Sri Lanka News Updates with Discussions

There are people waiting with Videos, cds,Number of the notes till the right time .

Why dont they arrest these guys?

In addition to the fighters, its time we purchased single purpose bombers that can carry several tons of bombs.

After LTTE started using MIG and before LTTE purchased TIN plane's :-)

The 'Tin Cans' have a better success story than the MIGs at least in Sorry Lanka. Ans don't you forget that.

If I am not mistaken you people could not even fly them and you had to pay foreign pilots huge sums to fly them for you.or have you forgotten it. Experts indeed.

MiG deal crash lands on government

By Dilrukshi Handunnetti

SLAF buys products rejected by a TEC in 2000

End User Certificate issued to third party

No performance bond or bank guarantee

Designated party not registered with British MoD

Unit cost a staggering US$ 2.462 million

Damning evidence has now surfaced to establish that the four MiG Flogger-D fighter-bomber aircraft purchased by the government in 2006 at a staggering US$ 14,676,000 included three units rejected by a SLAF technical evaluation committee in the year 2000, with incumbent Air Force Commander Air Marshal Roshan Goonetileke as chairman, having ruled against the purchases.

What is further damning is a unique contractual condition that stipulated that the all important End User Certificate should be issued to a third party defying all norms and procedures of government to government contracting, and that too to a London based company that is not even registered with the British Ministry of Defence.

Buying life expired aircraft

To make matters worse, not only has Sri Lanka purchased outdated, life expired aircraft by paying stupendous amounts in 2006, but the money has also been transferred to a designated third party with no bank guarantee or performance bond, the latter being waived off by the Sri Lankan Ministry of Defence, purportedly for the reason that this was indeed a government to government transaction, giving rise to a series of questions about the entire deal.

To top it all, the aircraft that are no longer in production and hence facing serious depreciation in value, have been purchased at US$ 2.462, 000 a unit, way above the purchase price when Sri Lanka purchased her first four MiGs seven years ago.

Purchase ruled out in 2000

For a start, three of the four purchases made in 2006 were ruled out in 2000 by the SLAF TEC. The rejected aviation products were offered in two different (parts) offers. The three MiG 27 aircraft that were so rejected bear serial numbers 8371534688, 83712518044 and 83712518009.

It now transpires that instead of making it a government to government transaction, the contract recognised a third party referred to as 'designated party' - a London- based company named Bellimissa Holdings Ltd., which was authorised to collect the payments on behalf of the seller, Ukrinmash, a subsidiary of a Ukrainian state company named, UKRSPETSEXPORT, Ukraine.

Deal steeped in controversy

The entire deal, steeped in controversy and tainted with allegations of corruption contains many a shocking truth and raises serious questions about the manner in which the Sri Lankan defence authorities have sought to answer the island's growing air defence requirements.

As much as there cannot be any plausible explanation to SLAF's procurement of three aircraft that were overruled by the SLAF TEC when the incumbent commander was the TEC chairman, the deal defies explanation as to why Sri Lanka committed itself to a contract that is favourable only to the seller and not to the buyer.

For here is one contract, sacrosanct to the air defence of a nation, yet comes without a bank guarantee or a performance bond. It now appears that neither factor was considered worthy when one of the most important procurements were made by the SLAF last year.

Cardinally important requirements overlooked

When perusing the SLAF procurement history, it is an established fact that both the performance bond as well as a bank guarantee have been considered cardinally important except in one instance. The SLAF procurement history records one instance when this significant requirement of a bank guarantee was waived off - when the SLAF purchased C 130s from the British Ministry of Defence at which point the government of UK issued a letter to the Sri Lankan government guaranteeing the approval of a bank loan.

In stark contrast, there is no such bank guarantee issued by the Ukraine government with regard to the four MiG 27 M purchases, that gives rise to the important question as to how the Government of Sri Lanka (GoSL) released funds to a company named Belimissa Holdings in the UK without even voicing any concerns.

Bellimissa Holdings Ltd., on the other hand, is a company that needs to be looked into. It is not registered with the British Ministry of Defence. It also cannot be traced in anyway through even an internet search.

It of course has a so-called office in London housed on the 2nd Floor, 145-157, St. John Street, London ECIV4PY, which has been included in the contract with the SLAF.

Who authorised payment?

The pertinent question here would be to find out as to who authorised that payments be made to a designated party - in this case a dubious company named Belimissa Holdings Ltd., for it is a sacred practice to ensure that military equipment purchases of this magnitude be essentially government to government contracts that do not entertain third parties.

Another salient question is whether SLAF ever paused to even verify the credentials of this company that is not registered with the British MoD, and not even possible to trace through a comprehensive internet search. Hence its track record as defence equipment provider/facilitator remains totally unknown. Further, did the Attorney General authorise the terms of this contract?

Ambassador's warning unheeded

It further transpires that not only has Sri Lanka hastily purchased obsolete aircraft manufactured in the early '80s and hence considered life expired after 25 years since manufacture, but also how the warnings of Sri Lanka's Ambassador in Russia, Udayanga Weeratunga in October 2006, not to issue an End User Certificate in a manner that might place the defence procurements in the hands of illegal or terrorist organisations, went unheeded. It is obvious that Weeratunga's intention was to secure the said certificate for the GoSL and prevent it from reaching any other hands.

According to top SLAF sources, an End User Certificate is of utmost importance in military purchases. According to procurement officers, it is a certificate that seeks to prevent military purchases from reaching the wrong hands. 'They could reach Hamas, al Qaeda or even the LTTE,' an officer commented.

Compounding matters is the fact that there is no guarantee of spare parts offered for a period of 10 years in 2000, that makes the contract significantly one-sided.

Complaint to Bribery Commission

The entire MiG 27 deal, to date, remains quite questionable, with two government dissidents, Mangala Samaraweera and Sripathi Sooriyaarachchi having complained to the Permanent Commission to Investigate Allegations of Bribery and Corruption. For here is one deal that has a chequered history.

As already stated, Sri Lanka has purchased MiG 27s on an earlier occasion as well. Offers were made in two batches in 2000, including three out of the four MiG 27s purchased last July. It is perhaps a quirk of fate that three out of the four purchased in July 2006 belonged to the lot rejected by the then TEC seven years ago.

