Tug of war over Takeover Bill

Criticism is mounting over the urgent bill on takeover of underperforming enterprises and underutilised assets in the national interest by the State.

The bill, which has been classified urgent, was sent to the Supreme Court last week for clearance,  whether or not it contravenes the Constitution. The Daily FT learns the ruling said to be “not contravening” was communicated to the Speaker as well as President Mahinda Rajapaksa.

Essentially the bill is aimed at turning around underperforming State enterprises and maximising socioeconomic returns from underutilised State assets which were previously provided for private sector for business ventures but are now defunct.

UNP MP Dr. Harsha de Silva is opposing the unilateral definition of such enterprises and assets whilst questioning the veracity of criteria, if any were used, to assess underperformance. The Government argues that the bill and the proposed measures are necessary in the national interest to ensure effective administration, management or revival of underperforming enterprises and underutilised assets through alternate methods of utilisation such as restructuring or entering into management contracts via a competent authority. Absence of this is having an adverse impact on the national economy and public interest.

                     

As per the proposed bill, underutilised assets means land owned by the Government or a Government agency and alienated within a period of 20 years prior to the date of the act coming into operation to any person by transferring freehold or leasehold rights or through a divestiture on the basis that the related operations proposed to be carried out on such land will result in generating employment, foreign exchange earnings or savings or economic activities, beneficial to the public but where such benefits have not accrued being prejudicial to the national economy and public interest.

Land owned by a person that had been granted within period of 20 years prior to the date of the act either any tax incentives under any law relating to the imposition and recovery of any tax incentives under the BOI law or regulations framed thereunder or any Government  guarantee but failed to achieve objectives too come under the definition.

Underperforming enterprises means a company or other authority, institution or body established by or under any written law for the time being in force in which the Government owns shares and where the Government has paid contingent liabilities of such enterprise and the Government is engaged in protracted litigation with regard to such enterprise which is prejudicial to the national economy and public interest.

Some analysts welcomed the bill saying it would help the Government to put these assets into productive use and turn around enterprises. Following the collapse or closure of companies under which lands have been transferred to, these assets have been idling with economic value addition. The companies included in the schedule of the bill have been mostly using land in BOI zones (see box). Colombo Hilton owning firm Hotel Developers is the sole enterprise listed, and analysts claim this bill will be forerunner to resolve the situation of Rs. 10 billion loss and negative net worth of Rs. 4.7 billion.

Inclusion of land of relatively sound Pelwatte Sugar Industries, also listed on the CSE, has raised some concern because there appears to be no basis. Some viewed the addition of Sevenagala Sugar Industries as coloured by politics since it is owned by UNP MP Daya Gamage.

Legal experts argued that an act needs to be open-ended hence shouldn’t include a schedule as it would imply it is confined to assets/companies listed therein, whereas other experts countered saying the bill in doing so had left out ambiguity. However, the pitfall in including a schedule is that it could prevent future assets or enterprises coming under the act.

However, apart from lack of transparency and prior consultation over the bill, some of the definitions and clauses have come under criticism.

“The State has crossed the line with this bill,” alleged UNP MP Dr. Harsha de Silva who is the party’s main spokesman on the economy. “Who is to say that tomorrow the State can’t bring in a Bill to take over your house and mine?” he queried.

Another criticism was the unilateral definition of ‘underperforming enterprise’ and ‘underutilised asset’.

“No objective criteria given; only some subjective and opaque nonsense written up including ‘prejudicial to the national economy’. No way for owners to prove their assets have performed to the maximum; given the various conditions (local, global, political, etc.). No fair hearing,” Dr. de Silva alleged.

Then on the other hand he said that if ‘underperforming’ and ‘underutilised’ are defined, why does the bill has two schedules to list ‘identified’ companies?

He questioned how only some have been listed while some others have been spared. Issues such as who evaluated the performance and whether the companies involved requested to participate in the evaluation also come up.

Good governance activist Chandra Jayaratne emphasised that the need for this bill to be urgent must be properly justified by the Executive. “Unless so justified it appears to be so classified with mala fidei interests to bypass democratic good governance expectations of society,” Jayaratne added.

The secrecy surrounding the bill and reported compilation outside the purview of the usual drafting sources throws further doubt on the bill, he said.

Jayaratne, a former Chairman of the Ceylon Chamber of Commerce, feared that the selective criteria as defined for the application of the classification of underperforming enterprises and underutilised assets being capable of application to many other listed and unlisted private sector entities whose enterprise names and assets can easily be added in the future as a part of the schedule by simple majority approved new enactments.