by C.A.Chandraprema Courtesy The Island

JVP Parliamentarian Nalinda Jayatissa’s speech in Parliament Last Tuesday about the Udayanga Weeratunga affair has captured the imagination of the media. What Parliamentarian Jayatissa said in his speech in the form of a query directed at the State Minister of Defence Chamal Rajapaksa, was the following:

“…Today’s newspapers report that the CID officer who had been investigating this matter for the past five years has been transferred. A new officer comes to courts and says that he knows nothing about this matter. He had asked the courts under what law Udayanga Weeratunga can be charged. That is how the CID answers to the courts. That officer knows nothing about this file. He does not even know under what law Udayanga Weeratunga should be charged for causing a loss of 7 million (US) Dollars. Therefore we have now to query whether the CID have become babas, or have you turned them into babas? The Magistrate had found fault with the CID in open courts about their conduct in relation to an individual who had defrauded 7 million US Dollars belonging to the people of this country…”

On the same day the BBC Sinhala Service website carried an article titled “Udayanga Weeratunga naduwa: CID baba welada? Baba karalada?” This article was based on JVP Parliamentarian Jayatissa’s speech in Parliament. The BBC article states that questions were raised in Parliament about the misappropriation of public funds amounting to US Dollars 7.833 million in the purchase of MiG aircraft. Thus we see that politicians and the media are all now mentioning a figure of US Dollars 7 million or thereabouts as the amount that was defrauded from the MiG deal.

This matter needs to be looked at more carefully by the media in the public interest. There are three incontrovertible facts relating to this transaction over which there is no dispute.

Firstly: This transaction relates to the purchase of four second hand but fully overhauled MiG-27s and the overhaul of three more MiG-27s and one MiG-23 UB Trainer in 2006.

Secondly: The total amount paid by the government of Sri Lanka for the purchase of four additional MiG-27s and the overhaul of four other MiG aircraft in 2006 was US Dollars 15,665,437 (USD 15.6 million.)

Thirdly: Four additional MiG-27s were delivered to Sri Lanka and four existing MiG aircraft were taken from Sri Lanka to Ukraine, fully overhauled and brought back and all these aircraft were in use until the war ended.

Stealing $7.8m from a $15.6m transaction

If the total price of this transaction was USD 15.6 million and as the BBC Sinhala Service states, the amount misappropriated from this transaction amounts to US Dollars 7.8 million, then it follows that the actual price that Sri Lanka paid to buy four fully overhauled MiG-27s and to get four more MiG aircraft overhauled is only USD 7.8 million. Back in 2006 was it possible to buy four fully overhauled MiG-27s and get four more MiG aircraft overhauled for USD 7.8 million?

The MiG combat aircraft the Air Force had bought in the year 2000 were not operational by 2003 as their guarantees had expired and they needed to be overhauled. In 2004, DS Alliance of Singapore, the company that had originally sold these aircraft to Sri Lanka had given a quotation of USD 4,949,380 for the overhaul three MiG-27s and one MiG-23 UB trainer – without the transport cost. In 2006, Hindustan Aeronautics Ltd of India which lad a license to manufacture MiG-27s had given a quotation of US Dollars 7,228,876 for the overhaul of these four MiG aircraft including the transportation cost. The quotation given by UKRINMASH in 2006 for the overhaul of these four aircraft was US Dollars 4,760,000 including transportation cost. It should be noted that these quotations were submitted only for the overhaul of the four MiG aircraft that were already in the possession of the Air Force at that time.

Because of these three quotations received by the Air Force in 2004 and 2006, we know exactly how much it would have cost to get the three existing MiG-27s and one MiG-23 UB trainer overhauled. If the Hindustan Aeronautics quotation had been accepted, there would have been no money to buy any additional MiG-27 aircraft because only USD 7.8 million would be available for everything. If the lowest bid for the overhaul of the four existing MiG planes submitted by UKRINMASH had been accepted, only a sum of USD 3.1 million would have remained to buy the four additional MiG-27s. The latter would then have to be bought for around 750,000 US Dollars each, in order to stay within the amount of 7.8 million USD. This shows how absurd it is to claim that 7.8 million had been misappropriated from a transaction worth only USD 15.6 million.

