PM’s responses to AG Dept. queries – Part 02

If any further clarification is required from a legal perspective, the Attorney General would assist the Commission.

[12] Question number 12 is as follows-

“The evidence before this Commission of Inquiry suggests that, the Ministry of Finance had identified that a substantial sum of money was required to fund payments which were then due to Contractors on account of road works and other projects and that these fund requirements may not have been previously accounted for and/or provided for by the Ministry of Finance in 2014.

The evidence before this Commission of Inquiry suggests that, the Monthly Cash Flows forwarded by the Treasury to the Department of Public Debt in the Months of February 2015 and March 2015 do not call for any funds to be raised for the above purpose in February 2015 or March 2015.

The evidence before this Commission of Inquiry suggest that, a meeting was held at the CBSL on 26th February 2015 to discuss how to raise the funds required to make these payments and that, the then Hon. Minister of Finance and several others attended this meeting. The evidence suggest that, at this meeting, it was decided -that a Deputy Governor of the CBSL will prepare a report identifying the payments that were due and submit that report to the Ministry of Finance. The evidence also suggests that, it was decided that another meeting was to be held later for the purpose of considering the report to be prepared by the Deputy Governor of the CBSL and to then decide on the payments that had to be made in the short term. Further, the evidence suggests that, the proposed second meeting was held at the Ministry of Finance sometime in early March 2015 and that the Contractors to whom payments were immediately due attended this meeting and decisions were taken with regard to payments to be made to Contractors in the short term.

Thus, at present, the evidence before this Commission of Inquiry suggests that, the funds required for these payments were to be raised only in the months of April or May 2015 and that, there was no requirement for any funds for this purpose to be raised at the Treasury Bond Auction held on 27th February 2015 or at Treasury Bond Auctions to be held during the month of March 2015.

In this background, did you instruct Mr Mahendran to raise funds for the aforesaid payments at the Treasury Bond Auction held on 27th February 2015?”

My reply is as follows-

It is incorrect to state that funds for the payment of contractors for road works and other development work were required to be raised only in the months of April or May and that the monthly cash flows forwarded by the Treasury to the Department of Public Debt in the months of February 2015 and March 2015 did not call for any funds to be raised for the above in February or March 2015. Towards the end of February 2015 at the Cabinet Sub Committee on the Economic Management, Budget proposals for which funds were needed and development projects for which payments were due, were discussed. The Minister of Highways stated that there was an urgent need of funds for road development projects, which were undertaken by the previous Government for which the Treasury was unable to provide funds. The Interim Budget also involved additional expenditure including an increase in recurrent and capital expenditure in March. I requested that the concerned Ministers and officials of the Treasury and CBSL meet as soon as possible. Subsequently, they including the Governor CBSL had met on 26th February 2015 and they determined that Rupees Fifteen billion was urgently required. By this time, CBSL has already decided on a bond issue on 27 February, 2015. Mr Mahendran informed me that evening he may be able to raise money far in excess of Rupees One billion in the Bond Auction fixed for 27th February 2015. Any further details of cash flow and fiscal affairs for those months could be obtained from the Secretary to the Ministry of Finance.

(13) Question number 13 is as follows-

“Did Mr Mahendran have any discussions or conversations with you prior to 27th February 2015 and/or 27th February 2015, with regard to the Treasury Bond Auction held on 27th February 2015?”

My reply is as follows-

Mr. Mahendran did inform me that the Monetary Board had fixed a Treasury Bond Auction for the 27th of February 2015.

In the evening of 26th February he informed me that since it transpired at the meeting held with the Minister of Highways and others, that there was an urgent requirement of Rupees Fifteen billion to pay for the ongoing road works, it may be possible to raise at least a part of it at the Auction fixed for the 27th of February. After the Auction held on the 27th of February 2015, he informed me that in fact Rupees Ten billion had been raised.

[14] Question number 14 is as follows-

“Mr Mahendran has stated to this’ Commission of Inquiry that, subsequent to the Treasury Bond Auction held on 27th February 2015, Hon. Dr. Harsha de Silva telephoned him a d conveyed that you had requested Mr Mahendran to submit a “Briefing Note” with regard to the events relevant to that Treasury Bond Auction.

Is Mr Mahendran’s statement correct?”

My reply is as follows-

I recall instructing Dr. Harsha De Silva the then Deputy Minister of Policy Planning and Economic Affairs to request Mr Mahendran to provide a note pertaining to the procedure followed at the Auction held on 27th February 2015.

[15] Question number 15 is as follows-

“Did Mr Mahendran submit a “Briefing Note” to you, with regard to the events relevant to the Treasury Bond Auction held on 27th February 2015?”

My reply is as follows-

Upon receipt of the questionaire forwarded by the Commission I directed my officials to cause a search to be made in my office for briefing notes submitted by Mr Mahendran. Consequently my officials have traced in my Secretary’s computer a briefing note titled “Factual Information on the Issue of 30 year Treasury Bond by the Central Bank on 27/2/2015 – the Procedure Followed” forwarded by Deputy Governor Mr Samarasiri. I have been advised by my officials that there are no other briefing notes traceable at my office. A copy of the said briefing note is annexed hereto marked X1.

