Thursday, November 10, 2011

Sri Lanka parliament approves asset acquisition act

By Shihar Aneez and Ranga Sirilal | Reuters

Sri Lanka's parliament passed controversial legislation on Wednesday that will allow the government to acquire enterprises or assets it deems underperforming or underutilised, despite concerns the bill could hit investment in the country.

The new law, passed by 122 votes to 46, will pave the way for the state to acquire 37 properties including from two listed companies it has said are underperforming.

Leases on the assets, mainly land, were given away or sold at a discount years ago either as an incentive for investment or with the aim that loss-making state-owned enterprises could be turned around.

President Mahinda Rajapaksa's ruling party has been strongly criticised by opposition parties and leading business chambers for seeking to expedite the bill without public discussion and without any opportunity for the properties' holders to argue against their listing.

"No asset under the bill is owned by the private sector," influential Economic Development Minister Basil Rajapaksa, a younger brother of President Rajapaksa, told parliament during Wednesday's debate.

"These assets are owned by the government and public. The acquisition is to utilise them to get the maximum benefits.

The government says the owners will be compensated, but it is not clear what criteria compensation would be based on.

"I assure that we will never acquire private assets," the minister added, promising to "protect investors both local and foreign".

The main opposition United National Party said during the debate that the bill would damage investor sentiment and discourage foreign investment in the $50 billion economy, hindering Sri Lanka's post-war development.

It said the "politicised" takeover bill included at least three profit-making firms.


The asset acquisition bill allows the government to appoint authorities to manage "in the interests of the national economy" what it has defined as one underperforming enterprise and 36 underutilised assets.

The opposition had argued that the bill violates the country's constitution and should not be debated while a ruling on a fundamental rights case against it is pending.

But Speaker Chamal Rajapaksa, the president's elder brother, overruled the protest and allowed the debate after Sri Lanka's Supreme Court informed parliament on Tuesday that the bill was consistent with the constitution.

Assets listed in the bill include Hotel Developers Lanka Plc , which runs the five-star Hilton Colombo hotel, and 6,300-hectare land owned by Pelwatte Sugar Industries Plc . Shares in Pelwatte Sugar have fallen 15.5 percent and those of Hotel Developers Lanka have dropped 27.1 percent since the market first got wind of the proposed bill on October 1.

Though Rajapaksa has said the bill will be a 'one-off' to acquire the specified properties, economists, investors, state officials and opposition politicians have warned it amounts to nationalisation and could damage business confidence.

"It will impact larger projects and potentially investors of large scale will be worried," Frontier Research economist Amal Sandarathne told Reuters.

The government has also been criticised recently after it cancelled a $500 million hotel deal with a Chinese firm over a land dispute and transferred a top Securities and Exchange Commission official. ,

A senior bank economist speaking on condition of anonymity said the way in which the bill had been introduced risked discouraging investors.

He said greater consultation was needed and suggested the government could have pursued other avenues, such as acquiring the assets under violation of contract if they had been underutilised.

Since the end of its 25-year civil war in 2009 Sri Lanka has been working to improve the investment climate, including making fiscal and tax reforms under the guidance of the International Monetary Fund.

Sri Lanka's foreign direct investment doubled in the first half of 2011 to $413 million compared with a year ago, mainly from Honk Kong based Shangri-La Asia for a luxury hotel in Colombo.

© Reuters

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