Kerawalapitiya power plant project delayed by blatant tender manipulations
For 18 months, haggling by powerful parties backed by political interests has held up an urgent electricity project that should have been up and running by January next year. The well- publicised showdown over the 300mw Kerawalapitiya power plant offers an insight into how tender processes in Sri Lanka, even when they are open competitive bids, are blatantly manipulated. The contest has narrowed down to two parties-- the Ceylon Electricity Board ( CEB) affiliated LTL Holdings (Pvt) Ltd and China’s Golden Concord Holdings ( GCL) with its local partners WindForce & RenewGen.
While GCL has been recommended as the most responsive bidder, the AntiCorruption Front (ACF) has complained to the Bribery Commission that the tender was fixed by the Secretary to the Ministry of Power and Energy BMS Batagoda. The Secretary, meanwhile, has written a 10- page letter to the Procurement Appeals Board (PAB) supporting GCL's tender.
A third failed consortium comprising Samsung C&T, Korea Midland Power Co (KOMIPO) and GS Energy also recently went to the PAB opposing the recommendation of the Standing Cabinet Appointed Procurement Committee (SCAPC) to award the tender to it said, LTL subsidiary Lakdhanavi.
What is clear is that parties to this process-- including members of the Technical Evaluation Committee (TEC), SCAPC and selected bidders-- have an incestuous relationship that has made a mockery of the confidentiality that is a prerequisite of any fair and equitable tender.
“The TEC and SCAPC seem to be leaking like sieves,” said a procurement specialist. “Both GCL and LTL have used their political and institutional muscle so much that this can never be seen as a clean process.”
Dr Batagoda’s letter to the PAB also documents how interference and lobbying takes place. “During this tender evaluation, M/ s Lakdhanavi Ltd has sent various letters to the CCEM ( Cabinet Committee on Economic Management), Hon Prime Minister, SCAPC, and the Ministry making many representations,” he points out. “This delayed the whole process of tender evaluation.”
“M/s Lakdanavi also sent legal opinion from their lawyers during the tender evaluation,” Dr Batagoda continues. “This indicated Lakdhanavi is getting inside information during the Tender evaluation from members of the TEC, SCAPC or from any other agency. SCAPC also entertained some of these letters. I, as Secretary, objected to accept legal opinion from their Lawyer. But majority decision of the SCPAC prevailed.”
With demand fast outstripping supply, this power plant is an urgent requirement. Any shortfall is covered with costly emergency power. These delays, therefore, are a bounty to independent power producers who sell electricity to the CEB.
The Kerawalapitiya residual fuel oil (HFO)/liquefied natural gas power plant was to have been commissioned early next year. We are now looking at beyond 2020-- depending on when the tender is awarded ( it takes at least two years to build the plant).
In recent years, the norm has been to go for unsolicited, single-bid proposals. When the Kerawalapitiya HFO/ LNG plant went to tender in November 2016, therefore, the development was welcomed even by the CEB Engineers’ Union (CEBEU).
“As a union, we support the idea of doing this power plant through the CEB but the Government said it did not have suf ficient funds,” said Athula Wanniarachchi, CEBEU Executive Committee Member. “So our stand, then, is that it should be given out through a competitive bidding process. Even when we had issues with regard to the PUCSL ( Public Utilities Commission of Sri Lanka) and we were boycotting tender boards and TECs, we supported this project to avoid a power shortage in 2018-19.”
It was CEBEU members in the TEC who, along with others in the Finance Ministry, etc, who did the tender book. Nevertheless, the process was initially delayed by four to five months “due to the involvement of influential people”.
The first round saw the Samsung consortium, to its great chagrin, being knocked off. It subsequently complained to the PAB that it was the only bidder who qualified after the second stage of technical evaluation.
Documents seen by the Sunday Times confirm that the seven other bidders had not conformed to the minimum functional specifications. Significantly, their plants could run only on diesel even after gas became available at the facility (there would be no gas receiving station at the outset). It was a minimum requirement that the plant must be geared to operate on both liquid fuel and regasified LNG.
