Despite recommendations by the committee appointed by President Gotabaya Rajapakse for quality checks to be carried out on gas cylinders before it is released to the consumer, the explosions have continued.
In one of the latest incidents reported from Uyangoda in the Kamburupitiya police division, householders sustained injuries after the cylinder in their kitchen exploded. In keeping with the new guidelines the cylinder had a red seal on the valve but later they found that it had been placed above the old blue seal. The family are labourers and they have to work for two days to buy a gas cylinder. There are times when they go without gas for about one and a half months. The explosion damaged their cooker which they bought for 8000 rupees and it could be a while before they can afford to replace it. The pot of rice they were cooking for dinner, which might have been their only meal for the day, ended up strewn on the floor. The family say they are poor people and want to know why the government is not looking into the explosions and whether the government does not know what the gascompanies are doing.
Thushan Gunawardena, the former Executive Director at the Consumer Affairs Authority says those responsible in the two main gas supplying companies, Litro Gas and Laughs Gas, must be arrested and the CID must take over the inquiry. ‘It cannot be done otherwise’. The bulk of the gas supply these days has been done by Litro but Laugfs also supplies it. Collectively, the two companies refill more than 100, 000 cylinders a day and they both have been using the same cylinders which are close to 30 years old. The maximum lifespan of a cylinder is about five years. With the ageing of the cylinder, the valve weakens which is also a part of the current gas conundrum. The explosions are being linked to a change in the composition of the gas in the cylinder.
The spectre of these two companies not having public liability insurance and product liability insurance is also becoming a concern. When Shell was supplying gas it was underwritten by the American International Group because there was no local capacity for it.
In their statement issued early this week, the eight– member presidential committee said they had found several reasons for the explosions. After studying some 458 incidents from around the country they found that the explosions were because gas leaks were going undetected since no odour was emanating from the cylinder and the use of low- grade regulators, tubes, hose clips and dilapidated gas cookers. The statement said that it had been agreed during discussions with gas suppliers that in future the requisite quantity of ethyl mercaptan, an additive which gives out an odour, will be included to alert consumers of a gas leak.
The Committee’s key recommendation assured that in future, cylinders will be quality assured and have a special seal that is easily recognizable before it is given to the consumer. The quality assessment will be carried out by the Sri Lanka Standards Institute (SLSI), Consumer Protection Authority, Industrial Technology Institute and the Sri Lanka Pratheethana Mandalaya.
The Committee is yet to address the burning question about the composition of the gas in the cylinder and whether it is the cause for the explosions. In their statement the Committee said they are carrying out a further scientific assessment to see if there is a link between the explosions and a change in the composition.
Appointing committees and retired judges for post- incident inquiries and investigations has become the norm while sharing the findings and recommendations with the public have become an exception. For instance in September this year, State Minister of Prison Management and Prisoner Rehabilitation Lohan Ratwatte broke into the Anuradhapura prison, specifically targeted prisoners who were being detained under the Prevention of Terrorism Act and threatened to kill some of them in what allegedly is a prima facie violation of the country’s Penal Code. Soon after the incident, the President appointed former High Court Judge Kusala Sarojini Weerawardena to inquire into the episode and submit a report. To date and despite the lapse of months, the findings in this matter of public interest have not been made known.
Gunawardena says the Committee findings and recommendations are a whitewash. He describes it as teaching Sri Lankans to walk on the railway track when they already know how to do it. He is confident when he states the composition has not been corrected and claims that the only change is the red colour shrink wrap that has been placed over the existing blue sticker which is on the valve. In parliament last week, the leader of the Janatha Vimukthi Peramuna flagged the same point.
The continuing explosions could be because the same cylinders are being released back to the market without the quality guarantee certification despite the guidelines. According to Gunawardena this is being done to avoid a shortage of gas in the market even though it will put the lives of thousands of consumers in jeopardy. Despite the inherent dangers, the government has been holding out from recalling the cylinders or refilling them with the right composition.
The Budget for 2022 was passed with a majority in Parliament on Friday. There were 157 votes in favour of it and 64 votes that were against.
