Probes: Questions n VIPs of rival parties
Anded by President tutional Council, Sticky issues remain over China-backed Hambantota Port project; new controversy over China-backed irrigation projects also; how will Beijing respond?
Development Strategies and International Trade, lists six different areas as “critical.” The paper describes them as “sticky issues.” The emergence of a final draft (in addition to other related documents) will hinge on resolving the issues. Here are those issues: China is insisting that there should be a restriction on development of any other facility within 200 kilometres from the perimeter of the Hambantota Port. This new condition, which was not part of their original Project proposal for the first draft of the Framework Agreement “pushing them to agree to exclude Colombo, Galle and Oluvil Port development.” It says that China’s main concern is possible development in Galle, which may impact Hambantota. The Minister of Ports and Shipping (Arjuna Ranatunga)/Sri Lanka Ports Authority (SLPA) insists upon port security, “quoting the SLPA Act and concerns over National Security.” The note points out that “the real reason may be jobs and trade union issues. There is no rationality in the arguments presented by SLPA and hence needs to get them to agree for the Security to be provided by the JV (Joint Venture).” The SLPA/Minister of Ports and Shipping speak of a Concession period of around 45-50 years, while Chairman, SLPA (the Minister’s brother) insists on 99 years, with provision for further extension of 99 years. The latest draft of the Framework Agreement only states 99 years, with provision for extension, on mutually agreed terms, without a specific period. If this is accepted by the Chairman, Port, the only remaining issue would be getting the Minister of Ports and Shipping (Arjuna Ranatunga) and the SLPA (Dhammika Ranatunga) to agree to the same term. Harbour Tonnage – SLPA and the Minister of Ports and Shipping insist that the Harbour Tonnage (a fee levied by a Port based on the size/capacity of the vessel, when she enters a Port) should be collected by the SLPA, being the Owners of the “Port” (believe that Hambantota is a national Port declared under the SLPA and only the assets, except the land, which is leased, would be vested on the Joint Venture) and agree to be responsible for maintenance of the breakwater, turning bay, entrance channel and associated facilities. However, this is a critical aspect for operational efficiency of the Port, wherein the operation of the Port will be severely impacted, in the event the facilities are not up-kept and brought in line with the types of operation the Port is to perform. Further, the investment that were spent on creating all such facilities are to be vested on the Joint Venture, pursuant of the Debt-to-Equity swap. Hence, the argument from Chairman, Port is that such revenue and associated up-keeping should be the responsibility of the Joint Venture, which is fair and rational. Requires, obtaining the consent from the Minister of Ports and Shipping and the SLPA. Pilotage – As per the Pilots’ Ordinance and the Master Attendant’s (Harbour Master’s) Ordinance, the Harbour Master and the Pilot, play a dual role of regulator and the service provider (piloting) for a vessel. Minister of Ports and Shipping/SLPA is of the view that this role/function should be with the SLPA. Again, this is a matter extremely critical for operational efficiency of the Port. Hence, the Chairman Port is of the view that the Pilot should be under the operational control of the Joint Venture, while having independent and direct reporting system with regard to regulatory function. Chairman Port is agreeable, for the time being, to do things as currently done by Magampura Port Management. Consultancy (MPMC), where the Pilots assigned from SLPA function under the direction of the MPMC. Chairman Port is ready to re-imburse the actual cost for providing Pilots by SLPA. Short-term, this arrangement may be acceptable, but going forward the relevant Ordinances may have to be amended. Requires, obtaining the consent of the Minister of Ports and Shipping/ SLPA. Royalty – The Minister of Ports and Shipping/SLPA insists on a royalty payment (quoting China Harbour proposal which contained such royalty payments). Chairman Port is ready to discuss this on a revenue sharing basis, once the Port utilisation reaches a mutually agreed level. This may have to be agreed during the negotiation of the Concession Agreement. The note says that the provision of a condition to conclude all Transaction Documents (not contained in the Project Proposal), “seem to be a modus operandi to bring pressure on us to complete all documents, expeditiously.”
They include the Non-Disclosure Agreement, Shareholder Agreement, Joint Venture formation, Concession Agreement, Lease Agreement and Asset/ Liability Transfer, it adds.
It is not immediately clear whether the negotiations could be finalised for the agreement to be signed before January 7 next year. This is particularly in the light of the need to resolve the “sticky issues.” The development came as the Financial Crimes Investigation Division (FCID) began investigations into an alleged scam involving more than four billion rupees. President Sirisena told a meeting connected with a membership drive for the Sri Lanka Freedom Party (SLFP) that one billion rupees has been issued in 2012 by the Finance Ministry for the project. Thereafter, the Treasury had also issued more than three billion rupees in 2015. Sirisena said that not even a sod of soil had been dug for this Nilwala project. A Chinese company was involved in this project.
