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Staying alive in the long run



A lot can happen in April. This April hasn’t been good for the government: coming in weeks after its Geneva defeat, it now faces a major issue with the pandemic, with India reportedly suspending exports of AstraZeneca. The dilemma, as it stands, reminds us of the dangers of relying on one vaccine, and on one source of procurement.

April hasn’t been good for the economy either. This is import season. Workers’ remittances are down. Tourism may be on its way up, but it is hardly enough. Trade will in all likelihood be greater than this time last year, and yet, with disposable incomes coming down, the New Year won’t look like it used to. The merchants are optimistic: “It’s important that people are preparing to celebrate the Sinhala and Hindu New Year enthusiastically,” one of them tells a reporter. But then celebration isn’t everything, nor is there much to celebrate.

Not even with the import restrictions currently in place have we been able to narrow the trade deficit by as much as we should. This is natural: a lot of economic activity takes place in the informal sector. Indeed, given the unreliability of statistics and the state of the informal sector even in normal times, it’s likely the numbers aren’t telling us the whole story.

The government has taken some steps to “go local”, ranging from shoes to cinnamon cigarettes (though promoting it didn’t do much good to Minister Weerawansa). Going local are endeavours to be welcomed. However, the question can be raised whether this entails the establishment of local industry, which is what it will take to stem the tide of widening trade deficits and depleting foreign reserves.

To state the painfully obvious, a global pandemic has failed to keep us from continuing to be a nation of merchants, financiers, and importers. It is a little unfair to blame the government over a problem built into the economy and hardly attributable to one party. Yet in all fairness to those running the show now, they just don’t seem to have recognised the need to make the transition from going local to local manufacture.

Of course, there are silver linings. Regardless of what critics may say, those at the top are taking vaccination seriously. Close to a million have already got the jab, and while doubts do exist as to whether the second jab will come, no one’s complaining too much. Though it has been riddled with shortcomings you usually expect, and get, from government programmes – a lack of planning, a failure to communicate, and rumours of “vaccination lists” – these pale once you consider that the country is, somehow, getting inoculated.

Thus, as far as vaccination is concerned, the government is doing what it can. I only wish one could say the same of what it’s doing with, for, and to the economy.

Looking at it in retrospect now, the November 2019 election brought to power the largest and possibly most diverse political grouping in recent history. Going by the election results, it even paled the 2018 local government polls. The sheer size of the SLPP-led coalition, not to mention its handling of the first wave ?????, contributed to a bigger electoral landslide nine months later. The latter cannot be marginalised: it was the first two-thirds majority an administration achieved, without enticing crossovers, in a post-war setting.

The problem with large majorities, of course, is that they’re easy to lose, even without a virus around. This one was no exception: slowly at first, then picking up speed little by little, one half of the coalition has found itself battling the other.

If the ECT deal was what brought up these dissensions, their origins can be traced to the 20th Amendment, which transferred what little power one of the most popular prime ministers of the country held to the most no holds barred president this country has seen since 1977. The Amendment signified more than just a consolidation of presidential power: it symbolised a transition from the left-populist faction of the SLPP, milling around Mahinda, to the Viyath Maga Eliya (VYE) politico-military-corporate faction, centring on Gotabaya.

The Sinhala nationalist vote – the main vote that counts, for both sides – has traditionally been limited to the heartland of the south: Rajapaksa territory. Yet as the elections of 2019 and 2020 showed clearly, the SLPP, thanks to the VYE coterie, managed to woo and win over the Kelani Valley middle-class while cutting into the UNP-SJB’s traditional base: the Catholic belt. In other words, a party that canvassed votes outside Colombo found itself winning by massive, even unexpected, margins from electorates along the suburbs of the capital.

In doing so, it achieved what Chandrika Kumaratunga did in 1994: a defection of Colombo’s corporate class – a class now involved in the SLPP’s economic programme – from a dying UNP to a more Bonapartist outfit. As with Bonaparte, the upper bourgeoisie opted for the younger Rajapaksa; they chose to see him as their salvation, discarding the old compradore class now split between the UNP and a section of the SJB. Comparisons with Napoleonic France don’t end there, incidentally: Rajapaksa’s November 2019 win happened almost exactly 170 years after Louis-Napoleon dismissed the Royalist Ministry, and 220 after his uncle took power as the country’s First Consul. Who says history has to occur only twice?