In the run up to the final vote in Parliament the Budget was defeated in several pradeshiyasabhas that are controlled by the Sri Lanka Podujana Peramuna (SLPP). They were the Horana, Lahugala and Mahawa pradeshiyasabhas and the Lindula town council in Thalawakale. A majority of SLPP members in the Ja Ela pradeshiya sabha opposed the budget. Traditionally, forecasters use it as a litmus test for the next election.
A robust budget is crucial for the economy as a whole and for external debt management. According to Verite Research, a research institute and think tank on economics, law and politics, the Budget fails to establish a stable fiscal regime and build confidence for global markets and rating agencies.
The locally based think tank highlights how it undermines the objectives of the tax structure that was introduced in January 2020 to usher in a stable and predictable regime of lower taxes for at least 5 years. At the time, the government aimed to do this by introducing substantial reforms to major taxes including corporate and personal income tax, and VAT. But through the introduction of a financial VAT and surcharge tax, it introduces tax increases (reversing reductions), one-off taxes (reducing stability) and retroactive taxes (reducing predictability).
‘The one-off taxes that have been proposed not only create a shock in the present, but also increases uncertainty in the future. Businesses and investors are left speculating about the new tax measures that might be taken in 2023 to address revenue needs met with the one-off taxes in 2022’.
‘The Budget fuels macroeconomic instability by setting a path of high deficits’ which Verite projects will ‘remain at around 10 percent and above until 2025’.
‘The budget deficit, primary deficit and Medium Term Framework in particular are indicators that are closely watched by rating agencies and global markets. By failing to sufficiently and credibly address the path of the budget deficit and public debt, Sri Lanka once again risks adverse credit rating actions. Such adverse rating action, if it does materialise, will further negatively affect Sri Lanka’s efforts to manage external debt and avoid outright sovereign default’.
The Verite Research report also highlights ‘multiple occasions where the executive violates the rules set out in the Fiscal Management Responsibility Act (FMRA), which is in place to build fiscal discipline’.
‘For instance, the FMRA sets an upper limit for the budget deficit of 5% of GDP whereas the
proposed budget deficit in the 2022 budget is 8.8% of GDP. Therefore, the parliament will be
approving a Budget that violates its laws’.
The Budget fails to establish credibility in its fiscal projections. According to Verite, in December 2020 it estimated that government revenue in 2021 would amount to LKR 1,523 billion as opposed to the government’s estimate of LKR 2,019 billion. ‘ It points out that the Ministry of Finance (MoF) has consistently overestimated government revenue and underestimated the budget deficit. 2021 had the highest gap on record between forecasted and realised revenue mainly due to unrealistic forecasts.
The revenue forecasts for 2022 remain similarly unrealistic according to it.
It’s estimates indicate that the total revenue and grants figure should be revised downward to LKR 1,900 billion from the government’s estimate of LKR 2,321 billion which could result in a budget deficit of LKR 2,020 billion (11.1% of GDP). This is materially higher than the MoF budget deficit projection of LKR 1,606 billion (8.8% of GDP). The report provides detailed estimates of specific taxes and key expenditure items in arriving at these projections. For example, the MoF estimates that the proposed social security contribution would realise LKR 140 billion in revenue, whereas Verité estimates that this new tax will only result in LKR 84 billion revenue.
Verite points out how the lack of integrity in figures provided was also evident in the specification of excise tax measures.’ Formulas announced in past budgets for increasing cigarette taxes in keeping with inflation have not been applied. The Budget, which states that cigarette prices will increase by five rupees, was widely understood as announcing a tax increase of that amount. However, the gazette increase in cigarette excise taxes amounted to only a weighted average of just under rupees 2.50 (half of what was understood). There was also a 50% reduction in the excise tax on the cigarette with the second highest market share, which will result in a further loss of revenue from consumption substitution to this cheapest cigarette in the market. Consequently, there is a significant overestimation of the government’s expected revenue from cigarette taxes’.
The report also highlights the multiple deficiencies in the medium-term framework (MTF) presented in the budget. The sharp divergence between the MTF presented in Budget 2021 in November 2020 and the MTF presented in this budget is again indicative of a lack of credibility in the MoF’s projections and a reflection of the weak analytical basis in arriving at such projections. Verité’s projections for the MTF suggest that the debt to GDP ratio will reach 116.1% in 2025 as opposed to the government’s projection of 89.2%.
