charindra chandrasena  00:08
Hello, Dana.

Dhananath Fernando  00:09
Hi, Jared.

charindra chandrasena  00:09
Hi, Riyadh.

Speaker 1  00:11
Hi, hi. Hi.

charindra chandrasena  00:11
You were not here last week. Yes, yes. We had Ravi in. Ravi was competition

Dhananath Fernando  00:16
now, huh? But only of us. Except challenge, right? But

Speaker 1  00:22
only thing both of us look a little bit alike, you know. I

Dhananath Fernando  00:25
was told no, he's apples

charindra chandrasena  00:26
and apples, apples and apples. Ravi is

Dhananath Fernando  00:28
getting an audience, and there's I don't know whether there's a fake accounts or Ravi's.

charindra chandrasena  00:34
There was some good comments, yes. But yeah, so we we have quite a bit that happened last week,

Speaker 1  00:46
and quite a bit happening today actually. Quite a

charindra chandrasena  00:48
bit happening today. Yes. So today, former President Mahinda Radhabaksha is actually he went in he went to the the bribery commission Siabok, and he was questioned, and as of recording, he's still being-I mean, he's still providing his statement. So we don't know how that's going to pan out. But before that, what happened last week was that former Sri Lankan Airlines CEO Kapilish Chandrasena was found dead, and there's an investigation going on about what what exactly happened, and we don't know the results of that investigation, the findings

Speaker 1  01:33
either. We don't know. I mean, it can be. I mean, what they're saying, it can be a suicide, can be a homicide. We don't know

charindra chandrasena  01:37
exactly. We don't know, and we are not going to speculate. Absolutely. But speaking of these two incidents, the fact that President Rajabaksha is is currently giving a statement, and the fact that mr. Kapilishander was found dead, and that he was linked to the Airbus deal before that, and generally, what I want to get on get into is about Sri Lankan Airlines, but more broadly, SOEs, state-owned enterprises. There is a there is a belief, and I think Advocata's stance throughout has been, if you had to paint it in black or white, you would say Advocata is largely anti-SOE. Dana, is that accurate?

Dhananath Fernando  02:28
Yeah, I mean anti-SOE is in the sense

Speaker 1  02:31
it's a bit of a harsh word. Yeah, but what we say is the

Dhananath Fernando  02:33
role of the government is not doing business. Yeah, I can reason it out, but yes, in a way, it's an anti anti SOE. But basically, there's a reason why we say for government not to do business, because actually their role has been the governance. Their business has been the governance, because that cannot be done by anyone else. So that's why we say government do governance stick to governance, right? The business to the private sector.

charindra chandrasena  03:02
Right now, the question I want to get at, and and you can give your views. I am going to ask you: Are SOEs vehicles for corruption? Because we have seen a lot of incidents. Now there are specifically three SOEs that come up in this conversation, which is obviously Sri Lankan Airlines. Then you have CPC and CB, Ceylon University Board and Ceylon Petroleum Corporation. Yeah. So if you take it as it's aviation energy, meaning fuel, and then you have power. Power. So yes, fuel and power. Yeah. Let me put that blunt question to you. Do SOEs encourage corruption?

Dhananath Fernando  03:51
Yeah. So this is a very interesting question, and in our analysis, Sarendra, yes, it is absolute yes. Okay. I'll tell you why it happens in that sense. Because these corruptions, now okay, what is basically you know if you're stealing something, the common thing is okay. Let's say it's a underworld gang or something. Okay, they just comes, they put the pistol, they take the money away. Okay, someone come to the bank, they rob and go, and there's a category that who can do that. Basic form of stealing, even in a household. Okay, you have someone working, let's say, taking some, you know, stealing some money, jewellery, something. That's a basic form of stealing. And the other form of stealing is you have to have a transaction to happen for you to make money, and the state-owned enterprises are largely why we call it vehicles for corruption. These are the entities that you can make transactions happen, especially the large-scale transactions happen. Now look at Sri Lanka Airlines. Bus, we know these are millions of dollars worth of transactions because when the transaction value is higher, it's easy to keep a margin. You know, keeping

charindra chandrasena  05:11
a small commission from a large transaction. Yeah, it could be 0.5% Absolutely, that could be in the millions. Exactly,

Dhananath Fernando  05:19
stealing 70 rupees from 100 rupees is difficult, but stealing 100 rupees from 1 million rupees is easy, right? No one notices it. No one really even bothers to pinpoint. And look at the three sectors that you mentioned: aviation, power and energy. Look at the size of the, I mean, the coal to the electricity, even solar, everything, diesel, same with petroleum, diesel, petrol, everything. So when the transaction values are larger, it's easy. And of course, the the problem is, of course, there are large transactions happen in any sector. It could be in private sector, it could be at let's say John Keels to banks to everyone. But when you don't have the governance structures, or when you don't, when you are not open for competition, because okay, in a private sector company also there can be a massive commission that someone can keep. But that will affect automatically on your competitive advantage because when you are losing out money, either you have to increase the prices of your product, or like your bottom line is going to shrink, and then the shareholders asking like, why I am investing in this company because I can get better returns. So all that affects when you're in a competitive environment. But when you're not in a competitive environment, then you have that massive opportunity that you can keep a margin of those large companies, but

charindra chandrasena  06:42
but then competition alone, according to you, I don't think that solves the problem. Absolutely, right. So you can have an SOE and four private players. Does that reduce the the propensity for corruption?