But the Korean consortium’s commercial proposal was disregarded “because of a really trivial document error”, Samsung claimed. At the opening of the financial bids in August 2017, the relevant CEB official was unable to access the pen drive that had been submitted by the consortium. And he refused to peruse the contents of the pen drive using the laptop computer of the consortium’s formal representative.
The Samsung bid, however, was also costly. The tariff was higher, a local agent said, because it included all the equipment. “Our price bid was not opened as they brought a dud computer,” this agent alleged. “It is dependent on a parameter called the heat rate. They have to open our bid to arrive at the price. Knowing all this, they sabotaged our bid and are now talking about prices and losses to the country.”
The Sunday Times has no independent verification that the Samsung bid was “sabotaged”. But as noted above there is confirmation, backed by the SCAPC, that it was the only technically qualified party.
Then, the SCAPC was disbanded on the instructions of the CCEM which is headed by Prime Minister Ranil Wickremesinghe. The Prime Minister claimed that the SCAPC had not acted according to the recommendations of the TEC. Procurement specialists again allege that changing a Tender Board during the course of an ongoing tender is political interference.
A new SCAPC was appointed with instructions now to open the financial bids of the other five bidders shortlisted by the TEC. This was, therefore, the second SCAPC and the second tender opening. Only Samsung had qualified for the first one.
In April 2018, the TEC recommended the award of the tender to Lakdhanavi. The SCAPC backed this decision. But when representations were called against the SCAPC opinion, GCL and Samsung submitted appeals.
At this stage, Dr Batagoda wrote his letter to the PAB saying he believes that the “financing of the Lakdhanavi proposal is highly risky”. “This project is already delayed for some time,” he says. “If the project is delayed further due to unattractive financing, the country has to face power crisis or rely on emergency power purchase.”
On the Samsung appeal, he states: “With regard to the state III evaluation of M/ s Consortium of Samsung C& T, KOMIPO and GSL Energy, it is true that out of 8 bids, only the appellant has qualified for financial evaluation according to the SCAPC decision. But the TEC has recommended 6 bidders including M/s Consortium of Samsung C&T, KOMIPO and GS Energy for appellant for financial evaluation. Finally, after many debates against the decision of SCAPC, the SCAPC decision was accepted disregarding so many pressures against the decision to open the bid only of M/ s Consortium of Samsung C&T, KOMIPO and GS Energy.”
The Secretary, therefore, is alleging there was pressure also to accept the Samsung bid--a veritable free-for-all.
And the matter does not end there. ACF has complained to the Bribery Commission that Dr Batagoda had from the start conspired to have the tender awarded to the Chinese GCL company. It states that the main obstacle to this plan was Lakdhanavi as it had bid a lower price per unit of electricity than the GCL consortium had. “Because of a difference of one rupee, the CEB would have to spend an addition of more than Rs 2bn per year,” it claims, in its sprawling submission.
“We are not getting into this argument,” said Mr Wanniarachchi. “The two parties are complaining against each other and there are merits and demerits on either side.”
“The big picture is that we want projects through competitive bidding,” he continued. “Otherwise we will be forced to go for government- to- government deals which are not really government-to-government but contracts with independent power producers from those countries which should come under competitive bidding processes.”
The big picture also is that these tender processes are hugely compromised in Sri Lanka, even when they are “open”. The names of Ministers--interested parties--are being openly cited. Those who know, it is said, know. If the project is delayed now it is because of these people trying to rig the process for favourites.
The Government has now appointed a Cabinet Procurement Committee to re-evaluate the process. It will make its recommendations shortly.
“The end result is that a project already behind schedule will be further delayed,” said one of the procurement specialists earlier quoted. “Whichever way the Cabinet decides to award this, irrespective of the party, it will continue to leave a permanent stench of corruption and irregularity attached to it.”