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Hot- hot allegations over coal tenders
Norochcholai coal power plant: Dogged by allegations of corruption for half a decade
It is often labelled Sri Lanka’s most lucrative tender. It is also one of the most controversial.
For half a decade, coal procurement for the power plant in Norochcholai has been dogged by allegations of corruption and bid rigging.
Former Power and Energy Minister Champika Ranawaka coined the term “coal mafia” to allude to lobbyists he claimed were influencing the tender process.
Leaked papers-of which there are plenty in circulation-point to circumstantial evidence of two companies receiving favour over others. One is Noble Resources International (Pte) Ltd; the other is Swiss Singapore Overseas Enterprises (Pte) Ltd.
The documents show no direct evidence of bid rigging. But they come close, particularly during the last round of tendering.
Bids are first examined by a Technical Evaluation Committee (TEC) which communicates its decision to a Standing Cabinet Appointed Procurement Committee (SCAPC) which in turn approaches Cabinet through the line ministry.
Bidders can have their appeals heard by a Procurement Appeal Board (PAB) which is located at the Presidential Secretariat.
At the last round, Swiss Singapore wrote directly to the SCAPC seeking clarification on a certain variable related to the size and weight of coal.
Such interference during the final stages of the tender process should have got them disqualified. Instead, the variable was dropped and Swiss Singapore won the bid.
This prompted several of the other bidders-who had “learnt” that Swiss Singapore had written to SCAPC-to go before the PAB.
The Board recommended that the tender be cancelled and fresh bids accepted, but Cabinet approved the contract being awarded to Swiss Singapore, albeit for a year’s supply of coal (not three, as earlier planned).
Those critical of the Government’s decision say this proves that the tender process, even when it is open, is riddled with holes.
The Lanka Coal Company’s bid document states that “no Bidder shall contact LCC or any other person or organisation involved in any matter relating to its Bid, from the time of the opening of Bids to the time the Contract is awarded.
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”.
Worse, bidders had sought clarification on the size variable during pre-bid meetings but were told the provision would remain unchanged; that there would be no departure from the evaluation criteria. The optics, therefore, were terrible.
The last tender is now the subject of fundamental rights actions filed by Noble Resources and another unsuccessful bidder named SUEK AG.
Behind the scenes, there is furious lobbying by Noble. The company would have secured the contract had the size variable remained in place.
But Secretary to the Ministry of Power and Sustainable Energy maintains that there is nothing untoward in how the tender was awarded.
The size variable was faulty to begin with, insists Dr. Suren Batagoda, a member of the SCAPC. To include it in the evaluation criteria was not a standard practice in the international coal industry. And the formula adopted had been unfair and incorrect.
Why, then, did it take so long for this conclusion to be arrived at? And why was anything done only after Swiss Singapore had written to the SCAPC?
It is not the first time Swiss Singapore received preferential treatment. In 2014, five out of six companies that bid for the coal deal were disqualified, leaving just Swiss Singapore as an eligible supplier.
The rejected companies were Noble Resources, Macquarie Bank Ltd, Trafigura Pte Ltd, Kolmar Group AG and a joint venture between Liberty Commodities and Uttam Galva Steel Ltd. Swiss Singapore was selected as it had complied with bid requirements “with minor deviation”.
Four of the bidders appealed. The PAB suggested that the award to Swiss Singapore be cancelled and that the incumbent supplier, Noble Resources, be asked to continue at existing contract price till a new tender was finalised.
M.M.C Ferdinando, the then Power and Energy Ministry Secretary objected on the grounds that Noble had previously defaulted in the supply of 223,550 metric tons of coal. Mahinda Rajapaksa, in his capacity as Finance Minister, rejected this recommendation and opted to continue with Noble Resources.
Dr. Batagoda says that what is most objectionable is how this one company-Noble Resources-has repeatedly won contracts to supply coal to the Lakvijaya power plant without once being selected by a TEC or SCAPC. This, he said, was a monopoly-plain and simple.
“Every time the TEC recommended someone, or the SCAPC recommended someone, it went to the Appeal Board which somehow or the other cancelled it,” he told the Sunday Times.
“Each time, the decision of the Appeal Board or Cabinet was to cancel the tender and award it to the existing supplier on the same conditions and terms for another year.”
That supplier was Noble Resources. The company entered the arena in 2009, competing for a second coal tender (the first one was cancelled) floated by LCC.
The TEC recommended Holcim Trading Pvt Ltd which had put forward the lowest price and SCAPC accepted its decision. However, Noble Resources appealed. The PAB held with Noble Resources and Finance Minister President Rajapaksa, upheld its opinion.
Noble Resources became the country’s first coal supplier. According to documentation, the company gained its own supporters in high places. Its first agent was casino king Ravi Wijeratne and President Rajapaksa gave it strong backing in Cabinet.
For instance, a third tender was called in May 2011. The lowest offer was made by Taurian Iron and Steel Co. (Pvt) Ltd. It was rejected on an opinion of the Attorney General. The TEC then recommended the bid made by a joint venture of Liberty Commodities Ltd and Uttam Galva Steel Ltd.
SCAPC supported this choice but the PAB rejected it. The Cabinet cancelled the tender and President Rajapaksa, as Finance Minister, recommended negotiating prices with the incumbent supplier, Noble Resources, whose contract was extended soon afterwards.
This happened a fourth time. Coal was urgently required and there was no reason to keep extending Noble’s contract.
So the Lanka Coal Company and the Ceylon Electricity Board requested approval from the Cabinet of Ministers to call restricted international competitive bidding from the 19 suppliers who had responded under the previous procurement.
Cabinet rejected this proposal and President Rajapaksa recommended an extension of Noble Resources’s contract. Naturally, Cabinet concurred.
“For the last five years, it has been cancelling, cancelling, cancelling and awarding, awarding, awarding (to Noble Resources),” said Dr. Batagoda. “This is the largest tender in this country. I don’t want this to be hijacked by one company. I want to diversify.”
Noble Resources is just fighting to hang on to its monopoly, he asserts. This is not healthy competition and bodes ill for the future of coal supply in Sri Lanka, he said.