The Ministry of Finance issued circular No. MF/01/2020 dated 08.03.2021 (“Circular”) to fast-track implementation of development activities.

The salient points of the Circular are as follows:

1. A simplified process for obtaining Letters of Credit/Letters of Comfort and Letters of Guarantee.

1. • The Cabinet of Ministers has authorized the Secretary to the Treasury to issue Collateral such as Treasury Guarantees, Letters of Comfort and Letters of Credit within the applicable statutory limits.

1. • Such collateral will be issued to banks on behalf of a State-Owned Enterprise (“SOE”) for raising working capital or engaging in development activities provided that legal and regulatory prerequisites including approval of the Cabinet of Ministers are complied with. Requests for the issuance of collateral must be made directly to the Secretary to the Treasury.

1. • Collateral to third parties will be issued subject to approval of the Cabinet of Ministers.

1. • Standby Letters of Credit, Treasury Guarantees and Letters of Comfort will be issued to banks on behalf of contractors raising finance in connection with government projects subject to approved budgets.

2. Changes to ongoing projects to be approved by a committee

1. • Changes to ongoing projects such as changes to the scope/restructuring, utilization of savings for new activities, additional financing, loan and project extensions and cancellation of projects which have already been approved by the Cabinet of Ministers must be forwarded to the Director General of External Resources or the Director General of National Budget Department as the case maybe.

1. • Such requests will thereafter be forwarded to a committee consisting of the Secretaries to the Treasury, Ministry of Water, Ministry of Ports, Ministry of Power, Ministry of Highways, Ministry of Agriculture, Ministry of Plantations, Deputy Secretary to the Treasury in charge of Planning and Director General of National Planning.

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   • The decision of the committee will be final.

3. Matters relating to Bilateral and Multilateral Financing Agencies

Any issues arising after receiving approval of the Cabinet of Minister pertaining to Bilateral and Multilateral Financing Agencies should be forwarded to the Director-General Department of External Resources. The Secretary to the Treasury is authorized to resolve such issues whose decision will be final.

4. Agreements between government agencies including Ministries, Departments and SOEs

1. • Above can be signed with the approval of the Secretary to the Line Ministry and in relation to SOEs with the approval of the governing body as stated in the statue of incorporation of such SOE or in terms of the Companies Act, No.07 of 2007 (as amended) as the case may be. Signing of these agreements will not be subjected to approval of the Cabinet of Ministers.

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   • Procurement of goods or services undertaken under the procurement guidelines is excluded from the above and must follow the process under the Guidelines.

5. Nonfunctioning, winding up, liquidation or closure of State entities

Nonfunctions, winding up, liquidation or closure of Ministries, Departments, units of Ministries and Departments, SOEs and funds that have been previously approved by the cabinet of Ministers must be forwarded, as appropriate, to the Director-General Department of Public Finance or the Director-General Department of Public Enterprises and thereafter or the Secretary to the Treasury for necessary directions.

6. Outstanding contentious human resources matters of SOE’s

1. • In terms of the Circular, outstanding human resource matters that have been referred to the Cabinet of Ministers and prolonged must be referred to a standing committee consisting of Secretary of Public Services, Provincial Councils and Local Government, Deputy Secretary to the Treasury, Secretary to the Ministry of Money and Capital Markets and State Enterprise Reforms, Director Generals of the Department of Public Enterprise, Department of National Budget and Department of Management Services.

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   • Decisions of the said committee must be finalized within 2 hearings and are final.

7. Financing of projects by SOEs

1. • Where SOEs require support of the government to service loans obtained for projects, the relevant Line Ministry must seek approval of the Cabinet of Ministers for project concept, financing methodology, issuance of Guarantees/Letters of Comfort etc.

1. • Upon approval of the Cabinet of Ministers, SOE could with the assistance of the Treasury (i.e., with collateral issued by the Treasury) arrange financing during the lifetime of the project within the approved limits

(the full Circular can be accessed here)

This is only an overview of the applicable law and should not be relied upon as legal advice or recommendation by D. L. & F. De Saram, a leading law firm in Sri Lanka.

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