Once you see in the coalition an unwieldy mix of corporate heavyweights and trade unions, of estate owners and estate workers, it’s easy to understand the contradictions that make up the government’s economic policies, both in the short run and the long.

What are these policies? In a recent interview with the Daily Mirror, Mr Kenneth de Zilwa (a capital markets expert, business cycle economist, and member of the Monetary Policy Consultative Committee of the Central Bank) makes a convincing case against conventional economic theory: that money printing leads to inflation, that trade must be based on comparative advantage, that neoclassical economics promote growth, and that we must look up to the IMF. In other words, the choice is between letting consumer imports flood the economy, and gearing the economy towards local production; no two guesses for which of these alternatives Mr De Zilwa, and I, prefer.

If this is the underlying philosophy of the regime’s economic programme, then all I can say is, it’s about time. As the history of monetarist theory, comparative advantage, neoclassical economics, and Bretton Woods financing – IMF and World Bank – shows well, there is and has always been a rift between precept and practice with regard to conventional development paradigms: what you read in theory isn’t what comes out in implementation. De Zilwa is therefore correct: we need a new macroeconomic framework, home-grown and free of import rent-seekers. (I can safely say this is the first time I have read an economist refer to “import industry rent-seekers” critically.) That is the reset we should opt for.

And yet, however laudable such a reset may be, one thing keeps it from seeing the light of day: the class contradictions within the SLPP. In a context where policymakers allied with the current government want it to deviate from conventional paradigms and affirm policies that are geared towards domestic industries and markets, how practical would “home-grown” solutions be when the government has wooed, and won over, the same import rent-seeking conglomerate class – the same class that overwhelmingly voted the yahapalanists to power years ago – opposed to such policies? To invoke a metaphor of my own, how can you fight the lion when the lion’s in the den with you, and the meat’s in your hands?

If must, of course, be noted that the pandemic has, for a moment at least, brought all these contending classes together. This is nothing to be surprised at: in times of major recessions, corporations do not necessarily oppose state intervention. They didn’t oppose it in the US in 2008, and they haven’t done so in other countries implementing tough measures to ward off the fallout of the virus. The fact that the country’s corporate upper class has gone quiet over policymakers invoking local industry, despite its dependence on import-driven consumer-led growth, should hence point at how depressions tend, in the short term, to dampen corporate opposition to state intervention.

The time bomb will start to tick once recovery kicks in. For obvious reasons, we will not be seeing that for some time – two years in the least, if not four – but when we do, I won’t be the first to wager that despite the government’s laudable position on local industry, it will start to see its most fervent advocates from the corporate sector turn to the other side if it continues to indulge in anti-rentier rhetoric. In other words, in the short run we’ll see an alliance between the interventionists and the importers, and in the long, we’ll see a rupture.

As far as the regime’s policy of “localising” and “domesticating” the economy is concerned, then, the solution would be to go full speed ahead, setting up factories, shifting from light consumer goods to heavy capital goods, establishing an industrial ecosystem linking different parts of the economy, and orienting ourselves to production, and not just trade.

The sooner it does this, the better it will handle the clash of interests between the advocates of going local and the opponents of going local. That is not going to be easy, for in co-opting a corporate class, the regime co-opted the biggest obstacle it has in seeing through what may be the most ambitious set of reforms since 1970-1977. The government should hence ensure that not even its most powerful backers prevent it from enforcing them. Put simply, it can’t afford to appease those backers. Not in the short run, and certainly not in the long.

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Twenty-five years of private sector-led renewable energy development



by Dr Tilak Siyambalapitiya

A policy change in 1995 to allow private investments in electricity generation into the grid, a standard agreement and a standard price for electricity produced, enabled such investments to pick-up faster than in other countries. The first mini-hydro power project with entirely private sector funding and private ownership commenced operations in May 1996.


The agreement and the price

Dubbed the “most investor friendly agreement in the world”, Sri Lanka’s renewable energy developers were offered, since 1996, a non-negotiable 15-year agreement (20-years for projects signed after 2008). The agreement says, literally, “I will buy all your electricity produced for the next 15 years, any day any time; I will not penalize you for delays in your project or for not producing electricity at all or producing less electricity than you promised; I will not ask you to start or stop your power plant”. There is no other agreement in the business world 25 years ago or now, where such agreements are offered to a seller.