Unit price escalates

The financial consideration of the MiG 27s is of utmost importance. When the four MiGs were purchased in the year 2000, each unit cost US$ 1.75 million. When a second batch of two MiGs was next offered for purchase there was a price decrease. The quoted unit price then was US$ 1.06 million. But years later in 2006, the unit price was as high as US$ 2.462 million.

It now transpires that Sri Lanka has gone ahead and purchased three aircraft that were considered unsuitable by the SLAF as far back as seven years ago. How the life expired aircraft may strengthen Sri Lanka's air defence is a question worth raising.

This also means that the first four MiGs purchased through contract No. SLAF/2000/6/AIR dated 20.05.2000 cost the state a total of US$ 7.00 million only. The second offer was for US$ 3.2 million, given the drop in the purchase price. It is from these two offers that Sri Lanka selected her first four MiG aircraft.

Obsolete aircraft purchased

What is really strange is why Sri Lanka had to purchase four aircraft that are considered obsolete, no longer in production and needs a life extension at a total cost of US$ 9,848 million with each unit costing US$ 2.462 million?

There are some other aspects to be considered in evaluating these purchases as well.

In the year 2000, when the first batch of procurements was made, the four aircraft on offer were as follows: aircraft bearing serial numbers 83712531385 (manufactured on 26.05.1982 with 746.33 flying hours available and 18 years old), 83712534657 (manufactured on 24.02.1983 with 745.40 flying hours available and 17 years old), 83712534709 (manufactured on 25.03.1983 with 746.33 flying hours available and 17 years old) and 8371253877 (manufactured on 1.01.1984 with 744.07 flying hours available and 16 years old).

The second offer included 83712520013 (manufactured on 13.05.1981 with 848 flying hours available and 19 years old), 83712545237 (manufactured on 07.06.1984 with 848 flying hours available and 16 years old) and a MiG 23 bearing serial number 49065315 (manufactured on 22.06.1984 with 529 flying hours available and 16 years old.)

By the time Sri Lanka procured her second batch of MiGs to add to the SLAF fleet, three out of the four aircraft had reached 25 years of age which means they are considered 'technically dead.'

The 2006 procurements include aircraft bearing serial number 83712534688 (manufactured on 10.03.1983 with 850 flying hours available and 24 years old), 83712518044 (manufactured on 03.04.1981 with 850 flying hours available and 26 years old), 83712518022 (manufactured on 23.11.1980 with 850 flying hours available and 27 years old) and 83712518009 (manufactured on 28.11.1980 with 850 flying hours available and 27 years old). The first two aircraft had been overhauled as far back as 1989, and the other two in 1991, making the risk factor high and the value, correspondingly much less.

Technically dead aircraft

This brings us to another concern which is also of importance. Those well versed in aviation technology will vouch for the fact that a MiG needs to be overhauled every seven years. After 25 years, it is generally considered a dead aircraft though the life span of a MiG is stipulated to be 25 years, with extensions being possible provided there is significant investment in technical improvement.

The proof of this fact can be found herein. On September 8, 2000, Director, Ukrinmash, P. P. Stvchishyn wrote to Director, Aeronautical Engineering, Air Commodore O.D.N.L. Perera where he stated that service life for aircraft MiG 27 and MiG 23 UB type was 25 years. Its extension upto 30 years and more was possible by specialists of Mikoyan Design Bureau in cooperation with Lviv Aircraft Repair Plant, it added.

The letter further added that service life between overhauls of MiG 27V and MiG 23UB is seven years. The letter contains a particular undertaking which is missing in the 2006 contract. The 2000 letter offered a minimum guarantee period of spare parts delivery for MiG 23 UM as being 10 years. There is no such clause in the 2006 contract, making Sri Lanka once again the loser.

Outdated aircraft fight escalating war

It does not take a rocket scientist - in this case an expert in avionics, to grasp the truth that by purchasing the old aircraft to fight an escalating war based on the principle of quick purchases at any cost, the defence authorities have put the valuable lives of military pilots at stake in addition to losses incurred in monetary terms.

According to the proposal for MiG Flogger D Fighter-Bomber Aircraft Manual 2006, the MiG 27 (NATO reporting names Flogger - D and J) and Indian Air Force name Bahadur (Valiant), is designed for action against stationary and mobile, ground and sea enemy units. They have not been used in combat actions (excluding Afghanistan).

Irrespective of all of this, on July 07, 2006, the Ministries of Defence, Public Security, Law and Order, wrote to SLAF Commander Air Marshal Roshan Goonetileke granting approval for the purchase of four units of overhauled MiG 27 M aircraft, the overhaul of three units of MiG 27 M, and one unit of MiG 23 UB, of the SLAF.

Letter on behalf of Gotabaya

The MoD letter by Chief Accountant R.A.C. Gunatilleke, on behalf of the Defence Secretary Gotabaya Rajapakse, stated that authority was thereby granted to purchase the four MiG 27M aircraft subsequent to completion of overhaul with four R29B-300 engines, and to entrust a major overhaul of three MiG 27M aircraft and one unit of MiG 23 UB aircraft of the SLAF fleet from and to Messrs. Ukrinmash, Ukraine, applicable under the government to government transaction, at a total negotiated C & F cost of US$ 14,676,000 as indicated.

Shocking sentence in letter

This letter contained a shocking sentence announcing the reasons for waiving off the vital requirement of a performance bond. It said: 'As requested by the supplier, due to the fact that the offer is on G2G basis as approved by the cabinet of ministers on March 01, 2006.'

But this statement is false and a fabrication as well, as a government to government contract does not encourage third party involvement and fails to recognise designated parties who may (not) qualify to obtain the End User Certificates.

Payment to designated party

As such, the four aircraft were obtained at a total cost of US$ 9,848,000, the overhaul of three aircraft of the same making at US$ 128,000, and freight paid separately by TT transfer seven days prior to delivery against bank guarantee that amounted to US$ 700,000. The total cost was calculated to be US$ 14,676,000 and the contract was sealed shortly thereafter, on July 26, 2006.

According to Contract No. SLAF 2006/7/AIR (Order No. J45001) for the purchase of four aviation products, the contract brought in a third party, referred to as designated party to which payments were to be made as per contractual terms.

Accordingly, the buyer was SLAF Commander, Air Marshal W.D.R.M.J. Goonetileke of Colombo, Sri Lanka, and the seller was Ukrinmash, a Ukrainian state foreign trade and investment firm and a subsidiary of the state company 'UKRSPETSEXPORT' of Kiev, Ukraine, represented by its Director, D. A. Peregudov.

