-Initial cost of Rs. 13 b doubles due to massive mismanagement including .
-Rs. 5 b EPF funds.
-Former board had no formal meetings, contracts doled out with no tender procedure.
-Rs. 300 m spent on H’tota Hyatt even before start, project to be cancelled by new officials.
-Colombo Hyatt to open by 2017 after three-year delay.
A forensic audit into the Hyatt hotels in Colpetty and Hambantota has uncovered mass fraud resulting in initial cost estimates more than doubling from Rs. 13 billion to Rs. 27 billion and the company facing a shortfall of nearly Rs. 9 billion to complete the project, its new director board said yesterday.
Canwill Holdings Ltd. is a fully state-owned public enterprise that was initiated under former President Mahinda Rajapaksa’s tenure. It was entrusted with Rs. 18.5 billion in equity sourced from its key shareholders Sri Lanka Insurance Corporation, which contributed Rs. 8.5 billion as well as Litro Gas and the Employees Provident Fund (EPF) that provided Rs. 5 billion respectively.
Forty-six percent of the shares were held by Sri Lanka Insurance while the rest was divided between Litro Gas and EPF.
Canwill Holdings then invested its equity in two subsidiaries, Sinolanka Hotel and Spa, which was behind the Hyatt hotel in Colpetty and Helanco Hotels and Spa that backed the proposed Hyatt in Hambantota.
“The Hyatt in Colombo has been under construction for over three years. During the audit we uncovered instances of massive wastage and mismanagement right from the inception of obtaining the land. Three additional properties were acquired by paying Rs. 40 million more than was suggested by the Government Valuer at the behest of the company,” new Chairman Hemaka Amarasuriya told reporters but assured the company has sufficient funds to “carry on for now.”
The main land was leased for 99 years from the Urban Development Authority (UDA) after the former Ceylinco property was controversially expropriated by the previous government. Canwill Holdings was previously managed by former Chairman Gamini Senerath and former Managing Director Piyadasa Kudabalage and the audit report found no regular board meetings had been held with major decisions taken via email, Amarasuriya said.
Among the host of irregularities and mismanagement highlighted by the audit were payments of Rs. 10 million to a lawyer with no agreement, Rs. 16 million losses in steel purchases, fittings supplier given Rs. 80 million without board approval, international tender for $ 37 million signed with an international contractor the day before the presidential elections and Rs. 12.8 million spent on a signing ceremony. An additional Rs. 300million had been spent from Rs. 5 billion earmarked for the Hambantota Hyatt without even the foundation stone being laid for the project. The new board plans to revert the remaining funds to complete the Colpetty Hyatt and cancel the project in Rajapaksa’s hometown. Many of the contracts were handed on personal basis without open tenders, the audit report found.
A bag of foreign consultants were also appointed to the interior design, restaurants, food services, laundry, lighting, lifts, landscape and facade that have been combed through by the new board and largely dismissed. A foreign engineering consultant was also hired at Rs. 16 million a month, which the new board has terminated. A corporate credit card with a limit of Rs.1.5 million was issued to the former managing director and both his children were employed by Canwill Holdings with special perks, charged Amarasuriya. The results of the audit will have handed over to the Criminal Investigation Department (CID) of police.
“So far we have saved about Rs.150 million by cancelling and renegotiating contracts. This work will continue and we hope to save an additional Rs. 100 million. Tenders have already been called for fresh work and we will work to ensure transparency. It is essential for the public to know about this wastage as it involves public funds,” he added.
A foreign general manager was hired for a salary of Rs. 1.4 million but he has been sent back to Hyatt by the new board of directors as his services would not be immediately needed. However, Amarasuriya was quick to assure no oversights had been found in connection to the management and profit sharing agreement signed between Canwill Holdings and Hyatt International. The new opening date for Hyatt Colombo has been extended to 2017. The agreement was initially entered to by Hyatt Hotels Corporation in 2012 and it was to have been completed in 2014.
(Courtesy –Daily FT)