MNISTRY OF FINANCE DECISION COST SRI LANKA INSURANCE-OWNED COMPANYRs 1,504,734,291.00

MNISTRY OF FINANCE DECISION COST SRI LANKA INSURANCE-OWNED COMPANYRs 1,504,734,291.00

Ravi Karunanayake was Minister at the time

A Sri Lanka Insurance owned company, Sino Lanka Hotels & Spa (Private) Limited was forced to pay an Italian contractor over Rs 1,500 million over a decision taken by the Ministry of Finance not long after the good governance team set up shop as the legitimately elected government in 2015.

Interna Contract Spa of Italy were awarded a contract to design and fit out the interiors of the building popularly known as the Hyatt Project. This is the former Ceylinco Celestial Towers building which became a victim during the crumbling at the seams of the once powerful Ceylinco Group of Companies. Ceylinco had already engaged the international hotel chain Hyatt to set up shop in Colombo and the venue and size appealed to the team at Hyatt.

Initial disaster struck when the owning company Ceylinco was caught up in the entire Ceylinco Golden Key drama and the project became unstuck – several people who had paid deposits for the high-end apartments within the complex appeared to have been caught out. The project with the international brand name Hyatt too seemed doomed.

Enter the Central Bank to whom fell the task of salvaging the Golden Key issue and the building was sold to the government owned Sri Lanka Insurance and a special purpose vehicle was then formed known as Sino Lanka Hotels & Spa (Pvt) Ltd. This company was established under the Companies Act 2007 and was ultimately owned by Sri Lank Insurance and other government of Sri Lanka entities like Litro Gas Lanka Limited and the Employees’ Provident Fund. President Rajapaksa’s chief of staff Gamini Senarath was the Chairman with Piyadasa Kudabalage also on the board.

Interna Contract Spa (Italy) was a subsidiary of the Interna Group an Italian industrial group specialising in interior fit out work for hotels, cruise ships, boutiques, offices and high end residential units.

On the 6th of March 2014 they entered into a contract for the ‘Mock up Room Package Contract”. Following the completion of this Interna were invited to participate in a tender for the construction supply installation completion of an interior works package for the Grand Hyatt Hotel Colombo.

Interna submitted its tender in September 2014 and by the 15th of October Interna’s final offer was accepted by Sino Lanka.

The government changed hands in January 2015 and by 27th March 2015 the contract was cancelled by Sino Lanka purportedly because the Performance Guarantee had not been supplied by Interna Contract Spa.

The Arbitration found that Interna Contract Spa had not deviated from the contract requirements and that in effect they had been misled by their contacts representing Sino Lanka saying the advance payment would be made. The thought process of Interna that their contract was lost due to the Ministry wanting to cancel and re-award the contracts was it now appears the principal cause for the board to decide to cancel the contract on the grounds of non-performance by the contractor. The Tribunal found that the claim of non-performance against Interna was unfounded and not proven.

The eventual award to the claimant Interna Spa Italy was Euro 7,432,062.79 plus costs and legal fees all totalling Rs 1,504,734,291 or approximately USD 9.7 million. They were also awarded interest of 2% per annum calculated from August 2015. (The full text of the Arbitration in case 21266/CYK/PTA will be available starting next week on the website www.independent.lk)

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