Then the price. The agreement carries a price, which too is not negotiable. It says: “I will pay you a price that reflects the fuel saved in major power plants; in case fuel prices go down, I will not drop the price below 90% of the price when you signed; if the fuel prices go up, I will keep on increasing the prices without any limit”.

I shall buy all your all your product at the following price for 20 years. If you do not produce too, even when I need it badly, I will only greet you with a smile !

Government procurements have to be on competitive basis. This policy of competition was further reinforced by the Electricity Act 2009, required to be implemented by the Public Utilities Commission (PUCSL). The legal validity of such renewable energy agreements and price offers, that make a mockery of rules of “competition”, has been debated in many quarters over the past 25 years.


Has it been good ?

Well, yes and no, depending on whom you speak to and your convictions. To the credit of the program, Sri Lanka’s renewable energy development accelerated after 1996. These are smaller power plants using hydropower, wind, wood and more recently, waste. If the government attempted to develop them through a state entity, excessive overheads and inefficiency would most likely creep-in. There would have been a politically appointed Chairman and a fleet of vehicles going up and down, to run a tiny minihydro.

On the other hand, had the state rigidly controlled what is developed and where, renewable energy projects developed would have been more efficient, well-engineered and certainly more environment friendly. Stories are many, where a private mini-hydro project agreed with the Central Environmental Authority to release water for downstream users, but later blocked it 100%. As the saying goes, “Sri Lanka’s streams and rivers are now flowing in tubes”, but we are proud about a vibrant renewable energy industry !

Renewable energy from such smaller private investments reached 1% of total in year 2000 and 4% by 2006. Buoyed by another policy change in 2007 that offered a contract for 20 years and an even more attractive prices, renewable energy from small power plants raced toward a 10% policy target for 2015. It reached the target indeed, with 11% of electricity produced in 2015 from the combined production in 147 minihydros, 15 wind and 3 each of grown biomass, wood waste and solar parks. Unlike many countries who make headlines by stating their renewable energy contribution in megawatt, Sri Lanka’s targets and achievement are stated in kilowatthour, honestly reflecting the true benefits to save fuel and to reduce emissions.

Continuing its race for development, by 2020 (provisional figures) electricity produced from smaller private renewable energy power plants reached 12%. Adding major hydros, the energy share from all renewable energy was 37% by 2020, a share unmatched by all countries and expatriate Sri Lankans that preach Sri Lanka on how to develop renewable energy.


Has the price been good to the investor?

The policy of paying renewable energy projects signed over 1996-2016 was to pay the value of fuel saved in the grid, calculated and published in advance every year. Agreements signed after 2007 enjoy an even more attractive pricing formula: a technology-specific, cost-reflective price. That means minihydros are paid a price to make that a profitable investment; wind power is paid to make that technology, a profitable investment.

Once signed, price paid does not change. If costs go up or down after signing, or bank interest rates go up or down, the price remains the same. Fortunately for all who signed in 2008-2009 or later, equipment costs and bank interest rates both have been on a downward trend. Projects that borrowed at 18% in 2018 possibly borrowed at 8% this year, but still enjoy the price paid calculated at 18% interest. By way of equipment costs, solar power has seen the deepest reduction in costs. More on that later.


What was the benefit to the public?

Why did the government offer such attractive rates and terms to private investors? Sri Lanka did not throw Rs 10 at renewable energy investors and say “do it if you can”. The key principle in the pricing policy was: price paid makes investments profitable (not just profitable but excessively profitable). The agreement still remains the “most investor friendly agreement” in the world.

In other words, the public of this country, through their electricity bills and through taxes, have paid for the investments, bank interest, and profits (above market rates), to make privately-owned renewable energy an excessively profitable venture. Other benefits of renewable energy need not be repeated here; they are all well known. So what is the benefit to the public who fully paid (and continue to pay) for these investments, of which the ownership is private?

It should be the longer-term benefit of cheaper renewable energy. That’s why the 2008 announcement on the revised policy said as follows: “Renewable energy, which is a natural resource, belongs to the State. Developers are provided with a high tariff to cover their expenses and to earn reasonable profits for an adequately long period (in this case the first fifteen years). Thereafter, the benefit of the resource should flow to the electricity customers, while continuing to provide an operating fee to the small power producers and full recovery of maintenance costs”.

