage.

In this regard, as provided for in the act, the Competent Authority will be expected to undertake the task of reviving this project and ensuring that the purpose for which the land was entrusted to Ceylinco Leisure Properties Ltd. by the Urban Development Authority would be duly and expeditiously accomplished.

From the above, it will be clear that there has been no expropriation or nationalisation of private assets as has been suggested by some quarters, and that this new legislation will actually facilitate the recommencement of productive economic activity in hitherto abandoned or severely underutilised lands and assets.

In addition, it should be noted that the process, as set out in the new law, would not deprive the existing operator or company from reaching an understanding or agreement with the Competent Authority to operate the asset or enterprise in keeping with the original purpose of the agreement.

In such an event, there may not even be a change in the operator, but only a change in the mode of operation, with the existing operator being provided with the opportunity to ensure that the original intention of the agreement is fulfilled.