Ukraine, Sri Lanka and the price of non-Finlandisation

 dnesday, 2 March 2022 00:00

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Ukraine is under attack and by the time this article is published Kyiv would have fallen. This is the first major war in Europe since the Second World War other than the invasion of Georgia by Russia in 2008. There are heavy criticisms against Vladimir Putin, President of Russia all over the world.

Western countries tried hard to stop Putin taking this action. The French President and Chancellor of Germany visited Russia, but they failed. After the invasion the British Prime Minister called Putin a dictator and condemned the Russian act in the strongest terms.

This is a foreign policy failure of the Biden administration. US Senate Minority Leader Mitch McConnell and former US Secretary of State Mike Pompeo stated that if Donald Trump were in power this invasion would not have happened since he would have managed Russia in such a way.

It is obvious that NATO would not get involved militarily in the conflict since in that case it would easily escalate to a world war. Western nations will be confined to impose sanctions on Russia. Though those could be heavy sanctions, Russia could have survived. Russia is a big country and smaller countries such as Iran survived those sanctions although with great difficulties. Even Cuba survived for decades.

The strategy of the West was to extend NATO to the east so that Russia could be stressed. Since the end of the Cold War and the collapse of the Soviet Union, 14 countries of the eastern Europe have joined NATO. Those were Hungary (1999), Czechia (1999), Poland (1999), Bulgaria (2004), Estonia (2004), Latvia (2004), Lithuania (2004), Romania (2004), Slovakia (2004), Slovenia (2004), Albania (2009), Croatia (2009), Montenegro (2017) and North Macedonia (2020). Ukraine and Georgia are bordering Russia. Therefore, the position of Ukraine was very important to Russia in its national security point of view. Ukraine was considering joining NATO and the demand of Russia during the period of strengthening the military in the Ukrainian borders was that a firm guarantee that Ukraine would not join NATO.

This demand from the Russian side was quite natural and this can be compared with the Cuban missile crisis in 1962 where the Soviet Union tried to install missiles in Cuban soil which was only 140 km away from Florida. In the negotiations Khrushchev agreed to withdraw the missiles installed in Cuba and Kennedy agreed not to invade Cuba.

There are separatist movements in Ukraine as well as in Georgia. Luhansk and Donetsk of Ukraine were recognised by Russia as separate states on 25 February 2022. In Georgia, South Ossetia and Abkhazia are Russian backed and internationally unrecognised separate states. Pro-Western change of power in Georgia in 2003 triggered the Russo-Georgian conflict which escalated to a war in 2008.

In February 2014 protesters of Ukraine overthrew the pro-Russian President and the interim government signed trade agreements with the European Union (EU) which was the first step of the membership of the bloc. In April 2014 Russia invaded Ukraine and annexed the Ukrainian peninsula of Crimea. Two secessionist regions Donetsk and Luhansk broke off from Ukraine and the hostilities continued. From 2014 onwards the governments of Ukraine were pro-Western.

Finland is a country bordering Russia and had wars with the Soviet Union. It is a democratic country with Western ideologies. After the end of World War II, Finland signed an agreement with the Soviet Union ensuring its neutrality when Europe was divided into Western and Eastern Blocs. Finland did not join NATO and it did not join the EU during the Cold War period. It joined the EU in 1995 after the end of the Cold War. This process is called Finlandisation which is not a welcome word in Finland.

This is the way to manage a powerful neighbour. This process is not welcome in Ukraine as well. The argument is that your foreign policy would be dented based on the aspirations of your powerful neighbour and in Ukraine there are strong anti-Russian sentiments. The reality is that they faced an unwanted war.

In 1977 in Sri Lanka, J.R. Jayewardene was elected to power with a popular majority. His economic policies and political affiliations were towards the West. Indira Gandhi, the Indian PM viewed this as a threat to the national security of India. Capitalising on the ethnic conflict of Sri Lanka she started providing arms and military training to the Tamil rebels, aiming to destabilise the country. She was successful. During the tenure of her son, Rajiv Gandhi, when Sri Lankan armed forces were in combat operation against the rebels, Indian Air Force invaded Sri Lanka air space and dropped humanitarian aid to the rebels. President Jayewardene was asked by the West to sort out the matters with India. He had only one sentiment to express. He said he along with the people of Sri Lanka were prepared to die in case of an Indian invasion. This is in line with the Ukrainian President Volodymyr Zelenskyy’s claim that they were fighting the war all alone.