The contract also recognised an unregistered British company named Bellimissa Holdings Ltd., as the designated party to which payment had to be made, represented by M. I. Kuldyrkaev. The contract provided the purported company's address to be Bellimissa Holdings Ltd., 2nd Floor, 145-157, St John Street, London ECIV4PY.

More importantly, clause 3.1 of the contract stipulates that all payments are to be made by the buyer to Bellimissa Holdings Ltd., the designated party in US Dollars.

Frightening clause

What is more scary is the inclusion of clause 3.2 which stipulates that an irrevocable and divisible letter of credit was to be effected by the buyer within 14 days of signing the contract and the issuance of 'End User Certificate by the buyer to the seller and/or designated party.'

Clause 23.1 of the contract also stipulates that 'The buyer and the seller are aware that a third party, Bellimissa Holdings Ltd., referred to as the 'designated party' in the contract shall be involved to provide the finances in executing this project.' 'All payments in relation to this contract, including direct payments pertaining to freight charge (except freight cost for air transportation of the first three units of the aviation products) was to be irrevocably assigned and paid to the designated party in consideration, obtaining the finance package as per contract. This shall include naming the designated party as beneficiary in the L/C.'

This brings us to the other serious concern, the issue of the End User Certificate raised by the Sri Lankan Ambassador in Russia, Udayanaga Weeratunga.

Importance of End User Certificate

Worried about the negative possibilities, Weeratunga on October 13, 2006 wrote to SLAF Commander, Air Marshal Roshan Goonetileke with a copy to Purchasing Officer, Air Commodore T.M.P.D. Tennakoon, wherein he urged that the End User Certificate should be issued only in the name of the Government of Sri Lanka.

Weeratunga's letter emphasised that at his (ambassador's) request, the Ukrainian government has enforced a new special regulation with effect from October 1, 2006 for the Ukrainian companies that are involved in defence supplies/services to Sri Lanka.

'According to the new regulation, those companies have to get confirmation on the authenticity of the End User Certificate issued by the buyer, via the diplomatic mission of Sri Lanka in Moscow. This regulation will apply to all pending supplies.'

Weeratunga also stressed why he introduced such a stipulation. 'My request was made with the purpose of avoiding illegal/terrorist organisations importing defence items from the Ukraine.'

He added: 'The State Services of Export Control that issues export licenses to suppliers, hereafter will not issue licences without confirmation from this mission on the authenticity of the End User Certificate issued by the relevant buyer of Sri Lanka.'

The Sri Lankan Ambassador adds, 'Therefore please send me the copies of End User Certificates issued in respect of all pending supplies/services from Ukraine.' What has happened is certainly mind boggling.

SLAF answerable

Given the knotty issues involved, it would be appropriate for SLAF to answer as to how three of the rejected aviation products became productions of purchasable quality to the SLAF in 2006. That too by Air Marshal Roshan Goonetileke who in the year 2000, in his capacity as TEC chairman rejected the same, but thought it fit to purchase them in great haste through a designated party to boot and at a higher price six years later.

Defence authorities query

Defence authorities have now raised queries as to how foolishly such purchases of aviation products that require life extensions have been made and how such outmoded products would jeopardise the lives of trained pilots who may risk their precious lives due to irresponsible decision making by the defence authorities.

And instead of making it a government to government contract, why it also brought in a third party as a designated party is altogether baffling as well. These are questions the SLAF should answer, given the fact that it is evident that they have indeed been very liberal in spending the poor taxpayers' money in the name of aviation products that would serve no purpose whatsoever since all aircraft that require the all important life extensions are bereft of them.

Assessment of MiG 27

The MiG 27 Flogger D is no longer in manufacture. The Russian Air Force retains its MiG 27 aircraft in the reserve with only Kazakhastan, India and Sri Lanka continuing to use the outdated aircraft.

The Indian Air Force is phasing out MiG 27 with a locally designed aircraft Tejo.

A TEC appointed in 2006 that analysed the country's security situation, recommended the purchase of four more MiG 27s and the overhaul of existing ones, which is also questionable as a TEC is not mandated to do threat detections but to evaluate only technical aspects.

In contrast, according to a US government assessment of the SLAF military capabilities carried out in 2002, the US Pacific Command recommended against the further purchase of MiG 27. Its report recommended that SLAF required to develop ability to fly at night and that the acquisition of MiG 27 would prove only to be a drain on the resources.

Ukraine does not produce the said aircraft, but exports it through UKRSPETSEXPORT - a state company for the export of military products.

The 'Tin Cans' have a better success story than the MIGs at least in Sorry Lanka

MiGs loaded with millions in mega frauds

* The Sunday Times investigation reveals shocking double-deals and wheeler-dealings
* While Lanka remains hush-hush, Ukraine Govt. orders full probe

By Iqbal Athas

A MiG-27 in flight.

The Sunday Times exclusive revelation on December 3 last year of alleged corruption in one of Sri Lanka's largest military deals, the procurement of four old but 'life extended' MiG-27 fighter jets and overhaul to four others worth billions of rupees or millions of dollars from Ukraine has had its sequel.

As a direct result of this disclosure, the Government of Ukraine has ordered a probe into the deal, authoritative sources in that country's capital Kiev said yesterday. This is to ascertain why it was touted as 'Government to Government' when in reality the deal was made through a third party - an unknown company named Bellimissa Holdings Ltd., which operated from a London address. They suspect this to be a ruse.

Concerns of the Ukrainian Government had arisen following The Sunday Times disclosures that funds for the sale of the MiG-27 fighter jets as well as overhaul to four others, had not gone directly to Ukraine. The source in Kiev said the Government there wants to make sure suspected shady deals do not damage the reputation of their defence industry, a main source of revenue for a country that was part of the former Soviet Union.

The MiG-27 procurement/overhaul Contract between the Sri Lanka Air Force and Ukrinmash, a subsidiary of the Ukrainian Government owned trading arm Ukrspetsexport, was signed in Moscow on July 26, 2006. In that, Bellimissa Holdings Ltd., is described as the 'Designated Party' and were touted as the 'financier' of the deal. The Contract (article 24) gave the address of the firm as second floor, 145 - 157 St. John Street, London EC1V4PY.

