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Mihin Lanka first set up, then taken to Cabinet - Witness

A Cabinet Paper on the establishment of a government owned budget airline - Mihin Lanka, has been presented to Cabinet only after two months from its establishment in October, 2006, Treasury’s Public Enterprises Department (DPE) Director Champa Balasooriya said yesterday.

According to the certificate issued by the Registrar of Companies, Mihin Lanka Pvt. Ltd. has been incorporated on October 27, 2006. But, even the first discussion to establish a government owned budget airline within the Cabinet had taken place on December 1, 2006.

Although, it was supposed to be a joint proposal between Finance and Planning and the Ports and Aviation Ministries, the Cabinet Memorandum had been presented only by then Ports and Aviation Minister on December 20, 2006.

Balasooriya made these revelations before the Presidential Commission of Inquiry on the Malpractices of Sri Lankan Airlines, Sri Lanka Catering, and Mihin Lanka.

This Cabinet paper sought approval for several proposals including the ratification of the decision on formation of this budget airline which had already been established and also the budgetary allocation of Rs. 500 million from the Budget 2007. As this paper was presented subsequent to the Budget 2007, this had not been mentioned in the Budget 2007. However, all these decisions have been approved by the then Cabinet of Ministers.

The witness also revealed that several capital infusions had been taken place from 2007 – 2009 for Mihin Lanka including the aforesaid Rs. 500 million. The first tranche of Rs. 250 million of this amount had been made in March 2007 as a supplementary allocation from the budget. According to the documentary evidences available, this amount had been transferred to the Mihin Lanka Company via the Presidential Secretariat. The witness said that she did not know as to why it was given to the President’s Secretariat’s name. The rest of the amount had been given to the Mihin Lanka Company from the Bank of Ceylon (BoC) as a loan on a bank guarantee issued. For the first tranche received, the company had issued 2.5 million shares to the treasury in November, 2007.

It also came to light that the company had issued three million preferential shares to Lankaputhra Development Bank in June 2007 before shares are given to the General Treasury. The witness told that she couldn’t find any documentary evidence to prove if the prior approval had been given to grant these shares to a different entity by the Treasury Secretary, who is also the main shareholder of the company.

The next budgetary allocation of Rs. 500 million for the company was made through the National Budget 2008. The Treasury had released this amount in March, 2008 as per a request by Sajin de Vass Gunawardena, then CEO of the Company. From the Budget 2009, another amount of Rs. 6 Billion was allocated for the Mihin Lanka Company through the line ministry, Ministry of Ports and Telecommunication. According to Balasooriya, only Rs. 2.5 million out of this amount was released to the company in 2009.

The witness further revealed that the Mihin Lanka Company was failed to submit performance reports even for the first six months of the year 2007. She said that the DPE as the authority to supervise the government owned entities, by its DG M.G. Dayaratne on June 06, 2007 sent a letter to then CEO of Mihin Lanka, Gunawardena requesting documents on performance. She said another letter on the same topic was next sent to the Chairman of the company in October same year and the third letter was sent to the Secretary to the Ministry of Ports and Civil Aviation and copied it to then Secretary to the President and the Chairman of the Company Dr. Samaratunge in November. But, none of these requests were answered and no report was sent even by November 2007, she said. She said that the company had not presented even the Annual Reports of the Company to her department.

Balasooriya further revealed that that the Mihin Lanka had not earned any profit by 2009. It also had not a proper business plan instead of several business plans that were presented time to time. However, a letter from the Secretary to the Treasury addressed to the Chairman of the Company in May 2009 highlighted the importance of following a proper business plan and pointed out the inefficiency of the company, she said.

The commission will inquire the same witness into the loans that the company due to settle today.