Lanka Coal Company responds to ToL story on 22/08/2022 titled “Lanka Coal Clarification on Controversy over $ 1.5 billion coal tender”

The Lanka Coal Company (LCC) has sent a clarification over the online story headlined “Lanka Coal Clarification on Controversy over $ 1.5 billion coal tender” which appeared on August 22. It said:

For disrupting a tender procedure conducted in accordance with the procurement guidelines through an orderly procurement process, it is clearly reflected that this is the result of an attempt by some organization or some person to cancel this tender by submitting different proposals from time to time after the tender process is completed and the prices are publicized.

This could ultimately result in the orderly tender process at LCC collapsing.

The LCC procures coal through a Special Standing Procurement Committee (SSCAPC) appointed by the Cabinet and a Standing Technical Evaluation Committee (STEC) appointed by the Ministry of Finance. There, nine (9) members of the STEC have been appointed. They are from the Ceylon Petroleum Corporation, LCC, CEB, Treasury, Ceylon Shipping Corporation, and Line Ministry. They have experience in coal procurement and are technically proficient. SSCAPC has 5 members consisting CEB, Ministry of Lines, Ministry of Highways, Treasury and CBSL, such as senior officers holding higher positions in government institutions.

The aforementioned fourteen (14) officers are therefore obligated to consider all recommendations and conclusions made in the national interest and to swiftly promote the course of action that is best for the country after taking into consideration its financial and economic situation.

Accordingly, the tender under the coal long-term credit basis has been called after carefully studying all the above matters and the bids of the bidders who submitted to the tender have also been carefully evaluated and relevant decisions have been taken.

Accordingly, the bid document submitted by Black Sand Commodities FZ-LLC has been evaluated and it has been recommended by both STEC and SSCAPC committees and Cabinet approval has been granted as it has complied with the all bid terms.

It should be noted that Black Sand Commodities FZ-LLC, which is mentioned in this news, was selected as the lowest responsive bidder in the invited tender in conformity with all applicable procurement rules and regulations as well as the terms of the bid document.

As the base price quoted in the tender is based on the price index, it is adjusted with the price prevailing in the coal market at the time of supply.

There is no provision to submit any other proposal by another company knowing the lowest bidder's quoted price while an international competitive tender awarding procedure is ongoing because doing so would be in violation of the tender conditions. Further, the company that submitted the amended price was not a bidder in this tender, and the unsuccessful bidder did not file an appeal against Black Sand Commodities FZ-LLC, the selected bidder.

Also, STEC had evaluated other companies' applications prior to the long-term tender opening and subsequently sent relevant recommendations to SSCAPC. There, the costs per ton were listed as 554.72, 526.18, and 370.31 USD.

The prices of all the proposals given before the opening of the long-term tender were compared with the price of the lowest bidder submitted in the tender, and accordingly, the price of the bidder, Black Sand Commodities FZ-LLC, was lower than the prices presented in the proposals. It was recommended and approved by the relevant procurement committees.

After submitting the tender on 10/08/2022, in addition to the earlier proposal, the same company had submitted another letter stating only the FOB price at a lower price than the price offered by the lowest bidder from the tender on 12/08/2022 without freight charges. This article was brought to the attention of STEC by LCC. But at that time, it was informed that it could not be further evaluated as there is no opportunity in the existing procurement methods to further study other prices or other proposals given by another organization while the tendering process is in progress. It was also informed that doing so would be a violation of the tender procedure.

Then again on 24/08/2022, the same company had also given lower transportation charges than the lowest bidder Black Sand Commodities FZ-LLC.

Thus, after calling an international bid, if the procurement process has to be canceled by submitting various types of letters in violation of the procurement procedures, as a result due to the limited time ahead for supply of coal, the contract for supply of coal has to be awarded without tender procedure. Then, a situation can emerge where you have to accept any proposal without paying close attention to all of the necessary requirements.

After studying the current domestic and international economic and financial environments, higher authorities, including the Minister of Power and Energy and the Secretary, consistently emphasized that the tender process should be done according to the areas of the procurement guidelines. They also further emphasized that should make every effort to make success a long-term tender on the basis of credit through a tender process.

Tenders will only be accepted from registered international coal suppliers.

Process of coal supplier registration

Bids are invited from registered coal suppliers and suppliers who wish to register are allowed to submit their completed applications on Monday every week. Then the completed applications should be placed in a sealed envelope and handed over to Ceylon Coal Company.

The bid opening committee appointed by the Ministry of Power and Energy will open the applications every week on Monday morning at ten o'clock. Then those applications are evaluated by the above-mentioned STEC, and relevant recommendations are given to the special SSCAPC.

After consideration of those recommendations and approval by SSCAPC, the Secretary of the Ministry informs the Chairman of Lanka Coal Company about the approval required for registration. Accordingly, Lanka Coal Company completes the registration.

In several rounds of meetings held jointly by the chaired of the Ministry Secretary, Lanka Coal Company and Ceylon Electricity Board, the officials of Lanka Coal Company and Ceylon Electricity Board, provided the details of coal supply in the past seasons, the current economic and foreign exchange deficit in the country. Paying special attention to the facts, it was decided to take the quantity of 4.5 million tons of coal for two years, after obtaining the Cabinet approval for the long-term tender called this time.

Further, special attention was paid to this as long-term credit facilities are requested and to give all registered suppliers an opportunity to get very competitive pricing by planning well ahead of time when giving an order to a supplier for supply of two years.

Due to the country's poor financial circumstances during the most recent coal season (2021–2022), the supplier's bank refused to accept the letters of credit that the People's Bank opened without a confirmation from a third party.

The People's Bank nevertheless produced the required letters of credit with assistance from the Central Bank of Sri Lanka, but as a result of a lack of US dollar reserves at the time of payment, the bank was forced to default on the payment as of March 14, 2022. Consequently, two suppliers still owe roughly 33 million US dollars.