[16] and [17] – Question numbers 16 and 17 are as follows-

“[16] If the answer to Question [15] above is in the affirmative, did Mr Mahendran state in his “Briefing Note” that:

(i) He had visited the Public Debt Department on two occasions on 27th February 2015 — i.e. in the morning (alone) and shortly after noon (together with Deputy Governor Weerasinghe and Deputy Governor Silva)?

(ii) During the second visit together with the two Deputy Governors, Mr Mahendran had stated to the officers of the Public Debt Department that Bids up to approximately Rs. 10 billion should be accepted?(iii) If the answer to Question [16](ii) is in the affirmative, did Mr Mahendran describe such a statement made by him to the officers of the Public Debt Department to be in the nature of a specific instruction issued to the officers of the Public Debt Department on what amount was to be recommended by the Public Debt Department to the Tender Board or to be in the nature of a suggestion for evaluation and consideration by the officers of the Public Debt Department when they were deciding on the amount to be recommended by the Public Debt Department to the Tender Board?”

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[17] If the answer to Question [15] above is in the affirmative, did Mr Mahendran state in his “Briefing Note”

) Subsequently, in the afternoon of 27th February 2015, during the course of the meeting of the Tender Board held to consider the recommendations of the Public Debt Department and decide on the amount of Bids to be accepted, Mr Mahendran had spoken, on the telephone, with Deputy Governor Samarasiri who was chairing that meeting of the Tender Board?

(ii) During this telephone conversation, Mr Mahendran stated to Deputy Governor Samarasiri that the Tender Board should approve the acceptance of Bids up to approximately Rs. 10 billion?

(iii) if the answer to Question [17](ii) is in the affirmative, did Mr Mahendran describe such a statement made by him to Deputy Governor Samarasiri to be in the nature of a specific instruction issued to the Tender Board on what amount should be accepted or to be in the nature of a suggestion for evaluation and consideration by the Tender Board when the Tender Board was deciding the amount to be accepted?”

My reply to 16 and 17 is as follows-

By way of answer to questions 16 and 17 1 state that the available briefing note marked X 1, relates only to the procedure followed at the Auction held on 27th February 2015. 1 do recollect however that Mr Mahendran did in the course of conversations with me, refer to other attendant circumstances pertaining to the Auction held on 27th February 2015. In this context I have referred to these circumstances in the speech made by me in Parliament on 17 March 2015, to which reference has been made in Question Nos. 18, 19 and 20.

[18] Question number 18 is as follows-

“On 17th March 2015, you made a statement in Parliament with regard to the ‘ISSUE OF TREASURY BONDS’. During the course of that statement, you have said “I insisted on a public auction because private placements have led to corruption and lack of transparency. Previously, parcels of Government Bonds were handed out to selected individuals on a favoured basis through a system of private placement. It took place outside the normal auctions of Government Bonds. These are what the Primary Dealers are saying. You must look at the facts …. Private placements were usually as large as ten times bigger than the amount of Government Bonds sold through the auctions …. This led to an unhealthy link between some of the officers of the Central Bank’s Public Debt Department, Primary Dealers and large corporations who benefitted from such private placements. This practice only enriched a handful of cronies of the previous Government …. Records confirm that private placements had become a norm rather than an exception.”

What were the sources of information you relied on when you made those observations?”

My reply is as follows-

The Commission would no doubt appreciate that this relates to a statement made by me in Parliament which is vested with the control of Public Finance. I have already referred to the criticism that had been levelled against “Private Placements” and the reasons for the policy decision in favour of Public Auction. The then Government was unable to give requisite answers to the questions in Parliament as to what exactly had taken place through Private Placements. The unhealthy links referred to in question No. 18 were gathered by a group of MPs which included, Eran Wickramaratne, Dr. Harsha De Silva, Sujeewa Senasinghe and several others, and also from comments made by other Parliamentarians and News Paper Reports.

[19] and [20] Question numbers 19 and 20 are as follows-

“[19] During the course of your aforesaid statement to Parliament on 17th March 2015, you have also stated that, on 27th February 2015, Mr Mahendran advised [Wmfoia ÿkakd] the Public Debt Department, in the presence of two Deputy Governors [i.e. Dr Weerasinghe and Mr Silva] that, Bids up to Rs. 10 billion should be accepted. You have then gone on to say that, the allegation Mr Mahendran interfered in the decision of the Public Debt Department with regard to its recommendation on the amount of Bids to be accepted, was factually incorrect.

What were the sources of information you relied on when you made this statement?

“[20]. During the course of your statement to Parliament on 17th March 2015, you have also stated that, the allegation that Mr Mahendran interfered in the decision of the Tender Board was factually incorrect.

What were the sources of information you relied on when you made this statement?”