The allegations in relation to the MiG transaction have kept changing over the years. When this first started back in 2006, the allegations were that the four MiG-27s bought in 2006 cost more than the MiG-27s bought in the year 2000. The other allegation was that the purchase price was not paid to the supplier UKRINMASH but to a third party called Bellimissa Holdings. In 2000, the Air Force had bought its first four MiG-27 aircraft along with the accompanying ground equipment and spares at a total price of USD 8 million (or USD 2 million each). After some months, another two MiG-27s were bought at USD 1.6 million each. One MiG 23 UB trainer was also bought for USD 900,000 and the cost of transporting all seven aircraft plus equipment to Sri Lanka had been USD 845,000. So the total cost of buying six MiG-27s and one MiG-23 UB Trainer in the year 2000 had been just over 12 million USD.

When the MiG aircraft were purchased in 2000, they had been bought in the condition they happened to be at the time of purchase – without being overhauled. The first contract of 25 May 2000 for the supply of four MiG-27s guaranteed a service life of ‘not less than one year’. The other contract signed on 24 October 2000 for the purchase of two MiG-27 aircraft and one MiG-23 UB trainer gave a service life guarantee of two years. The life span of an aircraft is determined by the Time Before Overhaul (TBO) of the air frame and the engines.

The optimum TBO for MiG-27 aircraft is 850 hours/8 years for the air frame and 550 hours /7 years for the engines. While the Time Before Overhaul in terms of flying hours is important, the decay caused by the passing of calendar time is equally important in the TBO formula, which is why the TBO of a plane is expressed in flying hours as well as calendar years. Even if the plane does not fly at all after overhaul, it will have to be overhauled again once the number of calendar years are up. After an overhaul, the aircraft will have the same TBO as a new aircraft.

In 2000, the seller guaranteed a maximum TBO life of one to two years and the price of those aircraft were fixed on that basis. However, in the contract entered into on 26 July 2006 between the Air Force and UKRINMASH for the supply of four MiG-27s and the overhaul of three MiG-27s and one MiG-23 UB trainer clearly states that the air frames of all the aircraft will have a service life or TBO of 850 hours/8 years and the engines 550 hours/ 7 years, with the MiG-23 UB trainer having an engine service life of 400 hours.

Hence the four MiG-27s bought in 2006, cost more and were purchased for USD 2,462,000 each and the cost of transporting the four planes to SL was USD 460,000.

As for the money being paid to a third party, Bellimissa Holdings was also a signatory to the contract with the Air Force. The contract of 26 July 2006 for the supply of four MiG-27 aircraft and the overhaul of four other MiG aircraft, had three signatories – the Commander of the Sri Lanka Air Force as the buyer, UKRINMASH as the seller and Bellimissa Holdings Ltd as the designated party which was to receive the payment. D.A.Peregudov a Director of UKRINMASH had written to the Defence Ministry explaining that UKRINMASH is a fully state owned enterprise and that according to Ukrainian law, they cannot trade on credit terms and they cannot provide credit facilities for two years as requested by Sri Lanka. Hence a financier by the name of Bellimissa Holdings Ltd would provide financing for the transaction.

The UNP government of 2001-2004 had also made overtures to UKRINMASH for the supply of four MiG- 27 aircraft and in the letter of offer they had sent to the then Defence Minister Tilak Marapana on 22 April 2003, UKRINMASH had specified that the payment should be made to a finance company and that they will inform Sri Lanka of the name of this company within three days of signing the contract. The method of payment laid out in the offer made to the then Defence Minister Marapana in 2003 is word for word the same as the offer made to the Rajapaksa government in 2006.