This is the end result of non-Finlandisation. During the time of Mrs. Bandaranaike her economic and foreign policies aligned with those of India. Therefore, she did not pose any national security threat to India. Hence, she has taken independent decisions such as allowing Pakistani planes to use Sri Lankan air space to reach East Pakistan now Bangladesh during the Indo-Pakistan war in 1971.

When there are separatist movements in a country and that country goes against the perceived national security of a powerful neighbour, it risks its own national security and paves an easy access to the powerful neighbour for intervention as in the cases of Ukraine, Georgia, and Sri Lanka.

The present Sri Lankan regime, a close ally of China, is now moving towards India in the Indo-Chinese axis. They moved towards China in order to counter Indian claims of power sharing which is limited to the full implementation of the 13th amendment to the constitution. Probably only Sri Lanka is having unimplemented provisions in the national constitution which is a unique feature. This move touched the red line when the Chinese tried to invest in solar power projects in Northern Islands which are very close to the Indian soil. 

The regime has delayed seeking IMF assistance for the current economic crisis which comes with economic conditions which would be beneficial to the country. The regime used to get currency swap assistance from China and now getting from India probably with the political conditions since there is no such thing called a free loan.

We have to wait and see the outcome of the current Finlandisation process of the Sri Lankan Government

 https://www.ft.lk/columns/Ukraine-Sri-Lanka-and-the-price-of-non-Finlandisation/4-731291

Published in DailyFt on March 2, 2022

A Critique Of The NPP Policy Statement – Rapid Response

 By Harsha Gunasena –

Harsha Gunasena

Certainly, this policy statement does not provide a rapid response to overcome the current challenges facing the country although the statement claimed so. It is just like an election manifesto as claimed by many.

This article focuses on the first chapter of the statement titled “ A thriving economy instead of a dependent economy” which deals with the fundamental economic issues since the most pressing current challenge of the country is the status of the economy.

Economies are dependent and are based on giving and taking. One cannot take without giving. Let alone the economies, the entirety human society is based on this. If the NPP is thinking of an independent economy, it seeks isolation which is not possible.

It goes on to state, “Introduced in 1977, the Open Economic Policy has been destructive through its prioritization of personal gain over social responsibility. A clear indicator of the culture of greed this economic system has bred is how a select group of people benefits, and profit from fraudulent and corrupt business practices even in the face of the pandemic. This culture of greed and the destructive economic thinking that shapes it has also created a system of political power centered in the hands of a few.”

Not only the open economic policies but all other economic policies which are associated with socialist systems are based on greed. One is based on the greed for money and the other is based on the greed for power. Greed is a personal trait which should be controlled by the society for the benefit of all. It could be done effectively in an open society economically as well as politically in comparison to societies which are closed economically as well as politically.

The policy statement identifies that the anti-democratic open economic policy laid the foundation for the current severe economic crisis. “Instead of prioritizing and strengthening production, the key features of this policy are the unnecessary expansion of financialization, austerity measures, subsidy cuts, creating market monopolies, inefficient and excessive borrowing, and sale of public property and state-owned enterprises to a small coterie of favored individuals and companies.”

This is contradictory. It appears to be that NPP is against creating market monopolies and sale of state-owned enterprises. If a recent example is considered, there are only two companies in the Sri Lankan cooking gas market. State owned Litro Gas owns around 80% of the market and it is a virtual monopoly. The government has not taken any action against Litro Gas for repeated property damage and loss of lives due to sub-standard gas cylinders in the market. At the same time, the Colombo Crimes Division arrested the Managing Director of Sakurai Aviation for criminal negligence due to a forced landing of an aircraft causing injuries to two passengers and two pilots. Isn’t Litro Gas liable for criminal negligence?

The people of this country and the NPP think that state-owned enterprises are people friendly and provide better service to the people compared to the private sector companies. The best example to prove that this assumption wrong is Litro Gas. If Litro Gas were a privately owned company at least the government should be able to act against the company as in the case of Sakurai Aviation.