The Sunday Times has re-confirmed that there is neither any staff nor an office facility at this address. The company has been listed in the Contract only with a fax number - (00) 44 870 8362430. There is no response to messages sent there. The names of Directors, beneficial shareholders or the company profile are not available anywhere. A leading UK publishing house was forced to conclude the company is non-existent except 'on paper' and is 'operating secretly.' This is because their detailed probe did not find a shred of evidence on the workings of the company.

Since the exclusive disclosure on December 3, last year, continued investigations by The Sunday Times have unearthed details that are more shocking. The Corporate Banking Division of the People's Bank has been effecting telegraphic transfers of funds in instalments. This is in accordance with the Contract. They have opened Documentary Credit (or LC) to the beneficiary (Bellimissa Holdings Ltd., at the London address) through JP Morgan Chase Bank NA. The latter in turn has advised Documentary Credit (DC) to the DBS Bank in Hong Kong, according to documents available with The Sunday Times.

Unlike most DC for capital equipment being differed for five years, the MiG deal is shorter. Questions are being asked whether it is restricted for two years to enable quick disbursement of commissions and minimize 'discounting' costs to the unknown company. Questions are also being asked whether the Documentary Credit structure meant Bellimissa Holdings Ltd., though touted as the 'financier,' had in fact no finance to provide in real terms.

If nothing else at all is known about Bellimissa Holdings Ltd., the name of one individual transpired in the Sri Lanka Air Force-Ukrinmash Contract. That is the name of M.I. Kuldyrkaev (Pronounced Kul dir Kah Yev) who has signed as 'Director, for and on behalf of Bellimissa Holdings Ltd.' Other signatories to the Contract were Kulasena Thantrige, Counsellor/Head of Chancery, Embassy of Sri Lanka, Moscow (on behalf of Air Marshal W.D.R.M.J. Goonetileke, Commander of the Air Force) and D.A. Peregudov, Director, on behalf of Ukrinmash. In addition, Mr. Thantrige has also signed as the only witness to the Contract.

Now, The Sunday Times has learnt from the authoritative source in Kiev that Mr. Kuldyrkaev has been warned by the Ukrainian Government not to involve himself in any military deals on behalf of their state agencies. Subsequent efforts by Ukrainian authorities, the source said, to request him to return to Kiev to answer questions have failed so far. 'He has gone into hiding after switching off his mobile phone,' the source said. The Ukrainian national has been living in the UK with his family. To a few who knew him, he had been styling himself as the representative for Europe and Asia of a leading company,' the source added.

How Bellimissa Holdings Ltd., and Mr. Kuldyrkaev came to be involved in the MiG deal, investigations by The Sunday Times reveal, leads to not only greater suspicion but also deepens the mystery about the multi-million dollar transaction. The offer from Ukrinmash to sell MiG-27 aircraft and to overhaul others in the Air Force inventory was first made in February, last year. This was when an Ukranian delegation was in Colombo.

The Sunday Times has seen a four-page letter written by D.A. Peregudov, the Ukranian official who signed the Air Force- Ukrinmash Contract in Moscow. This is on a letter-head which bore the names of both UKRSPETSEXPORT and Subsidiary Enterprise UKRINMASH, dated February 6, 2006 and addressed to the Ministry of Defence with copy to the Commander of the Air Force.

He refers to discussions at the Ministry of Defence as well as at the Air Force headquarters and confirms that his company, Ukrinmash, had supplied MiG-27 aircraft in the year 2000/2001. Then the letter, which is a written offer, explicitly 'on a Government to Government basis' goes on to deal with different matters under various sub heads. They include freight, payment terms, overhaul, duration, currency etc. Under the sub head titled 'FINANCIER,' this is what Mr. Peregudov says: 'This offer is made in conjunction with financier providing finances to the plants. The beneficiary of the above confirmed letter of credit will be the financier. We will inform you the name of the beneficiary company within 3 working days for signing the contract (sic) on behalf of Ukrinmash.'

What did he mean by saying 'we will inform you of the name of the beneficiary 3 working days for signing (sic) the Contract?' Did he give the Ministry of Defence in three days, (i.e. after writing the letter on February 6, 2006) the identity of the financier? If that was the position, then why did the Government not verify such information until the Contract was signed on July 26, 2006? On the other hand, if that sentence meant the beneficiary would be made known just three days before the signing of the Contract, it makes the case even worse. Some ambiguity makes the answers unclear. Evidently, the Ukranian Government is also unaware of the exact role of the third party and hence the probe.

It was Mr. Peregudov's written offer that led to the conclusion of the MiG procurement/overhaul Contract in Moscow. On July 7, 2006, the Ministry of Defence wrote to the Commander of the Sri Lanka Air Force, Air Marshal Roshan Goonetileke. The letter said:
'Authority is granted to purchase four (4) MiG-27M aircraft subsequent to completion of overhaul with four (4) R29B-300 engines and to entrust major overhaul of three (3) MiG-27M aircraft and one (1) unit of MiG-23 UB aircraft available in the SLAF fleet from and to M/s Ukrinmash, Ukraine as applicable under the Govt. to Govt. transaction at a total negotiated C&F cost of USD 14,676,000 ??..and to waive off the performance bond as requested by the supplier due to the fact that the offer is on G2G basis as approved by the Cabinet of Ministers on 01.03. 2006.'

For the purchase of the four MiG-27 aircraft (US $ 9,848,000) MoD approval was granted for payment to be made in four instalments: (1) 25% upon acceptance in Ukraine via irrevocable Letter of Credit against bank guarantee. (2) 25% final acceptance in Sri Lanka via irrevocable Letter of Credit. (3) 25% payment to be made one (1) year after the final acceptance in Sri Lanka with LIBOR plus 1.5% via irrevocable Letter of Credit, and (4) 25% payment to be made two (2) years after the final acceptance in Sri Lanka with LIBOR plus 1.5% via irrevocable Letter of Credit.

For the overhaul of three MiG-27M and one MiG-23 UB aircraft (US $ 4,128,000), payment in four instalments was approved by the MoD as follows: (1) 25% payment upon acceptance in Ukraine via irrevocable LC. (2) 25% upon final acceptance in Sri Lanka via irrevocable LC. (3) 25% payment to be made one (1) year after the final acceptance in Sri Lanka with LIBOR plus 1.5% via irrevocable LC, and (4) 25% payment to be made two (2) years after the final acceptance in Sri Lanka with LIBOR plus 1.5% via irrevocable LC. A further sum of US $ 700,000 was to be incurred on freight.

