How open economic policies and privatizations under President Chandrika mismanaged National Assets

 

 

The people elected Sri Lanka’s second female leader Chandrika Bandaranaiake, the daughter of the world’s first prime minister Mrs. Sirimavo Bandaranaiake and assassinated Prime Minister S W R D Bandaranaiake, with much hope. Her policies were a direct opposite to that of her parents. During the late 1990s, Sri Lanka embarked on an aggressive privatization and liberalization drive, amidst LTTE terror often influenced by IMF and World Bank advice. While presented as “modernization” and “private sector efficiency,” the process systematically transferred profits and control of key national assets to a small group of local elites, foreign investors, and corporate partners, leaving the state and people with only short-term cash gains and no change to loan/national debt status.

 

Key features of this mismanagement include:

 

• Long-term leases and BOO/BOT deals:

Assets such as hotels, plantations, and utilities were leased or sold with contracts lasting 50+ years, ensuring profits were siphoned to private and foreign hands for decades.

 

• Elite capture:

Local politicians, public servants, and corporate players colluded in deals that prioritized private gains over national benefit often for commissions.

 

• Profit leakage offshore:

Amendments to the Monetary Exchange Act in 2016 removed restrictions that previously criminalized hiding profits abroad, allowing local companies to retain billions in offshore accounts—showing that corporate actors were just as culpable as public officials in profiting from these deals.

 

• Aid-driven conditions:

Many privatizations were aligned with IMF/World Bank prescriptions, pressuring the state to reduce involvement in energy, telecom, transport, and plantation sectors. While these deals were sold as modernization, the long-term strategic losses far outweighed the short-term cash inflows.

 

• Public backlash and controversies:

Scandals, undervaluation, foreign control, and monopolistic privileges created lasting economic and political resentment, as seen in Water’s Edge, Emirates’ sudden exit from Air Lanka, and criticism over RPC leases.

 

 

Key privatizations under President Chandrika

 

1. PRIMA / Colombo PRIMA Hotel – Late 1990s

• Privatized under:President Chandrika Kumaratunga

BOT was approved under Jayawardena, but Chandrika converted to BOO.

 

• Buyer / Foreign involvement:Private consortiums with foreign hotel partners
• Current status:Fully private under BOO model – total monopoly
• State gains:Upfront cash; capital investment commitments
• State losses / concerns:Long-term profits diverted; state had limited operational control
• Aid / Judgment factor:Likely aligned with IMF/World Bank preference for private sector-led tourism; questionable judgment in BOO model
• Scandals / Legal issues:No major annulments, but public criticism over monopoly and long-term revenue loss

 

2. Shell Gas / Colombo Gas (LPG) – 1995–1996

• Privatized under:Chandrika Kumaratunga
• Buyer / Foreign involvement:Royal Dutch Shell (Netherlands), 51% stake
• Current status:Buyback in 2010 under Mahinda Rajapakse; now Litro Gas Lanka
• State gains:~$37 million upfront; infrastructure investment
• State losses / concerns:Dividends to Shell; exclusive monopoly rights; lost strategic control; billions in potential profits diverted abroad
• Aid / Judgment factor:Likely pressured by World Bank / IMF to reduce state involvement in energy; poor strategic judgment on monopoly terms
• Scandals / Legal issues:None formal, but public criticism of revenue leakage

 

3. Sri Lanka Telecom (SLT) – 1997

• Privatized under:Chandrika Kumaratunga
• Buyer / Foreign involvement:NTT (Japan) – 35% stake
• Current status:Majority state-owned; NTT exited
• State gains:$225 million upfront; debt reduction; tech transfer; capex commitments
• State losses / concerns:Management fees (1.2% net revenue + 0.5% gross profit); dividends to foreign shareholders; partial influence on strategic decisions; monopoly ended.

NTT managed day-to-day operations for 5 years; fees: 1.2% of net revenue + 0.5% of gross profit

• Aid / Judgment factor:Encouraged under World Bank / IMF liberalization agenda; partial loss of long-term monopoly profits
• Scandals / Legal issues:None reported

 

4. 23 Regional Plantation Companies (RPCs) – Mid-1990s

• Privatized under:Chandrika Kumaratunga
• Buyers / Foreign involvement:Hayleys, Browns, JKH, Richard Pieris, Watawala (Tata India), Udapussellawa & Pussellawa (Finlays UK)
• Current status:Private-managed under long-term leases (50+ years); some leases for 53 years. performance mixed
• State gains:Upfront lease proceeds; ongoing rent/tax revenue; investment commitments
• State losses / concerns:Long-term profits from tea/rubber largely privatized; foreign dividends; strategic control over estates reduced
• Aid / Judgment factor:IMF / World Bank encouraged privatization and foreign investment; poor long-term judgment on lease durations
• Scandals / Legal issues:Some criticism over foreign control and long leases; public dissatisfaction over land control