The successive governments want to keep state-owned enterprises to provide employment to their henchmen and henchwomen. This is to pay reciprocal compensation for support in the elections. Also, by this method the political authorities can exercise more power to their personal satisfaction. Trade Unions are supportive to be under government ownership simply because they can work leisurely in comparison to the work in the private sector. All this gamut is covered by the propaganda of false patriotism and the victims are the public. Litro Gas proves this tragic reality.

Open economic policies promote production and the economic growth. NPP has to look around and see the thriving and dependent economies which practice open economic policies. India opened its economy in early 1990s, much later than us. Vietnam was transformed from a centrally planned economy to a market-oriented economy. Their exports have an exponential growth in the last two decades. Bangladesh is having a high growth rate and their intention is to become a high-income country by 2041.

Vietnam is having an export led economy of which FDI attraction has played a key role. In 2018, foreign owned companies accounted for 70% of Vietnam exports. Export of Goods and services and Imports to GDP of Vietnam in 2019 was 106% and 103% respectively. This shows that exports and imports are the two sides of the same coin. This is dependency which is giving and taking. The economic patriots of this country including NPP think otherwise.

Bangladesh exports accounts only 15% of the GDP and the country is mainly depending on apparel exports to which they get preferential tariff from European Union under GSP+ scheme. Bangladesh government try to diversify the exports. Their wage rates are low and population is high.

Japan is having budget deficits and having the highest rate of debt to GDP. However, their trade balance is positive which means their export income is more than the expenditure of imports. Greece is the second highest country of debt to GDP ratio. Greece had high budget deficits and trade deficits.

Sri Lanka is also having the same issue, long standing budget deficit and current account deficit which is calculated after adding foreign remittances as well to the trade balance. This resulted in increasing the government debt. Unnecessary investments by the governments using borrowed money aggravated the situation. However, the blame cannot be assigned to the open economy. In fact, the situation deteriorated due to high government expenditure on state-owned enterprises and government subsidy schemes out of which haves as well as the have nots were benefited. NPP is in favour of promoting the SOEs and giving subsidies to all. Therefore, the failure of the system was partly due the practice of the so called socialist policies recommended by the NPP and not the implementation of the open economic policies.

If Sri Lanka can have a favorable trade balance, it may be a rapid response to the present economic crisis in comparison to the policy statement of the NPP. This is the situation of Japan as well. But the dilemma is how to promote the exports.

Sri Lanka at present cannot attract FDI as Vietnam did. The average income of Sri Lankans is also high compared to a country like Bangladesh. The population of the country is getting older. Therefore, Sri Lanka should believe on the entrepreneurs. There are entrepreneurs of the country, and they are handicapped due to unavailability of the funds. Therefore, a SME Development Fund which provides necessary seed capital to the entrepreneurs is needed. In addition to that there should be a Credit Guarantee Fund which provides necessary guarantee to the commercial banks in support of the entrepreneurs who do not have necessary collateral to be given to banks.

A considerable percentage of the shares of Export Development Board should be offered to the private sector and the Board should be allowed to take a commission from the exporters to whom the Board has connected the prospective buyers. This is powered by greed.

The ownership of the two large state banks, Bank of Ceylon and Peoples Bank should be shared with the private sector which would facilitate to reduce the inefficiencies of those banks. Private banks maximize their profits under the cover of these giants. There are eight banks among the top 25 companies of Sri Lanka. This list does not include the unlisted privately owned companies, mainly the apparel exporters. Cashflow based lending to the needy entrepreneurs should be promoted among the banks.

In the broader sense there are quite a few reforms which could be recommended and all of them go against the policy statement of the NPP.

The NPP did not touch the cooperative sector of Sri Lanka. If properly directed this sector could be effectively used to promote exports. Although the statement promotes socialist ideology it is silent about the growing inequality of the income distribution and excessive defense expenses of the country.

Prabhakaran in third round of peace talks with the government held in Oslo in December 2002 agreed to explore a political solution founded on internal self-determination based on a federal structure within a united Sri Lanka. Later, he abandoned this idea to appease the cadres of LTTE and fought to death.

