Purchase money paid to shadowy offshore company-Rajapaksa govt.’s controversial MiG deal – Part II

Purchase money paid to shadowy offshore companyRajapaksa govt.’s controversial MiG deal – Part II

By C.A. Chandraprema-

The other key question in relation to the purchase and overhaul of MiG aircraft in 2006 was that the payment had not been made to the supplier – the Ukrainian state owned company UKRINMASH, but to a front company by the name of Bellimisa Holdings Ltd. In 2000 when the Chandrika Kumaratunga government bought six MiG-27s and one MiG-23UB trainer, the supplier was DS Alliance of Singapore. However DS Alliance was a middleman and all the MiG aircraft purchased in 2000 were actually supplied by UKRINMASH the manufacturers of MiG planes in Ukraine. The policy of the Rajapaksa government was to eliminate the middleman so they directly approached UKRINMASH. In the ‘letter of offer’ handed over by UKRINMASH to the Ministry of Defence on 6 February 2006, it was specifically stated that this offer for the supply and overhaul of aircraft was being made in conjunction with a financier providing financing to the manufacturer and that the payment should be made to the financier.

The UNP government of 2001-2004 had also made overtures to UKRINMASH for the supply of four MiG- 27 aircraft and in the letter of offer they had sent to the then Defence Minister Tilak Marapone on 22 April 2003, UKRINMASH had specified that the payment should be made to a finance company and that they will inform Sri Lanka of the name of this company within three days of signing the contract. The method of payment laid out in the offer made to the then Defence Minister in 2003 is word for word the same as the offer made to the Rajapaksa government in 2006. D.A.Peregudov a Director of UKRINMASH wrote to the Defence Ministry explaining that UKRINMASH is a fully state owned enterprise and that according to Ukrainian law, they cannot trade on credit terms and they cannot provide credit facilities for two years as requested by Sri Lanka. Hence a financier by the name of Bellimissa Holdings Ltd would provide financing for the transaction.

The contract of 26 July 2006 for the supply of four MiG-27 aircraft and the overhaul of four other MiG aircraft, had three signatories – the Commander of the Sri Lanka Air Force as the buyer, UKRINMASH as the seller and Bellimissa Holdings Ltd as the designated party which was to receive the payment. This is a legally binding contract under Ukrainian, Sri Lankan and international law between two government agencies in Sri Lanka and Ukraine. The reason why a financier was not necessary when seven MiG aircraft were bought in 2000 was because the middleman DS Alliance of Singapore functioned as the financier. Section 23.1 of the contract signed on 26 July 2006 specified that the buyer and the seller are aware that Bellimissa Holdings Ltd shall be involved to provide financing to facilitate the transaction and that all payments under this contract including freight charges shall be paid to Bellimissa Holdings Ltd.

When the Invoice for the purchase and overhaul of the MiG aircraft was sent by UKRINMASH to the Commander of the Air Force on 31 July 2006, it was once again specified that the Bank of Ceylon should open letters of credit in favour of Bellimissa Holdings Ltd. When a state owned enterprise in a foreign country enters into a legally binding contract for the supply of aircraft, the buyer has to make the payment as the seller specifies. There was nothing secret about the payment being made to Bellimissa Holdings Ltd, because they too were a signatory to the legal contract. These MiG aircraft were purchased directly from the manufacturers in Ukraine, the payment was made, the aircraft were delivered, they were used in the war and those aircraft are still in the possession of the Air Force. Of the MiG aircraft bought or overhauled in 2006, not a single was lost due to terrorist attacks or flying accidents.

Govt. procurement procedure

The 2006 newspaper articles about irregularities in this deal appeared to suggest that this was a shady deal furtively carried out between Gotabhaya Rajapaksa and the Ukrainian Company with Udayanga Weeratunga acting as the go-between. However, from the beginning to the end, all the proper procedures were adhered to in this transaction. Many state officials were involved and it was a proper government procurement. There was the special three member Cabinet Appointed Tender Board (CATB) to evaluate whole the transaction. As is the usual practice, the CATB in the MiG transaction was headed by the Secretary of a different ministry – M.S.Jayasinghe, Secretary to the Ministry of the Nation Building and Economic Development. Gotabhaya Rajapaksa Secretary to the Ministry of Defence and S.B.Divaratne Deputy Secretary to the Ministry of Finance were the other members of the CATB.

