Cancelled light rail project: Lanka rejects claims for billions as compensation

The Sri Lankan Government has turned down billions of rupees worth of claims from consultants of the cancelled Japan-funded Light Rail Transit (LRT) project, citing advice from Sri Lanka’s Attorney General’s Department.

The consultants--who indicate that they were blindsided--have now asked the funding agency, Japan International Cooperation Agency (JICA), to help secure their unpaid project termination claims so as to avoid seeking international arbitration which could prove even costlier for the Sri Lankan Government.

Such a move could also place further pressure on the relationship between Japan and Sri Lanka, already strained by the unilateral rejection of the LRT project as well as cancellation of the proposed development of the Colombo Port’s East Container Terminal by India and Japan.

The claim for work already done, expenses and loss of profit from the cancellation of the project in 2020 is already more than Rs 5bn and could rise significantly. The payments must either be made by a Government institution or through the JICA loan which remains active despite the project cancellation.

A letter from Oriental Consultants Global Co Ltd of Japan (OCG), the lead partner, to JICA was seen by the Sunday Times. It reveals that the Sri Lanka Government turned down the company's claims on legal advice from its Attorney General’s Department. But the contract covers compensation for damages and loss arising resulting from termination, it states.

Five parties--four of them Japanese-make up the consultancy joint venture. They are OCG; Japan International Consultants for Transportation Co Ltd; Chodai Co Ltd; Nippon Koei Co Ltd; and Sri Lanka’s Consulting Engineers and Architects Associated (Pvt) Ltd.

They secured the seven-year contract on March 13, 2019. It was signed with the then Ministry of Megapolis and covers detailed design and related engineering services, procurement assistance, construction supervision, testing and commissioning as well as defect liability check.

In September 2020, however, Presidential Secretary P.B. Jayasundera issued instructions to terminate the JICA-funded LRT on the grounds that it was “very costly and not the appropriate cost-effective transport solution for the urban Colombo transportation infrastructure”.

The OCG letter to JICA states that its contract was terminated on November 5, 2020--effective from December 31 that year--after one year and seven months of work. The reason given was “convenience of the employer”.

The joint venture submitted claims for termination entitlements in December 2020. In November 2021, 10 months later, it attended two meetings on invitation.

There was a third discussion in January this year at which, “…we were suddenly informed that that CANC [Cabinet-Appointed Negotiating Committee] would not recommend (to Cabinet) any claim under loss of profit since the Attorney General Department of Sri Lanka declined such a payment”.

The OCG JV has suffered from loss of profit under the contract, the letter asserts. “According to our Contract with GoSL [Government of Sri Lanka] we both parties agreed to honour the intention of the said JICA General Conditions of Contract by entering into the Contract,” it states.

“Also, we understand all contracts signed by GoSL are subject to prior approval from the Attorney General Department,” it maintains. “Considering these circumstances, we were embarrassed to hear CANC decision of categorical rejection.”

There is now a difference of opinion between the OCG JV and client on whether the consultants are entitled to compensation for loss of profit incurred due to termination.

“It is easily understood universally that by the sudden termination of the Contract, the Consultant would lose their opportunity to earn the expected profit from the contracted work,” OCG tells JICA, pointing out that they were seeking the funding agency’s “monitoring, guidance and concurrence” for successful closure of the project.

Fifteen months have now passed since the project termination, it says. As a responsible Japanese JV, it “would like to settle this claim amicably without being compelled to find relief under Dispute Settlement clauses in the contract consideration the relationship between the GoJ [Government of Japan] and GoSL”.

JICA has been sending its representatives as observers to negotiations between the consultants and the UDA.