If JVP, the base party of NPP, continues with their socialist ideology to appease its cadres, it would face the same fate Prabhakaran and LTTE faced. It is advisable to change now. The world has changed already. This suggestion is made since their personal traits are suitable to get the leadership of the country.

https://www.colombotelegraph.com/index.php/a-critique-of-the-npp-policy-statement-rapid-response/

Published in Colombo Telegraph on January 20,2022

A thriving economy instead of a dependent economy

 

JVP Leader Anura Kumara Dissanayake

President Gotabaya Rajapaksa

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This is the topic of the first chapter of the policy statement called ‘Rapid Response of Jathika Jana Balawegaya (NPP)’ launched recently.

Economies are dependent and are based on giving and taking. One cannot take without giving. Let alone the economies, the entirety of human society is based on this. If the NPP is thinking of an independent economy, it seeks isolation, which is not possible.

It goes on to state: “Introduced in 1977, the Open Economic Policy has been destructive through its prioritisation of personal gain over social responsibility. A clear indicator of the culture of greed this economic system has bred is how a select group of people benefits and profit from fraudulent and corrupt business practices even in the face of the pandemic. This culture of greed, and the destructive economic thinking that shapes it, has also created a system of political power centred in the hands of a few.”

Not only the open economic policies, but all other economic policies which are associated with socialist systems, are based on greed. One is based on the greed for money and the other is based on the greed for power. Greed is a personal trait which should be controlled by society for the benefit of all. It could be done effectively in an open society, economically as well as politically, in comparison to societies which are closed economically as well as politically.

The policy statement identifies that the anti-democratic open economic policy laid the foundation for the current severe economic crisis. “Instead of prioritising and strengthening production, the key features of this policy are the unnecessary expansion of financialisation, austerity measures, subsidy cuts, creating market monopolies, inefficient and excessive borrowing, and sale of public property and State-owned enterprises to a small coterie of favoured individuals and companies.”

This statement is contradictory. It appears to be that the NPP is against creating market monopolies and sale of State-owned enterprises. If a recent example is considered, there are only two companies in the Sri Lankan cooking gas market. State-owned Litro Gas owns around 80% of the market and it is a virtual monopoly. The Government has not taken any action against Litro Gas for repeated property damage and loss of lives due to sub-standard gas cylinders in the market. At the same time, the Colombo Crimes Division arrested the Managing

Director of Sakurai Aviation for criminal negligence due to a forced landing of an aircraft causing injuries to two passengers and two pilots. Isn’t Litro Gas liable for criminal negligence? 

The people of this country and the NPP think that State-owned enterprises are people friendly and provide better service to the people compared to private sector companies. The best example to prove that this assumption is wrong is Litro Gas. If Litro Gas were a privately owned company at least the Government should be able to take action against the company as in the case of Sakurai Aviation.

Successive governments have wanted to keep State-owned enterprises to provide employment to their henchmen and henchwomen. This is to pay reciprocal compensation for support in the elections. Also, by this method the political authorities can exercise more power to their personal satisfaction. Trade Unions are supportive to be under Government ownership simply because they can work leisurely in comparison to the work in the private sector. All this gamut is covered by the propaganda of false patriotism and the victims are the public. Litro Gas proves this tragic reality.

Open economic policies promote production and economic growth. The NPP has to look around and see the thriving and dependent economies which practice open economic policies. India opened its economy in the early 1990s, much later than us. Vietnam was transformed from a centrally planned economy to a market-oriented economy. Their exports have grown exponentially in the last two decades. Bangladesh is having a high growth rate and their intention is to become a high-income country by 2041.

Vietnam is having an export led economy of which FDI attraction has played a key role. In 2018, foreign owned companies accounted for 70% of Vietnam exports. Export of goods and services and imports to GDP of Vietnam in 2019 was 106% and 103% respectively. This shows that exports and imports are two sides of the same coin. This is a dependency which is giving and taking. The economic patriots of this country, including the NPP, think otherwise. 

Bangladesh exports account for only 15% of the GDP and the country is mainly dependent on apparel exports to which they get a preferential tariff from the European Union under the GSP+ scheme. The Bangladesh government tries to diversify the exports. Their wage rates are low and the population is high. 

