Govt. caught up in vicious circle over coal deal with US sanctioned company

The Sri Lankan government has been caught up in a vicious circle of best trade practice violation over its coal procurement contract continuation with a Dubai-based supplier which is under US sanctions.

This was the result of Lanka Coal Ltd, a state-owned entity’s ongoing purchase of coal for the period of 2022-2025 for Lakvijaya Power Plant in Norochcholai from Black Sand Commodities FZ LLC, a company under sanctions by the Office of Foreign Assets Control (OFAC) of the US, official documents exposed.

Lanka Coal Ltd has not only persisted in its engagement with the sanctioned company but has also initiated transactions with a proxy company, Potencia FZ LLC, in an attempt to sidestep the sanctions, it revealed.

This manoeuvre, coupled with the unloading of two vessels and the completion of payments to these entities, has placed Sri Lanka in direct violation of OFAC regulations, several legal experts said.

“Such actions threaten not only the international standing of our nation but also expose the government of Sri Lanka, including the highest offices such as the President, Ministers, and the Attorney General, to severe liabilities” one expert warned.

This situation is no longer just a potential risk but a glaring reality that could significantly impair Sri Lanka's diplomatic relations, economic health, and the trust of international partners.

The implications of these OFAC sanction violations are profound, risking not only global disrepute but also the financial stability and future prospects of the nation, they pointed out

Presently, this company is in the process of supplying a total of 2.25 million MT through 38 coal shipments at an index-based rate of US$124 per MT.

The Auditor General’s Department had announced that the coal procurement process that had been followed when awarding the tender to the Black Sands company had not been in line with the government’s tender procurement procedure guidelines.

As such, the Committee on Public Finance headed by Dr. Harsha De Silva has recommended to suspend all the officials involved in the coal procurement procedure for at least one year.

Black Sands Company had already unloaded 24 shipments and was awaiting the arrival of 14 more by April 30. Out of these, seven shipments would arrive shortly, a senior official of the Lanka Coal Company Ltd said.

It has called bids for a fresh tender for the coal procurement for the years 2024/2025 and 2025/2026.