News
China gets huge projects in Polonnaruwa District
Several multimillion dollar development projects in the Polonnaruwa district are set to be doled out on single-bid basis to Chinese companies in a departure from the new Government’s proclaimed policy of calling for open, competitive tenders.
Exim Bank of China is lending the necessary funds on concessional terms. Two such companies have already started gratis feasibility studies in the water and transport sectors.
The five Polonnaruwa district projects, for which the Chinese Government will loan money, are the drinking water supply project; road network extension and improvement project; railway extension project (Kurunegala to Habarana via Dambulla); agro-based industries and agro-economic centre project; and the Maduru Oya right bank development project. They were included in a Memorandum of Understanding signed between China and Sri Lanka in April.
Of these, the “Towns East of Polonnaruwa Water Supply Project (Development of Plant & Design-Build Contract for Civil and Mechanical and Electrical Works with Funding Arrangements)” was last year advertised in the local media in keeping with the Government’s avowed policy of open, competitive tenders. Twenty-four companies and joint ventures had expressed interest.
But the tender was unexpectedly cancelled and the US$300-400 million contract is likely to go to China Harbour Engineering Company Ltd (CHEC), the same firm that is building the Colombo Port City. There is speculation that the job is being given to CHEC in exchange for dropping a US$ 125 million compensation claim for losses arising from the Government’s suspension of the Port City project.
When the Maithripala Sirisena administration assumed office in 2015, bureaucrats were told that development contracts would forthwith be awarded through transparent, competitive tender procedures. Theoretically, a culture of open, competitive bidding would reduce
corruption, level the playing field and guarantee a supply of quality goods and services at optimum prices. Lately, bidders have also been expected to offer financing arrangements. But in the Polonnaruwa district the course of action now being followed for major projects is similar to that adopted by the Rajapaksa administration in other parts of the country.
Chinese funding is conditional to the recipient country enlisting Chinese companies, goods and services. This ensures that a major chunk of the loaned monies returns to Chinese coffers. The contracts will be routed through President Sirisena’s office which oversees the “Reawakening Polonnaruwa” initiative. The respective ministries are responsible for implementation.
The Treasury was tasked with setting up five Cabinet Appointed Negotiating Committees (CANC) and Technical Evaluation Committees (TEC) to take the process forward. But Treasury Secretary R.H.S. Samaratunga refused to comment saying, “These projects come under the President’s office. You had better talk to them.”
We are in possession of documents — including Cabinet memorandums, letters from the President’s office and the Chinese Embassy — to show how the process related to the Towns East of Polonnaruwa Water Supply Project unfolded. Expressions of Interest (EOIs) were first called in October 2015 by the National Water Supply and Drainage Board (NWSDB) under the direction of City Planning and Water Supply Ministry Secretary B.M.U.D Basnayake.
Mr. Basnayake has since retired and told the Sunday Times he had no particular recollection of the project. Twenty-four companies and joint ventures participated, after each having purchased the EOI document for a non-refundable fee of Rs. 100,000 plus 11% Value Added Tax or US$ 850 including VAT.
They were the Sino Hydro Corporation; Kolon Global Corporation; Maga Engineering & Vinci Construction Grand Projects JV; China National Aero Technology International & China Geo JV; China Machinery Engineering Corporation; Cobra-Tedagua-Makiber JV; China Harbour Engineering & South-West Municipal Design Engineering & Research Institute JV; NCC-Sierra JV; LR Group Ltd & SBI International Holdings AG JV; Eiffage Construction Co. Ltd; Biwater Holdings Ltd; China Sfeco, Shanghai Municipal Engineering & Shanghai Foundation Engineering Group JV; Zhongnang Engineering Corporation; MTD Walkers (Pvt) Ltd & KIER Infrastructure & Overseas Ltd JV; AnshuiShui & Construction Group Corporation & Henan Water & Power Engineering Consultants JV; China National Machinery Import & Export Corporation; Tahal Consulting Engineers Ltd (Israel); Gammon India Ltd; Zolal Iran Company, Tana Energy Management Company & EEC Izaath International Partnership JV; Eurofinza SA & Chilali Services Sa JV; China Aerospace Construction Group; China Gezhouba Group Ltd; Megha Engineering & Infrastructure Ltd & Sanken JV; and CGCOC.
Under normal procedures, the Standing Cabinet Appointed Procurement Committee (SCAPC) should have examined their applications. But SCAPC Chairman Padmasiri Jayamanna, who is the Secretary to the Ministry of Justice, said, “I am under oath of secrecy and unable to disclose anything. However, I cannot recall the project coming before me.”