The Sunday Times investigations reveal that the name of Bellimissa Holdings Ltd., and Mr. Kuldyrkaev surfaced for the first time only in the Contract signed in Moscow on July 26 last year. If the deal was negotiated direct and the Government resorted to the transparent practice of identifying a recognised financier instead of giving into the Ukrinmash request, a large amount of money could have been saved. After all, it was known that the MiG-27s, which were old and rejected once before, were earlier made available at much cheaper prices.

A brief summary of the revelations made by The Sunday Times on December 3, last year, places matters in context. Here are extracts:
'A contract between the Air Force (SLAF) on behalf of the Government of Sri Lanka and the Ukrainian Government owned firm Ukrinmash is touted as a Government to-Government deal. Such deals are made to obviate the need to call for tenders to pick the lowest bidder. The widely accepted principle in these deals, referred t...

Who profited from the MiG deal?

The main Opposition UNP has conducted its own investigation into the controversial MiG 27 deal carried out by the government and in a stinging report questions as to who profited from the transaction running into millions of dollars. We reproduce the report in the public interest without comment.

The purchase of four MiG 27 aircraft by the Defence Ministry in 2006 at a cost of US$ 2.462 million each and the procedure followed in relation to their purchase had been clouded in mystery till Mangala Samaraweera and Sripathi Sooriyaarachchi, two key ministers who broke away from the Rajapakse government made a complaint to the Bribery Commission alleging corruption on the part of the President's brother, Defence Secretary Gotabaya Rajapakse. These aircraft had remained on the market unsold for a long time and their life span had expired. Moreover this type of aircraft were not in use in the air forces world over except India, Kazakhstan and Sri Lanka. This report was prepared for the UNP Research Unit by technically qualified personnel.

On July 26, 2006, the Sri Lanka Air Force (SLAF) on behalf of the Government of Sri Lanka (GOSL) signed an agreement with Ukrinmash (a Ukranian company) for the supply of four MIG 27 aircraft as well as the overhauling of four existing SLAF MiG 27 aircraft. Soon after, the government announced that the MiG 27s met with the specifications required for Ground Attack Fighters.

Yet, close scrutiny of the agreement and the statements / events relating to this procurement reveal blatant irregularities and the manipulation of facts to conceal fraud and corruption. The objectives of this report, prepared in the national interest for the United National Party Research Unit are as follows:

To analyse the urgent military requirements of the country given the current war developments.

To investigate the highly questionable circumstances, irregularities and manipulation of facts pertaining to the procurement of MIG 27s.

To analyse the extent to which the Defence Ministry of Sri Lanka is mismanaging the war with dire consequences to the Sri Lankan people

MIG 27s

To begin with, it was revealed in the front page report of The Sunday Times dated 03/12/2006 that the four MIG 27s purchased in 2006 had been on the market for several years. They had lain in disuse since 1991 and were repaired by the Lviv State Aircraft Repair Plant before being sold off to Sri Lanka. In fact, in 2000, three of these planes had been rejected by SLAF on two different occasions.

a. Firstly, on May 25, 2000, when the SLAF purchased four MIG 27 aircraft at US$ 1.5 million each

b. And next on October 24, 2000 when two more MIG 27 aircraft were purchased for US$ 1.6 million each.

Thus, it appears that these very same MIG 27 aircraft that had earlier been rejected by the SLAF in 2000 were purchased in 2006 at a cost of US$ 2.462 million each.

Further, in October 2000, a MIG 23 UB Trainer was procured at US$ 900,000. By 2006, this Trainer required overhauling. According to the current agreement (of 2006), the cost of overhauling this Trainer is US$ 1.1 million. The overall cost thus exceeds the purchase price paid in 2000.

Complaint to Bribery Commission

On the basis of The Sunday Times news report, on March 11, 2007, former Ministers Mangala Samaraweera and Sripathi Sooriyaarachchi made a complaint to the Commission to Investigate Allegations of Bribery and Corruption against Gotabaya Rajapakse, Secretary to the Ministry of Defence. They alleged corrupt practices on the part of the Defence Secretary in the procurement of the four MIG 27 aircraft. The complaint of the two MPs raised the following crucial issues in regard to the procurement:

(i) Why the SLAF purchased four aircraft which had been rejected twice before by the SLAF

(ii) Why the cost of overhauling the MIG 23 UB Trainer (MIG 27) is higher than the purchase price of the aircraft.

(iii) Why the SLAF paid a higher price for MIG 27s purchased in 2006, which are older than the MIG 27s purchased earlier.

In reply, the Ministry of Defence issued a statement on March 22, 2007, titled 'MIG 27 - Inside Story' which is carried on the website www.defence.lk. This statement is silent on the first two questions raised by the MPs, though it attempts to respond to the third question. Yet, instead of refuting the above charges, it strengthens the case for an inquiry into this purchase.

Facts are false

Many of the facts contained in this statement are false. Referring to the MIG 27 it states as follows:

'The aircraft is flown as one of the main aerial weapons in India and former Soviet countries. The MIG 27 Flogger M, named Bahadur (Valiant) is built in India and is still being manufactured today. The primary mission of the aircraft is the destruction of fixed and mobile ground targets including hardened targets.'

The second sentence of this posting is taken from the website http://www.globalsecurity.org/military/world/russia/mig-27.htm which states:

'The MIG -27 Flogger M named Bahadur (Valiant) was built in India.'

This sentence has been altered with the word 'was' being replaced by the word 'is' and the words 'and is still being manufactured today' added at the end of that sentence. The third sentence has been taken from the web http://www.airforce-technology.com/projects/mig27/. The alterations have been made to conceal the fact that the MIG 27 aircraft have ceased to be produced in India.

In actuality, the MIG 27 Flogger was originally manufactured in the former USSR. However, its production stopped in the 1980s. While this plane was also produced under licence by Hindustan Aircraft Limited, Bangalore, today, this factory too has stopped manufacturing MIG 27s. In fact, MIG 27s are no longer manufactured anywhere in the world today.

