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Central Expressway: High ways above and beyond the call of tenders
View(s):By Namini Wijedasa
The Government is to call for “Limited Tenders (LT)” from Japanese companies for the construction of the Section III of the Central Expressway (CE), in a clear departure from the open bidding principle.
LTs, as defined online, are not advertised in newspapers. As a result, other bidders generally do not come to know when such a tender is floated.
The Cabinet Subcommittee on Economic Affairs has recommended the process, despite it having failed once before. In the first round of LTs for Section III of the CE, only one out of three companies nominated by the Japanese Embassy, applied for the project. But Taisei Corporation neglected to provide the requisite Bid Bond (BB).
“This led to suspicions that Taisei was so confident of securing the tender, they did not bother with a BB,” said an authoritative industry source. “None of this would be an issue had the Government gone for open, transparent bidding.” The company is reported to have a local agent who is highly connected, politically.
A BB is issued as part of a supply bidding process by the contractor to the project owner, as a guarantee that the winning bidder will undertake the contract under the terms at which they bid. While the Ministry of Highways had been open to accommodating Taisei without the BB, the Prime Minister’s office had rejected the application, authoritative sources said.
With its complicated terrain and land acquisition requirements, Section III of the CE is tipped to be one of the most expensive road projects undertaken in recent times. The Government has eschewed open tenders–which would have ensured robust competition and choice of pricing– in favour of LTs from Japan because, it wants to fund the project through a “tied loan” from the Tokyo Mitsubishi Bank (TMB).
“We are going for LTs from Japanese companies,” confirmed Road Development Authority Chairman N.R. Suriyarachchi. “The decision is to get requests from Japanese companies.” But, he said the tender would not be open to all Japanese companies. Instead, the Japanese Embassy would once again be requested to nominate some firms for the project owner to choose from.
“The decision is to contact the Japanese Embassy,” said Mr Suriyarachchi. “They might ask the Japanese Chamber. We will go with Japanese tied loan conditions.”
A tied loan is one that a Government makes to a foreign borrower in exchange for the promise that the borrower will use it to purchase goods (or services) from the lender’s country. It is not immediately clear why the administration did not insist on open tenders within Japan, in exchange for financing from TMB. The Japanese Embassy has also not publicised the criteria on which they nominated the three companies on the first round: Taisei Corporation, Penta Ocean Construction Co Ltd and Wakachiku Construction Co Ltd.
A Japanese Embassy Spokesman refused to divulge information, “The owner of the tender is the Sri Lanka Government,” he said. “The process is done by the owner of the tender. We are not involved in procedure of tender.” He added that the Embassy was awaiting the decision of the Government.
The Sunday Times earlier reported that the Government is in talks with China’s Exim Bank to fund Section I of the CE, which the contractor, Metallurgical Construction Company (MCC) of China, has now priced at Rs 158 billion or, Rs 12 billion more than originally stated. MCC has been awarded the contract without tender.
Section I runs 37.1 km from Kadawatha to Mirigama. At the current price, this translates to nearly Rs. 4.3 billion per km. Section II is to be parcelled out to local contractors. Section III is 32.5 km from Pothuhera to Galagedara in Kandy.
“We are about to start work by December 1,” said a project official for Section II, which is divided into four packages. “There are four consortia with 15 contractors. All four were issued bidding documents and we received bids from them all. They are being reviewed and negotiations are ongoing. Most probably, a decision will be made by the Cabinet within the next two weeks.”
The CE was called the Northern Expressway under the former administration, which habitually parcelled out such projects on single bids. Following the presidential election in January 2015, the new Government approached traditional funding agencies to finance the initiative. Among those that attended meetings were the Japan International Cooperation Agency (JICA), Asian Development Bank (ADB) and World Bank (WB), all of whom offer funding at minimal interest.
The WB eventually dropped out, but JICA and ADB remained in the running. Official sources said the two agencies had been willing to take a part each: Section I for JICA and Section II for ADB. Both sections had been deemed feasible through studies. Section III was considered more complicated, as the terrain was difficult and there were more social and environmental factors to consider.
Following the Parliamentary election of August 2015, however, things changed. The Highways portfolio was transferred from Minister Kabir Hashim to Minister Lakshman Kiriella. Section I was awarded to MCC and Section II is now going on a tied loan–at higher interest– to Japan.
The main premise for the shift from a development loan to a commercial one is that JICA was slow. JICA demands observation of stringent environmental and social guidelines, including fair compensation for land acquisition. A source from the Ministry of Finance’s External Resources Department said that, with all three agencies–JICA, ADB and WB– it would take at least two years for a project to get off the ground.
Disturbingly, doubts are now being raised about the Japanese Embassy and its role in diverting the loan from JICA to the private sector TMB. “Why did the Embassy nominate these three companies and not other more high profile Japanese firms?” asked an industry source. “With only one contractor applying, the process became a farce, a single-bid. How is this different from the past? How will the Government evaluate the costs and select the cheapest bidder?”
“Do not forget that this will be a very expensive project,” he continued. “The best advantage will be gained from evaluating the offers openly and transparently. Even if it is a tied loan, the project can be made available to a larger array of Japanese companies. Did anyone even vet the shortlist and conduct due diligence on the companies nominated?”