News
Coal supplies: UAE-based company gets contract amid host of unsolicited proposals
View(s):By Namini Wijedasa
Among four companies that had submitted unsolicited proposals for a US$ 1.47bn (Rs 524bn) long-term coal tender to Sri Lanka is the United Arab Emirates-based Coral Energy DMCC, which is currently dominating oil supplies to the country, and China Merchant Engineering Corporation (CEMC) which has no background in supplying coal.
The hotly-contested contract went this week to the bidder that offered the best price of US$ 328.22 a metric tonne. All bids, including the unsolicited ones, were evaluated by a standing cabinet-appointed procurement committee (SCAPC) and a technical evaluation committee (TEC) appointed by the Finance Ministry.
Black Sand FZE, headquartered in the UAE, will supply coal through Suek AG which is one of the world’s largest coal trading companies, industry sources said. The three-year deal guarantees 1.25mn MT of coal in the first year (2022-23); 2.25mn MT in the second year, and 1.25mn MT in the third year.
The approved base cost and freight price is US$ 328.22, the sources said. However, this is not fixed. It will be adjusted according to the index price at the time of supply. The deal includes zero percent interest and six months of credit.
According to documents obtained through a Right to Information (RTI) application, Coral Energy DMCC; CMEC; the Switzerland-based Suek AG (on its own); and the Hong Kong-headquartered King Stone Group Trading Company Ltd submitted unsolicited proposals.
They all said in their respective letters that they had learned of Lanka Coal Company’s (LCC’s) requirements and were submitting proposals. CMEC gave two pricing options: US$ 554.27 per MT and US$ 526.18 per MT. Coral Energy offered US$ 370.31 per MT. The other two companies did not cite prices, the RTI application shows.
Then, on July 21 this year, LCC separately published a tender notice for coal supply. Two companies submitted bids. One was Black Sand and the other was the Singapore-registered Yongtai Energy Pte Ltd which was deemed unresponsive as it did not cite a price or deposit the bid bond.
After the opening of the bids, another party entered the equation. The Power and Energy Ministry forwarded to LCC a letter sent by Adani Global FZE which proposed that Lakvijaya’s most crucial criterion, the gross calorific value, be significantly lowered to match the quality of coal that it can supply.
LCC deemed this to be unacceptable as it did not correspond with the plant manufacturer’s boiler requirements, could cause other specifications to change and also adversely impact Lakvijaya’s annual environmental protection permit.
The RTI response disclosed that CMEC also sent a modified proposal granting a nearly 50 percent reduction on its original FOB (free on board) price. “It is unprofessional and illegal to offer a new updated price to compete with the selected bidder’s price after opening a tender,” said a reply from LCC to a question by the Sunday Times.
The CMEC offer was, therefore, not taken into consideration but the company continues to mount a spirited effort to discredit the tender award, industry sources said. If it is cancelled, the next best offer—Coral Energy, already the main oil supplier—is likely to secure the contract.
Meanwhile, Sri Lanka’s efforts to secure coal for Lakvijaya via Government-to-Government agreements have so far failed, authoritative sources said.
In October last year, acting on a recommendation of the Committee on Public Enterprise (COPE), the Ministry of Power instructed LCC to look at the possibility of buying coal through diplomatic channels in addition to the prevailing tender process.
The LCC requested the Foreign Affairs Ministry to contact 16 foreign missions to get recommendations for qualified coal suppliers who might be willing to enter into long-term supply agreements.
Consequently, the Ministry received three expressions of interest from Russia and South Africa. Poland, Colombia, India and Indonesia indicated their interest but have not yet forwarded proposals.
Interestingly, China has said it would not participate. The Chinese Embassy wrote back saying that one of the country’s prominent coal suppliers had said, as China was “firmly committed” to achieving carbon peaking by 2030 and carbon neutrality by 2060, many coal mines were closing down. This has reportedly caused electricity shortages in parts of China.
China also imports a significant part of its coal requirement from other countries to meet the demand. With COP25 happening in Glasgow, “it is unlikely that there will be much interest in this tender”, the Embassy said.
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