Ground attack fighter

The MIG 27 aircraft was designed as a Ground Attack Fighter to be used for conventional land warfare. It was one of the aircraft used by the Soviet Air Force against the Afghan forces. Even then the Soviet Military campaign proved to be a failure, and today, the Russian Air Force keeps its MIG 27 in reserve. By the 2000s many air forces in the world had phased out this model. Only Kazakhstan, India and Sri Lanka still use the MIG 27. However, it is no longer the main aerial weapon of the Indian Air Force, and the Indians will phase out the MIG 27 once locally designed combat aircraft are introduced.

According to the Sri Lanka Defence Ministry statement, a Technical Evaluation Committee (TEC) was appointed to find out the best option to meet the developing LTTE threat in February 2006. The TEC, after analysing the country's security situation submitted their proposals to the Ministry of Defence to buy four additional MIG 27 fighters and to overhaul the existing ones. The TEC stated that the threat situation in the country required an aircraft specifically designed for ground attacks which can operate in low altitudes at both lower and higher speeds.

The UNP Government of 2001-2004 obtained the help of the US Government to assess the military capabilities of the Sri Lankan Armed Forces. A Report prepared by a mission from the US Pacific Command recommended against the purchase of any more MIG 27s. It concluded that the purchase of these types of aircraft were not related to Sri Lanka's military needs and thus diverted logistical support from the existing SLAF fleet. The acquisition of MIG 27s drained resources that could have been used to maintain, arm and upgrade Kfirs. The Report recommended that the SLAF:

1) develop its ability to fly at night, and

a. upgrade its equipment including guided (not dumb) bombs, rather than add new inappropriate and expensive aircraft.

The Defence Ministry Statement is silent as to why MIG 27s were purchased in 2006 contrary to the US Pacific Command recommendations whereas the more appropriate choice would have been the Kfir. The Kfir is a multi-role fighter aircraft equipped with air to ground missiles, cluster bombs and guided weapons much more suited to engage the LTTE. (At the time of purchase, the SLAF had a fleet of 11 Kfirs, four MIG-27s and one F7). However, these salient facts have not been considered in the Defence Ministry statement.

Main threat

Two successive Sri Lankan Governments had identified LTTE air power as the main threat to be faced by the air force in future warfare. The UNP Government of 2001 - 2004 discussed the possible threat from LTTE aircraft with the Indian Government. The late Lakshman Kadirgamar the foreign minister of the succeeding UPFA government also gave the highest priority to this threat and discussed this issue both with the US and the Indian Governments. Subsequently, President Kumaratunga approved the installation of the INDRA II Air Surveillance System together with other Air Defence armaments.

However, in 2006, the Rajapakse Government abandoned the need to protect the air space from the LTTE, and gave priority to attacking the LTTE ground forces. This was done despite successive reports of organisations such as the Institute of Strategic Studies confirming that the LTTE possessed Light planes, Micro-Light planes and armed helicopters.

Deviation in war strategy

This crucial deviation in war strategy (of focussing only on the LTTE ground forces) directly exposed Sri Lanka to the current air attacks from the LTTE. Given the government's access to intelligence on the LTTE capabilities, it is highly questionable whether such a deviation was bona fide or for purposes of making profit.

It is the standard practice of the Defence Ministry to carry out threat assessments under the guidance of senior Military officers utilising intelligence reports. The current threat assessment was done in 2006 by a TEC consisting of:

Air Marshal Roshan Goonetilleke (Chairman),

Air Commodore E. G. J. P de Silva (Director Aeronautical Engineering SLAF),

Dr. D. P. T. Nanayakkara (Senior Lecturer - University of Moratuwa),

Mr. H. D. Weerasiri (Accountant - Ministry of Defence),

Mr. V. J. Premaratne (Deputy Director Airworthiness - Civil Aviation Authority),

Mrs. K. D. R. Olga (Accountant - Department of National Budget).

The TEC consisted of four civilians and two Air Force officers. The Air Force officers who served in the TEC are not Fighter Pilots - one is an Engineer and the other a Helicopter Pilot. The others are civilians who had no knowledge of the security requirements of the Air Force.

Multi-role combat aircraft

It is on record that a number of Air Force fighter pilots repeatedly requested the Government to purchase multi-role combat aircraft. However, these requests were overruled by the TEC. According to the MIG 27 Inside Story -

'The newer variations of MIG such as MIG 29 and MIG 35 are also priced very high and such technology is not required to meet the present enemy.'

Yet when the TEC made this evaluation the final export version of the MIG 35 had not been unveiled or priced, even though a prototype had been shown in Moscow a few months earlier (it was unveiled for the first time at the Bangalore Air Show in February 2007). Thus, these events took place after the TEC made its recommendations. It would seem then that the MIG 29 and similar models were rejected on the basis that the country's air defence did not require multi-role combat fighters contrary to established opinion within the SLAF.

Reviewing and analysing the threat to the country's security is not a function of a Technical Evaluation Committee. It is the critical function of the Commanders of the Armed Forces who after consulting their staff must inform the National Security Council.

Role of the TEC

The role of a TEC is laid down in the Procurement Guidelines of 2006. The TEC is only responsible for the technical and financial evaluation of the formal offers received by the Procuring Entity of the Government. Under the Guidelines, the responsibility for all actions in the furtherance of the procurement of goods, services or works is vested with the secretary to the line ministry -in this case - the Secretary to the Ministry of Defence. In this instance, the TEC has acted outside its powers and functions in analysing the country's security situation and proposing the purchase of MIG 27s.

Furthermore, this TEC has not been properly constituted in accordance with the Procurement Guidelines. Article 2.8.1(b) of the Guidelines states that the TEC should consist of subject specialists.

In this instance, critical members of the TEC should have been fighter pilots, but they were left out. One Helicopter Pilot, one Aeronautical Engineer, one senior Lecturer, one deputy Director and two Government Accountants backed by one retired Lieutenant Colonel rejected the threat analysis of a number of senior experienced Security Officials which had been accepted by the UNP and UPFA Governments as well as the Governments of India and USA.

The SLAF is the only air force to purchase MIG 27 in the 21st Century. In 2000 the then government had already ordered 12 Kfir Fighter Aircraft from IAI subject to a long delivery period. At the time, the purchase of the MIG 27s was a stop gap measure to meet the immediate need of the military for ground attack Fighters due to setbacks in Jaffna.

