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Ministry passes buck on coal tender to Cabinet
View(s):Hobson’s choice: Go ahead with controversial contract or cancel order and pay compensation
By Namini Wijedasa
The Power and Energy Ministry will ask Cabinet to decide whether to cancel a controversial multibillion rupee coal tender and face a substantial compensation claim, or to continue with a contract which was awarded in a manner that the Supreme Court said had shocked its conscience.
Power and Energy Ministry Secretary B.M.S. Batagoda said he would put the relevant paper to the Cabinet this week. He said the Attorney General’s Department, too, had advised that it was for the Cabinet to make the choice.
However, Lanka Coal Company (LCC) Chairman Maithri Gunaratne has already written to Swiss Singapore Overseas Enterprises Pte Ltd — the firm that won the tender — suspending the next scheduled shipment of coal. Mr. Gunaratne also said the LCC would seek clarification from the Supreme Court regarding its judgment this week.
There is disagreement between LCC and the Ministry of Power and Energy on how to interpret the recent Supreme Court judgment on the coal tender. In the ruling, Chief Justice K. Sripavan held that some events which took place in the award of the coal tender to Swiss Singapore “shocks the conscience of the Court”. Justices Priyasath Dep and U. Abeyratne agreed.
But differences emerged owing to a single word in the judgment. It rules that the third respondent, LCC, “may” terminate the contract entered into with Swiss Singapore for the supply of coal and that LCC may then call for fresh bids following competitive bidding procedure.
The use of the word “may” caused uncertainty about how to construe the order, with some legal counsel arguing that the Supreme Court has left its interpretation open. Mr. Gunaratne maintains that the SC’s directions to the LCC are clear — that the company must terminate the old contract and enter into a fresh agreement based on competitive bidding procedures. “I’m duty-bound to follow the instructions of the SC,” he told the Sunday Times. “Although the word ‘may’ was used, the Court has given the third respondent the discretion to carry out the order.”
Dr. Batagoda asserted, however, that the Supreme Court has not directed the tender to be cancelled. He admitted that the Court had questioned the manner in which the contract had been awarded. “Cabinet must decide (what to do),” he said. The Secretary warned that entering into a fresh agreement now may not be beneficial to the country as index price of coal had risen in recent months. He also said that Swiss Singapore was likely to seek compensation for breaching an international agreement.
In its opinion to the Power and Energy Ministry, the Attorney General’s Department notes that the Supreme Court has made adverse observations regarding the procedure adopted in evaluating the bids furnished by the respective bidders. But it calls the SC’s directions on the matter “discretionary and optional in nature”; and it notes that the SC did not make any order or direction to cancel the impugned agreement entered into between LCC and Swiss Singapore.
“Against the above backdrop, it may deem appropriate to terminate the said Agreement after giving adequate notification in accordance with the terms stipulated therein, in view of the critical and adverse observations made by the Supreme Court,” Additional Solicitor General Sanjay Rajaratnam, PC, says. However, any move to abrogate the agreement in the absence of a Court order “could entail debilitating ramifications”. These include legal action by Swiss Singapore to claim for damages and loss of profit.
Mr. Rajaratnam advises the Ministry to apprise the Cabinet of Ministers of the matters — as it was the Cabinet that awarded the tender — and of possible legal implications. The Cabinet could then decide after weighing the available options and repercussions whether to cancel the Agreement forthwith after giving requisite notice and call for fresh long term tenders; consider more financially viable spot tenders; or call fresh tenders to take effect after the expiry of the existing Agreement on 30th April 2017.
The judgment is another step in a long and contentious saga to buy coal for Lakvijaya. For half a decade, coal procurement has been dogged by allegations of corruption and bid rigging. The last contract — for two million tons of coal — was awarded in July 2015 to Swiss Singapore by a Standing Cabinet-Appointed Procurement Committee (SCAPC). But confidential documents which found their way into the public domain demonstrated that Swiss Singapore had secured the deal by directly and illegally interfering with SCAPC’s evaluation process.