The closest example is the CEB-owned fleet of hydropower plants, which are bigger. The familiar ones are Laxapana, Kotmale and Victoria, among a total of 15 power plants. The public of the country paid for those too, starting from 1950. How? Through electricity bills (because loans and government investments were apportioned between CEB and Mahaweli Authority), taxes and benefits foregone. The major hydros today produce at a cost of Rs 3.35 per unit of electricity. True, that except for Upper Kotmale, all are 20 years or more of age. The fleet of minihydros, too, as they mature into their contracts, after 15 years of good profits to investors, should deliver benefits to electricity customers. That’s why the 2008 announcement said: Therefore, once the developers’ costs and profits are paid, it is inevitable that in the long-term, renewable energy should flow into the national grid at prices significantly lower than the cost of thermal energy.

However, information published indicates that the principles on which small power producers were enabled in 1996 and then enhanced in 2008, are indeed being followed. CEB produces electricity from mature hydros at Rs 3.35 per unit (PUCSL assessment 2019). The price for mature hydropower in the private sector was Rs 5.38 per unit (CEB publication 2019), precisely following the principle of fairness: good profits to investor for 15 years, benefits to electricity customer in the longer term.

As more and more minihydros mature, later wind, biomass and solar projects mature, we should be seeing finally, that ALL renewables produce electricity at prices very significantly lower than all the alternatives. Renewables replace thermal power and we should be paid the same price, will not be an argument, now or then, or in the future. “My power plant is not so good, it does not have water, is not an argument”, because no one defined where to build the minihydro; the investor selected it.

The argument that private renewables can produce below the price of oil, gas or coal does not hold, then, now or in the future. Renewables were allowed because fossil fuels were expensive and bad. The price of fossil fuels comprise royalties, production and delivery costs. If one needs a comparison, royalties for renewables have to be paid to the “republic” (the treasury) and production costs paid by electricity customers. Since royalties are not charged for renewables, both CEB and private, then renewable energy prices should be compared only with production costs. The investment has already been fully paid by the republic.

I conclude with a quotation from the 2008 announcement: “Small power producers opting not to migrate to the new agreement by 30th April 2008, will be offered the tier 3 tariff announced for the relevant technology in the year in which the existing agreement expires, after its full tenure of 15 years is completed”. That means, retiring minihydros should be offered prices in the range of Rs 6 per unit.

It is yet to be seen whether the PUCSL and consumer rights groups are willing to fully and comprehensively understand the issue, step-in, and ensure that “renewable energy belongs to the republic”, as stated in the Sri Lanka Sustainable Energy Authority Act 2007.

The country’s streams are now flowing in tubes, but do benefits flow to the public who have fully paid the investors with profits?

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Danger of disregarding Geopolitical Realities



Negotiating Agreements for Foreign Investments:

By Dr. S.W. Premaratne

Foreign Policy decision-maker, of a state, have to take into consideration the prevailing geopolitical environment of the international system, and of the region concerned, at a given time, when there is a foreign policy aspect involved in the decision that has to be taken regarding any issue Omission, or failure to give consideration to this aspect of the issue, can lead to disastrous consequences. Several examples from the recent political history of Sri Lanka can be given to illustrate this point.

Sri Lanka’s conduct of foreign policy, in the 1980s, is a clear example of the serious consequences of ignoring India’s concerns regarding Sri Lanka’s pro-West tilt in its foreign policy. Sri Lanka’s declared policy was non-alignment in maintaining relations with other states, specially the Big Powers in the West and the East. However, the J.R. Jayewardene government, that came to power, in 1977, sought to develop a closer relationship with the Western countries, led by the USA. The nature of the interactions between the diplomats of the USA and Sri Lanka, at the time, had given the impression to India that Sri Lanka was seeking the assistance of the USA for suppressing the Tamil militant movement in Sri Lank, fighting for the rights of the Tamil community. There were also reasons for India to suspect that there was an understanding between the Sri Lankan Government and the USA to allow the Trincomalee harbour to be used by the USA. It was this perception of India that Sri Lanka was following an anti-India foreign policy, endangering the security of India that motivated India to intervene militarily in the year 1987 to thwart the progress of the Vadamarachchi operation, aimed at militarily defeating the Tamil militant movement.

