Scientific Game

In Sri Lanka, Testing the Limits of Power

Uncertainty surrounds James Packer’s resort plans as the government encounters mounting opposition to its support of gaming as an economic development tool

Tuesday, 07 January 2014 18:53
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Crown Resorts’ US$350 million Sri Lanka casino is in limbo as social and political opposition to the industry’s expansion appears to be intensifying in the island nation and forecasts now are that legislative approval will not be achieved this year. 

Four years on from the end of a bloody civil war whose wounds refuse to heal, the government is looking anxiously to major foreign investments like Crown’s to help rebuild the economy. But it has elected to withdraw a bill that would pave the way for Crown to start building rather than face an outcry in Parliament over the generous tax breaks it contains. The decision also places in jeopardy a resort casino of comparable scope planned by local hospitality giant John Keells Holdings. In all, upwards of US$1 billion in investment could go by the boards.

This is not something to which President Mahinda Rajapaksa is accustomed. In his eight years in office he has constructed around himself and his family an all but unassailable and swiftly moving policy machine. The champion of Sri Lanka’s ethnic Sinhalese-Buddhist majority, he is credited with orchestrating the military defeat of a Hindu Tamil insurgency that raged in the north of the island for the better part of a generation. He has installed his brothers Basil and Gotabhaya as ministers of economic development and defense. Brother Chamal presides over Parliament as speaker. One of his sons is a sitting MP. He has a nephew serving as a provincial chief minister. A brother-in-law runs SriLankan Airlines. The ambassadors to Russia and the United States are cousins. He continues to defy world opinion in refusing access to UN inspectors amid reports that his armed forces committed atrocities in suppressing the Tamil revolt. He vehemently denies allegations that human rights abuses continue against the Tamils, who remain under heavy military occupation. In protest last month, the leaders of Canada and India boycotted a meeting of Commonwealth nations convened in the capital of Colombo.

 

 

 

None of this bodes well for government initiatives aimed at doubling foreign tourist arrivals to 2.5 million by 2016, plans in which visitors from India, the Tamils’ ethnic and spiritual home, figure prominently. Indians have returned to Sri Lanka in sizable numbers only since the civil war ended, but they are now the island’s primary source of visitors, and it’s with one eye on the subcontinent’s hugely underserved gambling market, the other on the current boom in travel out of China, that the Rajapaksas hope to attract $3 billion in tourism-related foreign direct investment over the next three years. This would elevate tourism to the country’s largest source of foreign-exchange earnings.

Crown’s plans call for a 400-room luxury resort in the capital of Colombo in partnership with Ravi Wijeratne, owner of Rank Holdings, the biggest operator in the existing casino market and a boyhood friend of the president’s. John Keells, the country’s largest public company, is planning an 800-room resort in the capital priced at $650 million. Both will feature an array of dining, shopping, entertainment and leisure attractions and significant conference and meeting space. It’s their first-class hotel rooms the market needs more than anything to reach the visitor goals the government has set with the big-spending overseasvisitors it wants. With its endorsement both projects have secured sites along popular Beira Lake in the heart of the city’s business and tourism district.

Socially speaking, though, it’s all pretty radical. The handful of small casinos of the type run by Rank have operated for years under the radar of the powerful Buddhist clergy as “recreation clubs” catering to the tourist trade in and around Colombo. Legislation formally recognizing them didn’t exist prior to 2010, and it was Mr Rajapaksa who pushed for it. At the same time, thegovernment has attempted to downplay its support, quietly refraining from actually licensing the casinos or attempting to organize the market within any kind of regulatory framework.

Officially, the Crown and John Keells projects aren’t casinos at all. They’re “mixed developments” of a type identified in broad-based legislation that aims to lure similar projects with 10-year exemptions on corporate income tax and other incentives. But as Mr Rajapaksa is learning, there is no  euphemizing investments of this scale. TheUnited National Party, the main opposition in Parliament to his governing coalition of secular and religious parties, has been trying for months to force a debate on the tax breaks. They consider the Crown and Keells projects, along with the existing industry, to be illegal. It’s not certain how far they’re prepared to push this, however, and they’re heavily outnumbered in Parliament. They did manage to stage an outdoor rallyearly in November in Colombo to protest the gaming bill. But the government had already withdrawn it at that point.

Officially the talk now is of amending the terms of Crown’s deal, and this is likely to result in modifications to the promised tax holiday.

“I haven’t prepared the cabinet paper yet,” Investment Minister Lakshman Abeywardena said recently. “These days you can’t do it because we are busy with the budget. There is no hurry. These are long-term projects, and we are aiming to start by 2015-2016. You have time.”

Mr Wijeratne said, “Possibly [the bill] will go through once the Parliament starts in the first week of January, so one month does not make any difference.”

 

 

It’s with respect to the religious parties that the Rajapaksas know they must tread carefully. The Buddhist clergy has no desire to undercut the president, fearful as they are of a resurgent Tamil separatism. One of these parties, the influential Bodu Bala Sena, or “Buddhist Strength Force,” has railed against “so-called democrats” it says are destroying the Sinhalese race, whose “unofficial police” the BBS claims to be. The party was implicated in anti-Muslim riotsearlier this year in which thousands took part. Mosques were firebombed. Muslim businesses were attacked. It was reported in some instances that the police stood by and did nothing.

The clergy are not comfortable either with a gaming industry of the size the Rajapaksas say the economy needs. They’ve succeeded to date in legislating limits on the sale of alcoholic beverages, which is heavily taxed, and they have forced the country’s liquor stores to close. In like fashion they’ve warned the administration not to get too promiscuous with its casino favors. The government has sought to placate them with assurances that both existing and new casinos will be restricted to designated areas in Colombo and will be open only to foreign passport holders.

 

 

Crown Chairman James Packer, who can do nothing but watch and wait, has remarked only that he is “hopeful” a bill will make its way to Parliament to allow his project to proceed.

“Sri Lanka is a beautiful and unique country,” he has said, “it has overcome a great deal of adversity and is growing strongly. I am confident it has a very bright future.”

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