News
Controversy over 65,000 houses; Cabinet appoints sub committee
A Cabinet subcommittee was appointed this week to study a proposal to award a contract to a French company named ArcelorMittal to build 65,000 houses for war-affected civilians.
The subcommittee was set up after Housing and Construction Minister Sajith Premadasa objected that the estimated cost of each house — at Rs 2.18 million — was too high, authoritative sources said. The Minister had maintained that he could build the houses using the usual method (instead of the prefabricated method now envisaged) at Rs. 1 million a house.
The proposal to award the project to ArcelorMittal has also been opposed by civil society organisations on the grounds that the houses are too expensive and, being prefabricated, do not add value to the local economy in the North and East where they are to be built.
The total value of the contract as estimated by ArcelorMittal is around US$ 2 billion. It is learnt that the second bidder, an Indian construction consortium, of which UNP Minister Daya Gamage is also a party, had offered an estimate that was about Rs. 250,000 less for a house. However, one of the main considerations of the Cabinet-Appointed Negotiating Committee (CANC) that recommended ArcelorMittal was that the company had provided a confirmed financing arrangement.
Only two parties qualified after the technical evaluation. ArcelorMittal was one. The other was an Indian joint venture called EPI-OCPL Consortium. The CANC had then evaluated ArcelorMittal’s financial proposal as the company had presented a confirmed financing arrangement. The Indian consortium’s financial proposal was not considered.
It is learnt that the bidders were not present when the financial bids were opened. Under the two envelope system, however, it is mandatory for the bidders to be present when financial bids are opened.
Meanwhile, the local construction industry has questioned the “haste” with which the Ministry of Rehabilitation and Resettlement has given out the contract to ArcelorMittal.
“It appears that the Ministry wants to rush through and award the tender for the 65,000 houses programme. This seems to have been earmarked for a company of its choice,” a senior source in the construction industry told the Sunday Times.
The bid prequalification requirements of a Rs. 25 billion completed, single job and a bid bond of Rs. 650 million were “quite ridiculous”, he said.
“The fee payable to the bank to obtain the guarantee alone was almost Rs. 5 million,” he added. “The US$ 1 billion funding supporting letter for a project of this nature was quite unrealistic and designed to prevent open transparent bidding. Imported pre-fabricated units will benefit the exporter country and create jobs elsewhere with no benefit to Sri Lanka.”
The Construction Association pointed out that the Urban Development Authority’s “regeneration” project had employed Sri Lankan companies which were building 80,000 housing units.
“For some of these projects, the design, funding and building are undertaken by Sri Lankan companies,” it said, in remarks to the Sunday Times. “Three Indian contractors who obtained projects under this programme failed and the local companies were asked by the UDA to rescue these projects which they have agreed to and currently construction has resumed.”
“The best way to proceed with the programme should be to engage all the construction capacity in the North and East, North Central Province and the rest of the country under four or five management contractors who should be large local contractors capable of handling the logistics, resources, engineering, technical skills and funding,” it said.