Dhananath Fernando  06:56
It is, in my view, it is fairly. It has an impact rather than having a complete SOE monopoly, but when you have SOEs itself, when you know that you are backed by an unlimited like donor like the treasury that you have no real responsibility, then it opens for corruption. And I think that's Shari one reason. Whoever the government, there that's one reason why they don't want to divest these industries because those are vehicles of corruption. In fact, we we launched a report in 2018-19 showing that how these SOEs have become vehicles of corruption. Because if you look at auditor generals' reports, if you look at Cope, if you look at in fact the bribery commission complaints, mostly it's on SOEs. Even you look at what I'm talking about proven cases. Former Minister Mahinda Nandaluk Gamage and former Minister I forget his name who was for who was the Satoso Chayama. So they both got to this corrupt. I mean they got the verdict while they were work. I mean, through the state-owned enterprises, Satosa was one. I think the both were under under Satosa.

charindra chandrasena  08:06
Nalin, Nalin,

Dhananath Fernando  08:07
Nalin.

charindra chandrasena  08:07
I forget his name. Yeah,

Dhananath Fernando  08:09
mr. Nalin. Right. So they were undersois. If you look at most of these corruption cases, undersois for the same reason because the transaction value is higher and you have limited oversight and your appointment process is not competitive. I mean, if you are coming through a very competitive process, you are bound to protect your reputation. Now here it's like all political appointments, but even if you make it competitive, the our single market you should have feel the pain for the money that you own. Like before, we spend something. We think twice. Even it could be a small amount. Even when when you are buying a coffee, we have that logic, you know, in our head like whether this is worth for my money. But when it's someone else's money, if I if you are buying me the coffee, of course I may not think the same way that I am thinking. I'll just think, okay, why not? Maybe because of courtesy and kindness, I may not buy the most expensive coffee in the menu, but generally I don't think on you know. So that's why I'm saying it's basically the vehicles of corruption, and that is why we believe that the state should not engage in business because you can't have that. You you know these are you can't say we are anti-corrupt, also pro-business for state because those are going into different areas.

charindra chandrasena  09:27
Okay, so now I want to get Riyadh in on this. Now,

Speaker 1  09:30
so he has laid out his argument about why why so is our vehicles for corruption. Is that one of the reasons that the government tends to hold on to them, so probably this. You need to think now. Corruption comes in different forms and different shapes, right? So one point of corruption is what Dana spoke about. Another part of corruption is actually your stuffing your district or your electorate voters or people who support you. Various things into jobs there, right? So that that has happened here. No, I mean you don't have to this thing. I mean, in fact, the

charindra chandrasena  10:07
the state sector has has been bloated bloated because of that,

Speaker 1  10:10
right? So we have a bloated state sector because of that. So that's another level of corruption. Then you have looking at another level of corruption where you're not competing with anyone. You're mostly your mostly your monopolies, and then the monopolies are supported by the treasury, which is like Aladdin's lamp, right? So every time the the the SOE is running at a loss, so run runs out of money, basically they go and rub Aladdin's lamp, which is the treasury. A genie comes out who probably is the treasury secretary, who is basically given instructions from the top from the government to to give them cash to basically recapitalize them, right? So this is where the problem is, right? So that is one part of the whole thing how it works, and then the other part is the actual employees who are there. Now, if you look at Sri Lanka Airlines, since we spoke about it now, Sri Lankan Airlines, it's not a normally you know end of the year you need to get your accounts audited, right, through a chartered accountant or accountancy firm, and the main thing what they say is it's an ongoing concern, right? It's not a problem. It has enough liquidity, has enough capital to go for the next year, so that's how you say your accounts have been qualified. Now, Sri Lankan, there is a note basically which says that the treasury, if the treasury support is there, basically the the the the company is null and void. I mean, if the treasury says tomorrow, okay, we are going to withdraw all the guarantees, so we are going to stop giving you money. They are gone. They are toast, right? So that's the other part. Now, if you take a private sector company which will be, which will run and which has to run profitably and at a certain level of profitability also, then only the people who are working there, right, will get the salary. They, they first of all, they'll have the employment or the or the employment contract will be terminated. The company goes, company goes under. Then no, you have to you know there's a process. So then the employment contracts are terminated. They have to find jobs somewhere else. Now in this, there's nothing like that. So their performance levels inside the company of the staff and the employees and the people who work there, what is the level of performance are they are putting to keep the company afloat?

charindra chandrasena  12:19
What you're saying is that the employees in a private company have a built-in incentive to perform. Sometimes even over and above expectations. Not

Speaker 1  12:31
even incentive, a built-in duty to perform.

charindra chandrasena  12:33
Built-in duty to perform. Yes, duty. I think duty is there. Yeah. Anyway, in governments also, it's just that that. But how they have incentive, right? Yeah. How they because if they know that it's not going to boomerang on them,

Speaker 1  12:45
yes,

charindra chandrasena  12:45
they are lethargy or they are inefficiency or they are corruption. Not going to boomerang on them.