Short term measure

Therefore, the Government accepted an offer by D. S. Alliance Limited, a company recommended by the Ukrainian Ambassador, to supply, maintain and operate MIG 27 aircraft. These aircraft had not exceeded their mileage and did not require overhauling till 2003. The purchase was a short term measure until the arrival of the Kfirs which were to form the backbone of the SLAF.

The MIG 27 is a Third Generation Jet Fighter Aircraft whereas today, Fifth Generation Jet Fighter aircraft are being introduced worldwide. Third Generation Jet Fighters are being systematically phased out of Air Force inventories. Consequently, there is no demand for second-hand MIG 27s which is why there are still a number of MIG 27s in Ukraine which will have to be scrapped shortly, if not sold.

The first deal in 2000 was made at a time of crisis when Sri Lanka's options were limited and the seller could name the price. The second deal in 2006 was made when the buyer had a number of options and when there was no market for old MIG 27s. In fact, it was a buyers' market. Surprisingly, the price paid by the buyer in these circumstances was far excessive than when it was a sellers' market.

According to the Ministry of Defence statement, the MIG 27 aircraft purchased in 2000 had only two years of remaining life at the time of purchase, while the MIG 27s purchased in 2006 are supposed to be guaranteed an operational life time of eight years. The Ministry of Defence states that, as a result, the SLAF will not be faced with the problem of overhauling or extending the life time of these aircraft, or having to bear additional costs - unlike in the year 2000 deal. This rationale too is designed to mislead the Sri Lankan public, along with references to the overall life span of an aircraft as the life span of its engines.

Life span

This is because the engine life of Fighter aircraft like the MIG 27 is not determined according to years as referred to above. The aircraft engine life span between overhauls is determined by the assigned flying hours. Since the number of operational flights made by each MIG 27 varies depending on the requirement of each country, it is not possible to specify a number of flying hours for a year. A fighter aircraft operating in an environment of internal or external conflict will undertake more operational flights per year than an aircraft operating in an environment of peace. The statement is silent on the critical issue of the flying hours still available for the MIG 27 aircraft purchased in 2006. Instead, the Ministry of Defence has deliberately attempted to mislead the public by referring to the operational lifetime of the aircraft in years instead of flying hours.

The overall life span of every fighter aircraft is assessed after taking into account its air frame system, engine, operational control system etc. At the end of its overall life span of 25 years the MIG 27 aircraft becomes obsolete or a dead aircraft. A further extension of its life span (up to 30 years) is possible only if done under the supervision and certification of the Engineers of the Mikoyan Design Bureau. Furthermore, this extension must be done before the end of the normal life span of 25 years.

The year of manufacture and the age of the MIG 27s purchased in 2000 are as follows:

Table I
Aircraft
Serial Nos. Year of
Purchase Age at time
of Purchase (Yrs) Year of
Manufacture
3712531385 1982 18 2000
83712534657 1983 17 2000
83712534709 1983 17 2000
8371253877 1984 16 2000
83712520013 1981 19 2000
83712545237 1984 16 2000
MIG 23 trainer
SN 49065315 1984 16 2000



Contrary to the statement by the Ministry of Defence, the aircraft purchased in 2000 had a life span of between 6 - 9 years.

Table II
Aircraft
Serial Nos. Year of
Purchase Age at time
of Purchase (Yrs) Year of
Manufacture
93712534688 1983 23 2006
83712518044 1981 25 2006
83712518022 1980 26 2000
83712518009 1980 26 2000

These aircraft were 25 years old, and have thus been purchased at the end of their normal life spans. No reference is made to an extension of their life span (to 30 years) under supervision and certification by the Mikoyan Design Bureau.

Obsolete

It is thus clear that these MIG 27s are obsolete. They have exceeded their life span. Ukraine is well known for selling weapons without international certification. According to the magazine The Ukrainian 'Obsolete material is mostly in demand in underdeveloped countries. ... Even now Ukrainian weapons are being crowded out by competitors complying with international certification standards.' Furthermore, as stated earlier, the same four planes were examined by the SLAF and rejected in 2000 during the first purchase.

It is no wonder then that two of these aircraft were grounded after being purchased in 2006 and were unserviceable during the warranty period. Thus the Government has paid US$ 10.078 million for four MIG 27s that were dead and grounded, with zero value except as scrap metal.

The Ministry of Defence statement has not evaluated the aircraft according to the market value or any other valuation scheme that is utilised for government procurement. Instead, the 'deal is evaluated for its value addition, cost benefits and the cost against the increased fighting capability of the SLAF.' From this statement it is apparent then that the Defence Ministry has invented a valuation system to cover up a fraud. Consequently, the Cabinet appointed Standing Committee on Procurement too is in criminal breach of safety and efficiency for having purchased life-expired aircraft for operation in the war zones.

Statement false

The Ministry of Defence statement refers to this procurement as a deal between the producer Government (Ukraine) and the Government of Sri Lanka. This statement is also false for the following reasons. Ukrinmash from which the SLAF purchased these aircraft is the self-supporting Foreign Trade and Investment Subsidiary of UKRSPETSEXPORT - the State Company responsible for the export of military products. Such an organisation does not fall within the parametres of a government to government contract. Therefore, this deal cannot be exempt from the normal procurement procedures as argued by the Defence Ministry.

The Defence Ministry statement seeks to justify this exemption under Article 3.5 of the Government Procurement Guidelines 2006. Article 3.5 states as follows:

'3.5.1 (a) Direct contracting is a means of procurement of goods or Services or Works from a single supplier source.

(b) ...

(c) This method is appropriate under the following circumstances:

(i) When the prices or rates are fixed pursuant to legislation by regulatory bodies

(ii) Standardisation of equipment, for compatibility with existing equipment, may justify additional purchases of the same type of goods

In such purchases -

The number of such items in the new procurement shall generally be less than 50% of the existing number

The price shall be reasonable, and

The advantages of another make or source of equipment shall have been considered

(iii) The required equipment is proprietary and obtainable only from one source such as proprietary software, text books, spare parts, defence items and

(d) . No government agency will qualify for automatic direct contract award unless the above requirements are satisfied.'

The 2006 procurement violates many of the provisions of Article 3.5. The Air Force had in its inventory four MIG 27s purchased in 2000 and under this deal they purchased an equal number of MIGs. The guidelines restrict the purchase to 50% of the existing number.

