AASL’s Rs. 2bn asset gap and accounting errors exposed ahead of BIA Terminal 2 recommencement

By Nishel Fernando

As the government prepares to award the multi-billion rupee contract for the resumption of the Bandaranaike International Airport (BIA) Terminal 2 project to Japan’s Taisei Corporation, the Auditor General has raised serious red flags regarding the financial governance of the airport operator, specifically highlighting accounting irregularities related to the stalled phase of the same development.

The 2024 Annual Report of Airport and Aviation Services (Sri Lanka) (Private) Limited (AASL) reveals a qualified audit opinion, citing a massive Rs. 1.95 billion discrepancy in assets and violations of accounting standards that directly concern the management of the Terminal 2 project funds.

The timing of these disclosures is critical, as official sources confirmed recently that Taisei Corporation stands as the sole responsive bidder for the BIA expansion project, with the government awaiting concurrence from the Japan International Cooperation Agency (JICA) to open financial bids. While the Ministry of Ports and Civil Aviation targets June 2026 for construction mobilisation, the Auditor General’s report uncovers that the AASL failed to adhere to Sri Lanka Accounting Standards (LKAS) 23 during the project’s suspension. 

The audit revealed that the company erroneously capitalised salaries amounting to Rs. 7.5 million and loan interest of Rs. 43.8 million incurred during the suspension period, rather than expensing them, thereby artificially inflating the value of the ‘Capital Work-in-Progress’ for the terminal.

Beyond the specific accounting errors attached to the Terminal 2 project, the Auditor General exposed a significant lapse in asset management. The report noted that property, plant, and equipment worth Rs. 1.95 billion, which were not physically verified during the Board of Survey in 2023, had not been adjusted in the accounts, leading to a potential overstatement of the company’s asset base.

 Furthermore, a reconciliation of the company’s cash assets revealed an unexplained deficit of Rs. 292.7 million; the fixed deposit balance per the company’s ledger stood at Rs. 100.9 billion, whereas bank confirmations reflected only Rs. 100.6 billion.

These governance lapses come at a time when the AASL is negotiating critical “gap financing” with JICA to cover cost escalations for the Terminal 2 restart.

The project, which was halted in 2022 due to the country›s sovereign default, is now slated to resume under a strict 30-month timeline once the contract is awarded. 

However, the audit highlights that financial discipline remains a concern. In another instance of fiscal mismanagement, the report flagged that the company paid a full year-end bonus of Rs. 664.6 million to staff without deducting a previously paid advance of Rs. 178.8 million, resulting in a significant overpayment that defied the board’s own circulars.

As the government moves to finalize the deal with Taisei Corporation and secure additional funding from JICA to bridge the financing gap, the Auditor General’s findings cast a shadow over the AASL’s readiness to manage the capital-intensive project transparently.

The audit also revealed that the company had incorrectly deducted a capital repayment of Rs. 1.22 billion paid to the Treasury for foreign loans as an allowable expense for tax purposes, a clear violation of the Inland Revenue Act which may lead to further penalties. With the resumption of the Terminal 2 project hailed as a milestone for the tourism sector, these internal control failures suggest an urgent need for tighter financial oversight before the first brick of the new phase is laid.