UDA incurs Rs 330M Loss

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By 2017-04-09

BY Kavindya Chris Thomas
and Chanaka De Silva

The lack of accountability and information, in the modern information-driven age, is rather abhorrent. The acts committed by certain government institutions, with or without the aid of private organizations in such a background, are just the same and have been happening since God knows when. This is one such story. This story revolves around a certain piece of land in Colombo, formerly the premises of the Government Supplies Department, situated bordering D.R. Wijewardena Mawatha and Sir Chittampalam A. Gardner Mawatha, Colombo 02. And this land, Ceylon Today learns, is at the centre of a controversy that has lead to the government to incur a loss of Rs 330 million.

Reliable sources informed Ceylon Today that this piece of land has been given to Ravi Wijeratne's Lake Leisure Holdings (Pvt) Ltd. on a 50-year lease by the Urban Development Authority (UDA), incurring a massive loss of Rs 330 million to the UDA, due to the nescient behaviour of its high ranking officers. Ceylon Today was able to receive a copy of the audit query dated 16 March 2017, and a copy of the report sent to the Ministry of Megapolis and Western Province Development and the Urban Development Authority with regard to the matter.

Since 2007, under the authorization of the Cabinet Sub Committee on Investment Facilitation and the proposal by former President and Finance Minister Mahinda Rajapaksa's cabinet paper (09/1391/320/064), this land extent has been allocated to Rank Entertainment Holding Limited for the construction of a multilevel building complex and car park. In 2009, the ownership of the land changed hands to Rank Car Park (Lanka) Pvt. Limited for the construction of a mixed development project.

However, in 2013, a Memorandum of Understanding (MoU) was signed between Ravi Wijeratne's Lake Leisure Holding (Pvt) Limited and the UDA for the ownership of this land extent. Despite the Cabinet authorization, the land had been given to Lake Leisure Holding (Pvt) Ltd for a multipurpose development project on a 50-year lease for Rs 2,785 million. (The Auditor General's Department notes, the Valuation Department has estimated the value of the land to be a staggering Rs 2,785 million.)
However, until 25 September 2013, the UDA has only received 20 per cent of the supposed lease payments; that amounts to a mere Rs 577 million. The UDA on several occasions has sent letters to the private firm advising them to pay the remaining 80 per cent of the estimated value of the land- Rs 2,208 million (Rs 2,785 million - Rs 577 million) alongside the appropriate VAT, NBT charges as well as additional valuation charges. However, Lake Leisure Holding (Pvt) Ltd and its owner Ravi Wijeratne have not responded to any of the correspondence, which is in clear violation of the MoU signed between the UDA and the firm to pay off the land's estimated value, within the course of three months.

Continued negligence

According to the audit query by the Auditor General's Department, the company has neglected to pay the outstanding amount on many occasions. However, the UDA has also failed to follow the provisions agreed on by the parties in the MoU and has failed to reprocure the land in question.

According to the audit query, the former director and the former chairman of the UDA have been repeatedly informed of the failure to obtain the Rs 2,220 million for over eight months. According to a letter sent by the former chairman of the UDA, dated 26 December 2013, the MoU that was signed between the two parties were repealed, the amount that had already been paid was confiscated and advised to reprocure the land. However, even though over three years have passed since that letter, no action has been taken to follow that up.

In another letter signed by the Deputy Director General (Finance) of the UDA – not the chairman himself – dated 31 January 2014, addressing the owner of Lake Leisure Holding (Pvt) Ltd. it notes that the MoU signed between the Rank Car Park (Lanka) Pvt Ltd. and Lake Leisure Holding (Pvt) Ltd. will be annulled along with the confiscation of the completed payments and the reprocurement of the land (clause 12), due to the pertaining issues. The letter also notes that with the agreement of all three parties, the time period of the agreement will be extended in order to pay off the outstanding 80 per cent of all payments with a 12 per cent annual interest. The report from the Auditor General's Department emphasizes that this also has not been acknowledged by the private firms.

Due to this, the Minister of Megapolis and Western Province Development later orders the reprocurement of this land under the provisions of State Lands (Recovery of Possession) Act (No. 07 of 1979 and No. 58 of 1981). The letter dated, 11 May 2016, addressing the Director General of the UDA, orders the authority to remove the current tenant – Lake Leisure Holding (Pvt) Ltd. – and orders to free the land. However, similar to its previous track record, the UDA has failed to follow through these orders.

