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Sri Lanka: Government Permitted to Expropriate Certain Businesses

(Nov. 14, 2011) On November 9, 2011, the Parliament of Sri Lanka passed legislation that will permit the government of the country to expropriate 37 businesses that are currently performing poorly. These are businesses that had been privatized previously. The legislation for the Law on Revival of Underperforming and Underutilized Assets had been presented to the Parliament by Prime Minister D.M. Jayaratne and passed 122 to 46, over opposition party objections. (Sri Lanka Parliament Permits the Government to Take Over Underperforming and Underutilized Industries, COLOMBO PAGE (Nov. 9, 2011).)

The business community also opposed the legislation, out of concern that takeovers would become a regular process. The government had issued assurances that the move was a “one time only” effort. On November 8, the country's Supreme Court issued a statement to the effect that the proposed legislation was not contrary to any constitutional provisions. (Id.)

Two of the companies targeted for government control are in the sugar industry: Sevanagala Sugar Industries and Pelwatte Sugar Industries. The private sector has been supplying only 4% of the country's needs, whereas in the past, before privatization, 12% was produced locally. Employment in Sevanagala Sugar Industries has dropped from 800 permanent workers in 2002 to 168 today. Furthermore, the government argues, that company has breached the terms of the business agreement under which it operates by producing liquor. It has been noted that Sevanagala is owned by Daya Gamage, who is a key official in an opposition party. (Id.)

The legislation insures that companies owning the establishments taken over by the government will be paid compensation. A committee will be established, with members appointed by the Cabinet of Ministers, to determine the value of the affected businesses. This committee will include the Chief Government Valuer and other experts in commercial valuations. (Sri Lankan Government to Pay Compensation for Assets Acquired Under the Expropriation Bill, COLOMBO PAGE (Nov. 9, 2011).)