Then there was the Technical and Financial Evaluation Committee (TEC) appointed by the National Procurement Agency which was headed by Air Vice Marshall W.D.R.M.J. Goonetillke, and made up of Air Commodore E.G.I.P De Silva – Director Aeronautical Engineering of the Sri Lanka Air Force, H.D.Weerasiri – Accountant Ministry of Defence, Dr D.P.T.Nanayakkara – Senior Lecturer University of Moratuwa, J.V.Premaratne – Deputy Director (Airworthiness) Civil Aviation Authority and Mrs K.D.R. Olga – Accountant Department of National Budget, Ministry of Finance. When the Cabinet Appointed Tender Board met on 5 May 2006, it was observed that UKRINMASH had further to a request made by the Air Force agreed to give the government of SL a discount of USD 40,000 on the cost of the whole transaction.

However the CATB was not satisfied with this discount and recommended to Cabinet that a negotiating committee be appointed to obtain a further discount. Accordingly, the Cabinet appointed a negotiating committee headed by P.A.Prematilleke – Director General Department of State Accounts of the General Treasury. On 16 May 2006, Prematilleke wrote to UKRINMASH drawing attention to the fact that this was a government to government transaction and that UKRINMASH had a long term relationship with the SLAF (on account of the MiG-27s bought previously). He pointed out that the discount offered by them amounted to only 0.27% of the total price and asked for a discount equal to 0.84% of the total price. Furthermore Prematilleke requested UKRINMASH to reduce the interest rate on the deferred payment terms from 1.5% to 0.75%.

On 20 May 2006, UKRINMASH wrote back to the head of the Cabinet Appointed Negotiating Committee stating that the finance package was worked out jointly with their financier (Bellimissa Holdings) and that this included pre-payments that had to be made to suppliers to prevent price inflation and therefore they were unable to make any further reductions in the price. The four MiG-27s that were going to be purchased from UKRINMASH in 2006 needed an ‘end user certificate’ so that the international community knows who will be using these weapons. The four MiG aircraft that were already in the possession of the air Force and were to be overhauled had been issued with their end user certificates at the time they were bought in 2000 and therefore did not need fresh end user certificates.

The End User Certificate No: SLAF/J-45001106 issued by T.M.P.D. Tennakoon the Chief Purchasing Officer of the Air Force on 15 July 2006 states clearly that the Sri Lanka Air Force authorises M/s Bellimissa Holdings Ltd to purchase from Ukraine four MiG-27 aircraft after overhaul and that the Sri Lanka Air Force confirms that the aircraft purchased from Ukraine are intended solely for use by Sri Lanka and will not be re-exported, sold, leased or transferred to any third party without the permission of the export control authorities in Ukraine. Thus the End User Certificate also makes clear the role of Bellimissa Holdings in this transaction.

According to the reports that appeared in the print media about the MiG deal back in 2006, Udayanga Weeratunga the former Sri Lankan Ambassador in Russia and a close kinsman of the Rajapaksas had been involved in this transaction as an intermediary. It was said that in February 2006, Weeratunga had met the Chairman of DS Alliance, T.S. Lee in Singapore and had requested that Lee introduce him to UKRINMASH to discuss the acquisition of four additional MiG-27s and the overhaul of four other MiG aircraft for the SL Air Force. Thereafter, Weeratunga had allegedly been involved in the MiG deal every step of the way and he had been present on 6 February 2006, at a meeting between Defence Secretary Gotabaya Rajapaksa, and UKRINMASH Director D.A. Peregudov where the latter had personally presented the UKRINMASH ‘offer letter’ to the Sri Lankan side. It was even said that Weeratunga had been in and out of Air Force Headquarters on no less than 25 occasions to facilitate the MiG deal.