 

5. SriLankan Airlines (Air Lanka) – 1998

• Privatized under:Chandrika Kumaratunga
• Buyer / Foreign involvement:Emirates – 40% stake; full 10-year management control
• Current status:Government bought back 43.6% stake in 2010; airline remains state-owned
• State gains:$70 million upfront; temporary improvement in management/service
• State losses / concerns:Lost profits (~$200–300m); lost control of routes; forced buyback at $53m; ongoing bailouts
• Aid / Judgment factor:Possibly influenced by liberalization agenda; extremely poor strategic judgment in management control
• Scandals / Legal issues:Sudden Emirates exit left state unprepared; heavy public criticism

 

6. Ceylon Electricity Board / Independent Power Producers (IPPs) – Late 1990s

 

• Privatized under:Chandrika Kumaratunga
• Buyer / Foreign involvement:Private IPPs; some foreign partners – foreign IPPs included AES (US) and other joint ventures.
• Current status:Privately operated; state partially regulates tariffs
• State gains:Investment in new power capacity; operational improvements
• State losses / concerns:Profits and dividends to private operators; tariff adjustments limited state revenue capture; strategic control reduced
• High tariffs to consumers and profit repatriation abroad.
• Aid / Judgment factor:Likely IMF / World Bank influenced; short-term expansion achieved but long-term revenue ceded
• Scandals / Legal issues:Criticism over high tariffs and private profits; no annulments

 

Additional Notes / Scandals under Chandrika:

Water’s Edge land: Controversial lease/BOT arrangement; public outcry over undervaluation and foreign management.

BOT/lease undervaluation (~Rs 300–500m estimated); long-term revenue lost.

Some privatizations had long-term leases (RPCs, hotels) that effectively handed profits to private/foreign entities for decades.

Public outcry:  public opinion criticized mismanagement, undervaluation, and excessive foreign control.

Note: Details from publicly available records

Other IMF / World Bank–Influenced Policies and Sectoral Reforms

 

• Education and Culture:

Programs encouraged privatization of schools, vocational training, and cultural institutions, along with shifts toward foreign-funded curricula, reducing state control and prioritizing donor objectives over national priorities. Present promotion of LGBTQIA ideology among young children is part of that agenda while also being funded & promoted by western embassies & their NGOs.

 

• Land Administration:

The Bim Saviya land reforms replaced historical land deeds with simplified records, facilitating asset acquisition by private and foreign interests.

Replacing original land deeds with simplified A4-style records and US-operated electronic database facilitated foreign/private acquisitions & was part of MCC.

 

• Financial Sector:

Partial privatizations and foreign management of banks, coupled with liberalization of capital flows, exposed the national financial system to profit repatriation and offshore holdings.

Partial privatizations included Hatton National Bank (HNB) and People’s Bank collaborations with foreign management/partners.

 

• Energy and Utilities:

Privatization of LPG, telecoms, and IPPs often came with long-term contracts and foreign management, aligned with IMF/World Bank prescriptions to reduce state involvement in infrastructure.

 

• Tourism and Hospitality:

Policies promoted BOO/BOT privatizations of hotels (e.g., PRIMA) to attract foreign investment, often sacrificing long-term revenue streams and giving operational monopolies to private consortia.

 

• Economic Liberalization:

Across multiple sectors, the agenda emphasized short-term investment and fiscal inflows over strategic control, leaving state assets vulnerable to profit siphoning and elite capture.

 

These policies, though framed as modernization or efficiency initiatives, systematically transferred long-term benefits and strategic control from the state to private and foreign actors, often at the expense of national sovereignty and public interest. With income that could have been generated by the State falling into local private or foreign investor hands or their partnership, while promoting consumerisms & import-culture which invariably meant commissions to handlers, Sri Lanka steadily progressed into the debt trap of its own making due to poor leadership understanding, poor advisors and caving into privatization deals & their carrots.

 

The privatization agenda under Chandrika not only lost control of key assets but also transferred billions in potential profits abroad, enriching a handful of local elites and foreign investors. Understanding this history is essential for the public to grasp how policy misjudgment, elite collusion, and foreign-aligned privatization contributed to structural economic vulnerabilities in Sri Lanka.

 

 

 

Shenali D Waduge