Speaker 1  12:51
Yeah.

charindra chandrasena  12:51
Then they are fine because if they essentially what you have is job security.

Speaker 1  12:55
Yes.

charindra chandrasena  12:56
Which you don't have in a in a private company, right? So, so what? What you're getting at with all this is that the question I asked was: Do governments hold on to SOEs despite the the argument that Dana is making? Yeah, because they want to enjoy exactly. Yeah.

Speaker 1  13:19
So the thing is, it it invariably gets supported by the treasury. So treasury. So there is a distinct. No, I mean especially in certain parts of the public also. They think the the money that the treasury puts it's from their money. It's it's just some magic money that comes from there. It is their money because the treasury get you know treasury gets the money for through taxation. So it's your tax money that's going in. The tax money that can be used to build a school can be used to build a road. Can be built to you to rebuild a bridge, upgrade a hospital, or build a new hospital. That money is getting channelled to that, and that money everyone in the country is paying for it. I mean, if you look at, for example, Sri Lankan, how many people? What percentage of of Sri Lankans that have actually flown on Sri Lankan? Right? It's a minusculely smaller one. I don't think it's even 1% I mean, definitely it's below 3% but I don't know. But if you look, but everyone is paying for it. I mean, people who have not even seen an aeroplane in real life, probably the only aeroplane they have seen is once you know once in a blue day they are walking somewhere. Suddenly they see a plane going up, right? Couple of 1000 feet up, but that's the only plane they probably would have seen. But they are also paying for that, you know, for that cost of maintaining the airline. They are paying for it, so it's the same with every other. Because normally, if you take in a in a private sector, there are things like you know they expect performance reviews are done and things like that. So these SOAs we don't know because they have been running continuously at losses, so where are the performance reviews going?

charindra chandrasena  14:45
Okay, now let's take the arguments on the other side. SOEs, because they are managed by the government, the state, there is a greater public interest public interest quotient. Than a purely profit-oriented private company. So an example could be, say, banks, right, or even telcos, probably, where they would establish their branches in high-density areas, but they won't go to I don't know Tango or wherever far away rural area and establish something. Even though there might not be a great financial benefit in the initial stages, they are not going to take that loss, and they are not going to think long term. Okay, this area will develop, and therefore after that, and will help that area develop. That kind of thing, do you dispute that?

Dhananath Fernando  15:48
Yeah. So if I were to add, I'll give you a classic example. Now I'm sure in every household there's a small first aid box. You know, there's a you know roller plasters, a pair of scissors, bandage, some cream, something.

Speaker 1  16:02
Yeah.

Dhananath Fernando  16:03
Because if there's a mine accident that you need it, but actually, if you look at chances of death, you will likely die rather than like a cutting your finger of a heart attack or something like that. So ideally, you should have an ambulance because if you really want to minimise your chances of death, you should invest in an ambulance or like a hospital, right? But it doesn't happen in that way because what you do is you have a first aid box at home, but you don't invest in an ambulance. The same logic applies on the. There's a point because when you have completely profit oriented, for an example, rural routes may not run buses, banks may not expand it to the rural areas. So that's where what we say is okay. That's where government can incentivize. But to incentivize, you don't own a bank just to expand branches, like just to get rid of a heart attack, you are not buying an ambulance. You just keep a first aid box. Like you have a probably you have saved like the you know hotline of an ambulance. You can call them faster, but you are not investing on an ambulance fleet. Same thing. Like if you really want to expand, you give for an example for the banks who are already in operation, saying that okay, you have to expand it to these rural areas. We will subsidise the cost of the branch, right? That's perfectly fine. Even if you are running routes, I think we have discussed about in another podcast. Even let's say the the rural bus routes, if you because when you have like 10 families, it doesn't make sense to, you know, run a bus like you know because passengers may not even occupy the seat capacity. But what you can say is okay, you do two turns or three turns, we will pay you a subsidy based on the number of turns. So, but you really need not to own a bus to do that because then your cost is exponentially high. Because then you have to have governance structures, repairs. You have to have a separate garage. You have to check the procurement of your spare parts. Then you have to check like the procurement of the buses, where to park, the insurance. You are completely buying an ambulance rather than you know dialling and all. So that's why we say if you the government want okay use taxpayer money for that. There's no dispute on that. But you are not going to own a complete bank just because you need to do banking.

Speaker 1  18:30
Right. Okay. So can I just add a little something like that? Now, now the thing is we just spoke about now. If you look at let's say a bank expansion, let's say you want to go to a rural village or something, one particular place where the private sector doesn't want to go, right? Because normally the private sector goes after profits, right? So that is very clear. But the thing is, there's something called regulation. For example, the banking sector is regulated under CBSL, right? CBSL can naturally say if you're expanding so many branches, one branch has to be. You can bring it through regulation, saying that if you are expanding, one branch has to be from a rural area, right? And they can give a list saying that you have to go. So there are other ways to do this. I mean, this doesn't mean that the government has to get involved in everything. That's why what we say, what we have always said is, you need regulation. But before that, you need a regulatory framework, right? And the regulatory framework, the regulator has to make sure that everything works under that framework. You get what I mean. So that is something that is something that I just want to add into the into the discussion. Saying regulation is something that it's there for for for needs like this, right? Yeah.

charindra chandrasena  19:34
So since you since you brought up the central bank and the banking sector, I go to my second argument: We say the SOIs are corrupt. Other private sector companies is the private sector completely clean, and people will be asking that in light of recent events also involving a bank. They will be asking that question, and it's allegedly. Absolutely, guys. Okay, so one of you can take this. Why are we acting as if there is no corruption in the private sector?

