Colombo Port Expansion Project

The Asian Development Bank (ADB) has asked the Sri Lankan government to include the Attorney General or his nominee in the project committee for the re-bidding on the Colombo Port Expansion Project as one of several conditions for a US$300 million loan, officials said.

The ADB will also seek a legal opinion from the Attorney General's Department to ensure that the selection of the private party has been based on an open competitive bidding procedure and that the clause which requires rejection of any proposal where a prospective bidder offers inducement to influence the government with a view to securing the contract, etc. as stipulated in the original bidding, will be retained in the re-bidding.

ADB Country Representative Richard Vokes told The Sunday Times FT that the US$300 million loan approved by the ADB in February 2007 was made effective last week and work has already been initiated. Vokes said the inclusion of a representative from the Attorney General's Department is a part of the government bidding process. He added that in discussion with the ADB, the government indicated that it will undertake a re-bidding process which would result in the award of the terminal concession for the south terminal within 18 months of the date of effectiveness. As for the funds, Vokes said the government has paid its part of the Mobilization advance to Hyundai Engineering and Construction Company Ltd while the ADB component will be paid to the contractor in due course.

The two projects – a new breakwater and a container terminal - have been steeped in controversy over allegations of impropriety in the tender process. The companies that bid for the terminal were Hutchison Port Holdings Hong Kong, Hanjin Shipping, Aitken Spence with the Port of Singapore Authority, Hayleys-Carsons combined with a unit of French Global Carrier CMA-CGM and JKH SAGT along with another foreign party.

According to correspondence between the ADB and the Ministry of Finance and Planning, the government has been asked to adhere to crucial conditions to ensure the timely engagement of a terminal operator and to maintain integrity of the selection process.In a letter dated April 15, 2008 addressed to the Treasury Secretary Dr. P.B. Jayasundera, the ADB's Director General of the South Asia Department, Kunio Senga wrote that in order for the terminal to start operating upon the completion of harbour infrastructure works after the re-bidding as currently planned, it is essential to select the terminal operator under a specific and tightly monitored schedule.

In a letter dated April 11, the management of ADB has endorsed the submittal of the proposal for the waiver of a loan effectiveness condition to the Board for consideration. 'In endorsing the circulation of the proposal, our management inquired about specific reasons for the cancellation of the terminal operator bidding. Our understanding is that the government perceived the development of Colombo Port as a competitive regional hub port using the PPP modality and to ensure this, the government needed to select a private sector terminal operator in the most advantageous manner for the country and the government, e.g. strong commitment of a consortium partner fulfilling technical qualifications, highest cargo throughput projected, and highest revenue guaranteed for the government. We understand that the government considered that the original bidding conditions should have been broader to capture the best possible option toward that end and consequently, concluded that re-bidding, in accordance with Sri Lanka's laws and procedures was necessary. We also understand that the government will revise re-bidding documents suitably to address the necessary enhancements.'

According to the schedule listed in the correspondence: By June 2008, the revised bidding documents must be issued: issuance of an invitation for the negotiation of the concession agreement to the selected private operator is by December 2008, issuance of a letter of intent to the private operator by April 2009 and signing of the concession agreement is by October 2009.

The letter also asked for information from the government on specific action plans it may have to meet the above time frame and how it will be monitored. Further, the ADB will request for a legal opinion from the Attorney General's Department confirming that 'the private party has been selected following an open competitive bidding procedure in according with the Borrower's laws and procedures' as originally intended and as discussed during the recent consultation mission in February 2008. The letter also stated that in line with the government procedures for selection of Private Infrastructure Projects, the issuance of such an opinion will be facilitated by the inclusion of a representative of the Attorney General's Department in the Project Committee for the re-bidding.

Jayasundera, responding in a letter dated April 17, reconfirmed that the 'government will revise the re-bidding documents as needed to assess the commitment of the prospective operator for Colombo Port for us to be able to select the most suitable operator for the South Container Terminal and to fully capture and maximize the benefits from the project to the country through cargo throughput and the possible highest revenues to the government.'

Jayasundera confirmed that a legal opinion from the Attorney General's Department will be provided to the ADB regarding the selection of the successful bidder. He further confirmed that the clause which requires rejection of any proposal where a prospective bidder offers inducement to influence the government with a view to securing the contract as stipulated in the original bidding will be retained in the re-bidding.

The Treasury Secretary added that the proposed time frame for the engagement of the terminal operator is acceptable and that he is confident that the other actions required for signing of the concession agreement will be completed on schedule. 'As I have indicated before, I am personally monitoring the progress to ensure that these milestones are made through regular meetings with the Ministry of Ports and Aviation, Sri Lanka Ports Authority and the key official of this Ministry,' his letter stated.