FCID detectives questioned two officials, one in the Department of Irrigation and another in the Ministry. Detectives say that China CAMCE Engineering Company Limited had been paid an advance of Rs. 40 million but the project had not got off the ground even after six months. Later, they say, a sum of Rs 2,972 million has been paid to the same company. There had been no agreement signed nor steps taken to forfeit the surety.
However, a Cabinet Memorandum submitted by Gamini Wijith Wijayamuni Zoysa, Minister of Irrigation and Water Management, dated July 7 provides a different version. It casts serious doubts on some of the claims. Here are highlights that underscore the contradictions:
“Although it has been proposed for a long time to provide water to Hambantota area by constructing large and medium scale reservoirs in upper reaches of Nilwala and Gin river basins, but such proposals could not be implemented during that era, by now, it has been unpractical to divert Gin-Nilwala water to Hambantota area through such reservoirs as the relevant river basin areas have undergone a huge development at present…..
“Since a large development has taken place in GinNilwala river basins at present, it was proposed to use tunnels as much as possible to minimise the damages to the environment and affecting the people, and this has resulted to make this Gin-Nilawala diversion project a complex as well as an expensive project. Thus, the Cabinet of Ministers approval has been granted in 2009 vide cabinet decision dated 26th November 2009 to sign an MoU with China CAMCE Engineering Company Ltd. to enter into an EPC contract to obtain monetary provisions required to launch this project.
“As per the MoU signed in 2009, the said company after having studied deeply on various water diversion methodologies for three years and paying much attention towards water diversion locations and transfer routes, prepared a feasibility report in 2012 to fulfil water requirements of Greater Hambantota development area by diverting water in Nilwala and Gin river basins…..
“The updated feasibility for Gin-Nilwala diversion was prepared in April 2014 including recommendations made by the line agencies of the EIA (Environmental Impact Assessment) study as Environmental Authority, the Forest Conservation Department, the Wildlife Department after conducting field inspections. Also, the TOR (terms of reference) for the EIA study for implementation of this project was issued in 2014 by the Environmental Authority, after conducting several discussions on the feasibility of these proposals with the line agencies and conducting field inspections.
“In parallel, an updated feasibility report was submitted to China CAMCE Engineering Co. Ltd. for further studies and to provide technical and financial proposals separately for an Engineering Procurement Committee and the Cabinet has approved to enter into a contract agreement worth US$ 690 million with China CAMCE Engineering Co. Ltd., vide the Cabinet decision dated October 10, 2014. Moreover, the relevant agreement had been forwarded to the Attorney General’s Department and their observations and consent were sent to the Ministry on April 4, 2014.
“Accordingly, the agreement was signed between the Ministry of Irrigation and Water Resources Management and China CAMCE Engineering Company for US$ 690 million on November 5. 2014….. With the understanding of providing these services from the contractor by paying five per cent of the contract amount as agreed upon of the EPC contract to the China CAMCE Engineering Co. Ltd., the amount of US$ 29,989,000 (approximately 4.35 per cent) has been paid, as part of the Advance Payment in three instalments on the days of December 31, 2014, January 6, 2015 and January 7, 2015 with the available imprest at the time.
“After the new Government took over in 2015, this project was reviewed by the Cabinet Sub Committee on Economic Affairs and several discussions were held to make clarifications in this regard between the subcommittee and the official committee on Economic Management……”
Minister Zoysa’s cabinet memorandum raises some pertinent questions. He sought approval to go ahead with the project with the same Chinese company. He sought the appointment of a committee of officials to negotiate with the company to split the contract in two stages. More importantly, he sought the approval of the Cabinet of Ministers to pay a balance of US$ 4,511 million to China CAMCE Co. Ltd. and sign an addendum to the contract agreement.
Sections of the Government believe funds for this project, said to have been issued in the form of a cheque from the Treasury, were allegedly utilised for the last election campaign. Investigators have so far found no evidence to confirm this. If indeed there were discrepancies, it is not clear why the issue was not raised in the Cabinet Memorandum and Ministers kept infomed. There is little doubt that some of the positions taken up by the Government are contradictory and some questions do remain. Main among them is whether money did change hands. If so, who received such funds?
It is at a time when a Chinese enterprise is to be awarded the contract for the Hambantota Port that another of Beijing’s companies has come under probe. That such a move will draw some response from the Chinese authorities is not in doubt.
This is whilst the Police Chief ’s telephone saga has raised serious doubts on whether the Government is serious about pursuing high profile cases related to bribery and corruption to its end. It is no exaggeration to say that eroding public confidence, in the wake of rumours of a nexus between those high and mighty in the political divide, have now become a fact.