Japan is having budget deficits and having the highest rate of debt to GDP. However, their trade balance is positive which means their export income is more than the expenditure of imports. Greece is the second highest country of debt to GDP ratio. Greece had high budget deficits and trade deficits.

Sri Lanka is also having the same issue; a long standing budget deficit and current account deficit which is calculated after adding foreign remittances as well to the trade balance. This resulted in increasing the Government debt. Unnecessary investments by governments using borrowed money aggravated the situation. However, the blame cannot be assigned to the open economy. In fact, the situation deteriorated due to high Government expenditure on State-owned enterprises and Government subsidy schemes, out of which haves as well as the have-nots were benefited. The NPP is in favour of promoting the SoEs and giving subsidies to all. Therefore, the failure of the system was partly due to the practice of the so-called socialist policies recommended by the NPP and not the implementation of the open economic policies.

If Sri Lanka can have a favourable trade balance, it may be a rapid response to the present economic crisis in comparison to the policy statement of the NPP. This is the situation in Japan as well. But the dilemma is how to promote exports.

Sri Lanka at present cannot attract FDI as Vietnam did. The average income of Sri Lankans is also high compared to a country like Bangladesh. The population of the country is getting older. Therefore, Sri Lanka should believe in entrepreneurs. There are entrepreneurs of the country, and they are handicapped due to an unavailability of funds. Therefore, a SME Development Fund which provides necessary seed capital to entrepreneurs is needed. In addition to that, there should be a Credit Guarantee Fund which provides necessary guarantees to the commercial banks in support of the entrepreneurs who do not have necessary collateral to be given to banks. 

A considerable percentage of the shares of the Export Development Board should be offered to the private sector and the board should be allowed to take a commission from the exporters to whom the board has connected the prospective buyers. This is powered by greed.

The ownership of the two large State banks, Bank of Ceylon and People’s Bank, should be shared with the private sector which would facilitate the reduction of the inefficiencies of those banks. Private banks maximise their profits under the cover of these giants. There are eight banks among the top 25 companies of Sri Lanka. This list does not include the unlisted privately owned companies, mainly the apparel exporters. Cash flow based lending to needy entrepreneurs should be promoted among the banks.

The NPP did not touch the cooperative sector of Sri Lanka. If properly directed this sector could be effectively used to promote exports. Although the statement promotes socialist ideology, it is silent about the growing inequality of the income distribution of the country.

Prabhakaran in the third round of peace talks with the Government held in Oslo in December 2002 agreed to explore a political solution founded on internal self-determination based on a federal structure within a united Sri Lanka. Later, he abandoned this idea to appease the cadres of LTTE and fought to the death.

If JVP, the base party of NPP, continues with their socialist ideology it would face the same fate Prabhakaran and the LTTE faced. It is advisable to change now. This suggestion is made since their personal traits are suitable to get the leadership of the country.

 

https://www.ft.lk/columns/A-thriving-economy-instead-of-a-dependent-economy/4-729318

published in Daily Ft on January 20, 2020

Yugadanavi Power Plant and economic patriotism

 There is a strong protest staged by the 11 constituent parties of the Government and the trade unions of the Ceylon Electricity Board (CEB) along with affiliated trade unions against the recent agreement with respect to the Yugadanavi Power Plant reached by the Government with the US company, New Fortress Energy (NFE), a Liquefied Natural Gas (LNG) company founded in 2014.

Eleven constituent parties of the Government have staged a protest against the Government under the banner Mahajana Manthrana Sabhava – MMS (People’s Council). This in fact is not a people’s council, rather a council of frustrated politicians since there were no people involved there. MMS came into the limelight with the real participation of the people during the former autocratic regime of Mahinda Rajapaksa where the Opposition had no say. 

Yugadanavi power plant, which is having a capacity of 300MW, was constructed by Lanka Transformers Ltd. (LTL – a joint venture between CEB and Bonar Long of Scotland) and owned by West Coast Power Ltd., of which the owners are the Treasury (51%), EPF (27%) Lanka Electricity Company – LECO (18%) and LTL (4%). When Yugadanavi was completed in 2010 the intention was to use LNG but since the inception the plant was using diesel.  In the past neither the CEB nor the Government took successful initiatives to use LNG in this plant.

