Controversy over CEP III: Maga responds to MCC's charges of irregularities

More public revelations this week regarding the controversial third section of the Central Expressway Project (CEP III) demonstrate just how compromised Sri Lanka’s national procurement processes are.

Maga Engineering (Pvt) Ltd is one of the five companies in a recently-formed local consortium called LIDC which is the only party being considered for the massive contract to build the 20km stretch from Rambukkana to Galagedara.

Maga has now responded to allegations by Metallurgical Corporation of China (MCC), the competing bidder, that its financial offer was never opened, much less considered. MCC’s parent company, MCC International Incorporation Ltd (MCCI) has written to President Gotabaya Rajapaksa claiming irregularities in the manner LIDC was selected for the project.

The Highways Ministry is rushing to award the project, although it is a non-essential capital expenditure, to LIDC at a price higher by US$ 822mn (Rs 244bn) than MCC’s bid, it is alleged. A Cabinet Appointed Negotiating Committee (CANC) continues to evaluate the LIDC’s offer of US$ 1.87bn (Rs 566bn) while the MCC claims its bid was US$ 1.05bn (Rs 312bn). The value of the estimates is growing in leaps and bounds as the rupee depreciates each day.

LIDC includes Access Engineering, International Construction Consortium (Pvt) Ltd, K D A Weerasinghe & Co and NEM Construction (Pvt) Ltd. There were three bidders originally--China State Construction Engineering Corporation (CSCEC) and MCC, Maga says in a statement.

When financial bids were opened on February 3, 2022, “LIDC came to understand that bids of the two other bidders… have been disqualified on technical grounds,” the statement claims.

It says the Chinese offer was made by the subsidiary company but that "in an attempt to qualify for the bid, the bidder has submitted financial details and specific experience of the parent company, MCCI, without the parent company being a legal part of MCCI’s bid, thereby disqualifying MCCI’s bid as per the bid conditions."

The consortium also claimed MCC had "not submitted a valid bid security, which is the most basic and fundamental prerequisite to qualify for a bid in a public procurement process, thus completely invalidating their bid and any price they have quoted."

“It is evident that a bid without a valid bid security, as in the case of MCC, means that the bidder could submit any price without any liability towards the employer, and may withdraw the bid at any date without any penalty,” the statement continues.

It also claims MCC requested payments in US dollars for the required 15-year period even though the bidding document said annuity can only be settled in Sri Lankan rupees; and that MCC has not previously completed any expressway projects in Sri Lanka and does not have design-and-build experience.

LIDC alleges that MCC’s bid price is not officially known. “In their futile attempt to mislead the evaluation process to sabotage the project, MCC now seems to be quoting any arbitrary price in the public,” the statement continues.

It confirms that 80 percent of financing for the LIDC proposal will be from a consortium of Sri Lankan banks with the rest being invested by the consortium as equity. Had the contractor been a foreign entity, it said, the Government would’ve had to make annuity payments in US dollars which alone "would result in a substantial increase in the real cost of the project."

The Highways Ministry called tenders on July 2021 from local and international companies. The bidding format was ‘single state two-envelope’ with the second envelope containing the financial proposal.

On January 16, Minister Fernando presented a Cabinet paper in which he recommended that the original tender process should be “terminated and canceled” on the basis that finalisation of foreign concession agreements and financing will get delayed. The same memo states that the relevant section of CEP III can be built with Rs 82bn.

But ten days later, on January 17, he presented another Cabinet paper recommending that the original tender process be proceeded with. He makes no reference to his earlier Cabinet memo and calls for the awarding of the bid to be accelerated.

The Highways Ministry has still not explained why it considers the project so urgent as to rush it through.