Central Expressway: Top Japanese team here to push through tender

A large Japanese delegation, headed by an adviser to the Japanese Prime Minister, was in Sri Lanka this week to push through a tender for the third section of the Central Expressway (CE III).

The visit came amidst reports that Fujita Corporation, the Japanese construction company which offered a lower bid to build the road, has been struck down by a tender evaluation committee on grounds that it was unqualified to implement such a massive project. Only the bid offered by another Japanese company, Taisei Corporation, is being studied. Taisei’s price is Rs. 159 billion while Fujita quoted lower at Rs. 147 billion.

With its complicated terrain and land acquisition requirements, the 32.5 kilometre CE III from Pothuhera to Galagedara is tipped to be one of the most expensive road initiatives undertaken in recent times.

The Sri Lankan Government had hoped to fund the project through a tied loan from the Bank of Tokyo- Mitsubishi UFJ Ltd (BTMU). But during discussions this week with the 20-member Japanese team, the Sri Lankan side-pushed to obtain more favourable terms from BTMU.

According to official documents seen by the Sunday Times, Sri Lanka was to have secured a yen loan equivalent of US$ 1 billion from BTMU. The interest was to be 0.95 percent above six- month Japanese yen (JPY) LIBOR. There was to have been an additional 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.

A STEP-- Special Term for Economic Partnership--loan under Japanese Official Development Assistance ( ODA) is now under consideration, sources said. Repayment is typically in 40 years with a 10- year grace period. Under the scheme offered by BTMU, Sri Lanka was left to come up with a gap of aboutRs 200 million. While a STEP loan can cover up to 100 percent of total project cost, what is being discussed for CE III is a combination of STEP and concessional financing, an authoritative source said.

Committees under the RDA are separately evaluating Taisei’s bid for the project. Fujita was rejected on the basis that it had not carried out a road construction endeavour of such magnitude in the recent past. It is not immediately clear, however, whether the other company qualifies under such criteria. But the odds were stacked in Taisei’s favour from the time bids were first entertained.

From the outset, the Highways Ministry eschewed transparent, competitive tenders for CE III. Under instructions from the Cabinet Committee on Economic Management (CCEM), it chose limited tenders from Japanese companies, saying this was a prerequisite to securing concessional terms from BTMU. Such tenders are not advertised and other bidders typically do not know when they are floated.

Then, instead of opening the project out to all Japanese firms, the Ministry requested the Japanese embassy to nominate contractors. The embassy came back with just three: Taisei Corporation, Penta Ocean Construction Co Ltd and Wakachiku Construction Co Ltd. It said they were recommended by the Japanese Chamber of Commerce and Industry in Sri Lanka but did not reveal selection criteria. 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.

In the first round, only Taisei Corporation submitted a bid. 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. But Taisei’s bid was rejected because it had neglected to submit the mandatory bid bond.

The Japanese Government expressed displeasure to its Sri Lankan counterpart at the cancellation of the bid, source said. Prompted by the CCEM, the Highways Ministry then wrote to the Japanese embassy requesting preselected companies to submit fresh bids within two weeks, complete with bid bonds. It was in this that Fujita Corporation and Taisei submitted proposals.

Meanwhile, the Central Environmental Authority confirmed this week that the Environmental Impact Assessment (EIA) report for the project has not yet been approved. “We have requested some information from the RDA (Road Development Authority) but we have still not received it,” a senior official said.