New management dealing with massive fraud:

Hyatt Hotel project faces Rs 9b shortfall

by Lalith Fernandopulle

The report on the large scale financial fraud and mismanagement of funds by the previous regime in the Hyatt Hotel project in Kollupitiya and Hambantota will be presented to the Ministry of Finance to bring all perpetrators to book, the new Chairman, Canwill Holdings Ltd., Hemaka Amarasuriya, told the media last week.

A forensic audit into the Hyatt Hotels project in Kollupitiya and Hambantota brought to light a staggering fraud committed by the Rajapaksa regime which had doubled the initial estimates of the projects from Rs. 13 billion to Rs. 27 billion and the company is now facing a shortfall of Rs. 9 billion to complete the projects, the new board of directors revealed.

Canwill Holdings Ltd., a state-owned entity set up by the former regime was entrusted with Rs. 18.5 billion in equity funded by it shareholders, the Sri Lanka Insurance Corporation, Litro Gas and the Employees Provident Fund (EPF). Forty six percent of the shares were held by Sri Lanka Insurance while the rest was between Litro Gas and EPF

“The new management will recapitalise the funds by going back to the shareholders for further funding to carry on the project in Kollupitiya. We will first focus on completing the Kollupitiya project and then think of what should be done with the Hambantota hotel,” Amarasuriya said.

The 400-room city hotel is expected to give a complete facelift to the city as a premiere global hotel brand that will cater to a niche market.

Amarasuriya said the cost increased due to the Hyatt brand being elevated to Grand Hyatt, the highest brand in the Hyatt family across the world.

Amarasuriya said the tender procedures of the former management were not transparent. Contracts were granted to people and parties as they wished.

“Work on the project is progressing. The shell of the hotel has been completed and currently the interior designing is being done.

We hope to complete the project by 2017, which is three years behind schedule.

The Colpetty Hyatt has been under construction for the past three years. The audits revealed massive wastage and mismanagement from the outset,” Amarasuriya said.

Three additional properties were acquired by paying Rs. 40 million above what what was suggested by the government valuer at the behest of the company.

He said the former board did not have formal meetings and open bidding for contracts. Around Rs. 300 million was spent on the Hambantota Hyatt even before launching work on the project.The new board has dismissed foreign consultants hired at staggering amounts. A foreign engineering consultant was hired by the former management at Rs. 16 million a month.

“A former managing director had been issued a corporate credit card with a limit of Rs. 1.5 million and his children were employed by Canwill Holdings.

We have so far saved around Rs. 150 million by cancelling and renegotiating contracts. We hope to save another Rs. 100 million by cutting down waste,” Amarasuriya said.He said when completed Hyatt Colpetty will be the best city hotel and the showpiece in Colombo.

The hotel will be occupied by high profile businessmen with meeting rooms and facilities for board and transactional meetings. It will be an attractive venue for weddings and other social functions.

“It is the task of the new board to expedite work on the project, reduce waste and get adequate returns on the invested share capital,” Amarasuriya said.