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Treasury bond auction: AG quizzed on basis of loss calculation

Legal Counsel Chanaka de Silva yesterday questioned the basis of the loss calculation done by the Auditor General on the questioned Treasury bond auction which took place on February 27, 2015. De Silva suggested that the basis on which the AG has done the calculation seem rather ‘na├»ve’.

Auditor General H.M. Gamini Wijesinghe denied the suggestion and said the loss calculation was done on the basis that the government incurred a loss by shifting from direct placement method to a full auction based method when issuing Treasury bonds.

AG Wijesinghe was then requested to explain the formula with which he calculated the possible loss incurred by the government at the 27 February 2015 auction.

One element used in the formula to calculate the loss was the amount of bids offered at a Treasury bond auction, it was revealed. The amount of bids offered is advertised prior to the auction date. The amount of bids offered was used as the cutoff point in the calculation formula, AG wijesinghe said.

Arjun Mahendran’s legal counsel Chanaka de Silva asked AG Wijesinghe, if it is correct to take the bids advertised as the cutoff point and should not the AG’s department calculate losses incurred by all the Treasury bond auctions, where the accepted bids supersedes the advertised amount of bids.

The Supreme Court Judge Justice P.S. Jayawardena said the formula is based on a simple method, to which De Silva said he would rather suggest the term ‘simplistic’. Justice Jayawardena said, the common wisdom is that ‘simplicity is a virtue’, adding some amusement to the serious questioning directed against the Auditor General on his report to COPE committee.

It was also pointed out there is no formula or a method followed to decide on the amount of bids advertised prior to an auction. De Silva also questioned AG Wijesinghe on his opinion that the hypothesized loss incurred at the questioned auction was caused by the change into the auction method from the direct placement method.

De Silva asked why the Central Bank still issue treasury bonds using the auction method, if the auction method cause losses to the government.

It was also revealed at the Commission that the Auditor General had not included the official option sheet submitted to the Tender Board at the 27 February 2015 board meeting.

There are two option sheets regarding the 27 February 2015 auction. The first sheet was not submitted to the Tender Board, which was initially prepared by the Public Debt Department. This sheet suggests accepting 2.068 billion from the auction. The Public Debt Department has prepared the second option sheet when a directive was given by former Governor Arjun Mahendran to accept 10.5 billion. This option sheet, which was submitted and approved by the Tender Board, is accepted as the official option sheet for the 27 February 2015 auction.

Asked as to why the official option sheet was not incorporated in the report submitted to the COPE committee, AG Wijesinghe said, they were not aware of such an option sheet. We did not receive such a sheet when we were conducting the audit and preparing the report, AG Wijesinghe said.

AG Wijesinghe said his department only got to know about the second option sheet verbatim from the COPE report.

Former Governor Mahendran’s lawyer also pointed out to the Commission that the AG has also not incorporated the Time Sheet of the questioned auction in his audit report submitted to the COPE . The Time Sheet depicts the times at which the Central Bank has received the bids of every Primary Dealer.

De Silva asked AG Wijesinghe if it was not important to annex the Time Sheet, when he has stated that the bids received at the last eight minutes of the questioned auction appeared suspicious.

Commissioner Justice Jayawradena pointed out, that these documents should have been incorporated in the audit report submitted by the AG to the COPE inquiring into the Treasury bond issue.

De Silva suggested that the AG has misled the COPE and the Sri Lanka Parliament, by not providing all the information in the report and by reaching to conclusions regarding the questioned auction only at surface level. AG Wijesinghe denied the suggestion.

De Silva pointed out to the Commission that there are striking similarities between the COPE report on the questioned auction and the AG’s report on the same matter.

The two documents that were not included in the audit report were included in the analysis of the questioned auction, provided to the Commission by AG Wijesinghe.