The 2006 Contract was a forgery

After 2015, the FCID set up by the yahapalana government began investigating the MiG transaction of 2006. Well over one and a half years after the FCID began its investigation they stated in a B report dated 26 September 2016 that the 2006 contract for the supply of four MiG-27s and the overhaul of four other MiG aircraft had been signed in two different places with UKRINMASH and Bellimissa Holdings signing the contract at the official residence of Udayanga Weeratunga, the Sri Lankan Ambassador to Russia, with the contracts being thereafter brought to Colombo by Weeratunga to be signed by the Air Force Commander. Another B Report dated 11 October 2016 stated that Weeratunga had brought the 2006 MiG contract in quadruplicate to be signed by the Air Force Commander after it had been signed by the representatives of UKRINMASH and Bellimissa Holdings in Russia.

Upon the Air Force Commander placing his signature on it, he had left one copy with the Air Force and had taken away the other three copies saying that they had to be given to UKRINMASH and Bellimissa Holdings. The FCID reported to courts that they had contacted the Ukrainian Justice Ministry through the Sri Lankan Justice Ministry and that the Ukrainian Attorney General’s Department had informed Sri Lanka by letter dated 24 June 2016 that no contract has been signed between the Sri Lankan Air Force and UKRIMNASH and that UKRINMASH had not signed any contract with Bellimissa Holdings either. Based on this letter, the FCID reported to courts that the 2006 contract bearing No: SLAF/2006/07/AIR for the supply of four MiG-27 aircraft and the overhaul of four other MiG aircraft is a forgery which Weeratunga had presented to the Air Force Commander and obtained his signature on it through misrepresentation.

To bolster the forgery charge, the FCID also informed courts that when examining the previous correspondence pertaining to this transaction the signature of UKRINMASH Director D.A.Peregudov in the contract appears different to his signature in other correspondence with the Air Force. On this basis, the FCID informed courts that Weeratunga had committed the offence of forgery under Sections 454 and 457 of the Penal Code. Furthermore, the FCID informed courts that the money paid for the MiG aircraft had not been sent to the UKRINMASH account by the Sri Lankan government but to the account of Bellimissa Holdings Ltd and further that Bellimissa Holdings had not sent the money to UKRINMASH and therefore Weeratunga was complicit in preparing a forged document and defrauding money from the state.

 Thus towards the end of 2016, the FCID appeared to hold that the entire amount of USD 15.6 million involved in the 2006 MiG transaction  had been misappropriated. However there was the inconvenient fact that if one was to hold that the contract between the air Force and UKRINMASH was a forgery and the entire transaction price of USD 15.6 million had been misappropriated, there was no way to explain how in 2006, four fully overhauled MiG-27s had been delivered to Sri Lanka and three MiG-27s and one MiG-23 UB Trainer had been taken to Ukraine, overhauled and brought back to Sri Lanka.

Not all of it, but just one half  

On March 18, 2018 came another media report that while the agreement between UKRINMASH and the Sri Lanka Air Force was a fraudulent document, the real agreement was between UKRINMASH and the Singapore based company D.S. Alliance. It turned out that D.S. Alliance Managing Director T.S. Lee was the main player behind Bellimissa Holdings. The allegation was that a total of USD 15,665,437 had been paid by the Sri Lanka Air Force to Bellimissa Holdings but that the agreements between D.S. Alliance and UKRINMASH for the supply of the same goods has been for USD 7,833,000 and that accordingly, the Sri Lankan government has incurred a loss of USD 7,832,437.

If Bellimissa Holdings was a front company of D.S.Alliance, then its involvement in the transaction is perfectly above board because D.S.Alliance is a well known agent of UKRINMASH and it was they who sold the first MiG aircraft to Sri Lanka in the year 2000. There is no real issue in D.S.Alliance working through a front company called Belimissa Holdings in the 2006 transaction. Even Sri Lankan companies that engage in international transactions, do so though front companies and overseas accounts and there is nothing unusual in such a practice. This latest revelation delivered the FCID from having to explain how the Air Force had obtained four additional MiG-27s and had got three more MiG-27s and one MiG-23 UB Trainer fully overhauled in Ukraine if the contract signed for this purpose was a forgery and the entire sum of USD 15.6 million involved in the transaction had been misappropriated.

