Controversy over $ 1.5 bn coal tender

A major controversy is brewing over the proposed 4.5 million metric tonne coal tender worth over US$1.5 billion to be awarded by Lanka Coal Company Pvt Ltd (LCC), forecasted as the largest ever commercial transaction in the history of Sri Lanka.

Industry officials say that there were seven eligible bidders but only two who supplied the bids participated at the pre-bid meeting. Out of these two entities, only one – Dubai-based firm Black Sand Commodities said to represent Suek AG - had given a price proposal.

“Black Sand Commodities was not on the list of seven eligible bidders however it is claimed that they represent one eligible bidder named Suek AG. Whether they are truly a subsidiary of the said eligible bidder or represent someone else who is buying coal from the said Suek AG as a middleman is in question,” an official explained.

According to Black Sand Commodities’ website, it is a company registered in Dubai in 2014, with no history or a track record of supplying coal and without any link to the said Suek AG. It also has an annual turnover of less than $5 million and here it is bidding for $1.5 billion worth of a deal.

It has been reported Jagath Perera, Chairman LCC as saying that Black Sand Commodities’ has offered six months of credit for the coal supply.

It is reliably learnt that the tender closed on August 10 and within 24 hours, the cabinet-appointed procurement committee finalised all the evaluations and decided to go ahead with Black Sand Commodities.                     

Industry officials said that it is questionable whether the procurement committee evaluated how Black Sand Commodities got to bid without being among the seven eligible bidders. “Had they evaluated and verified the connection between Suek AG and Black Sand Commodities and done their homework, they would know the reason as to why the original qualified bidder Suek AG used this Dubai company as a front to bid,” an official in the industry told the Business Times on Sunday.

How they went ahead with awarding this tender creates a doubt as to whether this tender was predesigned to be awarded to a predetermined party.

Mr. Perera has confirmed that after the tender closing, LCC received another bid from another party, but the chairman has not disclosed the terms of that offer saying they will not entertain the said bid because it was received after the tender closed.

According to the officials, this offer, which has been offered by a consortium of two well-known and well recognised companies, is a more attractive offer compared to Black Sand Commodities’ offer both in price and credit terms. They added that this particular offer is $10 less per metric tonne than the Black Sand Commodities’ offer and most importantly gives a five-year credit for 50 per cent of the tender value to be paid in rupees.

“When the country is begging and fighting to save and to earn every single dollar, why is LCC giving away $750 million possible savings to the country like this - simply citing tender procedures and avoiding a deal of this magnitude is highly questionable and doubtful,” the official said.

In recent reports, Mr. Perera has said that the TEC (technical evaluation committee) appointed to evaluate the bids already recommended going ahead with the only price bid LCC received (from Black Sand Commodities) even without considering the only other price bid they received after the tender close.

They said no to this bid on the technical ground that the said bid was received after the deadline, even if the term of that bid is much more attractive than the selected bid. 

An industry analyst pointed out that it is questionable as to why LCC went for a 4.5 million metric tonnes tender this year in the first place. “All these years, from the inception of the plant in 2008, LCC never went for a tender beyond the maximum one-year requirement and that also was most of the time decided on several spot tenders.”

This time, when the coal price is at a historically high level, and the country’s financial credentials are at their lowest point, trade unions and economists and the industry related parties claim that LCC should never have gone for this big term tender unless otherwise it has another agenda.

According to them, LCC should opt for a maximum one-year requirement tender at this moment and this two-year term tender is completely unnecessary and an unwise move.

According to analysts, due to the significant nature and size of this transaction and due to the economic impact on the country, the cabinet headed by the president must not let a transaction of this magnitude be just decided by a single entity or an individual, and the government must make sure that all and every option available to the country - solicited, unsolicited, tendered and beyond tenders - be explored and the best option and offer available be selected without limiting itself to procedures, processes, and red tapes.