Dhananath Fernando  20:09
No, absolutely, there is massive corruption in private sector. Even I think the classic case is the Abbas case. For an example, this bribery case was. I mean,

charindra chandrasena  20:21
so you you can actually give a give a bit of a context. Exactly. So actually,

Dhananath Fernando  20:25
there are two main aircraft manufacturers, no, Airbus and Boeing.

charindra chandrasena  20:30
Yeah.

Dhananath Fernando  20:30
So because of the nature of the business, Airbus globally, I mean, bribed so many high level executives to basically supply Airbus, aircrafts into their fleets. It's not in like only in Sri Lanka. There have been multiple countries, so that even at global scale, the private company have basically used unethical practices for their business development.

charindra chandrasena  20:59
And a related point is that this all came to light?

Speaker 1  21:03
Not here.

charindra chandrasena  21:03
Not here. Exactly. It's an international jurisdiction where it was found. Sri Lanka is one of the incidents. Exactly. And without it, it may never. It may never happen. And

Speaker 1  21:14
and they were and they were and they were and they were fined also. I think in a UK court. I think if I'm not predicting, I think I think they were fined something like 3 billion pounds. Yeah, you mean Yabas? Yeah,

Dhananath Fernando  21:25
and Yabas case. Yes, exactly. So that's why. So this came in international jurisdiction, and then also same time there was a travel ban for some of the executives who were involved in this corrupt base. That's why this came to the limelight, right?

charindra chandrasena  21:38
In Sri Lanka, it was it was mr. Kabari Sandhasena and mr. Udayanga Virutunga, if I remember correctly. Correct.

Dhananath Fernando  21:44
So so that's where it all came about. So exactly the private sector is corrupt, but the difference is when the private sector when they practice these corrupt bills, it may not transfer to the taxpayer. It will has to be borne for the shareholders of the company, because when it's the state run the business, those losses are basically suppose. I mean, it was supplemented by the taxpayer money. So taxpayers who have no control, who are just paying taxes, they are just paying taxes for everything. They are paying taxes for healthcare, education, transport, everything, but of course, part of that is also going for this. But when it comes to the private sector, let's say when it's corrupt, when they are losing the businesses or like when their reputation being tarnished, the shareholders have to bear that loss.

Speaker 1  22:34
And then the other thing, then I just want to bring this in. And if the shareholders are not very happy with it, at the AGMO, they can call for a special extra EGM. Special AGM, special AGM, not AGM. There's another word coming to my head. So they can call for a special this thing. Oh, they can actually EGM. No, you mean extraordinary. Yeah, extraordinary meeting. Sorry, that was the word I was looking for. So or at the AGM, I mean they can actually have a vote. I mean, if they want, I mean, if you want, the shareholders can get together and they can vote the what you call the chairman out. They can vote the CEO out. They can vote the MD out. They can dismiss the vote. So the shareholders have that power to do this. Have the say. I mean, there is a say at some point. So that's the difference. There is absolutely no say.

charindra chandrasena  23:16
The the chairman of an chairperson of an SOE can't be voted out. Voted out. Exactly, it is the

Dhananath Fernando  23:23
consent of the minister, and that's why when when these corrupt things comes, why it is snowballing? Because let's say you are the minister, you are appointing me as the CEO. So basically, I make the deals. So obviously, you might be thinking, okay, look, I appointed this guy under your concern. I mean, for you, it's just a matter of a letter whether you are appointing me or Yat or whoever, right? So you are making money, and I am the one who appointed at my complete discretion. So obviously, there is a case that you know that corruption is going to spill

Speaker 1  23:59
over because

Dhananath Fernando  24:00
then I also think, okay, Charindra was the one who appointed me, so I have a responsibility to take care of Charindra. You're

charindra chandrasena  24:06
beholden to me. Beholden. It could

Dhananath Fernando  24:07
be in any form. It could be as you know financing your political campaign. It could be in any form. And at the same time, for me to do that, I also think, okay, I have another you know chain downwards. I have to support, so that's why these corruption deals generally is going to snowball because there's a it's a long tail of people who making who have the discretionary power and everyone gets that's why even people say when you go to I mean no offence to any government office but when you when you start bribing it's not only one person you have to bribe like there's a chain because, of course, for the same reason. So that's where these things become tricky, and that's why we completely we say state it's not state's role. One point to add: a lot of people think, and also we get confused with the time frame, Charit, because some people think, okay, look at Vietnam, look at Singapore. Singapore Airlines is like owned by the Singapore government. I look at China exactly. So you, what you need to understand is all these. You know, there was a earlier the why the state went into business first because there was no capital for the private sector for heavy investments. Because for an example, let's say an airline industry, very capital intensive, so private sector really one person or one company may not have that amount of money to completely put into a unknown industry and to make it profitable. So as a result, over like 1940s, 50s, governments were the one who ran airlines. But after some time, there were enough private capital. So what the Vietnam everybody did was even in steel industry. You can see with Do I Moi? I'm just mentioning Vietnam because the Vietnamese president visited Sri Lanka. What they did was slowly, slowly they divested. Like there were multiple. I mean phases. First, it was the only there was only one state company. So then they allowed other companies to basically come in, and then they on the companies that owned by the government, they became like a majority shareholder, and they infuse capital, and then slowly they became the minority shareholder, and slowly then they completely came out. So it take about like couple of decades to happen everything together. So there was a time period that sometimes when the government really, I mean, when the private sector really did not have money, they invested. But that was in 1940s, 50s. Now things have completely changed. It's like you know, just because Arjuna Ranatunga and the team won the World Cup, if you send the same team today to win the World Cup, knowing that okay, Arjuna Tunga and Arvind were great cricketers, but just because they wanna, just because they wanna World Cup for Sri Lanka doesn't mean that the same team can win it today. Same thing applies for the state-owned enterprise. That