After aborting the progress of the Vadamarachchi operatio, the Indian government proceeded to compel the Sri Lankan Government to sign an Agreement – the Indo-Sri Lanka Accord of July 1987 – to ensure that Sri Lanka respected India’s security concerns and other interests when seeking assistance from outside Powers for Sri Lanka’s economic development or national security.


India’s concerns regarding China’s excessive involvement in Sri Lanka’s development projects

Sri Lanka’s political leaders and diplomats, whenever they get an opportunity, express their affection for their Big Brother, India, and express the need for further strengthening the friendship for the mutual benefit of both countries. India’s perception, however, is that, especially after the change of government in 2005, there is an evolving special relationship between Sri Lanka and China posing a serious threat to the national security of India.

Sri Lanka felt intensely isolated from the international community after adopting the Resolution A/HRC/46/L. Rev. 1 against Sri Lanka, at the UNHRC, in Geneva, in March, 2021, especially because India also decided to support the core-group indirectly by abstaining from voting.

The only consolation for Sri Lanka now is China’s expression of willingness to further strengthen its strategic relationship with Sri Lanka by extending further development assistance to Sri Lanka, within the framework of the Belt end Road Initiative. Subsequent to a telephone conversation between the two leaders, the President of China and the President of Sri Lanka, in a statement issued by the Chinese Embassy in Colombo, on March 30, 2021, it was stated that “China attaches great importance to the development of bilateral ties and stands ready to work with Sri Lanka to determine the strategic direction and achieve steady growth of the relationship. China stands ready to steadily push forward major projects, like the Colombo Port City and the Hambantota Port, and promote high quality Belt and Road Co-operation, providing robust impetus for Sri Lanka’s post pandemic economic recovery and sustainable development”. China projecting Sri Lanka as an intimate partner of the Belt and Road strategy indicates that Sri Lanka is distancing itself from the path of non-alignment and adopting an anti-Western and anti-India approach.

In the matter of obtaining foreign investments for development projects, Sri Lanka has failed to foresee the foreign policy implications of overreliance on China. The two massive development projects, initiated during the Mahinda Rajapaksa administration, which came to power in 2005, were the Hambantota sea port and the Port City Project in Colombo. The amount of money invested for these two projects, by China, was so massive that Sri Lanka happened to sign an agreement for permitting the management and control of the Hambantota Port by the state-controlled company of China, under a 99-year lease agreement. The Management and control of the Colombo Port City area also has been granted to the Chinese construction company, under a 99-year lease agreement. Not only India, but also the USA and other Western countries have expressed serious concern regarding the involvement of China in strategically significant massive development projects in Sri Lanka. India’s perception now is that Sri Lanka is an aircraft carrier of China, stationed in the Indian Ocean, close to India. Hambantota Port is viewed as another pearl in the string of pearls maintained for containing India by China.

India is also concerned over the lack of interest on the part of the Sri Lankan Government to go ahead with the development projects regarding which agreement had been reached with India, during the Sirisena-Wickremasinghe coalition government. In May, 2019, a Memorandum of Understanding was signed by the Sri Lanka Ports Authority (SLPA), Japan and India proposing the development of the East Container Terminal jointly, Sri Lanka and Ports Authority retaining 51 percent shares. However, the present Government deviated from that understanding and decided to nominate one Indian investor, Adani Group, disregarding Japan. But, the attempt of the Sri Lankan Government to involve the Indian Company in this project by offering 49 percent of the shares of the ECT was thwarted by the trade union action of the port workers, supported by an influential section of the Buddhist priests and also a section of the ruling alliance. The Sri Lankan government had no alternative but to respond to the demand of the trade unions by getting the Cabinet approval for developing the ECT only by the Colombo Port Authority, without involving India or Japan.

India has also expressed concern over the attitude of the Sri Lankan Government concerning the development and management of the Trincomalee oil tank farm. The lower farm has been managed jointly by the Ceylon Petroleum Corporation (CPC) and the Indian Oil Corporation (IOC) via Lanka IOC Private Limited. The 2003 tripartite agreement signed by the Sri Lankan Government, LIOC and the CPC covers the entire tank farm. India is now concerned about the excessive delay in granting the Sri Lankan Government’s approval for commencing the development of the Upper Tank Farm, comprising 84 tanks.