Price not reasonable

Furthermore, the price paid for these older MIGs (which averaged 25 years) exceed the price paid for the MIG 27s purchased in 2000, (which averaged 12 years). Therefore, the price is not reasonable.

The Ukrainian Government is not the producer government since it does not manufacture MIG 27 aircraft (At the present time, the Ukraine manufactures AN-22, AN-72, AN-74, AN-124 and AN-225 'Mrija'. These are exported by UKRSPETSEXPORT). The MIG 27s were produced at the Moscow Aircraft Production Organisation MIG plant and the Irkutsk Aircraft Production Joint Stock Company plant - both of which are located in Russia.

When the Soviet Union collapsed in 1991 all Soviet Armed Force Military assets (including a number of MIG 27 aircraft) were taken over by the new Ukraine Republic in accordance with a Resolution of the Ukraine Parliament dated August 24,1991. The MIG 27s were not utilised by the newly formed Ukraine Air Force as the planes were considered to be obsolete. They used MIG 29s, while the MIG 27s were kept as military surplus stock and disposed from time to time. Other countries also have surplus MIG 27s for sale. Therefore, the Ministry of Defence has violated Article 3.5.1(c) (iii) as the equipment must be proprietary and obtainable only from one source.

Under a Government to Government deal, monies must be paid to the relevant bank account of the Government or a Governmental Institution. The MIG 27 purchase monies were not paid to a bank account of Ukrinmash in Ukraine. Instead payments were made to the account of a UK Company named Bellimissa Holdings. According to the Defence Ministry:

Neither the GoSL nor any other government can decide on the bank where a company may have its accounts and where it may get credit facilities. Ukrinmash has indicated a financial institution based in England, where the payments are to be made by the GoSL as per the contract.

Designated party

The contract for the purchase of MIG 27 aircraft does not name Bellimissa Holdings as the Agent of Ukrinmash, entitled to receive payments on behalf of the Ukrainian company. Bellimissa Holdings Limited is referred in the contract as a Designated Party.

According to Clause 23.1, 'the buyer and the seller are aware that a third party Bellimissa Holdings Limited (in this Contract (Part 1) referred to as the 'Designated Party' shall be involved to provide the finance needed in executing this project. All payments under this Contract .shall be irrevocably assigned and paid to the Designated Party in consideration for obtaining the finance package.'

Bellimissa Holdings Limited is a party to the contract. The Ministry of Defence statement has deliberately lied to the public to cover up this fraud.

This is not a normal financial package (as per the Procurement Guidelines) such as :

(i) a commercial loan to the Government to pay the seller, or

(ii) an agreement between the Government and any multi-lateral or bi-lateral funding agency to provide funds for the procurement which are permissible under the Guidelines.

Furthermore, Articles 2.5.1 and 8.7.1(a) require the Standing Cabinet Appointed Procurement Committee and the MOD to ensure that budgetary provisions were available to provide the funds for this purchase. These provisions ensure accountability of government to Parliament in the utilisation of public funds or funds obtained by way of loans.

Under this Contract, Bellimissa Holdings Limited, the designated Third Party is obliged to pay Ukrinmash - the seller, for the delivery of the four planes to MOD - the buyer. Thus, there are, in fact, two separate and distinct obligations. One is, for the Third Party to pay the seller. Under this obligation:

(i) the seller can sue the Third Party if no payment is made, or

(ii) the Third Party can sue the seller if the planes are not delivered.

Third party

The second obligation is for the MOD (the buyer) on delivery of planes by Ukrinmash - (the seller) to pay Bellimissa Holdings Limited (the designated Third Party). Under this second obligation, the Third Party can sue the buyer if payment is not made to the Third Party. This is different from a normal contract of sale where the two parties, the buyer and the seller, may institute legal action against each other for breach of contract. This is a tripartite contract which seeks to avoid making budgetary provisions required by the Guidelines thereby escaping accountability to and scrutiny by parliament.

The contract document defines the buyer as the Ministry of Defence represented by the Commander of the SLAF and states his address. The seller is designated as Ukrinmash represented by a Director and the address is given as 36, Degtinrivska Str, Kiev, 04119, Ukraine.

However, the designation of the person representing Bellimissa Holdings Limited is not defined in the contract. Neither is the country of incorporation or its registered address stated in the contract. Bellimissa Holdings Limited has an office in London but is not registered in the UK. Bellimissa Holdings is an off-shore company. The relevant details of the company such as its shareholders, capital and accounts are kept confidential.

While it is the usual practice for payments for military equipment to be made direct to the Ukrinmash bank accounts in Kiev, it has come to light that Ukrinmash also utilises front companies for financial transactions when requested by the buyers. In fact, Ukrinmash has a reputation for accommodating the wishes of the buyers. This flexibility has made Ukrinmash popular with corrupt presidents, ministers and government officials.

For instance, Ukrinmash and UKRSPETSEXPORT were involved in the sale of weapons to Serbia, utilising front companies to bypass international sanctions on the sale of weapons. This was revealed during the trial of the former President Slobodan Milosevic - the Serbian Dictator responsible for ethnic cleansing in Yugoslavia. The details of these transactions are contained in the Report of the Investigator from the Office of the Prosecutor of the International Criminal Tribunal for the former Yugoslavia Morten Torkildsen.

It is also interesting to note that Gotabaya Rajapakse, the Secretary to the buyer (the Ministry of Defence) and the Officer vested with responsibility for the procurement of MIG 27s, is closely related to Udayanga Weeratunga, Sri Lanka Ambassador in Ukraine. Weeratunga who is a political appointee carried on business in Ukraine prior to taking up this appointment and has many connections in Ukraine.

Conclusions

It is clear that the appropriateness of MIG 27s as Ground Attack Fighters for the current war effort is highly dubious more so given its questionable history, capacity and life-span.

The purchase of MIG 27s in 2006 has contravened the established standards and procedures of government procurement.

The Government of Sri Lanka has lost US$ 10.078 million by purchasing four MIG 27s whose life span has expired.

The Defence Ministry has through criminal negligence endangered the lives of SLAF pilots and countless others while jeopardising the war effort. Many of the facts given in the Ministry of Defence statement MIG 27 Inside Story are completely false and designed to cover up a corrupt deal. They have been fabricated on the basis that the people of Sri Lanka are ignorant of military affairs and will accept anything stated by the Defence Ministry.