Right of reply: ‘Something rotten at the heart of BOI?’

Following is the right of reply sent by the Board of Investment of Sri Lanka (BOI) for the article titled ‘Something rotten at the heart of BOI?’ published in Mirror Business on November 23, 2017. 

With reference to the article appeared in Daily Mirror on 23/11/2017, we wish to clarify as follows:

The BOI has followed all the procedures in a very transparent and official manner but your headline and article paint an extremely misleading and incorrect picture.
M/s Magick Woods Exports (Pvt.) Ltd, India had requested to set up a project to manufacture vanity and kitchen cabinets using imported timber for export at the location of the Mirigama Exports Processing Zone (MEPZ) on a land of 6.9 acres utilizing an existing building owned by the previous occupant, M/s Chemcel (Pvt.) Ltd.

In this situation, the BOI followed the proper procedure to ensure that the interest of both M/s Chemcel (Pvt.) Ltd and M/s Magick Woods (Pvt.) Ltd are fulfilled within the prevailing policy and legal framework on the allocation of land and buildings from the MEPZ.

M/s Magick Woods (Pvt.) Ltd intended to purchase the buildings from M/s Chemcel (Pvt.) Ltd and the BOI advised M/s Chemcel (Pvt.) Ltd to negotiate the cost of the building with the new investor, M/s Magick Woods (Pvt.) Ltd.

M/s Chemcel (Pvt.) Ltd had offered a value of Rs.108 million for the building for M/s Magick Woods (Pvt.) Ltd on 02/08/2017 and also wanted to recover the Rs.6.2 million already paid to the CEB for a transformer, as well as the non-refundable deposit from M/s Magick Woods (Pvt.) Ltd.

Based on the above understating, the project was approved on 22/08/2017, subject to condition that the building will be transferred from M/s Chemcel (Pvt.) Ltd to M/s Magick Woods (Pvt.) Ltd, subject to payment of the value for the building as determined by the chief valuer. After failing the negotiation on the valuation offered (Rs.108 million) for the building between the two parties, the BOI decided to call for a valuation from the government valuer.

As agreed by both parties, a valuation report was called on 04/08/2017 and the valuation report received on 31/08/2017 was Rs.111.5 million for the building.
M/s Magick Woods (Pvt.) Ltd disagreed on the government valuation of Rs.111.5 million, citing the reasons that it is an overestimate considering the conditions of the buildings and as a result, the BOI referred the matter to the Investor Approval Facilitation Committee (IAFC) held on 11/09/2017, chaired by National Policies and Economic Affairs Ministry Advisor R. Paskaralingam and decided to call for a fresh valuation.

The new valuation for the building from the Valuation Department received on 19/09/2011 was Rs.71 million and both parties were advised to come to a mutual agreement on the valuation but the owner of the building, M/s Chemcel (Pvt.) Ltd, did not agree to the government valuation, citing the reasons that it is an underestimate on the value of the buildings.

This was again discussed at the IAFC meeting held on 03/10/2017. M/s Chemcel (Pvt.) Ltd had demanded Rs.90 million and M/s Magick Woods (Pvt.) Ltd offered Rs.84 million and Director of M/s Chemcel (Pvt.) Ltd informed Paskaralingam that they have to obtain the necessary approval from the board of directors of M/s Chemcel (Pvt.) Ltd.

In the subsequent, at the IAFC meeting held on 10/10/2017, Paskaralingam suggested that the BOI should acquire the building and transfer the said building to the prospective investor as both parties had not come to an agreement on the valuation given by the government valuer.

This matter was taken up at the Official Committee on Economic Management (OCEM) meeting held on 31/10/2017, on a request of M/s Magick Woods (Pvt.) Ltd and decided that the BOI acquire the building by paying Rs.71 million as per the government valuation and then sell the building on a sale value under a fresh valuation by the chief valuer.

The process of obtaining a fresh valuation for the purpose of selling the buildings from the BOI to M/s Magick Woods (Pvt.) Ltd has already been commenced by the BOI.

The entire matter related to both companies was therefore handled in extremely transparent and official manner by following the required legal and administrative procedures in a situation where both parties either claimed that the valuation of the government was either higher or lower. Hence, the BOI had to find a solution through the IAFC and OCEM.

Daily Mirror is kindly requested to refer such issues to the BOI for further clarification prior to publication to ensure that coverage is accurate, objective, reflecting the spirit of the discussions as well as the correct sequence of events.

Author’s note 

Author Shirley Candappa states: 

The article ‘Something rotten at the heart of the BOI?’ dealt with the issues leading to Sri Lanka’s inability to attract foreign direct investment, whereas countries like Bangladesh and Vietnam, which opened up to foreign investment much later, are now attracting far more foreign investment than we are.

The aim of the article was to help raise the consciousness of the relevant authorities to what appeared to be irregularities, which could drive foreign investors away from investing in the country.  

The BOI director media and publicity has not contradicted anything we have said in the article. 

He has merely highlighted some of the instances favourable to the BOI and avoided the issues raised in the article.

Our article highlighted incidents where the behaviour of certain officers of the BOI almost resulted in the investor – Magick Woods – withdrawing its offer to invest over US $ 10 million due to certain actions which delayed the implementation of the project.

The director media has glossed over the fact that the BOI on August 14, 2017 wrote to Messrs Magick Woods informing them that the board was in receipt of the government valuation of the said buildings, “which is Rs.28 million”, made a sudden turn around after the arrival of the investors from abroad, saying the valuation was for some other buildings.

The BOI made no apology for the inconvenience its mistake caused the investor, who travelled to the BOI office from Chennai and the US, but insisted that both parties must agree to another valuation for the building which would be binding on both parties.

Again the media director makes no mention of the subsequent re-evaluation by a so-called government valuer who claimed in a two-para valuation the buildings were valued at Rs.111,500,000.  

He is also probably unfortunately unaware that it was only at the insistence of Paskeralingam the BOI was forced to have a re-evaluation undertaken by the chief government valuer, who handed in her eight-page report on September 15, 2017, valuing the said buildings at Rs.71 million, a huge difference of over Rs.40 million. 
No one could be found fault with if they suspected something fishy was going on in the precincts of the BOI.

However, we are pleased that shortly after the article ‘Something rotten at the heart of the BOI’ was published on 23.11.2017, Messrs Chemcel on November 28 wrote to Messrs Magick Woods saying they accepted the chief government valuer’s report.

We are even more pleased that both the BOI and Messrs Magick Woods have now agreed to sign the documents to commence the project.