There are several advantages of using LNG against diesel.  LNG burns efficiently which is highest energy content fossil fuel. LNG burns cleanly, it has lower maintenance costs and low emissions of carbon dioxide and other greenhouse gases.  LNG is attractively priced which means more power for the same money. In order to liquidise the gas, it has to be brought under minus 160 degrees Celsius. There are special storage facilities in the ships to transport this.

Agreement with NFE

The Government signed the agreement in July with NFE. It was signed at midnight without getting proper approval from the Cabinet of Ministers. According to the agreement NFE will built a floating storage in the sea to store LNG and they also will build a pipeline to transfer LNG in the form of a gas from that storage to Yugadanavi. In turn it is mandatory that the Government should buy gas 35 trillion BTUs (British Thermal Units) per year. Even if the Government does not buy gas to that extent the payment should be made.

The capacity of Yugadanavi is only 15 trillion BTUs. Therefore, the Government will have to pay NFE for the additional unused 20 trillion BTUs which would amount to around $ 215 million per year. Even if the new power plant under construction in Kerawalapitiya is completed the Government will have to pay around $ 90 million to NFE for unused BTUs.

This minimum buying quantity is fixed since probably otherwise it would be uneconomical to maintain a floating storage and a pipeline for NFE. Therefore, in order to reduce the losses, the Government will have to build an additional pipeline to Kelanitissa as well. Moreover, when there is heavy rains and hydropower stations are running in full capacity the intake may have to be reduced from these LNG power plants since Norochcholai Coal Power Plant cannot be stopped. 

The Government also agreed to sell a 40% stake of West Coast Power Ltd., which owns Yugadanavi, to NFE for $ 250 million. When the agreement was signed CEB has already called for tenders for the floating storage and the pipeline.

All so-called patriots including the unions of CEB are mainly against this 40% sale. Even if a company is selected from the tender procedure the monopoly of supplying LNG should have been given to that company because the country does not have the capacity to have several floating storages. If this company were a Chinese company, these patriots probably would have agreed to it. Their problem is that the monopoly of supplying LNG to the country is vested with an American company. 

However, the main issue is neither the 40% sale nor the monopoly given to NFE but the unfavourable condition to buy over the requirement LNG of the country. If the arrangements can be done to fix that by increasing the usage enabling Kelanitissa as well to use LNG, the agreement can be converted to an advantageous one. 

Not following the tender procedure and not informing the Cabinet were major flaws. Previously, the contract of developing the Port City was granted based on an unsolicited bid submitted by China Communications Construction Company Ltd. in 2013. Thereafter the then Government did not follow the Public Procurement Guidelines and called for other interested parties to bid for the project whilst offering a first right of refusal to the original proposer. 

This issue was not raised sufficiently at that time by the persons who opposed the agreement and the main opposition at that time was to the environmental issues. However, following a wrong procedure in one instance does not justify following the same for other instances as well.

False patriotism

When running an economy especially at this juncture giving too much priority for this silly type of patriotism is a menace. When the Government tried to sell a less than 50% stake of the Eastern Container Terminal (ECT) of Colombo Port to Indian and Japanese companies based on an agreement reached by the previous Government, there was a stringent protest from the trade unions who kept mum when 85% of Colombo International Container Terminal (CICT) was given to a Chinese company by the previous Mahinda Rajapaksa Government. 

As a result, the Government gave 85% of Western Container Terminal (WCT) which is well above 50% to an Indian company to which the trade unions were in agreement. Now the Government does not have funds to develop the ECT. This time also the trade unions of CEB has threatened that they would take strong trade union action if the Government did not move out from this agreement. 

These 11 constituent parties are keeping mum on the wrong decision taken by the President banning chemical fertiliser. The President reiterated his decision at UN and then at a side event of the UN Climate Change Conference. Several blunders were made after the initial decision. Now the Government is trying to accommodate the questionable Chinese company which tried to supply substandard organic fertiliser. The Chinese Embassy is trying to undermine our legal and banking system. This is interference to our sovereignty and the 11 constituent parties have no issue with it.

