A decision by Lanka Salu Sala not to meet its obligation of paying a bill of nearly Rs. 2.5 billion, owed to an Indian marketing agency, has entangled the Ministry of Industries and Commerce, in a tar ball that has now gone to higher echelons of the Government to be unravelled.
The Indian Marketing Agency claimed to have supplied textiles worth Rs. 2.5 billion to meet work orders issued by Salu Sala since 2015.
According to documents sighted by the Sunday Observer, Salu Sala was seeking to supply the material for the school uniform voucher scheme introduced by the Ministry of Education in 2015.
At a meeting with the Prime Minister earlier this month and in subsequent correspondence with the Prime Minister´s office, the Indian vendor, Varcheswi Marketing Agency (VMA) has claimed that; despite their material, meeting all the strict requirements and standards imposed by the Ministry of Education, is languishing in warehouses, with heavy demurrage and even heavier interest costs, as they are being penalized for an alleged act of fraud by other parties that had occurred with the connivance of certain senior government officials.
In a letter dated March 24, 2017, VMA is seeking the Prime Minister´s intervention to settle the issue through a joint Cabinet paper where the Ministry of Industries seeks and the Ministry of Education agrees to buy the complete stock of material. VMA claims that given foreign exchange changes and price increases in the global market, the government will be, in fact, saving approximately 15% to 25% when compared the expense of buying the same amount of material on the market now.
According to the agreement entered in December, 2015 by and between Salu Sala and VMA, Salu Sala agreed to procure school uniform material from VMA and undertook to distribute the materials on its own through its affiliates, for the academic year of 2016.
Subsequently, in a letter-dated 12th September 2016, Salu Sala further extends the contract between the two parties and requests that VMA extends the supply of 5,800,000 meters on similar terms with the agreed old rates.
“Lanka Salu Sala Ltd wishes to reiterate again that Lanka Salu Sala has selected your organization based on the tender in the last year and Lanka Salu Sala Ltd. will not procure directly or indirectly from any other party towards uniform supply,” the letter read.
However, following the extension, Salu Sala again writes to VMA stating a downsizing of Salu Sala and other financial restraints that it was facing, and requested the material provider to take on the distribution as well, and entered an addendum to the initial agreement for the distribution of materials island-wide.
A curious paragraph on the addendum reads, “based on recommendations of Salu Sala, Varcheswi hereby agree and appoint an entity by the name, style and firm of M/S. Shanaka, a proprietorship concern….., …for collection of Uniform material packed and stacked in cartons by Varcheswi & its vendors and distribute the material with its own team (or) through third party vendor...”
VMA says they had no prior information about this third party and entered into the distribution agreement only based on the strong recommendation by certain senior government officers.
In December 2016, the Secretary to the Education Ministry wrote to the President bringing his attention to a racket he claimed to have been carried out by Salu Sala in carrying out distributions of school uniform materials and cancelled the orders based on the quality of the materials finding them sub-standard as opposed to what was quoted in the tender.
According to VMA, the third party distributor, recommended and forced on VMA by Salu Sala and Ministry of Industries officials, had substituted the higher quality Indian material with lower quality Chinese material. VMA, and officials Sunday Observer queried, said that in addition, this distributor had also supplied the material to urban schools, which was expressly prohibited in the agreement signed between Salu Sala and the Ministry of Education.
Speaking to the Sunday Observer Minister of Education, Akila Viraj Kariyawasam said that the “reasons of introducing the coupon system amidst heavy criticism was to minimize any possibility of making money by third parties. This is why I cancelled the tender when the quality of materials was sub-standard”.
Salu Sala is yet to make any payment, including for material imported and already distributed by Salu Sala in the year 2016 to VMA, according to documents sighted by Sunday Observer.
Following representations by VMA and also the Indian High Commission to the Prime Minister´s office, the matter was discussed last week at the Cabinet Committee on Economic Management (CCEM) chaired by the Prime Minister.A senior official who was present at this meeting confirmed that the committee recommended the matter be referred to the Attorney General´s Department.
Meanwhile, ministry sources also indicated that a complaint would be made to the Criminal Investigations Bureau on Monday regarding the fraudulent activity.