charindra chandrasena  26:50
was shown in practice because in the 1999 World Cup, they went out in the first round itself, and that was essentially the same team. Absolutely. So yeah, point taken, but then I'll I'll I'll put another counter to this. Okay, say we take the SO is out. This is related to my previous point. Now, in Sri Lanka, there are certain industries which have this unofficial cartels where the private sector, it's like OPEC, but in a on a smaller scale, they get together and they fix the prices, right? Now, what is to stop that happening in the absence of a state-owned player. Now I'll take another example where supply is concerned. In in LPG, LaF's gas is struggling to provide the sufficient supply. Litro has been picking up the slack, and they have been largely, you know, delivering as promised. If there was no littoral, we would not have gas. Would we have gas?

Dhananath Fernando  28:12
Okay. So yeah, I'll bring it. Yeah. So so

Speaker 1  28:16
so let me just reiterate this. Normally, when you take corruption, you need two hands to clap. You can't clap with one hand, no. And if you take corruption, normally you have a corrupt government government system or state. You get state corruption. When you have state corruption, definitely you are going to have corruption in the private sector because you need two hands to clap. It's not the other way around, where you have a very corrupt private sector and you have a very clean state sector that never happens in the world. So first you have to first get to go there. Okay. Right. Okay. Right. You have never seen in the world. If I'm mistaken, please even if there, please correct me. I have never seen in my life where you have a clean state sector and a very corrupt private sector. It doesn't work. You have a corrupt state sector and you have a corrupt private sector. If you take Singapore, the Singapore the state sector is not corrupt. That's why the private sector is in Singapore. In Singapore, it's also not corrupt, right? So that is number one. The the the other question that you brought was on yes. So I used

charindra chandrasena  29:18
that as an example. Yeah. So where the where the state sector has saved the day basically come to the rescue of the consumers.

Speaker 1  29:25
So the thing is now gas also. If you if you go back a couple of years, if you go back gas sector also littorals had lot of issues. I mean it has gone into cope. I mean if anyone wants the whole cope recording is there that was done a couple of years ago, where the I think at that time Harsha was the Harsha Di Silla was the I think he was the preceding chairman. Yeah, he was he was the preceding chairman at that time. So if you watch the whole thing, there's a whole corruption case going there also, right? This year I think this year nothing of that sort has come out. So that's another matter. But then again. If you look at Laugh also, Laugh also had a lot of issues. Now, for example, they have a overseas company that was mentioned that was that made it to the honours list of the U.S. State Department of a company that has that has had dealings with quote unquote questionable gas, which they have they have basically bought sanction gas. So so with that only I think Lav got into trouble. So it's a completely different thing. Another reason is why is only two players in the market? Why can't we have another player? Why don't we open it up? Government's job is to open it up, bring much as possible players into the market. Then only the public get the best deal, right? You can have state company to compete. That's fine. So you have multiple things, and after that, if that public company, sorry, the private company that has come with their own private capital, if that business doesn't work out for them, it's their loss. So before they come in, they will you know do a complete market research and all, and check. Okay, there are already two existing, right? Can we be the third? Can we compete with Litro and can we compete with Lav? So they will take that call. But the problem is, you know, the market is closed. No, they are not allowing other people to come. Right.

Dhananath Fernando  31:13
And also, Jari, now when you are when you are on the, if you look at the gas example, some to bring the cost down now. In this case, why the gas is only through litter is because basically we are not allowing other players to enter. Of course, there is also a challenge. We have to admit Sri Lanka is a small market. Sometimes getting five six players it doesn't make sense. So how you can bring five six players is there are cost factors. For an example, if every gas supplier has to store gas in their own storage facility, the cost is going to go up. Yeah. So ideally, you have some common facilities where you give the shareholding of all the companies. It's like the CPTSS that the CPST, CPST, you know,

Speaker 1  31:53
petroleum storage company.

Dhananath Fernando  31:54
So where you you have a common storage where everybody invests. So then for them also, It's capital-wise. It's basically quite reasonable. Yeah, you're

Speaker 1  32:04
right because because the issue is if you look at now, for example, since we are touching upon on gas, gas is one big problem even for litro. Litro can only hold 8000 metric tonnes of gas at any given time at their storage, right? So 8000 8000 metric tonnes of few days, right? It's basically four days you're done, four five days. You're done.

