First the selection, now a 'showpiece' tender

Following last week's report on the pre-selection of Japanese companies for the construction of Section III of the Central Expressway, believed to be one of the most expensive road projects undertaken in recent times, Namini Wijedasa reveals more

The Government will float a two-week tender to allow three pre-selected Japanese companies to bid for construction of Section III of the Central Expressway, making a mockery of what was already a flawed bidding process.

The Cabinet Committee on Economic Management (CCEM) has instructed the Ministry of Highways to write to the Japanese Embassy in Colombo requesting the companies to submit fresh bids within a period of just two weeks, complete with bid bonds.

With its complicated terrain and land acquisition requirements, Section III of the Central Expressway is tipped to be one of the most expensive road projects undertaken in recent times. The CCEM, and subsequently Cabinet, approved for it to be constructed with concessional financing from the Bank of TokyoMitsubishi UFJ Ltd (BTMU).

According to official documents seen by the Sunday Times, the Government is to secure a yen loan equivalent of US$ 1 billion from BTMU for the project. The interest would be 0.95 percent above sixmonth Japanese yen (JPY) LIBOR. There would additionally be an insurance fee of 10.07 percent; an “arrangement fee” of 1.1 percent; and an annual fee of 0.25 percent, raising the total to about six percent above JPY LIBOR.

The BTMU observed that Japanese construction companies will enter into contracts with the Road Development Authority (RDA) for the project, as Japanese export credit was being offered. But instead of calling for open tenders, which would have ensured robust competition and choice of pricing, the Sri Lanka Government opted for limited tenders from Japan.

Such tenders are not advertised and other bidders typically do not know when they are floated. The Government claims that limited tenders are a prerequisite under the BTMU’s “tied loan” facility. However, the Bank did not lay down such a condition.

In May 2016, RDA Chairman N R Sooriyarachchi wrote to Japanese Ambassador Kenichi Suganuma requesting him to nominate “three (3) or more prominent & capable civil works contractors in order for us to receive detailed proposals to construct the 32.5km long, 4 lane two way expressway that passes through a terrain having complex topographic and geotechnical issues”. He also asked the Ambassador to nominate three or more “capable construction supervision consultants”.

On criteria that it has failed to make public, the Japanese Embassy selected Taisei Corporation, Penta Ocean Construction Co Ltd and Wakachiku Construction Co Ltd. The Embassy claims it followed recommendations from the Japanese Chamber of Commerce and Industry in Sri Lanka.

It is not clear why the Embassy did not ask the Overseas Construction Association of Japan which, with 50 members and 43 associate members, promotes international cooperation and construction abroad. A Japanese Embassy Spokesman refused to divulge information.

Furthermore, Penta Ocean Construction specialises in marine works and land reclamation, not road building. Wakachiku Construction has mostly been involved with bridge work in Sri Lanka. Neither company put forward a bid, despite having been nominated.

“This is not surprising, considering that their focus is not road building,” a senior official said, requesting anonymity. “These two companies were clearly smokescreen. They were not interested and were never going to apply.”

Taisei Corporation, in whose favour officials widely believe the tender is being fixed, did apply but without a bid bond. This led to their application being cancelled. A bid bond is issued by the contractor to the project owner as a guarantee that the winning bidder will undertake the contract under the terms at which it bid.

But now, “...Japanese authorities at the highest levels have forwarded a letter requesting that the third phase be awarded to a Japanese construction company and regretting the lapse on the part of the tenderer,” says a letter from E M S B Ekanayake, the Prime Minister’s Secretary, to the Secretary to the Ministry of Highways.

The Sunday Times learns that it was Japanese Prime Minister Shinzo Abe that had written to Prime Minister Ranil Wickremesinghe in this regard. Authoritative sources say that even this letter had not required the bids to be restricted to three companies; it only asked for “an opportunity for Japanese Contractors to participate in this tender”.

Again, without opening out the project to all Japanese construction firms, the CCEM chose for a tender to be floated for a mere two weeks. Officials believe that this is “to facilitate Taisei to make a bid”. “There is absolutely no budgetary allocation for this project,” an authoritative source said. “It lacks transparency.”

The Sunday Times earlier reported that the Government is in talks with China’s Exim Bank to fund Section I of the CE, which the contractor, Metallurgical Construction Company (MCC) of China, has now priced at Rs 158 billion or, Rs 12 billion more than originally stated. MCC has been awarded the contract without tender.

Section I runs 37.1 km from Kadawatha to Mirigama. At the current price, this translates to nearly Rs. 4.3 billion per km. Section II is to be parcelled out to local contractors. Section III is 32.5 km from Pothuhera to Galagedara in Kandy.