After the discovery of a purported contract between UKRINMASH and DS Alliance, the FCID could now say that that it was not the whole amount that was stolen but half of the transaction price. This is the amount of 7.8 million USD that is being mentioned now by the likes of Parliamentarian Nalinda Jayatissa and the BBC Sinhala Service. However, even when the amount misappropriated is brought down to 7.8 million, one still cannot explain how three MiG-27s and one MiG-23 UB Trainer were fully overhauled and four fully overhauled MiG-27s were bought for just USD 7.8 million as pointed out previously in this article.

When it is alleged that D.S.Alliance of Singapore was able to buy four fully overhauled MiG-27s and get three MiG-27s and one MiG-23 UB Trainer overhauled in Ukraine and brought back to Sri Lanka, all for a mere USD 7.8 million, the assumption is that this was the market price for the purchase or for the overhauling of MiG planes at that time. So D.S.Alliance is supposed to have made a killing on this transaction by buying goods and services at 7.8 million and selling the same to the Sri Lankan government at 15.6 million. Anybody inclined to believe this kind of story should know that the international arms market especially for high value military hardware items like combat aircraft is watched very closely by research organizations and weapons market watchdogs and if MiG-27s had been sold to any country at twice the going market price, that would have made headlines in all the weapons market journals and websites.

There are international groups that keep tabs on what kind of military hardware is being bought and sold on the international market. For example, the US based ‘Strategy Page’ website carried an article on  December 27, 2006, titled “Second Hand MiG-27s and Kfirs Go To War” which reported that Sri Lanka has purchased an additional four second-hand MiG-27 fighter bombers from Ukraine, for about USD 2.5 million each. On March 27, 2007, as the controversy regarding the MiG transaction unfolded, the Strategy Page website in an article titled “What is this pre-owned MiG-27 worth?” went to say that “Sri Lanka got its money’s worth. They defeated the Tamil rebels, largely because the air force now had a potent and reliable ground attack aircraft.” On December 30, 2010, the Stratagy Page website carried another article titled “A Satisfied MiG Customer Wants More” stating among other things that Sri Lanka bought MiG-27s largely because they were so cheap … Sri Lanka was able to get some proven combat aircraft at a fraction of what any alternatives (new or used) would cost.

This allegation of misappropriations in the MiG transaction of 2006 is now ourteen years old. Even in the fourteeth year, what we see dished up is the claim that it was possible in 2006 to buy four fully overhauled MiG-27s and get three more MiG-27s and one MiG-23 UB Trainer fully overhauled in Ukraine for just USD 7.8 million. This claim is being made in a context where back in 2006, even Hindustan Aeronautics in neighbouring India which had a licence to manufacture MiG-27s had informed the Sri Lankan Air Force that they could not undertake even the overhaul of Sri Lanka’s three MiG-27s and one MiG-23 UB Trainer without a payment in excess of USD 7.2 million.

Even in 2006 only a handful of countries used MiG-27s with India being the biggest user of this particular MiG model. Even fewer countries could offer overhauling services for MiG-27s. In such market conditions, if quotations had been called from India and Ukraine and the cheaper option chosen, that’s just about all that can be done to make it a good procurement. There is little point in continuing to make the far fetched claim that USD 7.8 million was defrauded from the USD 15.6 million MiG transaction of 2006.

During the 2015 presidential election campaign, the yahapalana coalition made the claim that of the loans taken to build the highways, 90% had been stolen by the Rajapaksas and that those roads had actually been built with just 10% of the stated price. Later during the campaign Maithripala Sirisena modified this claim saying that the highways had been built with half the stated cost and that the Rajapaksas has stolen the other half. After coming into power, the yahapalana government never even attempted to prove such allegations. However, the FCID which was a yahapalana creation appears to have been influenced by this did-the-work-with-one-half-and-stole-the-other-half yahapalana election allegation which they have tried to apply to the MiG transaction of 2006.