The main Opposition should not fall into the situation J.R. Jayewardene adapted soon after the Bandaranaike-Chelvanayakam Pact was signed in 1957. Bandaranaike came to power with Sinhala Buddhist sentiments. He used that only to come to power. 

After realising the repercussions of the Sinhala Only Act, he signed the B-C Pact to mitigate it. JRJ opposed it taking the argument that Bandaranaike should follow the principles by which he came to power. As a result of the Kandy march and several other protests by the Buddhist clergy the B-C Pact was withdrawn. Had it been there we would not have to face a 30-year-long war. 

Privatisation

The present regime came into power by giving false promises to the people that they would not privatise any Government asset. Now facing the ground reality, they work against their own promises. However, the SJB and UNP should stick to their principles of privatisation of Government assets for long-lasting economic benefits to the country rather than asking the Government to work according to their promises. 

If one example is given, we now reap the benefits of privatising the telecommunication department during the time of Chandrika Kumaratunga. Hence the main Opposition should not follow the precedence of JRJ in 1957.

The thinking of Sri Lankans is influenced by the thinking of the old left and false patriotism, especially false economic patriotism. Trade unions are concerned about their job security and are covering behind this false economic patriotism which promotes inefficient large public sector and idling public assets. This is a sure recipe for an economic disaster for a country like Sri Lanka.

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(The writer acknowledges the contribution made by Keerthi Godigamuwa in writing this article.)

published in dailyft on 8th November 2021

https://www.ft.lk/columns/Yugadanavi-Power-Plant-and-economic-patriotism/4-725561

Patriotism, Economy & Yugadanavi Power Plant

 By Harsha Gunasena –

Harsha Gunasena

Eleven constituent parties of the government have staged a protest against the government under the banner Mahajana Manthrana Sabhava-MMS (Peoples Council). This in fact is not a people’s council rather a council of frustrated politicians since there were no people involved there. MMS came into the limelight with the real participation of the people during the former autocratic regime of Mahinda Rajapaksa where the opposition had no say.

What they say is that they are against the agreement with respect to the Yugadanavi Power Plant reached by the government with the US company, New Fortress Energy (NFE), a liquefied natural gas (LNG) company founded in 2014. The trade unions of the Ceylon Electricity Board (CEB) along with affiliated trade unions are also taking the same stance and planning to stage a major protest including a blackout.

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Yugadanavi power plant, which is having a capacity of 300MW, was constructed by Lanka Transformers Limited (LTL- a joint venture between CEB and Bonar Long of Scotland) and owned by West Coast Power (pvt) Ltd of which the owners are, the treasury (51%), EPF (27%) Lanka Electricity Company -LECO (18%) and LTL (4%). When Yugadanavi was completed in 2010 the intention was to use LNG but since the inception the plant was using diesel. In the past neither the CEB nor the government took successful initiatives to use LNG in this plant.

There are several advantages of using LNG against diesel. LNG burns efficiently which is highest energy content fossil fuel. LNG burns cleanly, it has lower maintenance costs and low emissions of carbon dioxide and other greenhouse gases. LNG is attractively priced which means more power for the same money. In order to liquidize the gas, it has to be brought under minus 160 degrees Celsius. There are special storage facilities in the ships to transport this.

The Government signed the agreement in July with NFE. It was signed at midnight without getting proper approval from the Cabinet of Ministers. According to the agreement NFE will built a floating storage in the sea to store LNG and they also will build a pipeline to transfer LNG in the form of a gas from that storage to Yugadanavi. In turn it is mandatory that the government should buy gas 35 trillion BTUs (British Thermal Units) per year. Even if the government does not buy gas to that extent the payment should be made. The capacity of Yugadanavi is only 15 trillion BTUs. Therefore, the government will have to pay NFE for the additional unused 20 trillion BTUs which would amount to around USD 215 million per year. Even if the new power plant under construction in Keravalapitiya is completed the government will have to pay around USD 90 million to NFE for unused BTUs.