Dhananath Fernando  32:21
So you have to do a continuous continuous supply has to come.

Speaker 1  32:24
So so the it has got to a point where every two or two and a half days or maybe three days between two to three days a ship comes and pumps gas into the terminal, right? Because the reason is one thing we don't have we don't have storage. Second is we don't have we can't bring big ships into the country because the the the the gas mooring point, which is in middle of the sea, is too shallow. So they have to bring ships with lower drafts and pump. So these are things where littoral also or anyone who's there, where they can get into a public kind of partnership with another guy and say, "You all come. We will allow you to use this thing. We can we can expand what you call we can expand our storage right maybe we can double it or triple it or whatever right and you can invest into that you can invest into into the pipeline that needs to go into the sea so we can have bigger ships that will that can come and pump because the reason is the smaller the ship is the cost of a litre of gas goes up. Yes. Yeah, because it's a straightforward transport issue, right? I mean, if for example, like if you were to take something with 10 three wheel rails or small lorries, if you can take it in one big lorry, obviously your cost per unit comes down. Yes, it's simple mathematics. Right.

charindra chandrasena  33:34
Okay. Dana, you want to continue or shall I?

Dhananath Fernando  33:37
No. What I want to say is also that I mean, when you people because this conversation started with the former president as vehicles of corruption. A lot of people think this corruption issue can be sorted. I mean, generally how people get carried away is okay. We can appoint honest people, is one way to think about it. And also, you think you basically have proper enough regulation that you even you can take the money kind of back, but my point is both won't happen because even the when you don't have that when you don't have the responsibility of investing your own money, you generally doesn't be. I mean, you may be the honest person, but your decision making is not sharpen enough. Will not sharpen enough to make the best choice. There,

charindra chandrasena  34:25
then I'm going to ask you about now. For example, tourism. Sorry, transport board. SLTB. Now, SLTB. The last year, and I don't have the figures with me now, but they had a good deal, right? So somebody could point to that and say, "Okay, a new government has come in with a new mandate, which is anti-corruption, and therefore SLTB is performing well. Right? It got to such a level that the private bus association gentleman called mr. Always on the news and media. Aka

Speaker 1  35:02
bus came loo.

Dhananath Fernando  35:03
Yes, right. I didn't want to use that term, but yeah. So he is saying, why don't you? I mean, use the private buses. Metro is a bad bad implementation. All of that. Now, couldn't somebody point to these examples and say yes, with honesty, with sincerity, with competence, we can do it. No, there there are cases the state-owned enterprises also make profits. Let's say even the most profitable company ever is a is the BOC. I mean, I think they have profits. I mean, no bank has ever made profits like BOC, but it does necessarily doesn't mean. I mean, no offence to BOC. I mean, they are they're doing a wonderful job, but when you compare to the asset base, or like when you look at how the business operates, they have an advantage because most of the government transactions, probably government employee salaries, that goes to be using because of that they are making a profit. Same, there are companies who make profits, but it doesn't mean that this will be sustainable. Like one, that's that's number one reason. So that's what I say. It's like this. The same batsman, he may not take the same shots in a test match, like what he does in a T20, because in that environment your decision making process is different, right? So it's the same way you may be the most honest person, but it's when it's your money, when you're responsible for your stakeholders, when you're responsible for audit committees and everything, your decision making process is completely different because you are trying. You are in a more. You are in a mentality that okay, how how can how can I make the best out of every buck that I invest? Yeah. But when it's not your money, when you are not you know for stakeholders, you are honest. You are not maybe corrupt, but you may not be competitive enough to use the maximum resources of the economy. Yeah. That's number one. Number two, on the on your question on the private sector, remember what Advocata and what we say is we are pro market, not pro business. There's a big difference between pro business and

charindra chandrasena  37:13
so pro

Dhananath Fernando  37:15
business is okay. Allow the business sector to businesses to prosper. Yes, definitely the businesses has to prosper, but businesses has to prosper in a market environment. For an example, if a private sector company becomes, let's say, monopoly, it could be the same repercussions as the state sector. So we are not saying let's keep the private sector monopoly because it could be the same consequences. So, but what we are saying is a lot of the market system operation. Now, if you look at all the para tariffs, or like how basically in major sectors like construction, food items, these are private sector. What they are doing is they want to basically have a very high tariff to avoid competition. So that's pro business. They are making massive amount of money pro business, but it's not pro market because of that. The the poorest of the poor, the people are going to suffer because they have to pay very high prices for construction, for food items, and all that. So that's why I say we are pro market.

charindra chandrasena  38:09
On that, just for people to have an understanding also about Advocata and your stance, you're pro consumer.

Dhananath Fernando  38:18
Absolutely.

charindra chandrasena  38:18
Are you pro consumer?

