Energy Ministry likely to hand petrol pipeline deal to Chinese firm
Sources said the former managing director and chairman of CPSTL, Uvais Mohamed, resigned on December 21, after raising objections to giving the project to China Petroleum Engineering Pipeline Company Ltd., at an unnecessarily exorbitantly high cost.
The Energy Ministry, acting contrary to a cabinet decision and recommendations of the Finance Ministry, is preparing to hand over the cross-country pipeline project tender -- laying of new pipelines between the Kolonnawa terminal and the Dolphin Tanker Berth (DTB) Colombo -- to China Petroleum Engineering Pipeline Company Limited whose bid is more than US$21 million, the Sunday Times has learnt.
Although Ceylon Petroleum Storage Terminal Limited (CPSTL) officials have repeatedly said that by using their own engineers and workers and the expertise of the Ceylon Petroleum Corporation (CPC) they will be able to successfully build the cross country pipeline at a cost of US$14 million, the ministry has rejected it, authoritative sources said.
Between 2016 and 2018, CPSTL, using its own funds and workers, had laid a 12-inch diameter pipeline from Kolonnawa to the Colombo Port and it had cost Rs. 450 million or US$3 million only, the officials said. That was one fourth of the estimated cost.
Sources said the former managing director and chairman of CPSTL, Uvais Mohamed, resigned on December 21, after raising objections to giving the project to China Petroleum Engineering Pipeline Company Ltd., at an unnecessarily exorbitantly high cost.
Energy Minister Udaya Gammanpila had alleged that the former CPSTL chairman had been intentionally delaying the project and influenced him continuously to resign, the Sunday Times understands.
The estimate by the China Petroleum Engineering Pipeline Company Ltd., is US$35 million and the interest on the loan should also be included in that amount.
However, CPSTL officials emphasised that they could use high quality European products and complete the project for about US$14 million. They said further that it has been estimated that if they used Chinese products, it could cost US$8m.
On November 15, 2021, CPC Chairman Sumith Wijesinghe had wrote to the Energy Ministry Secretary saying, “If the peggable option cannot be collectively undertaken by CPSTL in-house team and local contractors, it is prudent to duly explain this lack of competency issue at the TEC {Technical Evaluation Committee} in detail. As CPC is having the capacity to provide the required technical knowhow in this regard. It is hereby suggested that CPSTL implements the project with the support of CPC to avoid spending a huge amount to achieve the final objective complying with the first option depicted under the observation made by the ministry of Finance.
“Further, CPC emphasises the fact that timely building of aforesaid pipelines in an economical manner in order to ensure the energy security of the country is of utmost important at this moment.”
The original project scope includes laying of pipelines, in sizes of 12 inches and 14 inches from the Kolonnawa terminal up to the DTB including the subsea component of the 12-inch pipeline connecting the DTB with the existing 12-inch short line.
On October 9, 2019, cabinet approval was given to award the project tender. The original project was awarded to the China Petroleum Pipeline Bureau (CPPB), subject to finding a suitable lending agency through the External Resources Department for financing under acceptable terms.
However, on October 30, 2019, CPSTL had informed CPPB that since the problem of funding had not been resolved, the agreement could not be signed. In the meantime, CPPB had changed its name to China Petroleum Engineering Pipeline Company Ltd., and it had been referred to the Attorney General.
Meanwhile, as a result of some other concerns, the original scope of the project had to be changed and due to all of these problems, the CPSTL board had decided on November 30, 2020 not to award the tender to the Chinese company. These concerns included:
The upcoming projects such as the LNG pipeline to boost the energy mix of the country and a dedicated Jet A1 (Jet fuel) pipeline between Muthurajawela to Katunayake would further reduce the need to transport petroleum products to the Kolonnawa terminal from Dolphin Jetty.
“We are not in any way satisfied with the performance of CPSTL and they continuously delayed the project. There is a subsea component in this and it is necessary. But CPSTL says that it is not required. They said so since they do not have the proper knowhow. They are going to get it through outsourcing. Then, one by one we will have at least 20-30 procurements. What the Chinese company will complete in one year might take two to three years for CPSTL.’’
With the proposed port expansion project in 2030 by the Sri Lanka Ports Authority, discharging terminal of the Dolphin Jetty, Colombo, will need to be moved to another place. CPC is building a new refinery, while upgrading the existing refinery. Therefore the need for importing of refined petroleum products may further reduce.
In this backdrop, the agreement was not signed and the project not implemented.
The Ministry of Finance recommendations are as follows: Assess the technical competency of CPSTL and completing the project using the expertise of CPSTL through a viable financing source.
Call for a fresh proposal from the Chinese company for the reduced scope, based on the unit price quoted in their initial financial proposal.
Call for fresh bids through an open competitive bidding process.
On October 9, 2019, the tender which had been awarded to CPPB had been cancelled and a decision had been made to call for new pricing on August 14, 2021. However, the Chinese company had submitted new prices 10 days before, on August 4.
Energy Ministry Secretary K. D. R. Olga told the Sunday Times that CPSTL did not have the knowhow required for this project and as a result, CPSTL changed the project scope.
“We have not yet awarded the tender to anyone. CPSTL was asked to hand in a verification report within two months. It is only after that, that we will make a decision,” she said.
“We are not in any way satisfied with the performance of CPSTL and they continuously delayed the project. There is a subsea component in this and it is necessary. But CPSTL says that it is not required. They said so since they do not have the proper knowhow. They are going to get it through outsourcing. Then, one by one we will have at least 20-30 procurements. What the Chinese company will complete in one year might take two to three years for CPSTL.’’
If CPSTL carries out this project, it could be delayed further due to the government’s procurement procedure and appeal process, she pointed out.
She also said the Attorney General informed them that the fact that the Chinese company was unable to find the funding does not mean that it has to be a reason for not awarding the tender to them.