Ads by FatChilli

This minimum buying quantity is fixed since probably otherwise it would be uneconomical to maintain a floating storage and a pipeline for NFE. Therefore, in order to reduce the losses, the government will have to build an additional pipeline to Kelanitissa as well. Moreover, when there is heavy rains and hydropower stations are running in full capacity the intake may have to be reduced from these LNG power plants since Norochchole coal power plant cannot be stopped. The government also agreed to sell 40% stake of West Coast Power (pvt)Ltd which owns Yugadanavi to NFE for USD 250 million. When the agreement was signed CEB has already called for tenders for the floating storage and the pipeline.

All so-called patriots including the unions of CEB are against mainly for this 40% sale. Even if a company is selected from the tender procedure the monopoly of supplying LNG should have been given to that company because the country does not have the capacity to have several floating storages. If this company were a Chinese company these patriots probably would have agreed to it. Their problem is that the monopoly of supplying LNG to the country is vested with an American company. However, the main issue is neither 40% sale nor the monopoly given to NFE but the unfavorable condition to buy over the requirement LNG of the country. If the arrangements can be done to fix that by increasing the usage enabling Kelanitissa as well to use LNG the agreement can be converted to an advantageous one.

Not following the tender procedure and not informing the cabinet were major flows. Previously, the contract of developing the Port City was granted based on an unsolicited bid submitted by China Communications Construction Company Ltd.in 2013. Thereafter the then government did not follow the Public Procurement Guidelines and called for other interested parties to bid for the project whilst offering a first right of refusal to the original proposer. This issue was not raised sufficiently at that time by the persons who opposed the agreement and the main opposition at that time was to the environmental issues. However, following a wrong procedure in one instance does not justify following the same for other instances as well.

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When running an economy especially at this juncture giving too much priority for this silly type of patriotism is a menace. When the government tried to sell less than 50% stake of the Eastern Container Terminal (ECT) of Colombo Port to Indian and Japanese companies based on an agreement reached by the previous government there was a stringent protest from the trade unions who kept mum when 85% of Colombo International Container Terminal (CICT) was given to a Chinese company by the previous Mahinda Rajapaksa government. As a result, the government gave 85% of Western Container Terminal (WCT) which is well above 50%, to an Indian company to which the trade unions were in agreement. Now the government does not have funds to develop the ECT. This time also the trade unions of CEB has threatened that they would take strong trade union action if the government would not move out from this agreement.

These eleven constituent parties are keeping mum on the wrong decision taken by the President banning chemical fertilizer. The President reiterated his decision at UN and then at a side event of the UN Climate Change Conference. Several blunders were made after the initial decision. Now the government is trying to accommodate the questionable Chinese company which tried to supply substandard organic fertilizer. Chinese embassy is trying to undermine our legal and banking system. This is interference to our sovereignty and the eleven constituent parties have no issue with it.

The main opposition should not fall into the situation J.R.Jayewardene adapted soon after the Bandaranaike-Chelvanayakam pact was signed in 1957. Bandaranaike came to power with Sinhala Buddhist sentiments. He used that only to come to power. After realizing the repercussions of Sinhala only Act, he signed B-C pact to mitigate it. JRJ opposed it taking the argument that Bandaranaike should follow the principles by which he came to power. As a result of the Kandy march and several other protests by the Buddhist clergy B-C pact was withdrawn. Had it been there we would not have to face a 30 year long war.

The present regime came into power by giving false promises to the people that they would not privatize any government asset. Now facing the ground reality, they work against their own promises. However, SJB and UNP should stick to their principles of privatization of the government assets for long lasting economic benefits to the country rather than asking the government to work according to their promises. If one example is given, we now reap the benefits of privatizing the telecommunication department during the time of Chandrika Kumaratunga. Hence the main opposition should not follow the precedence of JRJ in 1957.

Thinking of Sri Lankans is influenced by the thinking of the old left and false patriotism especially false economic patriotism. Trade unions are concerned about their job security and are covering behind this false economic patriotism which promotes inefficient large public sector and idling public assets. This is a sure recipe for an economic disaster for a country like Sri Lanka.

(The writer acknowledges the contribution made by Keerthi Godigamuwa in writing this article)

published in Colombo Telegraph on 4th November 2021

https://www.colombotelegraph.com/index.php/patriotism-economy-yugadanavi-power-plant/