My reply is as follows-

The statement made by me in Parliament on 17th March 2015 was based on information relating to attendant events pertaining to the said auction provided by Mr Mahendran and Mr Samarasiri -Deputy Governor of the CBSL and Chairman of the Tender Board and in the course of conversations with me.

I stated that neither the Monetary Board nor I was the proper authority to inquire into the issue. I also informed Parliament that the Pitipana Committee appointed by me was required to inquire into the matter impartially and I undertook to table their Report in Parliament on receipt of same. I also stated that it was open to Parliament to take appropriate steps including the setting up of a Select Committee in the event that the Parliament was not satisfied with the Report.

[21] Question number 21 is as follows-

“The Report of the “Three Person Committeechaired by Mr Gamin! Pitipana, Attorney-at-Law inter alia states, with regard to the Treasury Bond Auction held on 27th February 2015, “The Committee at this stage can only make an observation that the bidding pattern of Perpetual Treasuries and securing nearly 50% of the accepted bids as unusual.” The Committee goes on to observe that “… a full-scale investigation by a proper Government Authority is warranted.”

The Report also states, “The Committee also observes, from the information placed before the Committee, that there is a serious lack of transparency pertaining to the activities of the PDD of the CBSL. There is no proper supervision of the activities of the Primary Dealers and the PDD. There is no recording of calls, there is no log of documents received, no supervision of electronic footprint; such as text messages and emails between officials of the PDD and the Primary Dealers.”

The Report recommends, inter alia, that, a proper supervisory and monitoring mechanism should be implemented with regard to the activities of the Public Debt Department and the Primary Dealers.

The Report also recommends that, a full-scale investigation by a proper Government Authority is warranted upon the activities of the PDD and its officials and any other Department of CBSL and its officers, to ascertain whether there is any truth in the assumptions pertaining to sensitive information of the CBSL being compromised.”

Are you aware of any action taken by the CBSL and/or by the Ministry of National Policies and Economic Affairs, with regard to the aforesaid observations and recommendations?

My reply is as follows-

At that time, the Pitipana Committee of inquiry had not submitted its Report. I apprised Parliament that the Report of the Committee was awaited and that upon receipt it will be placed before Parliament to enable Parliament to take such action as it deemed appropriate. Subsequently, the Pitipana Report was tabled by me in Parliament and a debate ensued in Parliament. It was decided that COPE should go into this matter in full. The COPE Report was received and forwarded to the Attorney General for necessary action at my instance. I am aware that a team of members from the Attorney General’s Department have been appointed to consider the Report. I have instructed the Attorney General to take steps according to law against any persons who are culpable, irrespective of their status or party affiliations.

A new Monetary Law is being prepared which will also address some of the matters referred to in the Pitipana Report. We have also strengthened Parliament’s oversight of the CBSL by establishing the Public Finance Committee and making the Economic Oversight Committee responsible for reporting on the CBSL.

I decided to look into the transactions prior to 2015 once the COPE Report was tabled. This has been postponed until the conclusion of the sittings of the Presidential Commission.

[22] Question number 22 is as follows-

“Did you consider that, it was fit and proper for Mr Mahendran to continue to serve as Governor of the CBSL after the events of the Treasury Bond Auction held on 27th February 2015?

If so, please briefly state the reasons for that view?stated above I had already tabled the Pitipana Report in Parliament and a debate ensued. Parliament decided to refer this issue to COPE and im, Mr Mahendran went on leave and his tenure of office ended prior to the submission of the COPE Report. As stated above, I have forwarded the COPE Report to the Attorney General to take appropropraite action if there has been any transgression of the law by Mr Mahendran or any other person.

[23] Question number 23 is as follows-

“In 2015 and 2016, was the Ministry of National Policies and Economic Affairs (which is the Ministry under which the CBSL is placed), regularly informed by the CBSL [for example, on a daily, weekly, monthly, quarterly, half yearly or annual basis] of the results of Primary Auctions of Treasury Bonds?

If so, what was the information that was provided and how often was such information provided?”

My reply is as follows-

There were weekly meetings of officials evaluating the progress made by the Ministries and the financial situation in the country, as well, as weekly meetings of the Cabinet Committee on Economic Management at which meetings, the Governor of the CBSL was one of the persons in attendance. At these meetings the overall situation of the economy is evaluated. Even though details of Primary Auctions of Treasury Bonds are not discussed or revealed the amount of monies raised through Treasury Bonds and amounts required to be raised in the future inevitably surface at these meetings.

[24] Question Number 24 is as follows-

“In 2015 and 2016, was the Ministry of National Policies and Economic Affairs (which is the Ministry under which the CBSL is placed), regularly informed by the CBSL [for example, on a daily, weekly, monthly, quarterly, half yearly or annual basis] of the transactions done by Primary Dealers on the Secondary Market of Treasury Bonds?

If so, what was the information that was provided and how often was such information provided?”

My reply is as follows:

Transactions done by Primary Dealers on the Secondary Market of Treasury Bonds was not dealt by the Ministry of National Policies and Economic Affairs. The Minister only focuses on the overall economic performance. As such information pertaining to these are not called for or made available to the Minister.