Dhananath Fernando  38:20
We are pro consumer because in any any any economy, consumer is the centre. It's like the education system. The student is in the centre. It's not the teacher. It's not the principal. It's like the consumer. You have to get the lowest price, the best quality to consumer, and you have to have the choice. But if you give it to a business, okay, they will say like what Henry Ford said, no, the car it has to be black. You know, if you are having only one car company in the world, you can't have that. You have to have all sorts of cars. You have to have all sorts of whatever the commodity. So that's the second thing. The third thing is, lot of people think you can having better regulation, you can bring the money back. I'll give you this classic Sri Lankan Airlines case. Now, Sri Lanka Airlines case, what it was the the what was in that court case was in the UK, was that the offered bribe was 16 million US dollars, but actually what we have received as bribe according to that cases, was just $2 million, but in that process we lost about 200 million, which we cannot recover. I'll explain how this happened. Now the case was at during that time after the war, we had a massive tourism boom. So without an analysis, we wanted to expand the Sri Lankan Airlines fleet, so without any analysis, we wanted to buy six A330 AR buses. Each AR bus, when we were buying, we have requested 1 million US dollar bribe. 1 million into six, 6 million US dollars. Right, and then of course you you know aircrafts manufacturing is not happens like you know buying a cake of soap from the shop. You have to manufacture customise. So as a result, during that period, because tourism was booming, we leased six aircrafts of A 330, and for renting it, we paid additional 200,000 for each aircraft. I think the the actual amount was 800,000 US dollars. We paid. It was a dry lease. It was a dry lease. We paid 1 million. So approximately about $1.2 million a month into 12 into number of years. I think we ran that lease for about five six years, so when you combine that and the 6 million, you get the amount. And then it wasn't over there. Then we realised A 330 is probably not the best

Speaker 1  40:52
because it's narrow body.

Dhananath Fernando  40:53
It's narrow body.

charindra chandrasena  40:54
Yeah. And

Dhananath Fernando  40:54
then you want to have A 330 new or something. That's a wide

Speaker 1  41:00
body one. Wide-bodied

Dhananath Fernando  41:01
one, and for that you again ask the same bride, and then you release it out, and then the new government comes. That's how powerful the government. They came and they thought, okay, this doesn't work, and then they cancel the order.

Speaker 1  41:15
And you get a penalty after. And when

Dhananath Fernando  41:17
you do that cancellation, you get a penalty for that, and actually, they confiscated some of the money that we paid early because we cancelled your because you have already started the process and

Speaker 1  41:28
yeah, yeah.

Dhananath Fernando  41:29
And then when you combine all that, what you have basically to get 16 million US dollars of bribe, you have only received 2 million. But your cancellation fees, rest of everything running, I mean leasing the aircrafts, everything adds up to about 200 million. Now even if you all prosecute and you know take the money back from this Brunei account or wherever, what you can maximum recover is probably about two 3 million US dollars. But at the same time, you have incurred a loss of 200 million, and I am just saying the amount of 200 million. But look at the interest cost because these 200 million Sri Lankan Airlines really did not have any money. They have borrowed it from by issuing bonds, and borrowing it from state, and for that you have to pay interest, and that accumulates in your balance sheet, and that balance sheet is no longer feasible even to sell for some money. So if you look at the entire loss for the economy, is massive. And then you have gone to Beepers Bank, Bank of Bank of Ceylon, and even in their balance sheet, mostly it is basically the based on the credit guarantees given loans for Sri Lanka and Ireland. So now the banks are also in trouble, and then President Vikram Singh came and like he absorbed $500 million worth of debt from this airline. Now look at that, just that to further 16 million bribe. I mean the bribe has also on a loss. No, you have only received 2 million, and then you have this entire. That's why I said when state starts doing business and when you think you can take the money back, you really cannot. Even if you do that, it is not the full amount. So that's why it's a never-ending cycle, and that's why generally we recommend that the state should not get into business because even if you are the most honest person, your decision making is not to be on that competitive environment. The second thing is, even if you can recover the money, you really cannot recover everything because in that process, there's lot of other losses that spillover losses happen, which is very difficult to recover. Yeah,

Speaker 1  43:31
and just one more thing, I just want to touch upon. I think this is important. If you look at regulatory also bodies, the only like 100% like proper regulatory body is the central bank of the country. If you look at all other regulators and all that, I mean, minister can put and poke and put people and all. Even the regulatory bodies, you you can play around. For example, TRC also you can appoint people. But normally, if you look at the central bank, central bank is probably the most proficient regulator in the country. Are they are

charindra chandrasena  43:59
they perfect?

Speaker 1  44:00
No, no, they are not. So what I'm saying is, they drop the ball with the whole NDB matter. That's a that's a they also drop the ball on that. That's a different matter. But normally, if you look at the proficiency, generally the central bank is probably the best regulator in the country, right? So because of that, when you have the best regulator also, and when they have things like, for example, the banking sector, because worldwide people are very scared about the banking sector, even the minister of income, because end of the day you are playing with money, so because of that, normally you always have proficient people there. So if you if you look at the banking sector, also the central bank, they can if if they feel if the board is also trying to put someone a board of a bank is trying to put someone that they feel is a bit of a dodgy character, the central bank can stop it, saying there's something called fit and proper, they can stop just because the board thinks they should he should be he or she should be appointed. If the central bank thinks no, this guy's track record or this this person's he or she the track record is not very good, they can stop the appointment. It's called fit and proper. So if you look at that, generally the central bank, even though recent there have been some issues, but generally. If you look at all regulators in the country, I think central bank is the most proficient, right? So that toss has an impact. No, no. For example, if you look at the the state-owned banks, because the regulator is very you know very proficient, generally the system also runs very proficiently. I mean, you can have these incidents one or two. Yeah, but obviously, I think yeah, largely

charindra chandrasena  45:22
people are not complaining for the banking sector.