Udayanga Weeratunga’s role

The assertion that Udayanga Weeratunga had approached the owner of DS Alliance to obtain an introduction to UKRINMASH sounds odd because Weeratunga had lived the better part of his life in Ukraine and knew the language, so why would he need to be introduced to UKRINMASH by a Singaporean? UKRINMASH is not an underground arms dealer but a legitimate State owned entity in Ukraine. Besides, Udayanga Weeratunga had been a businessman and a prominent member of the small Sri Lankan community in Ukraine and he maintained close contact with the successive Sri Lankan Ambassadors in Russia who were accredited to Ukraine. UKRINMASH had been selling weapons to Sri Lanka since the early 1990s, and Weeratunga knew UKRINMASH well and did not need any introduction from the owner of DS Alliance.

Sri Lanka never had close relations with Ukraine, so few politicians visited that country. In 1991 A.R.Mansoor the Minister of Trade in the Premadasa government had visited Ukraine and met the Ukrainian Minister of Trade. At that time, as a member of the Sri Lankan community living in Ukraine, Weeratunga had helped Minister Mansoor’s delegation and given them a dinner at his house. In 1999, the then Foreign Minister Lakshman Kadirgarmar had issued letters to the Sri Lankan embassy in Russia appointing Weeratunga as Sri Lanka’s Honorary Consul in Ukraine. (Though he had been appointed Honorary Consul by the Sri Lankan side, he needed to obtain Ukrainian citizenship to be acknowledged as the Honorary Consul for Sri Lanka, by the Ukrainian side. Since he never applied for Ukrainian citizenship, his appointment as Honorary Consul remained without diplomatic formalisation, but he played the role on behalf of the Sri Lankan government.)

Weeratunga was no stranger to the Air Force. As a member of the Sri Lankan community living in Ukraine, he had been meeting Air Force officers who had been visiting Ukraine from the time the first AN-32 aircraft had been bought from that country in 1992, and most if not all such visitors to Ukraine had been either to his home or his restaurant to have Sri Lankan meals. One important incident that had taken place when Weeratunga was the Honorary Consul in Ukraine in 2004 was the detaining of two AN-32 planes that had been repaired at the Kiev Aviation repair Plant 410 and was returning to Sri Lanka via Russia at the Rostov airport because no permission had been granted to the government of Sri Lanka to transport ‘weapons’ across Russian territory. Around 30 Sri Lankan Air Force personnel had been on board the detained aircraft.

At the time of the incident President Chandrika Kumaratunga had not been in SL and neither had the Russian Ambassador in Colombo. Prime Minister Mahinda Rajapaksa had immediately summoned the Acting Russian Ambassador in Colombo and explained matters to him and put Weeratunga in contact with the Russian authorities to sort the matter out. The Russians had reversed the process by preparing paperwork to convey the impression that no such examination or detention of SL aircraft had taken place, and the AN-32s had been sent back to Kiev.

In 2002, the then Minister of Plantation Industries Lakshman Kiriella had turned up in Ukraine with a delegation from the tea trade. One of the purposes of his visit had been to get the Ukrainian special customs levy on tea packages of less than three kilos removed. Kiriella had failed in the attempt but later in 2004 when Mahinda Rajapaksa had been Prime Minister, the Deputy Minister of trade in Ukraine had visited Sri Lanka and at a request made by MR on Weeratunga’s intervention, the levy had been abolished. In 2003, the Interior Minister in the UNP government John Amaratunga had visited Ukraine and had been taken to UKRINMASH by Udayanga Weeratunga. At this meeting the then Director of UKRINMASH had suggested to Minister Amaratunga that Sri Lanka should have a satellite based maritime surveillance system covering Sri Lanka’s territorial waters so as to be able to cut off the LTTE’s arms supplies.

On Kiriella’s and Amaratunga’s visits, Weeratunga had assembled other members of the Sri Lankan community living in Ukraine and accorded the delegations a dinner at his restaurant in Kiev. Back in 2006 when reports first started appearing about the MiG deal, Uadaynga Weeratunga was only a peripheral character in the controversy. At that time, the entire focus was on the issue of the price difference in the MiG-27s bought in 2000 and 2006 and the question of the money having been paid to Bellimissia Holdings instead of direct to UKRINMASH. Today however the main issues that were highlighted in the original newspaper reports back in 2006 have been pushed into the background and Udayanga Weeratunga and his involvement in the MiG deal has become the main focus of the ongoing FCID investigation.

Tomorrow: Why the FCID now focuses on Udayanga Weeratunga

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