Representatives from two companies that had submitted EOIs said they were under the impression the project had been cancelled. Another said his company had not heard back but that it was not unusual for a process to take more than six months from the initial stage to the next.
In the meantime, President Sirisena presented a Cabinet memorandum on the “Awakening Rajarata-Presidential Programme” and “Let’s Awaken Polonnaruwa District Development Programme 2016-2020”. It described the five projects as principal and essential requirements. And it said the Chinese Government, which had funded massive development projects in Sri Lanka, was willing now to contribute towards the “Let’s Awaken Polonnaruwa” initiative.
China’s President has said that his Government had US$ 20 billion to offer Asian countries on a concessional credit basis. The Economic and Commercial Councilor of the Chinese Embassy in Sri Lanka had informed the Department of External Resources at the Ministry of Finance in Colombo that: “…financial facilities could be provided through that credit line for the Chinese companies who have expressed their willingness to undertake priority development projects in Sri Lanka”.
“The Department of External Resources has initiated action to obtain foreign funding on a concessionary basis to meet financial requirements in respect of large-scale development projects in Sri Lanka based on the Cabinet Memoranda that have now been presented to the Cabinet of Ministers as recommended by the other sub-committees on economic affairs,” the memo reads. “The Exam [sic] Bank of China has also been requested in this regard.”
“There have been satisfactory responses to these enquire [sic] and several companies affiliated to the Chinese Government have expressed their willingness to undertake feasibility studies free of charge and also to implement development projects and those connected papers have been referred o the Department of External Resources as well as to the Secretaries to the relevant Ministries,” the memo says.
On February 5, 2016, President Sirisena’s Chief of Staff, Ranjan Dharmawardena, wrote to the City Planning, Water Supply and Drainage Ministry Secretary stating that Cabinet approval has been granted. “Based on the activities of the development projects already identified, competent Chinese companies have expressed their willingness to undertake these projects. The Chinese Embassy in Sri Lanka is also aware this [sic]. A Cabinet Appointed Negotiating Committee (CANC) and a Technical Evaluation Committee (TEC) be appointed to take action forward to the point of awarding contracts.”
“To have representatives of the Department of External Resources appointed to the above-mentioned two committees since the Department of External Resources has already taken preliminary steps in order to secure concessionary funding from the Chinese Government,” Mr Dharmawardena continues.
“To obtain concessionary funding for the large scale projects under ‘Let’s Awaken Polonnuruwa’-District Development Programme and to undertake the implementation of projects in collaboration with the Chinese Government and the project proponents as recommended by the committees referred to in item 1 above,” he states.
Mr. Dharmawardena has attached a copy of the letter submitted by China Harbour Engineering Company Ltd through the Chiense Embassy, expressing its willingness to implement the Towns East of Polonnaruwa Water Supply Project while conducting feasibility studies free of charge. The letter indicates that the company first submitted an EOI for the project in March 24, 2015. “We would like to again express our keen interest for the implementation of the captioned project as a total turnkey solution with favourable finance assistance from the Government of China,” it says.
It is not known whether a final decision has been taken in regard to granting the relevan project to CHEC. But authoritative sources confirmed that CHEC is now conducting the feasibility study. (Another company, China State Construction Engineering Corporation Ltd, is doing a feasibility study on upgrading the rail track and railway stations from Maho to Batticaloa and Gal Oya to Trincomalee, also free of charge).
The process being considered is a clear departure from the Government’s declared policy of open, competitive tenders. China Harbour was among the 24 parties that had expressed interest in the project, complete with funding arrangements. Its bid could have been evaluated along with the others. This was not done.
A senior diplomat pointed out, “The Sri Lanka Government may be taking this option because the Chinese have shown themselves willing to offer complete packages on concessional terms. They are also quick in implementation and disburse big amounts.”
As in the past, however, transparency has taken a hit. Nimal Hettiarachchi, Secretary to the Ministry of City Planning, Water Supply and Drainage, hung up multiple times when asked about the Towns East of Polonnaruwa Water Supply Project saying he was “busy” and “in a meeting”.
NWSDB Chairman K Alahudeen Ansar said that he did not know the current status of the project, that it was up to the Cabinet to decide who to award the tender, and repeatedly requested us to contact Mr. Hettiarachchi for information. NWSDB General Manager Ranjith Balasuriya also hung up after indicating that we had no business to inquire if we were not among the companies that had bid for the project.
Mr. Dharmawardena was unavailable for comment despite repeated calls and text messages. City Planning, Water Supply and Drainage Minister Rauff Hakeem could not be contacted. The subject’s State Minister Sudharshani Fernandopulle said she knew nothing.