Jan 01, 2017

Rs. 3.9 billion loss on coal tender, but ministry goes ahead with controversial deal Featured

The Auditor General’s Department will state in its report on a controversial coal tender that the deal had cost the Government billions of rupees in losses, authoritative sources told the Sunday Times.

The report is expected to be presented to Parliament and will reveal that the losses were in excess of Rs 3.9 billion. In June 2016, the Supreme Court held that the same coal contract awarded to Swiss Singapore Overseas Enterprises Pte Ltd was flawed and had “shocked the conscience of the Court”. It ruled that Lanka Coal Company (LCC), the Government’s procurement arm, may terminate the contract and call for fresh bids following competitive bidding procedure.

Despite this, Power and Renewable Energy Ministry has instructed LCC to place an order from Swiss Singapore for a fresh consignment of coal by January 7 this year. This is the date on which the purchasing of coal through spot tenders ends. Swiss Singapore will be called upon to supply 1.1 million tons of coal under its long-term contract with LCC.

For half a decade, procurement for the Lakvijaya coal power plant has been dogged by allegations of corruption and bid rigging. The last contract–for two million tons of coal–was awarded in July 2015 to Swiss Singapore by a Standing Cabinet Appointed Procurement Committee (SCAPC). But confidential documents which found their way into the public domain demonstrated that Swiss Singapore had secured the multibillion rupee deal by directly and illegally interfering with SCAPC’s evaluation process.

The Supreme Court held in its judgment that the SCAPC’s decision to award the tender to Swiss Singapore cannot stand valid in the eye of the law. It said act or decision made by SCAPC was outside its jurisdiction and, therefore, null and void for all purposes. It also said the Cabinet of Ministers had been misled.

But the Ministry maintained that the use of the word “may”–which is discretionary–in the Supreme Court ruling left it open to interpretation whether or not the contentious tender should be cancelled. Ministry Secretary Suren Batagoda sought an opinion from the Attorney General’s Department in this regard. The AG affirmed on July 18, 2016, that the Supreme Court “did not make any order/direction to cancel the impugned Agreement entered into between LCC and Swiss Singapore”.

The AG also advised the Ministry to apprise the Cabinet of these matters and possible legal implications which have arisen. He offered three options: Cancel the agreement forthwith after giving requisite notice and call for fresh long-term tenders; consider the more financially viable spot tenders; or call for fresh tenders to take effect after the existing agreement with Swiss Singapore expires on April 30, 2017.

Two meetings were subsequently held between the Ministry of Power and Renewable Energy, Swiss Singapore and LCC. The coal trader refused to consider a cancellation of the contract and or to reduce the quantity of coal bought under the contract. It had already committed with mine owners to buy the coal required by Sri Lanka, it said, also rejecting a discount on agreed prices. Swiss Singapore warned it would go for international arbitration if the tender was revoked.

In August 2016, the Ministry presented a memorandum to the Cabinet painting two scenarios. The Government could implement the agreement until its expiry in April 2017 (a few months down the line) and then call long-term tenders for coal procurement. Or it could cancel the agreement with Swiss Singapore, risking international arbitration.

It also said that, “If a minimum period of 3 months out of these 7 months is given for the company before the cancelation of the agreement, only a further 4 months’ period will remain. In unilaterally cancelling that 4 months’ period and going for international arbitration, a financial benefit is not foreseen.” The Ministry recommended continuing with the contract.

It remains unclear why the Ministry told the Cabinet that notice of termination was required three months in advance. The relevant section of the coal supply agreement seen by the Sunday Times states that it may be terminated by “giving thirty (30) days’ notice by either party”–a vital detail that Cabinet was misled on. Based on information provided by the Ministry to the Cabinet, the Cabinet Committee on Economic Management decided in October to continue with the Swiss Singapore agreement till its expiry and to call fresh bids thereafter.

Accordingly, LCC was notified in November 2016 that the Cabinet had granted approval to continue to procure coal under the supply agreement signed with Swiss Singapore until the final date of the contract.

But the coal deal is now the subject of a fresh Supreme Court challenge. In October, Journalist Subash Jayawardena of “Sathhanda” petitioned the Court saying the Cabinet had been misled several times regarding the coal tender, including in the Cabinet memorandum of August 2016. He stated that “grave financial loss will be incurred by the Government of Sri Lanka and its people if the Cabinet of Ministers does not have the benefit of the facts presented to them in a fair manner in order for the Cabinet to take an informed and well-considered decision”.

Among other things, Mr. Jayawardena requests the Court to direct the first respondent–Power and Renewable Energy Minister Ranjith Siyambalapitiya–not to submit to teh Cabinet any memorandum that “does not fully disclose all facts which would allow the Cabinet to make a well-informed and considered decision”.

(By Namini Wijedasa - sundaytimes.lk)