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Rs. 50 b coal tender up for grabs; backroom manoeuvres to clinch deal
View(s):Two international firms are locked in battle to win a lucrative Rs 50 billion coal tender from Sri Lanka. The three-year contract was awarded in July to M/s Swiss Singapore Overseas Enterprises Pte Ltd, a Singapore-based company.
However, four other unsuccessful bidders— Noble Resources International Pte Ltd, Suek AG, Adani Global Pte Ltd and Liberty Commodities Ltd—complained to the Procurement Appeal Board (PAB) against the selection. Based at the Presidential Secretariat, the PAB headed by retired justice Hector Yapausually has three weeks to evaluate appeals.
That deadline expired on Friday. The Board is now expected to present its report to Power and Energy Minister Champika Ranawaka on Monday. It will be put to Cabinet on Tuesday. Ministry sources said the Government will respect the PAB’s decision. However, officials have also “laid the background” for spot tenders in the event of a delay in finalising the term contract.
“We don’t want to be held to ransom in case something goes wrong,” the sources explained. “When a term contract was cancelled in the past, the suppliers delayed their ships saying ‘force majeure’. We were in trouble.”“Now, if anything happens, we will make spot purchases and follow due procedure,” they explained. “There is no necessity to entertain the coal mafia.” ‘Force majeure’ is defined as “unforeseeable circumstances that prevent someone from fulfilling a contract”.
Based on a recommendation of the Ministry of Power and Energy, Lanka Coal Company (LCC) called tenders in April 2015 to procure 6,750,000 tons of coal on a three-year contract. Seven bidders were shortlisted by a Technical Evaluation Committee (TEC) which, in turn, was appointed by the Standing Cabinet Appointed Procurement Committee (SCAPC). One was disqualified.
Of the remaining six, Noble Resources—a Hong Kong-based company listed in Singapore—was identified as meeting tender requirements at the lowest price. However, Swiss Singapore secured the tender after making direct representations to the SCAPC, something the LCC’s bid document explicitly prohibits.
It is contended that the SCAPC changed its decision based on a letter dated June 29 written by Swiss Singapore seeking an adjustment in price evaluation criteria. According to official minutes of the SCAPC seen by the Sunday Times, the company wrote to the Committee saying that the standard value of the coal on offer could not be measured by size but by percentage weight.
The Committee met at lightening speed on the same day and decided to entertain Swiss Singapore’s submission, despite the fact that bids had closed. At pre-bid meetings, officials had firmly maintained that there would be no change in key evaluation criteria. After adjusting the respective benchmark, the contract was awarded to Swiss Singapore.
This has led to allegations of “fixing”. But a Ministry source said that, while it was unethical for the company to have written to the SCAPC directly, it was not unusual for direct representations to be made. “Also, they raised a valid point about measurement in weight and not in size,” said the source. “In the end, what matters is what is best for the country.”
The LCC bid document clearly states that “no Bidder shall contact LCC or any other person or organisation involved on any matter relating to its Bid, from the time of the opening of Bids to the time the Contract is awarded.” It asserts that, “Any effort by a Bidder to influence LCC in LCC’s Bid evaluation, Bid comparison or Contract Award decision may result in rejection of the Bid.” The accepted procedure is for appeals to be lodged with the PAB.
The Ministry source claimed that there had been “no great price difference” between the rates offered by Noble and by Swiss Singapore. “Their FOB (Free on Board) price was the same,” he said. “What differed was freight.” He also said Noble had earlier supplied coal to LCC at a much higher price than what it had quoted in its bid earlier this year.
Noble Resources and Swiss Singapore are now engaged in frantic backroom maneuvers to clinch the contract. This has led to various documents and information being leaked in an effort to give each side the advantage. It belies the murky, competitive nature of these transactions. Coal tenders have been disrupted several times in the past, sometimes through chicanery.
The first three-year coal tender was called in 2009, when just one 300 megawatt unit of Lakvijaya was in operation. It went to Noble Resources. In 2012, when it was time for a second term contract to be awarded, “an undue delay by the TEC and the SCAPC” caused the tender to be cancelled and Noble continued to supply coal.
During the next two years too, issues with procedure led to tenders not being awarded. Since the beginning, therefore, Noble has dominated the supply of coal to LCC. Lakvijaya at present generates 900 megawatts of electricity.
Before tenders were called this year, the Ministry under Mr Ranawaka, who became Power and Energy Minister once again in January, took steps to introduce and implement a transparent, workable tender procedure. In the past, the Minister has openly criticised the manner in which coal tenders or purchases were carried out.
This time, international tenders were called, Cabinet approval was obtained for the shortlisted parties and price proposals were opened afterwards. The process earned appreciation until controversy erupted over interference.