The audit query by the Auditor General's Department also notes that on 20 September 2016 the UDA Director General and Chairman had sought legal advice with regards to the land, where they had been noted that it is possible to reprocure full ownership of the land without paying any charges to the private firms, or the advance payments they had made due to the firms neglected payments since 2009. Regardless of this advice and the action plan recommended by the legal team, the UDA has again failed to follow it through.

Glaring omission

On 17 November 2016, UDA Chairman Dr. Jagath Munasinghe, writing to Ravi Wijeratne, owner of Lake Leisure Holdings (Pvt) Ltd, noted that the total balance to be paid was Rs 3,340,591,200 along with the additional valuation charge of Rs 11,449,200.

The UDA also demanded the private company to make arrangements to pay the total outstanding amount on or before 31 December 2016.

But, according to the report by the Auditor General's Department, a number of aspects have been pretermitted by the UDA when calculating the final outstanding amount – including the continuous violations of the signed MoU, the order given by the subject minister to recover the land and the advice given by the legal team. Furthermore, a staggering interest of Rs 330 million has also been calculated and added to the advance already paid by the company and has been neglectfully reduced from the outstanding amount for the land.

The audit query also reveals that the UDA's director board has not authorized the allocation of this land to Lake Leisure Holding (Pvt) Ltd. during the managerial meetings held in January and February 2017. And that despite being mentioned that information will be revealed in the next meeting, the lease agreement for the land has been signed on 16 February 2017. Accordingly, the Auditor General's Department concludes that the lease agreement for the land was signed in secret, without the knowledge of the UDA director board.

As mentioned before, the new value of the land has been estimated to be Rs 3,620 million, and the accrued interest for the remaining payments was Rs 330,249,000 – which the UDA chairman had agreed on his personal capacity to waive off.

The UDA does not lease out properties in Colombo of high economic value through media advertisements and lend for various business investments. On the other hand, officers collect information and documentation for available plots of land in the city belonging to the UDA and file them for suitable applications. The documentation was in place concerning the aforementioned land.

Since the party delayed payments repeatedly, the aforesaid land could have been given on a long-term lease to another party for a better investment. At the same time, when the subject minister had ordered reclaiming the aforesaid land in order to renew the lease agreement is not proper.

Long-term business ventures

The UDA leases city properties with very high economic value for long-term business ventures. Even though the business ventures should be followed up, the authorities were not aware of the extent of the investment plans bearing fruit. Action on follow-up on any business venture was not taking place.

Accordingly, the audit query reveals that the UDA has incurred a loss of Rs 330,249,000 from the long-term lease of a prime property to Lake Leisure (Pvt) Ltd and the lease agreement has been drawn without revealing all the details to the authorities.

Ceylon Today, delving into the details, contacted Audit Superintendent R.G. Hettiarachchi on whether the Auditor General's Department has received a response to the query. "No response was given by the respondents of the audit query," he said adding that the UDA will not give a response to the revelations made in the query either.

"This matter has been criticized by many of the trade unions attached to the UDA and the follow up audit query revealed the following details."

Hettiarachchi surmised that the respondents will claim the matter had been a result of technicalities, given the details. Apart from being incapable of obtaining Cabinet approval and the subject minister's approval, they would claim that there had been no fraud involved in this case.

"From what I have gathered, this is not a matter of technicalities. A large amount such as Rs 330 million should not have been reduced on a personal capacity. That is wrong. What should have been done is to take the approval of the UDA director board for this. But, this didn't even have the approval of the director board. There were similar cases such as this during the previous government as well. In some cases, not even a proper MoU was signed. And this seems tobe continuing and it is wrong. And it has to stop.

According to Hettiarachchi, the UDA can still recover this loss.

"This procedure of activities is rather similar to unsolicited bids. They don't publish anything about these things and until that is not done, these kinds of cases will continue. An institution like the UDA has to be held responsible for this loss. But, it can be recovered. Without cutting out the

Rs 330 million interest with the advance payments, if the UDA director board was consulted on the matter, this could have been avoided," he noted.

Ceylon Today also attempted to contact the UDA and Ravi Wijeratne of Lake Leisure Holdings (Pvt) Ltd, who were unavailable for comment.

Furthermore, the lack of response from the subject minister and the UDA strikes the most alarming issue in this story, alongside the staggering financial loss. The loss itself, which is recoverable, has been left aside, ignored by the subject minister and the UDA – showing the complete inability and the failure of the subject minister and the UDA at fulfilling their responsibilities.

(Pix by Akila Jayawardena)

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