Speaker 1  45:24
Exactly. So because of that, you need to check and see. Because even if you take, for example, some people say might say the look at another. I'll just bring an example because we both of us all have experience in. If you take the TRC, certain things in the TRC hasn't happened. For example, number portability. These things should have happened long time ago, so they haven't happened. So that probably might be a reason why you can think that particular particular regulators are better than some other people. Yes, right. So that is there, and then you have the whole other regulatory issue where it becomes what you call the umpire. Umpire becomes part of the playing field, right? Or the referee, suddenly the referee, referee is not blowing the whistle; he's kicking the ball and going down the field, right? Because now you get that with the CEB, right? So, so there are problems like that. So that part has to be actually on. That's what I say. You know, when we started the discussion, also you need to have a proper regulatory framework. We don't have a proper regulatory framework that needs to be done, and that regulatory framework needs to be enforced by proficient people. And that's the only one place I see in Sri Lanka is the CB, right? I'm not saying they are perfect. Yeah, they are far from being perfect with what has happened in the last two months. But what I'm saying is, they are the most proficient.

charindra chandrasena  46:42
Yeah. So what you're saying is, if if there are SOEs or even if there aren't, the regulation is essential. Yeah. And and for that regulation to be, but the regulation

Speaker 1  46:52
has to be fair by everyone. You can't have a you can't have a regulation which is you know you know that helps A and you know puts B at a disadvantage.

charindra chandrasena  46:59
Yes. It has

Speaker 1  47:00
to be fair, and it has to be a fair playing field. Yes, yeah, right. And

Dhananath Fernando  47:03
Australia, that's why I said I know we have to wrap up. That's why I even said when President A K D became to power, this Sri Lankan Airlines and running state-owned enterprises is going to tarnish their image.

Speaker 1  47:16
Yeah,

Dhananath Fernando  47:16
and as I said, it was proved. I mean, not for any government, right? Now the coal case, Sri Lanka Airlines, even the aircrafts that we leased out, basically those corruption cases are basically through state-owned enterprises. No, this coal companies are state-owned enterprises, right? Even if you look at President Rajapaksa time, this Sri Lanka, this is massive cases. Even look at the bond scam, like this is again market manipulation. It happened inside the central bank, but again, the banks how they called and got money. So basically, inside information. Inside information. So everyone, when the moment that you start running these institutes, you are getting in trouble, and at the same time, don't forget the state has a share of 30% of any business because you have to pay 30% tax. So I mean, 30% tax is on your profit. Don't forget, I mean, out of any profit, regardless whether you are a shareholder or not, you get 30% share by do nothing, and on top of it, of course, if you are above the VAT threshold, for every value addition, you have to pay 18% VAT.

Speaker 1  48:24
Absolutely,

Dhananath Fernando  48:25
another 2.5% on SSE. So altogether, about two 20% on your not on your profit top line on your top line top line value addition 18% 2.5% on your top line. And that

Speaker 1  48:39
the thing is, you know, you get taxed on your top line. Sometimes you get taxed on transactional, and you get taxed on your what you call. You get taxed on your bottom line, and then you get taxed again on your deal.

Dhananath Fernando  48:49
And also your employees additionally pay if you're paying them above 150,000. They have to contribute another tax, right? So overall, you have. I mean, if you really want the state presence? They have enough presence on any business, regardless. Even if you are family business, still you have 30% share. The government has 30% share. So why you really need to again intervene and do it control? Yeah, exactly. So

Speaker 1  49:13
that's in the Raja. Just correct me if I'm wrong. I'm just just came to my mind, right? So on the top line, we're 12% right? Then on the bottom line, you get hit 30% 30 plus. You can go up to sorry 30% Then on dividend, you can hit again 15% So it's a complete tax cycle. Absolutely right. I mean, I mean, if I can, if any of us can do a business where you know we don't do anything and get you know that money that comes, it's absolutely mad.

charindra chandrasena  49:38
Nice. All right. On that note, we are going to end for today. So as you said, we don't know what's happening at the at the Cearbok Library Commission, but that is the catalyst for our conversation today. So we'll we'll meet again next week with that knowledge. But before we go, Dana.

Dhananath Fernando  49:57
Yeah. So consider becoming an advocatari. These conversations are brought to you free of charge, thanks to Advocata Insiders. As Advocata Insiders, what we try to do is build a policy community. It's just 12,000 rupees a rupees a year, 1000 rupees a month, and you get exclusive content on property market, stock market, and also the macroeconomic outlook. And we are now looking forward to have like online conversations among the Advocata insiders, so then you get like get to ask questions and get things clarified and provide get exclusive information. So consider becoming an Advocata insider, so

charindra chandrasena  50:30
we can continue the good work that we continue to do. Right. Thank you, Dana. Thanks, Riyadh, and thank you for tuning in. We'll see you again next week, and let us know your thoughts and feedback in the comments. Thank you.


Transcribed by https://otter.ai