AASL denies link between asset gap and BIA Terminal 2; clarifies audit queries

Airport and Aviation Services (Sri Lanka) (Private) Limited (AASL) has categorically rejected any connection between the audit qualifications cited in its 2024 annual report and the ongoing BIA Terminal 2 project (BIADP Phase II). 

Responding to a Mirror Business news story based on the National Audit Office’s comments, the entity emphasised that the reported asset gaps and terminal construction are “completely different scenarios”, with no relationship to one another. The state-owned enterprise insisted that the Auditor General’s report itself did not draw a link between the asset verification issues and foreign-funded infrastructure project, labelling any such implication as misleading.

Clarifying the specific audit query regarding an asset gap, where the National Audit Office noted that property, plant and equipment worth Rs.1.95 billion were not physically verified, AASL argued that the figure does not reflect the current financial reality. The company stated that the net book value (NBV) of these assets is actually Rs.529.9 million, explaining that many of these items are decades old with a zero NBV. 

According to AASL, the issue is not that the assets are missing in real terms but rather a lack of documentary proof to verify them physically, often due to the difficulties in matching items with legacy ledger codes.

The company also offered a defence regarding a significant discrepancy in its cash balances, where the audit flagged an unexplained deficit of Rs.292.7 million between the company ledger and bank confirmations. Providing context to this finding, AASL attributed the entire gap to a “bank error” by Bank of Ceylon, which had failed to adjust the special interest rates agreed upon for the fixed deposits in their system. The company confirmed that the bank has officially accepted the error and has agreed to rectify its records to align with the AASL ledger.

Addressing the financial management of the stalled terminal project, the recent findings by the Committee on Public Enterprises and Auditor General’s Department highlighted that Rs.37 billion was paid to Japanese contractor Taisei Corporation, despite the physical progress reaching only 5.44 percent, against a target of 30 percent. Amidst this broader scrutiny of the project—which stalled following the country’s sovereign debt crisis and the freezing of the JICA funds in 2022—the audit also criticised AASL for capitalising Rs.7.5 million in salaries and Rs.43.8 million in loan interest during the suspension period, instead of expensing them. 

In its response, AASL defended this accounting treatment as a “prudent decision” made amidst the uncertainty of the government’s bankruptcy declaration. The company noted that with the JICA loan only reactivating in August 2024, adjustments have now been made to expense these costs from that date onwards, denying the claim that the ‘Capital Work-in-Progress’ was artificially inflated.

On the regulatory front, the audit report had flagged that AASL paid a year-end bonus of Rs.664.6 million, without deducting a prior advance and deducted a capital loan repayment of Rs.1.22 billion as a tax-allowable expense. Providing background to these administrative decisions, the company stated that the bonus payments were approved by the board and are currently pending a final Cabinet decision. Regarding the tax matter, AASL explained that the funds were remittances to the Treasury for airport development loans and were claimed as treasury payments allowed under the income tax law, an arrangement it asserts was mutually agreed upon with the Inland Revenue Department.