Another joint venture, regarding which Sri Lanka sought the involvement of India’s Petronet LNG Ltd. Company, and also a Japanese investor, was the proposed liquefied natural gas LNG terminal that was to be set up near Colombo. Although Indian and Japanese Investors had indicated their willingness to join this project, as partners, the Sri Lankan Government has not yet given its final approval for commencing the construction work.

India is also very much concerned over the lack of progress in the reconciliation process initiated after the end of the war. India’s concern in this regard was expressed very effectively and in very clear language in a statement made by the Indian Foreign Minister Jaishankar in the course of a media conference during his two-day visit to Sri Lanka in January, this year. In his statement the Indian Foreign Minister said: “As we promote peace and wellbeing in the region, India has been strongly committed to the unity stability and territorial integrity of Sri Lanka. Our support for the reconciliation process in Sri Lanka is long standing as indeed for an inclusive political outlook that encourages ethnic harmony. It is in Sri Lanka’s own interest that the expectations of the Tamil people for equality, justice, peace and dignity, within a united Sri Lanka, are fulfilled. That applies equally to the commitments made by the Sri Lankan Government on meaningful devolution, including the 13th Amendment to the Constitution”.

Sri Lanka should not consider that India’s interest and involvement in the post-war reconciliation process as a case of a foreign country intervening in the internal affairs of Sri Lanka illegally. India is guided by a mindset that there is a moral responsibility on her part to intervene and bring about a final settlement to the conflict in Sri Lanka.


Colombo Port City Economic Commission

Colombo Port City Economic Commission Bill which was challenged in the Supreme Court, purported to establish an Economic Commission for the administration of the Port City, built by a construction company of the Chinese Government, adjacent to the Colombo Port. This Bill seeks to grant extensive powers to an institution called the Colombo Port Economic Commission, whose members will be appointed by the President of Sri Lanka. According to the provisions in the Bill, the supervisory power of the Parliament of Sri Lanka has been excluded, both regarding the manner of exercising the powers granted by the proposed legislation to the Commission, and also regarding the selection of persons to be appointed as members of the Commission.

Moreover, regarding the activities that take place within the Colombo Port City area, some institutions of the Government of Sri Lanka are excluded from exercising their authority. Dr. Wijedasa Rajapaksa, in his written submissions submitted to the Supreme Court, in connection with the petition filed challenging the Bill, makes specific reference to the Customs Ordinance. He gives the warning that there may be importation of prohibited substances such as drugs, weapons, etc. He points out that in the event of any violation of International Treaties and Conventions, within the Port City area, it is not the Commission but the Sri Lankan Government that is responsible.



In view of the intense power struggle between China on the one hand and India and other partners of the Quad, led by the USA on the other hand, for dominance in the Indian Ocean area, the Parliament of Sri Lanka passing legislation for permitting such a high degree of autonomy to an administrative authority that can be controlled by the Chinese government will be considered by India as a serious threat to its security. This pro-China foreign policy orientation will also be an obstacle for Sri Lanka to promote friendly relations with democratic countries in the West determined to thwart Chinese domination in the Indian Ocean region.



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The Philippines and SL combine



Singer Suzi Croner (Fluckiger), who was a big hit in this part of the world, singing with the group Friends, continues to make her presence felt on TNGlive – the platform, on social media, that promotes talent from all corners of the globe.

She made her third appearance, last Saturday, May 1st, but this time she had for company Sean, from the Philippines, who, incidentally, was in the finals of The Voice of Switzerland 2020.

Their repertoire, for TNGlive, on the evening of May 1st, including hit songs, like ‘Something Stupid,’ ‘Let Your Love Flow,’ (Sean), ‘If You Can’t Give Me Love,’ ‘Your Man,’ (Sean), ‘Crazy,’ ‘Great Pretender,’ (Sean), ‘Amazing,’ and ‘Stand By Me.’

It was a very entertaining programme, and Sean certainly did prove why he needed to be a finalist at the prestigious The Voice of Switzerland 2020.

You can take in the TNGlive scene, on a regular basis, by joining the Public Group TNGlive, on social media (Facebook).

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