Jul 19, 2021

Lakvijaya: CEB signed multimillion dollar deals with Chinese company without cabinet approval Featured

The Ceylon Electricity Board (CEB) has signed “operation and maintenance advisory services” (O&M) contracts worth around US$ 67mn–amounting to Rs 13.3bn at prevailing rates–with China Machinery Engineering Corporation (CMEC) in the ten years since its commissioning of the Lakvijaya power plant, some of them without prior Cabinet approval, authoritative sources said.

The CEB is unable to settle around US$ 20mn (Rs 4bn) of these contracted amounts since it had not obtained Cabinet’s approval for several contracts signed with CMEC since 2017, they added. A Cabinet paper is due to be presented shortly to obtain covering approval for the payments.

CMEC, which built all three units of the Lakvijaya coal power plant in Norochcholai–a total of 900mw–was working with the CEB to construct a fourth 300mw coal power unit without tender. The CEB set up a project management unit, hiring lawyers and financial experts to prepare documents.

But even a decade after Lakvijaya was commissioned as a plant fully owned and operated by the CEB, Chinese workers are assisting with operation and maintenance, the sources said. The contracts were signed between the CEB and CMEC at different times since July 2011, when the first 300mw unit was handed over.

“Chinese nationals have also continued to work at the plant providing these O&M services for nearly 10 years since the commissioning of the plant, despite many CEB engineers being given extensive overseas training on the operation and maintenance of this plant,” a source pointed out.

CEB signed the first six-month contract with CMEC in December 2011 for around US$ 3mn (Rs 600mn). Cabinet approval was obtained claiming that several shortcomings and defects remained after taking over the plant. There were multiple media reports regarding repeated breakdown.

In the agreement, CEB agreed to pay the Chinese employees monthly salaries (including CMEC profit and overheads) ranging from US$ 16,000 (Rs 3mn) for senior managers to US$ 6,500 (Rs 1.2mn) for technicians. There were also several Chinese translators who had worked full time as part of the expatriate team. But even after the first contract expired, the CEB continued to employ “hundreds of Chinese personnel at the plant without formal approval”.

In April 2017, the Power and Energy Ministry obtained Cabinet approval for CEB to pay CMEC about US$ 47mn (Rs 9.3bn) for O&M services for the period May 2014 to August 2017. This included payments owed by CEB to CMEC for five separate contracts valued at US$ 6mn (Rs1.1bn), US$ 24.7mn (Rs 4.9bn), USS 5.6mn (Rs 1.1bn), US$ 7.4mn (Rs 1.4bn) and US$ 3.3mn (Rs 656mn). Amounts up to August 2017 have been settled.

But the CEB continued to employ CMEC personnel on two-year contracts even after August 2017 without Cabinet approval, the sources said. The Government Procurement Guidelines mandate the CEB to obtain prior Cabinet sanction to sign these contracts upon being recommended by a Cabinet-appointed tender board.

“However, the CEB Board has signed two agreements worth US$ 4.6 million (Rs 915mn) and US$ 8.4mn (Rs 1.6bn) and another agreement worth US$ 6.7mn (Rs 1.3bn) in 2019 (by the present Board) with no Cabinet approval,” the source said. “The Chinese company is now negotiating the next two-year contract with the CEB for the period beyond October 2021.”

“The CEB has also increased the rates payable to Chinese personnel from time to time, and also agreed to pay 12 percent interest as delay charges,” the source revealed.